Series LLCs Part 1 — Current Status, Multi-State Issues and Potential Uniform Limited Liability Company Protected Series Act

The Series Limited Liability Company (“Series LLC”), a variation of the traditional limited liability company (LLC), is the newest entity enterprise on the business scene today. Within this legal entity, separate “series” or “cells” can be created and established under the umbrella of a single LLC. Despite being under one “umbrella,” each of these cells has characteristics that make it both separate from one another as well as from the Series LLC itself. There is not yet a common term for these distinct units although the term series or cell is often used. The Drafting Committee for the Limited Liability Company Protected Series Act of the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) (“NCCUSL Drafting Committee”) refers to them as “Protected Series” and that term will be used herein. Each Protected Series has associated with it specified members and assets, and statutorily — due to what have been called “internal liability shields” — if the statutory specified requirements are met, the debts and obligations of one Protected Series are neither the debts or obligations of any other Protected Series nor of the Series LLC itself. The defining features that set Series LLCs apart from other entities are the internal liability shields and the ability to have different associated members and/or different ownership interests of members among the various Protected Series. Although cells have existed in trusts for many years, and the concept is found in the Statutory Trust Entity Act, the internal liability protection and potentially separate owners or beneficiaries within a business entity are unique concepts for American jurisprudence and widely used forms of business entities. The result is a single legal entity with owners associated with each Protected Series, assets associated with each Protected Series and each Protected Series functioning in a manner analogous to a separate legal entity within the Series LLC. Part I of this article describes the characteristics of Series LLCs, the current applicable current state law developments, the current popularity of Series LLCs and the current internal liability shield requirements for Series LLCs. Part II will explore the existing impediments to greater use of Series LLCs including taxation, bankruptcy and Uniform Commercial Code matters, issues concerning multi-state activities and how these matters are addressed by the NCCUSL Drafting Committee’s efforts in drafting The Limited Liability Company Protected Series Act