Oh, the Choices
The advent of the limited liability company was a welcome option for the business owner who wanted reduced liability without the statutory requirements of a corporation. The flexibility allowed by LLC laws gives members the ability to decide how to manage their companies as set forth in the company’s operating agreement. Since then, even more choices have arrived on the legal scene, such as the Series LLC.
The Series LLC
The Series LLC arrived on the legal scene in 1996, which provided more flexibility and an economical option for operating an LLC. The structure consists of a parent or umbrella company that is formed with the intention of creating one or more series under the parent. Each series functions as a separate entity, with its own assets, members, managers, purpose, investment objectives. When properly formed, the debts, liabilities and obligations of each series are enforceable only against the assets of that series and not against the entire Series LLC. In Delaware, the company pays one annual registered agent fee and one franchise tax payment, while essentially having several businesses under the one umbrella.
Since 1996, AL, AR, SC, IL, IN, IA, KS, MO, MT, NE, NV, ND, OK, PR, TN, TX, UT, VA, WI and WY have amended their laws to provide for a Series LLC. Some states that do not provide statutes for Series LLCs do, nevertheless, allow Series LLCs to register to do business as a foreign LLC.
Beware of ND and WI LLC laws, that refer to “series”. Those laws are actually referring to membership interests that allow members to have varied voting or financial interests. They do not provide liability protection. These laws have been referred to as “fake series laws”.
Delaware Protected Series LLC versus Registered Series LLC
As of August 1, 2019, the choices expanded to include the Registered Series LLC. To create distinction, the original series LLC became the Protected Series LLC. The main difference with the Registered Series LLC is that each series files a Certificate of Registered Series with the State of Delaware. This gives the entity the ability to obtain a certified copy of the Certificate of Formation or a Certificate of Good Standing for each series, which can be very important in various transactions.
Below is a chart for easy reference in the differences between a Protected vs. Registered Series LLC.
|Protected Series LLC||Registered Series LLC|
|Filing Requirements||Requires a certificate of formation filed with the DE SOS which includes series LLC language. The series are defined in the LLC operating agreement||Requires a certificate of formation with the DE SOS, which includes Series LLC language. The LLC operating agreement must include language for the series.
Each series must be filed with the DE SOS using a Certificate of Registered Series. The name must begin with the parent LLC name.
|Documents Available||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 series.|
|UCC considerations||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.|
|Conversion||Protected Series may convert into a Registered Series.||Registered Series may merge with and into each other.|
|Costs||Franchise tax of $300 (which may increase annually) is due June 1 on the entire LLC.||Franchise tax of $300 (which may increase annually) is due June 1 for the parent and $75.00 for each registered series.|
|Recognition in Foreign States||Protected Series is recognized in AL, AR, SC, IL, IN, IA, KS, MO, MT, NE, NV, ND, OK, PR, TN, TX, UT, VA and WY||Unknown at this time.|
More About Velawcity Legal Support Services
Velawcity Legal Support Services is an Alternative Legal Services Provider (ALSP) that provides competitive edge solutions to empower lawyers nationwide with high-quality, efficient and cost-effective paralegal services. Velawcity paralegals are virtual, on-demand senior paralegals, each with a minimum of fifteen years’ experience working in law firms and corporate legal departments. Whether you need assistance with year-end dissolutions, a daily addition to your legal team, periodic paralegal support, quick research or assistance on a specific project, Velawcity Legal Support Services is your cost-effective, responsive team member.
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.
Written by Denise Annunciata,
President of Velawcity Legal Support Services