1. Elements of a Delaware Series LLC
2. Forming a Delaware Series LLC
3. Series LLC Operating Agreement
4. Delaware Series LLC Taxation

Series LLC Delaware statute allows a business owner to create several associated limited liability companies and shield each one from the financial debts and obligations of the others. This type of entity originated with the mutual fund industry to provide a single entity offering the benefits and protections of multiple LLCs. This limits the need for several SEC filings for each mutual fund class and allows each to be managed independently. Today, the series LLC is primarily used as an asset holding and investment company. However, it's also advantageous for business owners who want to reduce LLC costs and administrative burdens of maintaining individual entities.

Elements of a Delaware Series LLC

Aspects of a Delaware Series LLC include the following:

  • Internal asset segregation insulates each LLC within the series from the liabilities and debts of all other cells.
  • Each cell created using a private operating agreement does not need to be registered with the state Division of Corporations.
  • Private record keeping for each series is required to maintain limited liability.
  • Unlimited daughter entities can be established under one main LLC.
  • Each individual cell is similar to a DBA (doing business as) entity.
  • Only the main LLC is on the official public record unless the entity is formed in Montana, Missouri, or Illinois.
  • Annual Delaware tax for an LLC is $300 due by June 1.
  • The Series LLC is governed by the Delaware LLC Act.
  • Each series within the LLC can have a separate purpose, enter contracts in its own name, make separate tax elections, and sue and be sued in court.
  • One LLC in the series can close or go bankrupt without affecting the other entities.
  • LLC owners, known as members, can be associated with one or more daughter cells.
  • Each cell can be operated autonomously.

Forming a Delaware Series LLC

Creating an LLC in Delaware requires a $90 fee to the Division of Corporations and filing the one-page Certificate of Formation. You must name a registered agent and include language that indicates the right to create a series LLC. This can include specific language from the Delaware LLC Act as follows:

“Notice is hereby given pursuant to Section 18.215(b) of the LLC Act that the debts, liabilities, and obligations incurred, contracted for, or otherwise existing with respect to a particular series of the LLC, 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 none of the debts, liabilities, obligations, and expenses 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.”

Series LLC Operating Agreement

The operating agreement is used to structure the Delaware Series LLC. This document is designed for maximum flexibility to define the administrative structure of the business. In most cases, the agreement allows for both founding members and second-tier separate series members. If these are the same members, you avoid the possibility that rogue members who own only a percentage of a single sell could sue other members and tie up the LLC's assets.

The operating agreement can be updated or changed by adding amendments. These usually must be in writing and signed by every LLC member, although in some cases you can allow for just a majority of signors.

Each cell should also have a separate operating agreement in addition to the main operating agreement of the series itself. These should include the name and purpose of the cell, as well as the names of the members and managers. The flexibility of this arrangement allows some members to be associated with only a specific cell.

Delaware Series LLC Taxation

Each cell within the series LLC can opt for separate tax treatment as designated in a 2010 rule introduced by the IRS. This means you can choose to have one entity taxed as a C-corp, another as a partnership, and so on. Each cell will have to register separately with the IRS for an Employer Identification Number (EIN). This carries no fee and can be done online, on the phone, or via mail by filing Form SS-4.

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