Delaware Series LLC – How is it Useful?

Delaware Series LLC – How is it Useful?

A “Delaware Series LLC” is a special kind of limited liability company (“LLC”) authorized by the Delaware Limited Liability Company Act. An LLC which is organized as a Delaware Series LLC can create designated series of specified property or operations with separate business purposes or investment objectives. Each series is a separate “cell” within the limited liability company. Each cell, or series, has separate members, managers, assets and liabilities, and business interests.

The debts, liabilities and obligations relating to a particular series are enforceable only against the assets of that series and not against the assets of the LLC generally or the assets of any other series. The assets of a specific series are protected from enforcement action against the assets of the LLC itself or against the assets of any other series if certain basic rules are met:

The LLC agreement provides for the establishment of one or more series

Separate records are maintained for each series and its assets are accounted for separately from the other assets of the American Samoa LLC or any other series (and the LLC agreement so requires such separation)

Notice of such limitation of liability is set forth in the LLC’s certificate of formation

How Can a Delaware Series LLC be Used?

A hallmark of the LLC is its flexibility. A Delaware Series LLC greatly extends that flexibility to allow the creation of separate cells within the LLC to accomplish diverse business objectives. Each of the series in a Delaware Series LLC can operate independently of the LLC itself in general and any other series.

The primary advantage of a Delaware Series LLC is that it saves the cost of forming multiple limited liability companies to achieve the same goals. For example, if a real estate investor owns 20 separate properties and wants to insulate each property from the liabilities of each other property, he could set up 20 different limited liability companies, paying a separate filing fee for each LLC, or he can set up one Delaware Series LLC and establish each property as a separate series. He would file one certificate of formation and pay one filing fee. Each year thereafter, he would file only one annual report and pay one annual fee. On the back end, when he sells one property, he could simply eliminate the series that held that property without the need to file a certificate of dissolution.

In addition to the cost savings, other factors that make a Delaware Series LLC a useful entity are speed and convenience. For example, when the investor who has set up a Delaware Series LLC decides to buy an additional property, he simply sets up a new series in the same LLC. There is no need to draft a certificate of formation or to wait for it to be filed with the Delaware Secretary of State. The change can be made in minutes in his own office.

Because of the unique aspects of a single legal entity with multiple distinct cells, there are many other potential uses. For example, suppose that a business wants to acquire a single license that expressly provides that it cannot be sublicensed to any third party, even a subsidiary of the licensee. Since the series are all simply “cells” of one Delaware Series LLC and not separate legal entities, the company should be able to share the license among its various series without violating the terms of the license. Each individual business would be able to use the license but still keep its liabilities separate.

While real estate ownership has been one of the most frequent applications for a Delaware Series LLC, it is easy to see potential uses for an entity with its special features:



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