Mistakes to Avoid When Adding a Registered Series

As discussed in a previous post, the Delaware Legislature amended the series LLC provisions of the Delaware Limited Liability Company Act (the “Act”). The amendments created a new, long-awaited type of series that can be created within a series LLC— the registered series.

Unlike the previous series (now referred to as the “protected series”) the registered series is created through a very concise filing made with the State of Delaware and the payment of a relatively small filing fee. Although the new registered series LLC sounds great in theory, and it addresses many of the perceived weaknesses of the former series; the structure has not resulted in the firestorm of new filings that we or the State of Delaware expected.

Clients attempting to file on their own have been met with confusion and frustration as their filings are rejected. Here are two of the reasons why they’ve been having trouble:

Naming the Registered Series Incorrectly

After the original Certificate of Formation is filed, there are subsequent filings needed for each of the individual Registered Series. In order to create a Registered Series, an authorized person must prepare and file a Certificate of Registered Series of Limited Liability Company. This new type of certificate is relatively easy in its requirements, as discussed below.

For instance, if the series LLC is named Brett’s Investment Fund LLC, each of the subsequent Registered Series filings will need to start with the LLC’s name. 

For example:

• Brett’s Investment Fund LLC Series 1
• Brett’s Investment Fund LLC Series 2

Examples of incorrect names:

• Brett’s Series 1 Investment Fund LLC
• Brett’s Series 2 Investment Fund LLC
• Series 3 – Brett’s Real Estate Holding Fund

Clients that undertake the formation of the Registered Series on their own sometimes run into issues with naming their Registered Series. Improperly naming the Registered Series causes the Division of Corporations to reject the filing. This then requires resubmission of the filing with a new name that fits the Act’s guidelines, causing a lengthy delay in the total turnaround time to get the filing approved.

Original LLC Not in Good Standing

Another common mistake that arises when clients file the Certificate to create a Registered Series is a failure to keep the original LLC in good standing with the State. In order to keep a business entity in good standing status in the State of Delaware, an annual Franchise Tax Fee must be paid and the entity must also maintain a Registered Agent.

If the entity neglected to maintain the Registered Agent or overlooked the $300 franchise tax filing due every June 1^st for the LLC (including any late filing penalties assessed by the State), Delaware will not allow the Registered Series filing to be approved until the issue is resolved.  

The Franchise Tax Fee is relatively easy to pay, and the necessary filing can be done in minutes online.

In cases where the LLC is not in good standing for neglecting to maintain a Registered Agent, a renewal filing will need to be made with Delaware appointing the new Registered Agent. The company will also need to pay any applicable taxes that were assessed at the time that the Registered Agent became inactive.

Should you have any questions about forming a new Series LLC and/or filing to create a Registered Series, feel free to reach out to us at 800 345 2677.