The general concept of series limited liability companies remains relatively new.  Both like and unlike a regular LLC, the series LLC can be a means to fence assets and liabilities with some distinct advantages (including tax advantages) and, admittedly, with a few disadvantages.  In this two part series we will discuss what a series LLC is (and is not) and the pros and cons of using one as your corporate structure.

The series LLC can be easily compared to a traditional holding company structure.  In a traditional holding structure a parent entity owns the interest in any number of sub-entities, and the series structure functions in much the same way.  In a series LLC the parent entity is a series LLC, and the sub-entities are called “cells.”  Each of the cells are treated as legally separate, individual entities. As a result, the entirety of the assets and liabilities of any one cell are separated from the entirety of the assets and liabilities of any other cell.  In addition, the entirety of the assets and liabilities of the parent series LLC are also separated from the entirety of the assets and liabilities of each cell.  In order to preserve the separateness, however, each cell and the parent must have its own EIN, Operating Agreement, bank accounts, and corporate governance (as if each was its own LLC), but only one tax return for the series is required with a schedule for each cell.

The parent series LLC must own some interest in each cell, but other individuals or entities can be co-owners of the cells.   The owner of the series LLC forms the series by filing formation documents with the appropriate state entity, and then cells are created by certificates of designation that may or may not be filed with the state depending on the nature of the cell.  Cells of the series are either protected cells, which means they only exist in the minute book (the official corporate records of the company) or registered cells, which are registered with the state in which the series parent was formed.  Registered cells may be required if bank financing is needed or if a certificate of good standing is needed for the cell.  A process exists to convert protected cells to registered cells if those needs arise.

Some states, like Pennsylvania do not have their own series statute but have taken steps to recognize foreign series LLCs.  As a result, Pennsylvania residents seeking to capitalize on the series structure may form a Delaware series LLC and then register it to do business in Pennsylvania.  If the owner of a series LLC wants to do business in a state that does not recognize series LLCs, a traditional entity can be formed and owned by the series parent in that state.

Series LLCs are just like regular LLCs in that they fence assets and liabilities, can be registered to do business in other jurisdictions that recognize them, and require a registered agent for service and a principal place of business to be designated. When a series LLC has only protected cells, just one registered agent for service is required.

If using a Delaware series, the name of each cell in the series must begin with the name of the parent series LLC. This requirement allows people doing business with a cell to trace it back to the parent.  If the cells are properly named only the parent has to be registered to do business in Pennsylvania. No further Pennsylvania registrations will be needed.

Join us in Part II for a discussion of the many pros and few cons of the series LLC structure.  Jacquelyn Jordon Core and Michael T. Voytek are Founding Partners at Jordon Voytek, and April Slokan Oliverio is Of Counsel to the firm. They focus their practice on mergers and acquisitions, and corporate structuring and restructuring, including the formation of series LLCs.  They are available to assist businesses of all sizes with general counsel services, meeting their day-to-day legal needs.  Please contact Jacquelyn directly at Jacquelyn@JordonVoytek.com, or by phone at 304.777.0790, Michael directly at Michael@JordonVoytek.com, or by phone at 203.360.6232, or April directly at April@JordonVoytek.com, or by phone at 304.216.2119.