The Delaware Series LLC has undergone a round of important changes set to take effect on August 1, 2019. These changes, signed into law as Senate Bill 183 in July of 2018, include the creation of a new kind of series—the registered series—that looks to resolve certain problems arising from previous Delaware statutory law.
What is a Delaware Series LLC?
The Series LLC is a novel business structure created in Delaware in 1996 as an alternative to forming multiple, independent LLCs to segregate and protect a company’s assets, though the Series LLC concept has since spread to more than a dozen other US jurisdictions. Instead of forming distinct LLCs for each asset registered as separate organizations with the state, paying separate filing fees, and paying separate annual taxes, the Delaware Series LLC allows for a single LLC to create divisions within itself, called “series,” that can have their own assets, business purposes, and limited liability. Under previous Delaware law, series of a Series LLC are established simply by amending the organization’s limited liability company agreement.
As novel as it is, however, the Delaware Series LLC presents problems of its own. Under previous Delaware law, individual series could not merge with other series of the Series LLC, could not acquire certificates of good standing from the state, and were not clearly “registered organizations” under the definition provided by Article 9 of the Uniform Commercial Code (UCC), which requires an organization to have filed “a public organic record” with its charter state. This last issue has complicated lenders’ abilities to perfect security interests in Delaware against a series’ assets (along with complicating commercial financing generally), and so establishing that a registered series is a “registered organization,” in the sense defined by the UCC, is one of the new registered series’ main reasons for being.
Protected vs. Registered Series of a Delaware Series LLC
To clarify and at least partly resolve these issues, amendments to the Delaware Limited Liability Company Act (DLLCA) adopt the term “protected series,” such that any existing series with limited liability established under previous Delaware law is automatically a protected series, and introduce a new type of series called a “registered series.” Protected and registered series have similar attributes—particularly in the conditions that must be met to maintain their limited liability—but there are also important differences relevant to the problems discussed above.
First, a registered series, unlike a protected series, will be formed by filing a Certificate of Registered Series with the Delaware Secretary of State, a requirement that includes specific rules for naming a registered series—namely, that the registered series’ name must begin with the name of its parent organization (the Series LLC itself) and must be otherwise distinguishable from the names of other entities authorized to do business in Delaware. By registering with the state, moreover, a registered series will satisfy the UCC’s definition of a “registered organization,” making it easier for lenders to perfect security interests against a series’ assets in the State of Delaware.
Additionally, the following changes are in store for the Delaware Series LLC:
- A registered series, unlike a protected series, will be able to obtain a certificate of good standing from the state. The only catch is that a registered series will only be issued a certificate of good standing if its parent organization—the Series LLC—is in good standing.
- Two or more registered series of the same Delaware Series LLC may merge or consolidate as long as the surviving entity files a certificate of merger or consolidation with the state (an option not available to protected series).
- A protected series may convert to a registered series by filing a certificate of conversion to a registered series.
- A registered series may convert to a protected series by filing a certificate of conversion to a protected series.
The Certificate of Registered Series also comes with its own $90 filing fee, and the state will collect a $75 annual tax per registered series, making the registered series a more expensive option than the protected series. However, the $75 annual tax paid by each registered series is still a fraction of the $300 annual tax paid by the Series LLC itself or any ordinary LLC, so the registered series option remains less expensive—at least when it comes to paying the Delaware annual tax—than starting numerous independent LLCs.
Fortunately, a Delaware Series LLC will still be able to establish and maintain protected series through the organization’s limited liability company agreement, which requires no state filings or filing fees, and there is no requirement that a Series LLC’s limited liability company agreement includes the term “registered” in the language that allows the organization to establish protected series or form registered series. That last part—allowing the older term “series” to still cover both “protected” and “registered” series when it appears in a limited liability company agreement—is definitely a nice touch. It allows those existing Delaware Series LLCs that don’t want to form registered series to continue their day to day business without needing to amend their LLC agreements simply to satisfy changes to the Delaware Limited Liability Company Act.
Learn more at Northwest’s guide on How to Form a Delaware Registered Series.