CHAPTER 1.07. Series LLCs

• Jurisdiction: United States

1.07. Series LLCs

The DLLCA⁹³ was amended in 1996 in order to provide for the creation of an identified series of properties or operations, each having its own members, its own business purpose or investment objective, and its own powers and duties.⁹⁴ Significantly, a series may have many of the characteristics of a separate limited liability company, and, assuming that the limited liability company complies with certain provisions in the DLLCA, the debts, liabilities, obligations, and expenses incurred or existing with respect to one series can only be enforced against the assets of that series and not against all of the assets of the limited liability company or of any other series (a series meeting such requirements is often referred to as a "protected series").⁹⁵ In order to qualify as a series limited liability company with protected series under the DLLCA, certain statutory conditions must be met. Among other things, a series limited liability company is created by providing, in the limited liability company agreement of the limited liability company, for the creation of one or more series and for the maintenance of records for each series that account for the assets associated with such series separately from other assets of the limited liability company or other series and by providing in the certificate of formation of the limited liability company a notice of this limitation of liability.⁹⁶ The series is not a separate and independent limited liability company; rather, it is the limited liability company itself that is the separate, independent legal entity under Delaware law. On the other hand, because each series may have different members, managers, assets, and liabilities, and each series can have a specific business or investment objective, management and similar issues can be implemented differently for each series as if they were separate entities. In addition, the membership of a member can be with respect to one or more series and not the limited liability company generally, so that withdrawal from membership in one series does not necessarily affect membership in any other series.⁹⁷

Subsequent amendments to the DLLCA clarified the manner in which assets may be accounted for, and provided that in addition to series of members, a limited liability company may also have separate series of assets.⁹⁸ Amendments also confirmed the broad purposes and powers granted to series, including that, unless otherwise provided in the limited liability agreement, a series has the power to, "in its own name, contract, hold title to assets (including real, personal and intangible property), grant liens and security interests, and sue and be sued."⁹⁹

Accordingly, under Delaware law, each series has an independent existence with respect to its liabilities and the exposure of its assets to third-party claims, and each series is able to hold property and perform functions as if it were an independent limited liability company. However, commentators have argued that, in the absence of an established body of case law on series limited liability companies, there are many questions, and therefore risks, that argue against its use. The most significant of these questions for real estate transactions are the enforcement of the limitation of liability as between series and treatment of the series limited liability company in bankruptcy.¹⁰⁰ For example, as only 15 states (plus Washington, D.C. and Puerto...