Uncertainties Associated with Series LLCs
Provided by HG.org
Some states permit businesses to have numerous company organizations built and managed under one entity called a series LLC. This limited liability company may alter how business interactions and transactions work, and it may permit a wider range of liability coverage for the owners without the need to create corporations or expand the LLC into something larger.
While series LLCs are only permitted in a few states, Puerto Ric and the District of Columbia, it may be possible to take advantage of these entities from another location provided that the parent company resides in the allowable states. The series LLC grants the owner or partners to have a master LLC with at least one other business attached through this relationship. The legal documentation may reference these other company attachments such as within the articles of incorporation, certificate of formation or even operations agreements. When requirements are met, each series within the master is shielded from liability within the series only and additional protections are in place from liability against the master LLC.
Uncertainties arise with series LLCs when there is the possibility that a litigation may arise. Even with these protections in place, there are situations that occur to cause problems for the owner of an LLC or the smaller branch from the parent in a series LLC. There are various laws that apply to these and other companies both in federal and state legislation. When the parent resides in one state and the branch in another, multiple jurisdictions may be involved when a law is broken or civil lawsuits are filed. The records of each branch should be kept meticulously to protect the company from those seeking to pursue action against the LLC.
Liabilities with Series LLCs
While the protections afforded to single LLCs still exist with series LLCs, there are many situations where litigation could arise and affect the owners of the master or parent LLC. If one company sells products that are sold by another, the lawsuit could leak down to the branch. One service provided by the entire LLC may affect consumers and lead to a complication. Additionally, some statutes affect one LLC if in another state while this does not affect the master. Then, laws could be broken if the master LLC owner is not aware of what needs to change with the branch. Some states require a certificate of designation filed with notice of practice within the boundaries of the location.
Another complication could affect both master and branch with financial issues. If one series has economic distress, the manager could file for bankruptcy or for relief with local government officials. If the master LLC is not experiencing financial problems, this could cause further difficulty within the company as well with the location of the series. Some of these challenges are ongoing and could be left unresolved for years. The type of bankruptcy may also further these issues. If liquidation is necessary under Chapter 7, then the master may be affected. However, if Chapter 11 with a reorganization, the entire company may not be affected unless the parent files as well.
The Primary Challenge with Series LLCs
Even with the master LLC in one location, the series LLC branches may have residence in different locations around the country. The treatment for these structures based on the state could cause various laws to change what the series is permitted to accomplish and how. State laws treat both master and series LLCs as separate entities with responsibilities untethered to each other. The Secretary of State in each area has a record of an entity with different single annual reports for fees and taxes for each separate series. This could cause many complications for the owner and those that run the series.
Additional problems and uncertainties lie in debt collections, lending status and similar concerns where the master LLC has financial difficulties. Then, the uncertainties of the series are entirely unsure for the manager of the series. Various questions are raised about how these actions would affect both master and branch. The same inquiries are asked of the series when filing for bankruptcy, needing to obtain a loan and when attached to a venture that does not pan out.
Legal Help with Series LLCs
The numerous complications that a series may incur with or separately from the master may require the services of a business lawyer. If this involves bankruptcy, it is crucial that legal assistance is sought immediately to clear up any worries.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.