Series LLCs – Better Choices Available

What is a Series LLC? A Series LLC is a LLC just like any other LLC, but the Operating Agreement of a Series LLC creates separate “series” of assets that are partitioned and protected from other assets held by the LLC. The idea is that the liability of each asset owned by the LLC is only enforceable only against the assets that are held in the same “series”. Delaware pioneered the Series LLC for mutual funds that had various classes of units, but only a few other states have adopted Series LLC statutes.The dream of a Series LLC is that it eliminates the need to form multiple LLCs to own individual properties or assets. While many asset protection “experts” have jumped on the Series LLC bandwagon as the next best thing since pockets, the concept of a Series LLC for most investors is merely myth. While there are many uncertainties that make a Series LLC impossible to recommend to a client, the greatest unknown is whether a state that does not have a Series LLC statute would allow each of the Series the protection hoped for by the investor. Further, in California, the FTB has taken the position that each series is treated as a separate entity for franchise tax and calculation of the gross receipts fee.

While the Series LLC was on the ropes, recently the Series LLC has been given its final blow. The National Conference of Commissioners on Uniform State Laws recently recommended a new Revised Uniform Limited Liability Company Act (RULLCA), which has a “very noteworthy omission; it does not authorize “series LLCs”. See Revised Uniform Limited Liability Company Act— the explanation “… after serious discussion, no one was willing to urge adoption of the proposal, even for the limited purposes of further discussion. Given the availability of well-established alternate structures (e.g., multiple single member LLCs, an LLC “holding company” with LLC subsidiaries), it made no sense for the Act to endorse the complexities and risks of the series approach.