A case for the Series LLC - Gavel to Gavel

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The limited liability company, or LLC, has become the go-to business entity form for the combined liability protection and favorable tax treatment, but few are aware of the LLC sub-form that provides additional asset protection beyond that of the traditional LLC.

The Series LLC, which is authorized in 20 jurisdictions in the United States (including Oklahoma), resembles a holding company and its subsidiaries, except that there exists only a single entity and its “series.” The “parent” LLC contains one or more series in its “umbrella,” with each series having its own assets, members, managers, and purpose. Further, if the statutory requirements are strictly followed, each series’ debts and liabilities are enforceable against only that series.

Especially beneficial for real estate investment companies, the Series LLC should be considered by businesses, new and existing, that seek an added level of protection in their business. Here is a (brief) example of how a Series LLC can benefit a business owner:

Picture Luna and Remy, two recent business school graduates and budding entrepreneurs. Through good fortune, each comes to own a real estate property, Luna’s Lodges and Remy’s Rentals. The two decide to form a traditional LLC to jointly own the properties. Luna’s Lodges is an incredible success, and its profits soar. But there is one issue that inevitably pops up. While Luna was studying the ins and outs of how to run her property, Remy was busy on Campus Corner celebrating another victory by the OU football team. Due to his mismanagement, Remy’s Rentals quickly falls behind on its rent and does not have the funds to cover its bills. Since the properties are owned by the same traditional LLC, Remy’s landlord, who sued the owner of Remy’s Rentals (the LLC) for unpaid rent, can reach Luna’s Lodges’ assets in order to recoup his losses.

Had Remy and Luna formed a Series LLC with each property held by a separate series, the assets of Luna’s Lodges would be protected from Remy’s landlord. Additionally, any assets held by the “parent” LLC would also be protected, as the only assets that could be reached by Remy’s landlord are those held in Remy’s Rentals’ series.

This is a simple example of how a Series LLC can benefit a business owner, but the point remains: The Series LLC provides for the favorable division and shelter of assets in a way not available under a traditional LLC.

This article appeared in the October 14, 2021, issue of The Journal Record. It is reproduced with permission from the publisher. © The Journal Record Publishing Co.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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