Delaware Protected vs. Registered Series LLC

Delaware Protected vs. Registered Series LLC

Delaware Protected vs. Registered Series LLC

Delaware is one of seventeen states[1], along with the District of Columbia and Puerto Rico, that allow limited liability companies (LLCs) to create different series (or cells). Sec. 18-215 of the Delaware LLC Act (the “Act”) established the right of each series to have its own purpose, members, managers, assets, rights, powers and duties. It also allows LLCs to enter significant business transactions to acquire, sell or pledge assets as collateral. Under Section 18-215, the LLC operating agreement defines each series. The LLC Certificate of Formation sets forth the rights and limitations of each series, then, the rights, debts, liabilities, expenses of the series will be enforceable only against the assets of that series and not against any other series or the LLC itself.

The problem has been that since there was no separate public registration requirement for each individual series, a series could not be considered an “association” or “person” for the purpose of DE Uniform Commercial Code (DE UCC), Article 1. and therefore, the series itself could not be a debtor under the DE UCC, without involvement of the parent LLC.

To resolve this issue, in August 2019, the Delaware legislature passed S.B 183, which amended the Act to introduce the concept of the “Registered Series LLC” pursuant to Sec. 18-218  and designated the previous series LLC structure as the “Protected Series LLC”.

Delaware Protected vs. Registered Series LLC

What is a Protected Series LLC?

A Protected Series LLC structure is the original series structure that could and still can be formed. The formation requirements of a standard Series LLC (a/k/a Protected Series LLC) are unchanged by Delaware’s introduction of a Registered Series LLC. There is no action needed for existing series LLCs to change its current structure.

A Protected Series LLC may also be converted into a Registered Series LLC upon the approval of at least 50% of the members of each series, and by filing a Certificate of Conversion together with a Certificate of Formation and a Certificate of Registered Shares for each Registered Series with the Delaware Secretary of State.

What is a Registered Series LLC?

The Registered Series LLC is similar to the Protected Series LLC except that a Registered Series LLC, as its name implies, must register each new series with the Delaware Secretary of State. This means that each series files a Certificate of Registered Shares.

As with the Protected Series LLC, the standard certificate of formation of a limited liability company is used for formation. In this case, the provisional section authorizes a Delaware Series LLC to establish individual registered series, each with its own limited liability protections separate from the parent organization. This can be referred to as a Notice of Limitation on Liabilities.

To establish a Registered Series, a Certificate of Registered Series must be filed.  Pursuant to Section 18-201(d) the certificate shall set forth:

  1. The name of the limited liability company; and
  2. The name of the registered series.

The certificate may also include any other matter that the members of such registered series determine to include therein, such as a limitation of liability clause.

Benefits of a Registered Series LLC

In addition to having the benefit of creating a large number of separate LLCs under one “parent” LLC as provided with the Protected Series LLC, specific benefits of the Registered Series LLC include:

  • The ability to provide a certified certificate of formation and a certificate of good standing issued by the Delaware Secretary of State for each series.
  • The assets of each series are protected from creditor claims against other series or the LLC as a whole.
  • The assets of a particular series can be used as collateral under the DE UCC without raising issues of its impact on other series or the parent LLC.
  • A merger or consolidation between one or more registered series of the same LLC can be approved by members holding more than 50% interest of the profit of the merging series, unless otherwise provided in the LLC agreement.

Additional Requirements for Registered Series LLC

A Registered Series LLC requires more documentation and greater formality than the Protect Series LLC, including:

  • Certificate of Registered Series: Each series requires a certificate of registered series filing with the DE SOS. The certificate of registered shares sets forth the parent LLC name and the name of the registered series, which must begin with The complete name of the parent LLC and must be distinguishable upon the records of the secretary of state from the names of other series and registered business entities.
  • Signature requirements: The document must be signed by an authorized person of the registered series.
  • Filing fee: Each series is $90.00, with an additional $50 for a certified copy.
  • Franchise Taxes: Annual franchise taxes are due each year by June 1, with an additional fee of $75 per series

Protected Series LLC vs. Registered Series LLC

Protected Series LLC

Registered Series LLC

Initial Costs

Requires a certificate of formation filed with the DE SOS which includes notice of limitation of liabilities.

Each series is further defined in the LLC operating agreement

 

Requires a certificate of formation with the DE SOS, which includes notice of limitation of liabilities.

The LLC operating agreement must include language for the series.

Each series must file a Certificate of Registered Series with the Delaware Secretary of State.

The name of each registered series must begin with the parent LLC name.

 

Expenses

Formation filing fee only.

Franchise tax of $300 (which may increase annually) is due June 1 on the entire LLC.

Formation filing fee

Filing fee for every registered series

Franchise tax fee of $300 for the parent (which may increase annually) and an additional $75.00 per registered series in franchise tax

In the event of a transaction, there are additional fees for certified copies of the certificate of registered shares and good standings per series.

Transactions

Can obtain a good standing certificate only for the parent LLC. 

Can obtain a good standing certificate and certificate formation for the parent LLC and each individual series.

 

Uniform Commercial Code

Each series is not considered an “association” or “person” under the DE Uniform Commercial Code.Each Series is a legal “Association” or “person” as defined in the DE Uniform commercial Code and therefore may be a debtor or creditor under the code without effecting the parent or any other registered series.

 

  Things to note:

  • The registered agent of the parent LLC is automatically the registered agent of the series.
  • If the parent is not in good standing, the series is not in good standing.
  • If the parent changes its name, each series must change its name accordingly.
  • A Protected Series LLC may convert into a Registered Series LLC.
  • Registered Series may merge with an into each other.

The new Series LLC option may sound wonderful, but it remains to be seen how the Delaware Registered Series LLC will be recognized in other states. Today, a Protected Series LLC is often treated as an individual LLC in foreign states[1] where Series LLCs are not currently recognized in most states. The Registered Series LLC may or may not be treated differently in the foreign states, and thus state specific research will be required to determine treatment.

How Velawcity Legal Support Services Can Help

Velawcity Legal Support Services’ team of senior paralegals, each have a minimum of fifteen years’ experience working in law firms and corporate legal departments. We provide expert business law services that consist of corporate/transactional assistance, formations, mergers/conversions, contract administration and statutory compliance services. Whether you need on-going paralegal support, quick research or assistance on a specific project, Velawcity is your cost-effective, responsive team member. Contact us to learn more about how Velawcity can assist your practice and rescue your bottom line.

 

DISCLAIMER: Velawcity Legal Support Services provides services exclusively to lawyers and their clients. Velawcity does not provide legal advice. To determine which entity is best suited for your business, please consult a licensed business attorney or contact us to be put in touch with one of our attorney clients.

[1] Other states that allow for Series LLCs are AK, AZ, CA, CO, CT, FL, GA, HI, ID, KY, LA, ME, MA, MI, MN, MS, NH, NJ, NY, NC, OH, OR, PA, RI, SC, SD, VT, WA, WV, and WI.

[2] Other states that allow for Series LLCs are AL, AR, IL, IN, IA, KS, MO, MT, NE, NV, ND, OK, TN, TX, UT, VA (as of 2020) and WY.

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