Series LLCs: Structuring and Financing Concerns for Lenders and Investors

This CLE webinar will discuss the formation and structuring of series LLCs and examine the issues and risks lenders face in loan transactions involving series LLCs, including UCC Article 9, the Bankruptcy Code, and treatment of series LLCs under state statutes.

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 generally formed as a separate legal entity even if treated that way for a number of purposes such as creditors and income tax. 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 as long as the proper formalities are followed.

Series LLCs are increasingly used in ordinary business operations and in family investment structures. A single series LLC can hold multiple real estate properties, operating businesses, or family investment assets, with each series isolated from the liabilities of the others and each series having a different ownership and management structure. Families and closely held businesses are drawn to the structure, which often can provide flexibility, simplified administration, and reduced filing and franchise tax costs compared to forming and maintaining a separate LLC for each property, venture, or branch of the family.

Likewise, a series LLC can provide a single governance structure that does not need to be renegotiated or redrafted, rather applying a governance structure that can apply across the series. Different series can accommodate different family branches, different ownership, or different classes of assets, each with its own governance and distribution provisions, while remaining under a single umbrella entity.

Formation, enforceability and operational concerns persist. Roughly twenty-one states plus the District of Columbia and Puerto Rico have statutes authorizing the formation of series LLCs. Yet, uncertainty remains. 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 largely untested.

State law treatment of series varies significantly. Some states authorize only unregistered (or protected) series. Other states authorize only registered series, which require a separate public filing for each series. Still other states allow the organizer to choose between registered and unregistered series. 

Listen as our authoritative panel of practitioners analyzes the pros and cons of utilizing series LLCs, in business and family investment contexts, and steps practitioners can take to mitigate risks.