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A Series LLC is a limited liability company that contains separate, protected internal cells. Under Delaware law, each series of a Series LLC “(i) is permitted to conduct its own activities and to contract, sue and be sued on its own behalf, (ii) may be composed of members attributable only to that series, (iii) may have its own management structure and managing parties, and (iv) holds assets associated solely with such series.” [source: delaware.gov]
Creating a Series LLC is a viable option for business owners who operate multiple types of businesses—they can form a separate LLC for each aspect of their business. None of the series of the LLC is liable for the debts or liabilities of other series or the overall LLC. However, many business owners who have used a Delaware LLC ask us how to add an additional internal series to the LLC.
Creating a Series LLC with the state of Delaware's Division of Corporations requires that specific language be used in the LLC’s Certificate of Formation. Another set of this precise wording, which provides for the creation of the series, should also be included in the Limited Liability Company’s Operating Agreement.
In addition, distinct records must be kept internally with respect to each series. Failing to respect the series as separate will destroy the internal shields and any protection provided by the Series structure. A series LLC typically obtains a separate EIN and separate bank account for each series.
Creating additional series within a Series LLC is a simple process. Under Delaware law, the Series LLC is not required to make a filing with the state to add a separate series. Rather, the LLC’s Operating Agreement of the Series LLC will govern how a series may be created (e.g., which approvals are required and any necessary terms of a series).
Traditionally, it is just a matter of amending the internal Series LLC’s Operating Agreement to reflect the new series. The state of Delaware does not need to be informed of any amendments to the Series LLC’s Operating Agreement—this is just an internal matter for the LLC itself.
Although no official filing is required in order to create a series, business owners often file a Fictitious Name Statement (sometimes called a doing-business-as filing or DBA) in jurisdictions where the series will operate. Doing so creates a record of the series, which can be viewed by people conducting due diligence on the series, such as banks. Often, the name of the individual series will include the word “series” in order to indicate the series is a separate cell of the larger Series LLC.
In addition, as with any major action, it is important to document the creation of a series through the drafting and adoption of a concise resolution, amendment or written consent by the appropriate member(s) or manager(s) of the overall Series LLC.
This adoption document typically states the requirements of creating a series under the Operating Agreement (e.g., a vote of members, approval by the manager, etc.) along with any other matters the Series LLC may require.
Such a resolution or consent is not required to be filed with the state of Delaware, but may be requested by parties, such as banks or lenders, as evidence the series has been validly created under the applicable governing documents.
Adding a series to a Series LLC is subject to the requirements imposed by the LLC’s internal Operating Agreement. The ability to quickly and easily create additional series is an example of the efficiency and flexibility provided by the Delaware Series LLC.
Caution should be used when operating under a series LLC because not all states recognize this unique form of company pioneered by Delaware.
[Please note: As of August 2019, Delaware has amended its Series LLC law. All information in this article pertains to what is now known as a Protected Series LLC, as opposed to the newly introduced Registered Series LLC.]
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.