On August 1, 2019, amendments to certain sections of the Delaware LLC Act took effect, including those related to Series LLCs. While the Delaware LLC Act has long recognized the Series LLC, its use has been very limited, but that is changing. This summary will provide a general overview of Series LLCs while addressing a few of the amendments relating to Series LLCs.
For those unfamiliar with this type of business entity, Series LLCs are similar to traditional LLCs, but they have the unique ability to segregate assets into separate series and insulate each series from the debts and liabilities of the Series LLC generally and all other series of the Series LLC.
As set forth in Section 215 (a) of the Delaware LLC Act, an LLC agreement may establish or provide for the establishment of one or more designated series of members, managers, LLC interests, or assets. Any such series may have separate rights, powers, or duties with respect to specified property or obligations of the LLC or profits and losses associated with specified property or obligations, and any such series may have a separate business purpose or investment objective.
Section 215(b) provides the inter-series limitation of liability. A series established in accordance with Section 215(b) is now considered a “protected series.” The term “protected series” is a new term introduced to the Delaware LLC Act by the amendments. However, the general attributes of the protected series do not change. As was previously the case, protected series may carry on any lawful business, purpose, or activity, whether or not for profit, with the exception of the business of banking. Furthermore, unless otherwise provided in an LLC agreement, a protected series shall have the power and capacity to, in its own name, contract, hold title to assets (including real, personal, and intangible property), grant liens and security interests, and sue and be sued.
Section 215(b) of the Delaware LLC Act provides that to the extent the records maintained for any such series account for the assets associated with such series separately from the other assets of the LLC, or any other series thereof, and if the LLC agreement so provides, and if notice of the limitation on liabilities of a series is set forth in the certificate of formation of the LLC, then the debts, liabilities, obligations, and expenses that are incurred, contracted for, or otherwise existing with respect to such series shall be enforceable against the assets of such series only, and not against the assets of the LLC generally or any other series thereof, and, unless otherwise provided in the LLC agreement, none of the debts, liabilities, obligations, and expenses that are incurred, contracted for, or otherwise existing with respect to the LLC generally or any other series thereof shall be enforceable against the assets of such series.
Section 18-218, a new section in the Delaware LLC Act, authorizes the formation of a “registered series.” Registered series, similar to protected series, are now considered “associations” but are formed through filing a certificate of registered series and, therefore, have the attributes required to be “registered organizations” under the Uniform Commercial Code. Registered series formed under Section 18-218 also have the same rights and powers and the same inter-series limitation on liability as protected series established under Section 18-215(b). In addition, the Delaware LLC Act now permits the conversion of a registered series of a domestic LLC to a protected series of such domestic LLC as well as the conversion of a protected series of a domestic LLC to a registered series of such domestic LLC (see § 18-219 and § 18-220).
Another interesting attribute of the registered series is the ability for one or more registered series to merge or consolidate with or into one or more other registered series of the same LLC (see § 18-221). Finally, the Delaware Secretary of State will have the ability to issue a certificate of good standing and certificate of existence with respect to each registered series.