Series LLCs: Structuring and Financing Concerns for Lenders and Investors

Some people say that a "series" is similar to a subsidiary of the LLC. Perhaps the closest analog is a single LLC with different divisions or lines of business. A series is not a separate legal entity. The series LLC structure segregates the assets and liabilities of each series. Any given series' debts, liabilities, and obligations may be enforced only against those particular series assets and not those of any other series or the LLC itself.

There is increasing interest in series LLCs among private equity sponsors and other market participants. Each series can have different investors--with varying investment strategies, business purposes, and commitment periods--within a structure that offers flexibility and efficiencies in the documentation, administration, and filing costs. In recent years an increasing number of series have been utilized for real estate and other investments, in contexts far from the regulated investment fund and captive insurance company applications historically using these structures.

Financing and enforceability concerns persist. About half of the states in the U.S. plus D.C. have statutes authorizing the formation of series LLCs. Still, it is unclear whether a court in one state will honor the internal liability shields of a series LLC formed in another state. The treatment of a series in bankruptcy is mostly untested. UCC perfection against the financed assets of a series has also been a concern, except for Delaware series LLCs due to recent amendments to the Delaware LLC statute that allow for registered series.

Listen as our authoritative panel of practitioners analyzes the pros and cons of utilizing series LLCs, the potential issues lenders face when dealing with series LLCs, and the steps lenders can take to mitigate some risks.