Series limited liability companies assist with asset protection because the liabilities arising from the assets in one series of the series limited liability company are segregated from, and do not taint, the assets in the other series of the series limited liability company.

Because each series of the series limited liability company is not treated as a separate entity for non-asset protection purposes (i.e., each series does not require a separate annual report and state filing fee, registered agent, operating agreement, and tax return), the series limited liability company provides a level of asset protection in a single entity that would otherwise require the formation of multiple separate entities.

Effective August 1, 2019, Delaware changed its applicable law and now authorizes 2 types of series in series limited liability companies – protected series and registered series. Protected series are in effect the same type of series in series limited liability companies as existed in Delaware before August 1, 2019.

Registered Series

On the other hand, registered series are a new type of series in Delaware series limited liability companies. The concept of registered series in Delaware series limited liability companies was created to satisfy lenders who were uncomfortable with the legal status of series of the series limited liability company under the Uniform Commercial Code. Each registered series of a Delaware series limited liability company is in effect treated as a “quasi-separate entity” for non-asset protection purposes. Specifically, Delaware requires that each registered series of a Delaware series limited liability company file a separate annual report and pay a separate state filing fee – $75.00 per registered series of a Delaware series limited liability company per year. Thus, if a Delaware series limited liability company has 10 registered series, it would be subject to additional Delaware filing fee costs of $750.00 per year. In addition, given the status of each registered series of a Delaware series limited liability company as a “quasi-separate entity”, it could be strongly argued that each registered series of a Delaware series limited liability company should have its own registered agent (thereby creating possible multiple registered agent fees), be subject to its own operating agreement, and file its own tax return. As a result, the complexity associated with each registered series of a Delaware series limited liability company would be higher, and the costs arising from each registered series of a Delaware series limited liability company would be increased.

Protected Series

As each protected series of a Delaware series limited liability company is not treated as a “quasi-separate entity”, each protected series of a Delaware series limited liability company has the advantages of not requiring a separate annual report and state filing fee, not requiring a separate registered agent (thereby not creating possible multiple registered agent fees), not requiring a separate operating agreement, and not requiring a separate tax return. As a result, the complexity associated with, and the costs arising from, each protected series of a Delaware series limited liability company should be less than that for each registered series of a Delaware series limited liability company. Thus, unless a lender requests that a series be established as a registered series, it would appear preferable to establish each series of a Delaware series limited liability company as a protected series, and not as a registered series.

Fortunately, the new Delaware law on registered series of a Delaware series limited liability company only applies to Delaware series limited liability companies formed on or after August 1, 2019. The series of Delaware series limited liability companies formed before August 1, 2019 will be treated as protected series and therefore should not need to be concerned about the disadvantages associated with registered series.

If you have already formed a Delaware series limited liability company with registered series, there is a procedure under Delaware law to convert the registered series to protected series of the Delaware series limited liability company.

If you are considering forming a Delaware series limited liability company, you should discuss with your advisers the advantages of protected series over registered series in Delaware series limited liability companies.

If you wish to discuss any of the above, find Pen Pal Gary’s contact info here.

Disclaimer: please note that nothing in this article is intended to be, or should be relied on as, legal advice of any kind. Neither LHBR Consulting, LLC nor Gary Stern provides legal services of any kind.

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