What this is: Delaware was an early adopter of laws allowing LLCs to establish independent series and today 21 states have laws that also allow their creation. Delaware law allows for the creation of “registered series LLCs,” which differ from “protected series LLCs.” The laws for Delaware registered series LLCs also provide debtor name guidance for financing statements created under Article 9 of Delaware’s Uniform Commercial Code (UCC) when the debtor is a registered series.
What this means: Delaware law provides that registered series are “registered organizations” which gives clarity to secured parties when determining the true legal name of a debtor under Article 9 of Delaware’s UCC law.
What is a Series LLC?
A series LLC allows a company to create distinct vehicles for managing different assets, while eliminating the administrative obligations that come with maintaining separate LLC companies.
Under Delaware law, an LLC can create separate series that can have separate members and managers, maintain separate assets and pursue separate business purposes and objectives from the LLC that created them (the master LLC) and other series of the LLC.
Most importantly, the series is not liable for the debts and obligations of the master LLC or the other series (likewise, the master LLC is not liable for the debts and obligations of the series) so long as the LLC meets 3 key criteria:
- The assets and financial records of the series are maintained separately.
- The LLC’s Certificate of Formation states that the liability of the series is limited. (Note: The series do not have to be created at the time of the LLC’s formation.)
- The LLC agreement similarly states that the liability of the series is limited.
Delaware Series LLCs: Protected Series and Registered Series
Effective August 2019, Delaware LLCs have the option of creating a protected series, which is a limited liability series that is not registered with the Secretary of State or filing a Certificate of Registration with the Delaware Secretary of State (SOS) to create a registered series.
A Registered Series Has the Following Attributes:
- Limited liability, as long as the 3 criteria establishing it (listed above) are met.
- The name of the series must begin with the name of the master LLC. For example, “ABC Holdings, LLC Series XYZ.”
- The registered agent for the series is inherited from the master LLC.
- The ability to be cancelled independently but can also be cancelled automatically if the master LLC is cancelled.
- Its own record with the Delaware Division of Corporations.
- It can be converted into a protected series and can merge with another registered series.
- Good Standing Certificates can be obtained on a Delaware registered series.
- Each registered series pays an annual franchise tax, but it is lower than the $300 required for LLCs. Each registered series pays $75 per year, due on June 1.
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Risks and Benefits of the Series Structure
While Delaware series LLCs have been around for a long time, there has been some hesitancy about using them as a vehicle for holding multiple related assets for several reasons.
In the past, the inability to show existence of the series on the public record created complications. Now that there is an option to file a registration certificate with the Delaware SOS, registered series can appear on the public record and Good Standing Certificates can be provided for financial transactions when needed.
Another barrier to adoption of the series LLC stems from a flaw in the original statute, related to Delaware’s UCC law. The original series law did not define a series LLC in a way that allowed it to be considered a “person” under Article 1 of the UCC. The Delaware amendments that went into effect in August 2019 addressed this concern, defining series (both registered and protected) as “associations,” which are included in the definition of “person” listed in Article 1. Thus, for the purposes of the UCC, series LLCs have the required characteristics of “registered organizations” that can be debtors. This change should make lenders feel more secure when providing financing to series LLCs since it clarifies certain Delaware UCC Article 9 debtor name issues when the debtor is a registered series.
There’s one more major reason for limited use of the series LLC, however, and it’s not one Delaware can fix on its own.
If the series is engaging in business in another state (or holding real property in a state that considers that activity to be “doing business”), registration requirements may be complicated by the fact that not all US states recognize series LLCs. Whether the courts in a state without series LLC laws will recognize the limited liability structure of a series LLC is a big concern. Currently, only 21 states and Puerto Rico have series LLC laws.
That said, their administrative simplicity and unique structure are clearly a draw for many, and series LLCs in Delaware and elsewhere are becoming more common.
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Have there been any recent amendments to the Delaware LLC law?
Delaware updates its business entity laws annually. Changes effective in August 2023 to the Delaware LLC Act include the provisions which allow an LLC to make amendments when filing a certificate of division, provisions for revocation of dissolution for domestic LLCs which also permits the revocation of its registered and protected series. These and other changes are covered in more detail in our article Delaware Business Law Changes Part 2: Amendments to the LLC (Limited Liability Company) and Partnership Acts. The most recent changes to Delaware’s LLC Act took effect on August 1, 2024 and include amendments regarding merger and consolidation as well as to dissolution of a registered series. These and other changes are covered in more detail in our article, Delaware’s 2024 Business Entity Law Amendments Part 1: Amendments to Partnerships, LLC and Statutory Trust Acts.
Will a series LLC have to make a filing under the new Corporate Transparency Act?
Whether the individual cells of a protected or registered series LLC will need to file Beneficial Ownership Information reports under the new federal Corporate Transparency Act (CTA) is a complex question that requires legal counsel to review the requirements of the Act and the structure and business of the series LLC company and its related series cells. Under the CTA, non-exempt “reporting companies” must file a beneficial ownership information report with the Financial Crimes Enforcement Network (FinCEN). The CTA defines, in part, a “reporting company” as a corporation, LLC, or other similar entity created by the filing of a document with a secretary of state or similar office in the United States. For more information on the Corporate Transparency Act, please consult our article: Corporate Transparency Act Frequency Asked Questions.
Which states provide separate registration for master LLCs and series cells?
Six states (Arkansas, Illinois, Indiana, Iowa, Nebraska and South Dakota) have a registration process that allows a master LLC to qualify and lays out a separate path to qualify only the series cells that will also be doing business in the state. This is usually accomplished by filing a Certificate of Designation or similar document for each individual series cell. To learn more, read our article, Qualification of Series LLCs to Do Business in Another State.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
