How to Create a Series LLC in Delaware

What Is a Series LLC?

A Series LLC is a unique form of a limited liability company that allows for the creation of multiple, distinct series within a single LLC. Each series operates independently, with its own assets, liabilities, and members. This structure allows for the segregation of assets and liabilities among the series, providing a flexible and cost-effective way to manage multiple business ventures under one umbrella entity.

Does Delaware Allow Series LLCs?

Yes, Delaware permits the formation of Series LLCs under the Delaware Limited Liability Company Act. The relevant statute is found in 6 Del. C. § 18-215. This statute requires that the Certificate of Formation explicitly states the LLC's ability to establish series.

How a Delaware Series LLC Works

In a Delaware Series LLC, the master LLC acts as the overarching entity that can create multiple series. Each series can have its own members, assets, and liabilities, which are legally separate from those of the other series. This separation is maintained through meticulous recordkeeping and adherence to structural requirements, ensuring that the liabilities of one series do not affect the others.

Benefits of Forming a Series LLC in Delaware

• Cost Efficiency: Forming a Series LLC can be more cost-effective than creating multiple separate LLCs, as it reduces the need for multiple formation filings.
• Asset Segregation: Each series can hold its own assets and liabilities, protecting them from the risks associated with other series.
• Administrative Flexibility: The structure allows for streamlined management and operations across different business ventures.

Limitations and Risks of a Delaware Series LLC

• Legal Uncertainty: Not all jurisdictions recognize Series LLCs, which can lead to legal challenges outside Delaware.
• Banking and Lending Challenges: Some financial institutions may be unfamiliar with Series LLCs, complicating banking and lending processes.
• Tax Complexity: Navigating the tax obligations for each series can be complex and requires careful compliance.

Who Should Consider a Delaware Series LLC?

A Delaware Series LLC is ideal for businesses involved in real estate, asset holding, or intellectual property management, where asset segregation is beneficial. However, for businesses operating solely within jurisdictions that do not recognize Series LLCs, a traditional LLC may be more appropriate.

Step-by-Step: How to Create a Series LLC in Delaware

Step 1: Choose a Name for the Series LLC

The name must comply with Delaware's naming requirements, including the use of "Limited Liability Company" or abbreviations like "LLC." Each series should have a distinguishable name to maintain clarity.

Step 2: Appoint a Delaware Registered Agent

A registered agent must be appointed to receive legal documents on behalf of the LLC. The agent must be a Delaware resident or a business entity authorized to operate in Delaware.

Step 3: File the Certificate of Formation

The Certificate of Formation is filed with the Delaware Division of Corporations. It must include the LLC's name, registered agent information, and the series language. Filing can be done online or by mail.

Step 4: Include Series LLC Language

The Certificate of Formation must explicitly state the LLC's ability to establish series. Failure to include this language can result in the inability to form series under the LLC.

Step 5: Draft a Series-Compliant Operating Agreement

An operating agreement is crucial for internal governance. It should outline the management structure, asset and liability separation, and operational procedures for each series.

Step 6: Establish Individual Series

Series are created internally through documentation and recordkeeping. Each series should maintain separate records to ensure liability protection.

Step 7: Obtain EINs (Parent and Series, If Needed)

An Employer Identification Number (EIN) is required for the parent LLC and may be needed for each series, depending on their activities.

Step 8: Open Separate Bank Accounts

Separate bank accounts for each series are essential to prevent commingling of funds, which could jeopardize liability protection.

Step 9: Comply With Delaware Tax Requirements

Each series must comply with Delaware's tax obligations, including filing and payment of applicable state taxes.

Delaware Series LLC Filing Fees and Costs

The filing fee for the Certificate of Formation is $90. Additional fees may apply for each series, depending on the specific requirements and services used.

Delaware Franchise Tax and Series LLCs

Delaware imposes a franchise tax on LLCs, including Series LLCs. Each series may have separate reporting obligations, depending on their activities.

Ongoing Compliance Requirements for Delaware Series LLCs

Series LLCs must file annual reports and maintain accurate records for each series to ensure compliance with Delaware law.

Common Mistakes When Forming a Series LLC in Delaware

• Missing Required Series Language: Failing to include series language in the Certificate of Formation can prevent the creation of series.
• Poor Recordkeeping: Inadequate documentation can lead to liability issues.
• Mixing Assets Between Series: Commingling assets can compromise liability protection.

Series LLC vs Traditional LLC in Delaware

A Series LLC offers a flexible structure with potential cost savings and asset protection benefits, while a traditional LLC may be simpler and more widely recognized. The choice depends on the specific needs and operations of the business.

Additional Resources

• Delaware Secretary of State
• Delaware Division of Corporations
• Delaware Code Online
• Delaware One Stop Business Registration and Licensing
• Delaware Division of Revenue
• Contact: Phone: (302) 739-3073, Email: corp@delaware.gov

This article provides general information about Delaware LLC formation requirements under the Delaware Limited Liability Company Act. It is not intended as legal advice. Persons forming an LLC should consult with a private attorney regarding their specific circumstances.