Friday, March 28, 2014

Serious Study of a Series LLC

Nevada is one of just a few states in the U.S. that currently allows a strange creature known as a Series LLC.  A Series LLC is a statute-permissible division of one state-law limited liability company into subsidiaries, “cells” or “series;” each of which is a separate LLC for state law purposes.  This was added to Nevada law in 2005.  Nevada law states that the assets, liabilities, debts and obligations of each series are separate and apart from each other series.  The requirements for this separate treatment are: 1) each series must maintain separate and distinct records; and  2) the assets of the series are held (even indirectly through a nominee) separately from the other series; and 3) the articles of organization comply with the statute.  These requirements are really no more burdensome than if a person maintained more than one traditional LLC.

The articles of organization in Nevada provide a simple check-box to select a new LLC as a Series LLC.  It is also possible to amend the articles and select Series LLC treatment.  The biggest requirement, from our experience, seems to be the operating agreements.  We typically prepare an operating agreement for the “container” which would match the name of the LLC formed with the Nevada Secretary of State.  And then we create operating agreements for each series or cell in addition.
Some possible applications for a series LLC are: rental properties; property development; multiple franchises; taxicab companies; rental car companies; trucking companies; commercial property leasing, etc.

PROS:  The biggest advantage for most seems to be price.  Because you can have several LLC’s for the maintenance cost of one LLC (Secretary of State fees apply only to the container).  Easy expansion: adding a new series requires only an amendment to the container operating agreement and the drafting of a new operating agreement for the new series.
CONS: Business operations out of state: since the series LLC is a new concept, non-series states are unfamiliar with the concept and becoming eligible to conduct business outside of Nevada’s borders has proven difficult.  Since the LLC is rather new and unproven in case law, there may be a question of its efficacy.  But we have confidence that the series LLC should work well for Nevada residents that keep their business operations contained to Nevada.

Please contact our office for help with the creation of your series LLC.  The attached diagram shows a typical setup where the series are all part of the same LLC (represented by the cloud).

Attorney Jason C. Walker

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