The Uniform Law Commission (ULC) recently approved the Uniform Limited Liability Company Protected Series Act (ULLCPSA) to help provide consistency in the language used to structure Series LLCs. This was necessary since the series LLC is a fairly new concept for structuring ownership in a business, but it appears to be gaining popularity across the country. Eight states have already enacted their own Series LLC laws.
What Exactly is a Series LLC?
The Series LLC is a limited liability company comprised of a master LLC and other subservient LLCs that are separate from each other to reduce liability exposure. Some people have compared the Series LLC to a corporation that owns and manages multiple subsidiaries. Each LLC has its own set of assets that are distinct from the other LLCs, while the master LLC controls all LLCs in the series. Each LLC has its own owners and is only liable for its own debts and obligations.
A good way to think of a Series LLC is like a condominium complex. The condo association controls the entire complex, but separate owners are responsible for the management of each unit within the complex.
Series LLCs Gaining Popularity
This business structure has proven to be very popular in many states. For example, there are over 28,000 Series LLCs in Illinois alone, according to the Wall Street Journal. The District of Columbia enacted D.C. Code § 29-802.06 which allows an LLC operating agreement to establish a designated series of members, managers, or interests of a limited liability company, in which the members, managers, or interest holders have separate rights, powers, or duties with respect to specified property or obligations of the limited liability company. Virginia and Maryland have not enacted state-specific Series LLC legislation, as of the date of this posting.
The flexibility the Series LLC offers as a business-planning entity has resulted in immense popularity in the financial and insurance sectors. For example, if you own a venture capital fund with thousands of investors and hundreds of new start-up companies working towards an IPO, structuring your fund as a Series LLC makes sense. Why? Because venture capital funds may have some investors who only want to invest in new companies that use green technology. Other investors may only want to invest in new companies in the oil and gas industry. If the fund was structured as a traditional LLC, all of your investors and start-ups would be lumped together in the fund and you would have to try and appease everyone. Conversely, structuring the fund as a Series LLC would enable you to categorize companies into different Series (e.g., green energy, technology, oil & gas, etc.). Each investor would then be able to invest in the Series that it prefers to invest in.\
Speak to an Experienced Business Formation Attorney
If you are looking to start a business or need guidance on the best structure for your business, contact InSight Law today. We offer an array of business planning services. We tailor our services to the needs of our clients. We can work together to form a comprehensive strategy for your business, and build a relationship to ensure your business planning needs are taken care of.