The Delaware series LLC statute allows you to form multiple “sub-companies” (series) within one umbrella limited liability company, thus saving registration fees and annual entity taxes.
Registered series companies are considered a single entity, so only one annual Franchise Tax payment of $300 must be submitted to the state.
Legal Separation
Legally speaking, a series LLC allows for an unlimited number of “mini-LLCs” (series) under one master limited liability company (“master LLc”). Each series’ debts and liabilities remain separate and distinct from its counterparts or the assets owned by master LLc – thus protecting creditors of one series from being able to pursue assets belonging to other series or the master LLc for claims related to their conduct.
Each series can choose its tax structure: some opting to be taxed as partnerships, another as corporations and yet another choosing S Corporation status.
Recent changes to Delaware’s series LLC statute enable protected series to convert into registered series, and vice versa. However, each registered series incurs an additional filing fee; similarly its name must also stand out among all of the names registered with the Secretary of State as distinct from all of its domestic or qualified business entity competitors.
Asset Segregation
Delaware Series LLC statute offers the advantage of legally isolating assets, liabilities and profits associated with one “cell” from those belonging to other cells; this provides greater asset protection from creditors and litigation risks.
Concerns remain. Delaware does not establish clear tax standards for series LLCs, making it hard to know how federal income taxes will be treated for each cell within a Delaware series LLC. Furthermore, other states or foreign jurisdictions might treat them differently and whether they would respect legal separation granted by Delaware state statute.
Due to being relatively new, series LLCs may make it harder to locate accountants and business professionals familiar with this form of entity. There may also be annual franchise tax filing fees with Delaware state.
Creditor Protection
The Series LLC allows business owners to quickly form multiple ‘entity-like cells’ under a single umbrella without incurring additional state filing requirements. Separate bank accounts and an EIN number can be opened for every protected series or registered series registered under it.
Key characteristics of LLC series are that debts, liabilities and obligations of one series cannot be enforced against assets of any other series unless certain conditions are fulfilled: (1) distinct records must be kept for each series; (2) their LLC agreement specifies their establishment; (3) each series’ assets are separately accounted for from those belonging to other series; (4) notice of their limitation is included within their certificate of formation.
Legal separation and asset protection afforded by Delaware series LLCs provide businesses with a significant competitive edge over traditional legal entities, but it’s vital that a knowledgeable attorney review your operating agreement and other documents to make sure all its benefits can be realized.
Management Control
The series LLC structure allows you to keep separate records and contracts for each protected series while treating the entire entity as one business. However, legal regulations mandate maintaining separate assets, members, operations and so it would be hard for creditors or plaintiffs to “pierce the corporate veil.”
Delaware has long been known for its low filing costs, business-friendly court system, and innovative laws – factors which have contributed to its popularity among companies looking for effective asset separation and legal protections. This has given rise to series LLC formation in Delaware as a popular solution.
An additional advantage of maintaining a series LLC is reduced costs of maintaining individual LLCs. A series LLC with multiple registered series pays only one annual Registered Agent Fee and makes only one Franchise Tax payment each year regardless of how many protected series it contains – this cost savings can add up quickly!
