How To Structure a Series LLC
A Series LLC is a particular type of LLC that the Delaware legislature invented in 1996 that lets you take one LLC and break it down into its component parts. Instead of having just one overarching shield to protect owners from the liabilities of the company they own, one Series LLC allows you to establish an unlimited number of protected shields associated with assets of the company. As a result, one series within the Series LLC may be insulated from the debts and liabilities of all other series of the LLC.
How to Create a Series LLC
One initial decision in building the structure of the Series LLC is deciding who are to be the members associated with each protected series. Usually each protected series has the same individual members associated with it. This uniformity of ownership of each protected series causes the profits and losses of each protected series to flow to members directly and not through the mothership LLC.
To use a simple example, ABC Capital LLC can be a single-member Delaware Series LLC with Abel Adams as a member. It usually has Abel Adams as the single member of ABC Capital LLC, series 1; with Abel Adams also as the member associated with series 2; and Abel Adams associated with series 3.
In the partnership setting, XYZ Capital LLC would be a multi-member Delaware Series LLC with Abel Adams and Bob Best as members. It would then have Abel Adams and Bob Best as the two members of XYZ Capital LLC, Series 1; with Abel Adams and Bob Best also as the members associated with XYZ Capital LLC, Series 2; and Abel Adams and Bob Best associated with XYZ Capital LLC, Series 3.
These examples are not “parent-child” relationships because the relationship between series is horizontal (brother-sister), and not a vertical parent-subsidiary relationship.
Uniformity of ownership has its advantages with avoiding internal jealousy and conflict between members. We do not suggest having different members associated with each protected series because it is unwieldy and runs a high potential for conflict when ownership is not aligned between series. Therefore, do not associate Carrie Crawford with an individual protected series unless she is also associated with all series therein. Ideally, the ownership is mirrored in each protected series, so each member or members associated with any series is associated with every series in the same ownership percentage. This minimizes the risks of in-fighting between members. Chances are any future attacks on your company are much more likely to come from the insider members than from outsiders who are not members.
While some suggest having different ownership and control to avoid “associate liability” or “enterprise liability”, difference in control will create a conflict-ridden complex structure, which often leads to in-fighting.
Example Structures of a Series LLC
Additional resources on the Delaware Series LLC
- What is a Delaware Series LLC?
- The Delaware Series LLC vs. Other States
- Delaware Series LLC Operating Agreement