Delaware Series LLC: Everything You Need to Know
A Delaware Series LLC (limited liability corporation) allows businesses to delineate liability of individual assets without creating a separate legal structure for each.3 min read
Delaware Series LLC
A Delaware Series LLC (limited liability corporation) allows businesses to delineate liability of individual assets without creating a separate legal structure for each. Since its creation in 1996, most states have adopted this legal entity. It may be helpful to think of a Series LLC as an umbrella company that houses several different entities. Each of these subcompanies is technically called a separate series and operates independently from others under the same LLC. You do not, however, have exclusive rights to the names of each separate series unless you register each name as a separate trademark.
Corporations that form a Delaware Series LLC can add a new series by simply amending the LLC agreement and eliminate a series the same way, without the need for additional filings with the state. A standard LLC can be converted to a Series LLC without forming a new business entity.
When forming an LLC, consult a qualified business and/or tax attorney to determine the best structure for your needs. Most Delaware Series LLCs are used by real estate investors as property holding companies, but this type of entity also has other purposes.
How are Series LLCs Managed?
Each series within a Series LLC can pursue independent business goals and have its own owners and managers. Like other Delaware LLCs, Delaware Series LLCs may have any type of desired management structure and establish their own rules for profit distributions and voting rights. You do not have to adhere to formal annual meetings and minutes submissions.
A Series LLC will receive a Certificate of Formation that includes:
- The name of the main LLC structure
- The registered office address
- The name and contact information of a Registered Agent, who must reside in Delaware
- The indication that this is a Series LLC
- The separate liability clause
- The authorized person or organizer's signature
- The name of the Separate Series and its umbrella company
- The names of the members of the Separate Series
- The statement of creation for the new subcompany
- The separate liability clause
- The subcompany's investment guidelines, statement of purpose, and additional management guidelines
- The signatures of all Separate Series members
Failure to meet these criteria means that the Separate Series will not be recognized or carry the liability protection of an LLC. To create a Series LLC from an already existing LLC, you must file a Certificate of Amendment to the Certificate of Formation.
The Operating Agreement of a Series LLC must identify it as such, as well as define the separate organization elements and limited liability provisions of each. All members of the Umbrella LLC must sign the Operating Agreement. All subcompany members must sign the Separate Series agreement for the company in question. Records for each Separate Series must be kept separately, and all assets must be held in a separate account in the subcompany's name.
Delaware Series LLC Pros
Starting a Delaware Series LLC is more affordable than forming separate LLCs for each business. You must pay an annual franchise tax of $300 for the entire series LLC, compared with $300 for each individual LLC if formed separately. Each separate series within the Delaware Series LLC can opt for separate taxation treatment, with taxes for all due by June 1 each year. In addition, you'll only need to pay one Registered Agent fee rather than multiple fees. Because each series is treated as a legally separate entity, a lawsuit against one does not prevent the other companies within the LLC from operating.
Delaware Series LLC Cons
Some experts are wary about the lack of existing case law for Delaware Series LLCs. A court outside of Delaware may refuse to recognize the series within the Delaware Series LLC as legally separate entities. These situations will be decided as they occur. If a Delaware Series LLC is operating as a foreign LLC in another state, you may be charged an annual fee for each separate series rather than one fee for the entire LLC. For example, the annual fee is $800 per series in California.
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