The Series LLC Can Protect Your Business from an ‘Infection’
Just as an infected person with a virus can infect nearby healthy people, an asset with a liability in a company can be a bad apple that unnecessarily exposes all the good apples to a liability. In this case, the “virus” is not a germ, but rather a judgment creditor who tries to collect against other assets of a company. That’s where a Series LLC often comes into play.
After all, why risk exposing these healthy assets of a business to the possibility of an “infection” of a judgment creditor? Until recently, the only way to separate assets was to set up a separate entity. The cost of this distancing was steep in terms of statutory fees. These fees made it unrealistic that a business like a scooter company would file a separate LLC for each of its scooters in its fleet or groups of scooters that are geographically clustered.
Most companies would start up just one LLC and have it own all assets in its portfolio. Grouping all assets together in one company is a primitive way to structure a business. A better alternative is to put each asset into its own protected business unit. That way, it’s difficult for a creditor to attach assets unrelated to the one that caused the injury.
The best way to do this is by utilizing a Series LLC.
How Does a Series LLC Work?
Take the example of electric scooter rental company Lime Scooters. A company like Lime Scooters could benefit from a Series LLC. It could group each of the 100 cities and college campuses worldwide that it services into 100 separate protected series under a Delaware Series LLC.
Another approach could be to have each individual scooter in its own series. Therefore, if an average market had 100 scooters, it would have 10,000 protected series within one Delaware Series LLC to further separate its assets.
A Series LLC allows company owners to protect individual businesses and assets in their umbrella company from each other, just in case of a legal issue down the road.
Where Did the Series LLC Come From?
The field of law innovates a little more slowly than the field of technology. Even so, it is responsive to the needs of those who rely on it. The Series LLC was special interest legislation created in 1996. It was built to work with portfolio companies out of the box, where you have a blank check to set up as many protected series as needed without needing to file or pay fees for each additional series to the State of Delaware.
The modern dockless scooter business consists of an app that lives in the cloud with the actual machines on the street. The Series LLC is a single business entity that works the same way. It’s an overarching entity with an unlimited number of protected series dedicated to hold associated assets that are tracked in internal records. It’s a wonder why Lime and other scooter companies have not seen this opportunity to revolutionize their liability distancing strategies.
