Series-ously, Delaware Rocks The LLC Hoodie
In the year 1996, the state of Delaware broke out a new line of hooded clothing for the fashionably dressed and forward thinking corporate designers. The Delaware Series LLC innovation saves money, time, and makes controlling several different types of business easier. When small companies start, they may have plans to grow in many different directions that could require forming new corporations and layering the small business owner with an onerous amount of expense and filing paperwork. The series legislation provided for treating each of these various lines with the veil of protection separately, but under the same corporate hood.
Each part of a particular series has its assets protected from the liabilities of the other parts. In this case, the parts are separate even though they share the same corporate name (hood). They remain individual businesses with separate records, assets, liabilities, and in some cases management. However, members and managers may obligate themselves personally for some or all of the different parts. They do not have to be obligated to all parts. This makes the Delaware Series LLC a tool for a growing company that is acquiring other entities and taking on additional liabilities. The structure allows the growth without endangering previously successful parts of the company.
The Delaware Series LLC establishes different entities within a single LLC allowing for different aspects of a single company, thus protecting each unit from the various liabilities incurred by other units. This works especially well when operating across state lines that require different regulatory actions for the same type of unit. It not only provides protection but also reduces the start-up and filing expense that are often confiscatory to a developing business.
There are a number of unresolved and untested potential problems with the Delaware Series LLC. Since each series is able to operate independently of the other units some of the unresolved issues have to do with tort liability, tax assessments, sales tax avoidance, transfer taxes and the financial/fiduciary responsibilities of members between one series and another. How assets may be moved between units and the need for separate books or just different accounting entries are two big questions when it comes to unresolved issues. These issues have yet to be tested in the courts yet and so should allow you to lean on the side of caution when thinking of forming this type of corporation.
Although the Delaware Series LLC offers many benefits and opportunities for future planning and growth it has yet to be seriously tested in court. Depending on the overriding issues of the company, it may still be best to form separate LLC’s. The ability to transfer assets between the different units is the most valuable aspect of this type of series. It avoids transfer taxes and other regulatory problems since they are under the same corporate veil. However, without proper case law, take it slowly when deciding on using a Delaware Series LLC.
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