If you need a way to separate assets from liabilities without increasing the cost of running a business, Delaware series LLCs could be an ideal solution. This innovative tool is being utilized across America for complex transactions and is becoming increasingly popular.
One major advantage of the Delaware series LLC statute is that it permits individual protected series with their own limited liability protections and separate organization. This means one protected series can close or go bankrupt independently from the rest of the LLC.
Registered Series
In August 2019, the Delaware legislature amended their series LLC statute to create a new option: registered series. A registered series can be formed by filing for registration with the Delaware Secretary of State.
This creates an LLC-like structure, allowing multiple tentacles to branch off from one parent LLC with distinct purposes, members, managers, assets, rights and powers. Furthermore, this enables significant business transactions between these series – they can acquire, sell or pledge assets as collateral – which creates an LLC-like structure.
This new Delaware series LLC statute offers a solution to long-standing concerns in financing transactions. Specifically, the amendments clarify how Delaware’s UCC law applies to series. As such, registered series are now considered “associations” under Delaware’s UCC law and can be named as debtors without involvement of the parent LLC. This could be particularly advantageous when debtors are not members of the series but still benefit from inter-series limitations on liability.
Protected Series
The Delaware series LLC statute permits you to form a protected series, similar to traditional LLCs with divisions. This legal structure encourages internal asset segregation and shields members of one protected series from liabilities and debts of their counterparts within a corporation.
Furthermore, series LLCs in Delaware require only one franchise tax payment and offer an advantageous legal environment through the Chancery Court’s precedent-setting rulings. Thus, maintaining a series LLC is no more costly than running a traditional LLC; additionally, maintaining one requires only one payment to the state for maintenance costs.
Generally, Delaware’s Series LLC statute offers superior liability protection and low costs. However, if you’re thinking of filing a series LLC in another state, consult an attorney first to guarantee your structure will be recognized and upheld by the courts there.
Taxes
Under Delaware series LLC statute, each series within a limited liability company has its own liability protection. This safeguards members and owners from debts, contracts, bankruptcies, and other claims that could adversely impact the assets of that particular series.
Delaware series LLCs can be an attractive option for many reasons, such as limited liability protection, ease of formation and management, and efficiency. However, there are some potential drawbacks to using this type of entity.
There have been concerns raised about tax implications, foreign qualification law and bankruptcy regulations. Furthermore, courts outside Delaware may view this structure differently or treat it differently.
Delaware recently passed S.B 183, amending their series LLC statute in order to address these longstanding concerns. These amendments take effect August 1, 2019, and should help address many of the obstacles that had been impeding effective use of series LLCs in Delaware.
Management
Under Delaware Series LLC law, registered series must be properly formed and operated in accordance with their Operating Agreement, which must be filed along with their Certificate of Formation.
Each cell of a series LLC acts as its own company, giving it limited liability protection and access to its own bank account. It can enter into contracts, own assets and grant liens or security interests as necessary.
A series LLC can also be organized to incubate business ideas and then spin off winners into new series. Mutual funds, hedge funds, and captive insurance companies often use this structure to protect investment risk.
A series LLC operating agreement should be created to govern each series and provide for amendments. It may allow amendments by a supermajority of the founders and members associated with a cell, or require unanimous consent like traditional LLCs do.
