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How is the Delaware Series LLC like an egg carton and a 747?

By John Williams | Published March 4, 2013
Series LLC Egg Carton

Series LLC Egg Carton

Would you buy a dozen eggs with each in its own individual packaging? Would you buy a dozen eggs all sloshing around in a basket together? In the first example, the packaging is wasteful and embellished and makes them hard to open when needed and difficult to carry around. However in the second example the lack of separation between the eggs can cause internal damage and less protection from the outside. Enter the Series LLC, the egg carton.

The composition of a Delaware Series LLC – a grouping of assets into distinct smaller boxes within one larger organization – may seem a bit aggressive, but it is a novel way for “micro-preneurs” to incubate an enterprise, like an idea factory.
Entrepreneurs by their very nature are imaginative, even playful in their ability to start-up separately viable businesses simultaneously. While the traditional approach of organizing each business or class of assets into its own LLC is the preferred way, like little blankets around individual eggs, to many entrepreneurs that is cumbersome and expensive. Enter the series LLC. It allows the entrepreneur to designate businesses or assets with a similar degree of autonomy designed to produce products or services that are under the wing of the larger company, but associated with a separate series, like a dozen eggs in a protective carton. The eggs are underneath the umbrella of the larger, unified organization. Different products or different teams can be compartmentalized. Once the series becomes viable, they can be spun off into their own LLCs. A Delaware Series LLC proves the organizational structure to a business that would be less focused if all operations were aggregated into a traditional LLC.

One common use for a Delaware Series LLC is to hold small real estate portfolios. Most entrepreneurs do a cost benefit analysis when starting a new company to determine if the return on investment and risk of things going awry will justify the formation of separate entities. Sometimes this cost benefit analysis results in deciding to use the series LLC as a less costly alternative to forming separate LLCs. Then each property can be put into its own series within the company.

Some planners refer to the Series LLC as a 747, suggesting that it is too hard for the average person to fly. The power of a 747 may be much better than the alternative, where all the passengers are herded like cattle into an open bay. The traditional LLC is like a cargo plane, where all the cargo is flying steerage class. At Incnow, we want you to discover the world. Just be prepared because some states and countries are not familiar with the Series LLC. The question comes up whether the Series LLC will be recognized in that state. As a general matter, the company as a whole should be recognized as an LLC. The recognition accorded to individual series within the company in a non-series jurisdiction is not 100% percent certain. To this extent some are shy to use the series and opt for the separate LLCs, which is a good idea, when separately filed LLCs are within the budget.

Just like when deciding which aircraft to fly to get you to your destination, it is more efficient to have a large group of people fly in one 747, where each passenger is safely buckled into his or her own seat, than to fly 10 separate Gulf Stream jets. While the Gulf Stream jets are nice for companies that can afford them, what most people are looking for is a less expensive option. The traditional LLC is more akin to a cargo plane with an open bay and no seats. Sometimes it is safer to buckle up passengers into their own seats. Here at Incnow, we look forward to seeing you on a future flight to the exotic places on the trips you dream of. Thank you for flying with us. As the old Chinese proverb says, “Put all eggs in one basket and watch basket carefully.”

When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go