Delaware Series LLC – How is it useful?

A “Delaware Series LLC” is a special type of limited liability company (“LLC”) authorized by the Delaware Limited Liability Company Law. An LLC that is organized as a Delaware Series LLC may create a designated series of specific properties or operations for separate business purposes or investment objectives. Each series is a separate “cell” within the limited liability company. Each cell or series has separate members, managers, assets and liabilities, and business interests.

Debts, liabilities and obligations related to a particular series are due only against the assets of that series and not against the assets of the LLC in general or the assets of any other series. Assets of a specific series are protected from enforcement actions against the LLC’s own assets or against assets of any other series if certain basic rules are met:

  • The LLC agreement provides for the establishment of one or more series
  • Separate records are kept for each series and its assets are accounted for separately from the other assets of the LLC or any other series (and the LLC agreement requires such separation)
  • Notice of such limitation of liability is set forth in the LLC formation certificate.

How can a Delaware Series LLC be used?

A hallmark of the LLC is its flexibility. A Delaware Series LLC greatly extends that flexibility to allow the creation of separate cells within the LLC to achieve various business objectives. Each of the series in a Delaware Series LLC may operate independently of the LLC itself generally and of any other series.

The main advantage of a Delaware Series LLC is that it saves the cost of forming multiple limited liability companies to accomplish the same goals. For example, if a real estate investor owns 20 separate properties and wishes to isolate each property from the liabilities of each of the other properties, he could establish 20 different limited liability companies, paying a separate filing fee for each LLC, or he could establish a Delaware Series LLC and establish each property as a separate series. You would present a certificate of training and pay a filing fee. Each year thereafter, you would file only one annual report and pay an annual fee. Ultimately, when you sell a property, you could simply remove the series that that property had without the need to present a certificate of dissolution.

In addition to cost savings, other factors that make a Delaware Series LLC a useful entity are speed and convenience. For example, when the investor who has established a Delaware series LLC decides to purchase additional property, he simply establishes a new series in the same LLC. There is no need to write a certificate of training or wait for it to be submitted to the Delaware Secretary of State. The change can be done in minutes in your own office.

Due to the unique aspects of a single legal entity with multiple distinct cells, there are many other potential uses. For example, suppose a company wishes to acquire a single license that expressly states that it cannot be sub-licensed to any third party, not even a subsidiary of the licensee. Since all series are simply “cells” of a Delaware Series LLC and not separate legal entities, the company should be able to share the license among its various series without violating the terms of the license. Each individual company could use the license but still keep their responsibilities separate.

While real estate ownership has been one of the most frequent applications for a Delaware Series LLC, it is easy to see the potential uses of an entity with its special characteristics:

  • A taxi fleet owner could configure each taxi and its driver as a separate series
  • An owner of a chain of dry cleaners could set up each store as a separate series
  • A traveling theater company could set up each engagement as a separate series.

As long as separate accounting and other requirements are met, the potential uses for the series are virtually endless.

Delaware Series LLC is a relatively new type of entity, but it has already proven to be a useful tool for a variety of businesses. As more states modify their limited liability company laws to allow for the formation of serial LLCs, it is likely that more and more creative uses of the serial LLC will be discovered.

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