Explanation of the Series LLC

Under Delaware law, a Limited Liability Company (LLC) may be composed of individual series of membership interests. This type of entity is referred to as a Series LLC. Each series effectively is treated as a separate entity, meaning the debts; liabilities, obligations and expenses of one series cannot be enforced against another series of the LLC or against the LLC as a whole. Each series can hold its own assets, have its own members, conduct its own operations and pursue different business objectives, but remain insulated from claims of members, creditors or litigants pursuing the assets of or asserting claims against another series. The Series LLC form is Delaware's version of segregated portfolio companies which are widely used (under various names) in the Cayman Islands, Jersey, and British Virgin Islands and in other non-U.S. jurisdictions.

The Delaware Series LLC business form reduces the fees incurred in creating and maintaining separate business entities for different ventures or investments. Only one filing fee is required to form a Series LLC regardless of the number of series it contains, rather than the multiple fees that would be required to create separate entities. In addition, a Series LLC is treated as one entity for franchise tax and registered agent fee purposes, meaning that it is assessed one $250 annual tax and one registered agent fee, rather than the separate tax and fee that would otherwise be applied individually to separate LLCs.

The Delaware LLC Operating Agreement of a Series LLC (which is not required to be publicly filed) may provide for any number of series. The Certificate of Formation for a Series LLC must specifically note, however, that the LLC is divided into distinct series and that the assets and obligations of a series are attributable only to that series. Additional series can be added or series can be terminated at any time by an amendment of the LLC Operating Agreement. In order to maintain the legal distinction among the series, a Series LLC must maintain records documenting the assets and liabilities of each series; from a practical perspective, records should be kept as though each series were a separate entity.

Although increasingly popular, there is a certain degree of uncertainty surrounding the Series LLC form. For example, the legal separation of the assets and liabilities of each series in a Series LLC has not been tested in court. Although Delaware law clearly provides for legal separation of series, it is unclear whether courts in other states and/or jurisdictions would recognize a legal separation of assets and liabilities within what is technically a single entity. Therefore, even if a Delaware Series LLC were properly operated with distinct records relating to the assets and liabilities of each series, a court in another jurisdiction could determine not to recognize the legal separation afforded under Delaware law.

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