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State Series LLC Laws

DELAWARE

Delaware was the first state to adopt Series LLC legislation. Section 18-215 of the Delaware Limited Liability Company Act allows an LLC Operating Agreement to establish one or more designated series of members, managers, or LLC interests, each having separate rights, powers, or duties with respect to specified property or obligations of the LLC, or with respect to profits and losses associated with specified property or obligations of the LLC. Each series also may have a separate business purpose or investment objective.

Under the Delaware statute, the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a designated series will be enforceable only against the assets of that series, and not against the assets of the LLC generally or any other series, as long as three conditions are met: (1) separate and distinct records are maintained for the series, the assets associated with the series are held in those separate and distinct records (directly or indirectly, including through a nominee or otherwise), and the assets of the series are accounted for in those records separately from other assets of the LLC or any other series (what we might call the "separateness" test); (2) the LLC agreement provides for the foregoing; and (3) notice of the limitation on liabilities of a series is set forth in the certificate of formation of the LLC. There is no requirement that any specific series of the LLC be referenced in the notice.

Section 18-215 of the Delaware Act provides also that an LLC agreement may provide for separate governance and procedural rules for classes or groups of members or managers associated with each series of the LLC. Thus, for example, the Operating Agreement may designate the relative rights, powers, and duties of each series; make provisions for the future creation of additional classes or groups associated with the series; and provide for taking any action, including amending the LLC agreement, without the vote or approval of any member or manager or class or group of members or managers. The agreement also may provide that any member or class or group of members associated with a particular series have no voting rights, and may grant to all or some identified members or managers, or a specified class or group of the members or managers associated with a series, the right to vote separately or with all or any class or group of the members or managers associated with the series on any matter. Voting by members or managers associated with a series may be on a per capita, number, financial interest, class, group, or any other basis.

Other elements of the Delaware statute that contribute to the separate nature of each series include (1) a provision that an event that causes a manager to cease to be a manager with respect to one series will not, in itself, cause the manager to cease to be a manager of the LLC with respect to any other series, (2) a provision that allows a series to be terminated and its affairs wound up without causing the dissolution of the LLC, and (3) a provision that generally limits distributions with respect to any series to the fair market value of the assets of the series in excess of liabilities associated with the series.

IOWA

Iowa followed shortly after Delaware in adopting provisions permitting Series LLCs, and, possibly for that reason, its statute basically follows the Delaware statute. However, the statutes do differ in minor respects. For example, a series of an Iowa LLC may be terminated by its members only if all members of the series consent, while a series of a Delaware LLC may be terminated by members associated with the series who own more than two-thirds of the then-current percentage or other interest in the profits of the series.

ILLINOIS

The Illinois series statute became effective August 16, 2005. It is similar to the Delaware statute, but includes some additional information not found in the Delaware statute. For example, the Illinois statute states that each series with limited liability may, in its own name, contract, hold title to assets, grant security interests, sue and be sued, and otherwise conduct business and exercise the powers of an LLC under the Illinois LLC Act. Each series creates its own existence by filing a separate certificate of designation. However, most significantly, the statute provides that a series will be treated as a separate entity to the extent set forth in the articles of organization of the LLC.

In an additional variation from the Delaware statue, the Illinois statute addresses to some extent the tax status of a series, something no other state has currently chosen to do, at least by statute. It provides that an LLC and any of its series may elect to consolidate their operations as a single taxpayer "to the extent permitted under applicable law." The series also may elect to work cooperatively, elect to contract jointly, or elect to be treated as a single business for purposes of qualification to do business in Illinois or any other state. Any such election will not affect the limitation of liability set forth in the statute, except to the extent that a series has specifically accepted joint liability by contract.

Although the Delaware statute refers only to "designated series" of members, interests, and so on, the Illinois statute requires that the name of any series with limited liability contain the entire name of the LLC and, as a further attribute of separateness, that it be distinguishable from the names of the other series set forth in the articles of organization of the LLC. Also, if it is different from the LLC generally, the certificate of designation for each series must list the names of the members if the series is member managed, or the names of the managers if the series is manager managed. Thus, owners of an Illinois Series LLC seeking confidentiality will want to be certain their LLC is manager managed, to avoid disclosing the names of the individual members.

NEVADA

Adopted in the same year as the Illinois statute, the Series LLC provisions of Nevada law are spread throughout the LLC statute rather than concentrated in one or two sections. Among other things, the Nevada statute allows the articles of organization or LLC Operating Agreement of an LLC to create one or more series of members, or to vest in one or more members or managers of the LLC or in other persons the authority to create one or more series of members, including -- without limitation -- rights, powers, and duties senior to existing series of members. A Nevada Series LLC also may designate different voting rights for members associated with one series from those of another series, or provide no voting rights for a series at all, and may designate separate powers, rights, or duties for a series with respect to specified property or obligations of the LLC or profits and losses associated with specified property or obligations. In addition, each series may have a separate business purpose or investment objective.

The debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular series of a Nevada LLC are enforceable against the assets of that series only, and not against the assets of the LLC generally or any other series if, as in Delaware, the series satisfies the separateness test -- that is, separate and distinct records are maintained for the series and the assets associated with the series are held and accounted for separately from the other assets of the LLC and any other series, and the articles include a statement to that effect, together with a statement setting forth the relative rights, powers, and duties of the series, or indicating that the relative rights, powers, and duties of the series will be set forth in the operating agreement or established as provided in the operating agreement.

Supporting the separate identify of each series, the Nevada statute prohibits a distribution of profits and contributions of a series if, after giving the distribution effect, the LLC would not be able to pay the debts of the series from assets of the series as those debts become due in the usual course of business or if, except as otherwise specifically permitted by the articles of organization, the total assets of the series would be less than the sum of the total liabilities of the series.

Note - the initial filing fee for an LLC is $75, but Nevada requires a separate filing (and fee) for each series. Additional fees apply for annual filings, with the annual filing fee of $125 applied to each series.

OKLAHOMA

Like the Iowa statute, the Oklahoma statute is based largely on the Delaware statute, frequently tracking its provisions. The Oklahoma statute, like Delaware's, authorizes persons winding up the affairs of a series to take all actions with respect to the series permitted under the general LLC dissolution and winding-up provisions of Oklahoma law.

UTAH

Enacted in 2006, Utah's Series LLC statute provides generally that the Operating Agreement may establish or provide for the establishment of one or more designated series of members, managers, or interests in the LLC having separate rights, powers, or duties with respect to some property or obligations of the LLC or profits and losses associated with some property or obligations.

To limit the liabilities of a series solely to the assets of that series, a Utah Series LLC must comply with requirements substantially similar to those in effect in Delaware. Like the Illinois law, the new Utah law makes clear that a series may contract on its own behalf and in its own name, but it does not go as far as to provide, as does Illinois, that the series will be treated as a separate entity. Finally, the statute requires a foreign LLC with series registering to do business in Utah to indicate on its application for authority that it has series and to identify which of the protections found in section 48-2c-606 apply to its series. If different protections found in the Utah statute apply to different series, the application for authority must identify the protections that apply to each existing series and the protections that will apply to later-created series.

TENNESSEE

Tennessee enacted its Series LLC statute in 2006. The Tennessee statute provides generally that LLC documents may establish, or provide for the establishment of, one or more designated series of members, holders, managers, directors, membership interests, or financial rights having separate rights, powers, or duties, with respect to specified property or obligations of the LLC or with respect to profits and losses associated with specified property or obligations. Any such series may have a separate business purpose or investment objective.

To establish its separateness, an individual series of a Tennessee LLC must maintain separate and distinct records and, subject to compliance with the statute, must limit the debts, liabilities, obligations, and expenses incurred with respect to a particular series to the assets of that series only.

The Tennessee statute contemplates the registration in Tennessee of Series LLCs from other jurisdictions. Although the statute calls for a foreign Series LLC to reflect in its Tennessee registration the fact of its separate series and their separate rights, powers, and duties with respect to specified property or obligations of the foreign LLC or profits and losses associated with the specified property or obligations, the only consequence of failing to do so appears to be a loss of statutory liability protection for one series against the liabilities of another series.

WISCONSIN

The Wisconsin LLC statute only provide for or mention a “series” of ownership interests, but it does not provide for the special characteristics of Series LLCs set forth in the others states. Wisconsin has provided for "series" or "classes" of membership interests in limited liability companies, but has not enacted legislation permitting series limited liability companies.

MINNESOTA

The Minnesota LLC statute only provide for or mention a “series” of ownership interests, but it does not provide for the special characteristics of Series LLCs set forth in the others states. Minnesota has provided for "series" or "classes" of membership interests in limited liability companies, but has not enacted legislation permitting series limited liability companies.

NORTH DAKOTA

The North Dakota LLC statute only provide for or mention a “series” of ownership interests, but it does not provide for the special characteristics of Series LLCs set forth in the others states. North Dakota has provided for "series" or "classes" of membership interests in limited liability companies, but has not enacted legislation permitting series limited liability companies.

TEXAS

On July 12, 2009, Texas joined 7 other states and adopted legislation permitting the formation of series limited liability companies.