Clients frequently tell us they have heard of series limited liability companies but are unsure what they are and when they should be used. In this issue we will briefly explain the series limited liability company (“Series L.L.C.”) and outline some of the pros and cons, with respect to its formation and use.
SERIES L.L.C. ESSENTIALS
Delaware and a handful of other states have allowed the formation of Series L.L.C.’s since the mid-1990’s. A Series L.L.C. is a limited liability company (“L.L.C.”) composed of an individual series of membership interests where the L.L.C. is essentially subdivided into many separate series, each series holds distinct assets, and obligations with respect to the assets designated as being in a series. The creation of the series must be included in the Certificate of Formation and the management and operation of each series must be set forth in the Series L.L.C. agreement. The Delaware statute provides that “a limited liability company agreement may establish or provide for the establishment of one or more designated series of members, managers, limited liability company interests orassets” and that each series may have a separate business purpose or investment objective. This allows, in theory, for each series to have its own management structure and distinct business purpose.
The feature that most piques the interest of our clients is the ability of the assets of each separate series to be protected from the creditors of another. An owner of an L.L.C. that holds real estate assets, for example, that comprises both ownership and management could hold each business in a separate series of the same L.L.C., and a suit against the ownership series could not attack the assets of the management series.