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19 • 2017

What is a series LLC?

A series LLC is almost an LLC within an LLC. Although multiple, legally-distinct entities are not formed, a series LLC is a limited liability company that internally segregates assets, liabilities, profits, losses, management, and members’ equity interests. Del. Code Ann. tit. 6, § 18-215. A series LLC is therefore more like an unincorporated division within a corporation than separate parent and subsidiary or sister corporations. But unlike an unincorporated division, series LLCs are intended to have the benefit of an internal liability shield, so that the debts and obligations of one series within an LLC are not enforceable against the assets of the LLC itself or another series within the LLC. States, like Delaware, that authorize the creation of series LLCs require that accurate and discrete books and records and separate accounts be maintained for each series within an LLC in order for the internal liability shield to be given effect. This requires a degree of recordkeeping that is beyond what is normally required of a limited liability company to avoid having its corporate veil pierced. At this time, only about 15 jurisdictions authorize the use of series LLCs. In addition, case law on series LLCs is virtually nonexistent, and what case law there is questions whether the internal liability shield of a series LLC formed in one jurisdiction will be recognized in another state where the series LLC does business. This uncertainty, and other currently unresolved issues such as how a series LLC will be treated in bankruptcy, counsel against forming a series LLC at this time. See Why Roll the Dice with Series LLCs.