The Act also provides that classes or groups of members can be established, having whatever rights the LLC agreement says they have. The combination of the two provisions allows a Series to be treated in many ways as a separate LLC. Thus, the Series provisions in the Delaware LLC Act allow for the creation of separate protected “cells” within one limited liability “container” without the need to create separate entities, thus avoiding the inefficiencies associated with multiple related entities. The concept is similar in function to the segregated portfolio companies and protected cell companies designed for the mutual fund and captive insurance industries in Bermuda, Guernsey, the Cayman Islands, Mauritius and Belize.
The Act allows a Delaware Series LLC agreement to designate Series of members, managers or LLC interests that have separate rights and duties with respect to specific LLC property or obligations. Each Series can be tied to specific assets and can also have different members and managers. If the various Series within an LLC have different members or different membership rights, each Series may be treated as a separate LLC for income tax purposes, eliminating some of the administrative advantage of the Series LLC. A Series LLC pays one filing fee and files one income tax return each year.
Each Series can have its own separate business purposes. A Series can be terminated without affecting the other Series of the LLC. A Series can make distributions to its own members without regard to the financial condition of the other series.
More importantly, the Act provides that debts, liabilities and obligations incurred, contracted for or otherwise existing with respect to a particular Series are enforceable against that Series only, and not against the assets of the LLC generally or any other Series of the LLC. However, to obtain this protection, each Series must be treated separately. Books and records must be kept for each Series and the assets of each Series must be held and accounted for separately. Finally, in order that the public knows that it is dealing with a Series LLC in Delaware, it must be put on notice by the inclusion of the Series imitations in the LLC’s Certificate of Formation filed with the Delaware Secretary of State.
Although a Series LLC must be created in Delaware, if the Series LLC owns property for rental in another state, it must register to do business in the state where the property is located. This innovative concept allows one LLC to establish separate series, or units, under the same LLC umbrella. Each unit of a Series LLC can own distinct assets, incur separate liabilities, and have different managers and members.
Note: Any time a company such as an LLC, Series LLC, corporation or other entity owns property in another state the company needs to register the company in that state as well. For instance, if a Series LLC owns real estate in Florida and the real estate is rental property, all business being transacted in Florida (rental business) has to have a certificate of authority to conduct business in that state.
Many people who set up companies, especially an LLC to hold property, never realize that rental income is a business. If the Delaware LLC fails to qualify or has not registered in the state where the rental income is being produced, then the LLC will be ignored as if it never existed and ascribes ownership to the owners.
Simply forming the entities will not complete the asset protection. Knowing how to operate them, along with a limited partnership to hold assets, will give owners protection.
INCORPORATE NOW!CONTACT US
The Operating Agreement
A Series LLC like a regular LLC is required to have an Operating Agreement which will identify the organization, the membership and the individual series included. You cannot use a standard operating agreement or one found in a corporate kit with a Series LLC.
You can have our attorney prepare a "Special" Operating Agreement for your Series LLC. The fees applicable can be found on our shopping cart. It is highly recommended that you consider this option before hiring an attorney who knows nothing about this specially designed OA.
