Delaware is a popular state of domicile for those interested in creating a Series LLC, but there are other options to choose from. Here’s the why the Delaware Series LLC is repeatedly favored by individuals acrossthe country andaround the world.
Names of Series LLC owners are not required on public filings in Delaware
- Only the name of the LLC, its Registered Agent, and a citation to 6 Del. C. 18-215 are required to be listed in the Delaware Certificate of Formation to form a Delaware Series LLC. It is optional to list member or manager names in a public filing, but few do. Only Illinois requires that each separate protected series file a Certificate of Designation that names members or managers, which becomes public record, wherever a protected series is established. Illinois is also the only state to label each protected series an “entity.” Other states only go so far as to call each protected series a “person.”
- It is optional in Delaware to list the names of the protected series in the LLC’s Certificate of Formation. Should you wish to file the protected series names, please let us know in the special comments field of your order form before submitting the order. You can even pre-designate protected series in the Certificate of Formation, simply by stating the formation includes series number one through one hundred. For example: “This LLC shall hereby designate and establish Series 1-100 as separate protected series, and may designate and terminate series from time to time through the LLC’s Operating Agreement.”
- It is also implied that the Registered Agent for the company shall be the registered agent for all series therein. If you want to state that expressly in the Certificate of Formation, please let us know before submitting your order. For example, the Certificate of Formation could also state: “The Registered Agent for each protected series shall be the Registered Agent for the company.”
Series LLCs are governed by Delaware law where internal disputes may be heard in the Court of Chancery
- Delaware was the first state in the United States to have a Series LLC law in 1996. With Delaware’s highly developed case law about LLCs, it is probable that court opinions around the country on the Series LLC will be based on cases already decided in Delaware related to the traditional LLC. Those Delaware cases tend to favor the contractarian approach with great deference given to the Delaware LLC Act. Currently, 12 states plus two U.S. territories have Series LLC legislation. Those states and territories include: Alabama, District of Columbia, Illinois, Iowa, Kansas, Missouri, Montana, Nevada, Oklahoma, Tennessee, Texas, Utah, Puerto Rico, and Delaware.
- So far, only one Series LLC, Dominion Ventures LLC, has sought bankruptcy protection. In that case, the Series LLC and all of its protected series filed for Chapter 11 together. Prior to bankruptcy, one of the members filed a lawsuit in the Court of Chancery seeking breach of fiduciary duty against the three other principal members. The court referred the case to a three-member arbitration panel of Delaware attorneys. The case went through court-ordered arbitration that resulted in no liability, but did require production of books and records. This “test case” suggests the competency of the legal system to handle the unique issues presented by the Series LLC. The arbitration panel provided access to sweep meta data of the Series LLC and its members’ computers, including images of hard drives. This “deep dive” into books and records is atypical for other LLC cases and corporate cases, which only provide limited books and records, such as balance sheets, income statements, lists of members, and tax returns.
- Future cases involving the Series LLC will mostly be cases of “first impression”, meaning judges will be creating doctrine to fill in gaps in the existing law.
- Some have been waiting for more cases to be heard before they decide to use the Series LLC. However, given how there are tens of thousands of Series LLCs in existence and almost none in litigation, this suggests that the skeptics of the Series LLC may have exaggerated the risks and been overly dismissive of the benefits.
Delaware Series LLCs pay only one franchise tax for the LLC each year
The Series LLC, even with a potentially unlimited number of protected series, has a lower overhead cost compared against multiple traditional LLCs. Regardless of the number of protected series designated by the Series LLC, the franchise tax owed annually to Delaware is $300. IncNow® charges only one yearly Registered Agent fee for a Series LLC, rather than an additional fee for each separately filed traditional LLC.
Are Delaware Series LLCs Recognized in Other States and Internationally?
Protected series of a Series LLC have been used in states other than Delaware, including states which do not have a Series LLC law of their own. When a Series LLC has an office or employees outside Delaware, a Certificate of Authority needs to be filed in the state that has employees or an office. In this case the Series LLC as a whole usually qualifies, just as a traditional LLC would. Generally, the foreign state has no provision in its law to individually qualify protected series because the filing of the Certificate of Authority for the Series LLC as a whole sweeps in all series associated therewith. People are still waiting for a case that denies recognition to the defendant Series LLC inside or outside of the few states with Series LLC provisions in their laws. The one way Series LLCs as a whole would not be recognized in any given state could be if it were determined that the Series LLC offended the public policy of that non-series state. To date, no court or legislature has expressly deemed Series LLCs offensive to their state’s public policy.
Measures are underway by the Uniform Law Commission to draft Series LLC provisions to pass a separate Uniform Series LLC Act. The objective of this project is to have a new Series LLC law for adoption by the 38 U.S. states that currently have no provision for the Series LLC. The number of Series LLCs has been growing quickly, at a rate of about 15 percent per year, in states that have them. Given the trends, other states are likely to follow suit as the Series LLC becomes more popular and understood. Some say that the horse is out of the barn and we are off to the races, as more and more states add Series LLC provisions to their LLC Acts to update them to come in line with Delaware, which is known for being the preeminent state for LLCs.
Federal tax guidance has been promulgated by the Internal Revenue Service in private letter rulings and a proposed treasury regulation for the domestic Series LLCs. These have recognized each protected series as a separate taxpayer.
Not surprisingly, the Delaware Series LLC has spread internationally. In a recent poll of 1,000 Series LLCs, 20 percent of the respondents were using their Series LLCs outside the United States. Internationally, the Series LLC is used for many types of businesses from the energy sector, such as solar farms, wind turbines, and gas development to the most obvious use of the Series LLC internationally, global real estate investments.
