The Series LLC

Series LLCI bought the iPhone 6 and get a chill using ApplePay. I was one of the earliest adapters of the limited liability company, way back when. I like new, useful things. But I don’t like the “series LLC” all that much.

A series LLC is a regular limited liability company with compartments inside, like a room divided into cubicles. Each compartment is called a “series.” By law, the assets and liabilities of each series stand by themselves, meaning that the creditors of one series cannot get at the assets of a different series. The series LLC was first adopted in Delaware, naturally, but has now been adopted by a handful of other states, including Texas and Nevada.

The series LLC was supposed to make life simpler. For example, a real estate developer with five projects could form just one LLC and divide it into five series, each with different assets, liabilities, and even owners. The developer would pay to form only one entity, pay only one annual registration fee, file only one tax return, etc.

The state tax authorities threw the first wrench into the gears by declaring that each series would be treated as a separate entity for franchise tax purposes.

But the real problem with the series LLC is that nobody knows whether it will work if challenged in court, especially in a bankruptcy court. If one series incurs a liability, will a bankruptcy court respect the state LLC statute saying that creditors can’t get to the assets of another series? A bankruptcy court is supposed to respect state property laws but. . . .the truth is nobody really knows.

Until that critical question is answered by a court, I can’t recommend using a series LLC. They’re convenient, but the convenience comes with too much risk for my taste.

I bought the iPhone 6, not the 6 plus.

Questions? Let me know.

Leave a Reply