In 1996, Delaware introduced the business entity known as the Series Limited Liability Company (“LLC”).  In doing so, Delaware amended its limited liability company statute to allow an LLC agreement (or operating agreement) to provide for the establishment of designated series of specified property or operations with separate business purposes or investment objectives.  This amendment had the effect of making debts, liabilities and obligations relating to a particular series, enforceable only against the assets of such series and not against the assets of the LLC generally or the assets of any other series.  Although all states have adopted a limited liability company statute, only six have adopted the Series LLC.

            For those states that recognize them, a Series LLC may be formed if: (1) the operating agreement provides for the establishment of one or more series; (2) a notice of limitation on liabilities of each series is set forth in the Certificate of Formation; (3) separate and distinct records are maintained with respect to each series; and (4) the assets of each series are separately accounted for from the other assets of the LLC.

Advantages

            Among the advantages of forming a Series LLC is that the costs and administrative inefficiencies of establishing separate, multiple LLCs may be avoided.  For example, a business that owns real estate in a multi-state or multi-parcel transaction may place each property into a separate series with liability limited with respect to each property.  This helps minimize initial start-up and formation costs, filing expenses, franchise fees and other expenses that otherwise would be incurred by establishing separate LLCs for each property. 

The Operating Agreement

            An operating agreement of a Series LLC may create numerous series within the LLC to accomplish diverse business objectives.  The operating agreement may also provide for the future creation of additional classes or groups of members or managers not previously outstanding within a series, and for the taking of any action, including the amendment of the operating agreement, without the vote or approval of any member or manager or class or group of members or managers.

            Further, the operating agreement may provide that, with respect to a particular series, certain members may vote separately or with all or any class or group of the members or managers associated with the series.  Such voting may be on a per capita, numerical, financial, class, group or other basis.  A series may have more than one manager, and any event that causes a manager to cease to be a manager with respect to a series shall not, in itself, cause that manager to cease to be a manager of the LLC or any other series. 

            Members of a series entitled to receive distributions have the same status and remedies available to creditors of that series.  Accordingly, a Series LLC may make a distribution with respect to a member of a particular series, but the amount that may be distributed is based on the fair value of property of the series that is subject to liability for which the recourse of creditors is limited.

Conclusion

            Although the Series LLC has many benefits, it has not been widely used to date, perhaps because of the lack of case law interpreting the provisions and scope of the relevant statutes.  As more states adopt the Series LLC and a sufficient body of case law develops, more entities will undoubtedly take advantage of this business model.