SERIES LLC UPDATE: ADVANTAGES,

DISADVANTAGES & PRACTICAL CONSIDERATIONS

Alson R. MartinLathrop & Gage LLP

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SERIES LLC UPDATE: ADVANTAGES,

DISADVANTAGES & PRACTICAL CONSIDERATIONS

TABLE OF CONTENTS

Page

I. WHAT IS A SERIES LLC? .............................................................................................. 1

A. Definitions.............................................................................................................. 1

B. U.S. Series LLC States/Jurisdictions With Limited Liability InternalShield For Each Series ........................................................................................... 1

C. U.S. Series LLC States/Jurisdictions Without Limited Liability For EachSeries...................................................................................................................... 2

D. Number Of State Filings ........................................................................................ 2

II. SIMILAR ENTITIES OR STRUCTURES ....................................................................... 2

A. Mutual Funds As Series Corporations Or Trusts ................................................... 2

B. Single LLC With Special Or Schedular Allocations ............................................. 2

C. Multiple LLCs For Each Property Or Activity With Same Or OverlappingOwners ................................................................................................................... 3

D. Parent-Subsidiary Entities...................................................................................... 3

E. Series Statutory/Business Trusts............................................................................ 3

F. Protected Cell Companies (“PCC”) ....................................................................... 3

G. Series Captive Insurance Company ....................................................................... 4

III. USES FOR SERIES LLCs ................................................................................................ 4

A. Real Estate Development Or Investment in Multiple Properties With EachProperty in Separate Series .................................................................................... 4

B. Separating Operating Company Divisions, such a multiple products ormanufacturing, distribution, and sales ................................................................... 4

C. Franchised Businesses With Multiple Locations................................................... 4

D. Ownership Or Leasing Of Multiple Watercraft or Aircraft ................................... 4

IV. FORMATION.................................................................................................................... 4

A. Delaware ................................................................................................................ 4

B. LLC Articles (Certificate of Formation) - Series Provision .................................. 5

C. Registration of Series............................................................................................. 6

D. Form of Agreement Establishing Series ................................................................ 6

E. Sample Delaware Series LLC Operating Agreement Language ........................... 8

TABLE OF CONTENTS(continued)

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F. Series As Separate Entity..................................................................................... 12

V. TAX TREATMENT ........................................................................................................ 13

A. Federal Income Tax ............................................................................................. 13

B. State Tax Treatment............................................................................................. 18

VI. DRAFTING & OTHER PRACTICAL ISSUES ............................................................. 19

A. Ownership ............................................................................................................ 19

B. Effectiveness Of Series Liability Shield In Non-Series States ............................ 19

C. Registration of Foreign Series LLC..................................................................... 20

D. Charging Orders................................................................................................... 21

E. Signing Contracts & Documents ......................................................................... 22

F. Series Contractual Limitation Of Liability .......................................................... 22

G. Fraudulent (Voidable) Transfers.......................................................................... 22

H. Secured Transactions - UCC Revised Article 9;.................................................. 23

I. Bankruptcy........................................................................................................... 23

J. Titling Assets ....................................................................................................... 24

K. Securities Law...................................................................................................... 24

L. Mergers & Conversions ....................................................................................... 25

M. Dissolution ........................................................................................................... 25

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SERIES LLC UPDATE: ADVANTAGES,DISADVANTAGES & PRACTICAL CONSIDERATIONS

I. WHAT IS A SERIES LLC?

A. Definitions.

1. A series is a segregated group of assets and liabilities that is establishedpursuant to a series statute by agreement of a series organization. A series includes a series, cell,segregated account, or segregated portfolio, including a cell, segregated account, or segregatedportfolio that is formed under the insurance code of a jurisdiction or is engaged in an insurancebusiness. "Series" does not include, however, a segregated asset account of a life insurancecompany.

2. A series LLC, first established by Delaware in 1996, is a limited liabilitycompany with internal funds, portfolios, cells, or divisions, each of which may have separatemembers, managers, assets and liabilities, and business purpose or investment objectives. Mostbut not all state series LLCs have an internal limited liability shield for each series of the seriesLLC. There is a master, umbrella, holding company, or mothership LLC, which in turn has oneor more separate series.

3. The umbrella LLC is not necessarily the member or a member of eachseries. Rather, specific LLC members may be “associated with” a series. A series that is not alegal entity (as is often the case) cannot have its own members, so the LLC members areassociated with a series.

4. “Member” is a person who is admitted to the LLC as a member. 6 Del.Code § 18-101(11). “Member associated with a series” is not a defined term.

5. “Property or assets associated with a series,” means property or assetsspecified and accounted for on the records of a series organization as attributable to thatparticular series.

6. In most states, the debts with respect to a particular series are enforceableagainst the assets of that series only and not those of any other series or the umbrella LLC, norare the assets of a particular series subject to the debts of other series or the LLC. Del. CodeAnn. tit. 6, § 18-215(b). The liability segregation is referred to as an “internal shield.”

B. U.S. Series LLC States/Jurisdictions With Limited Liability Internal Shield ForEach Series.

1. Alabama § 10A-5A-11.01 (effective January 1, 2015)2. Delaware 6 Del. Code § 18-2153. District of Columbia D.C. Code § 29-802.064. Illinois 805 ILCS 180/37-405. Iowa Iowa Code Ann. § 489.1201, superseding

§ 490 A.305)

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6. Kansas Kan. Stat. Ann. § 17-76,1437. Missouri Mo. Rev. Stat. § 347.1868. Montana Mont. Code Ann. § 35-8-304 (4)9. Nevada NRS § 86.296.310. Oklahoma 18 Okla. Stat. § 18-2054.4B11. Puerto Rico 14 L.P.R.A. § 3967 (General Corporations

Act 2009)12. Tennessee Tenn. Code Ann. § 48-249-30913. Texas V.T.C.A., Bus. Org. Code § 101.60114. Utah Utah Code Ann. § 48-3a-1201 through 1210

(superseding § 48-2c-606)

C. U.S. Series LLC States/Jurisdictions Without Limited Liability For Each Series.

1. California Cal. Corp. Code §17712.012. Minnesota Minn. Stat. Ann. § 322 B.03, subd. 443. North Dakota N.D.C.C. § 10-32-02.554. Wisconsin Wis. Stat. Ann. § 183.0504

D. Number Of State Filings.

A 2013 articles reports that in some series states, very few series LLCs have been formed,whereas Delaware had 8,068, Illinois 9,819, and Nevada 17,920. See “Series LLCs—December2013 Update on Recent State Legislative and Taxation Developments,” Tax ManagementMemorandum, 55 TMM 83, 03/24/2014.

II. SIMILAR ENTITIES OR STRUCTURES.

A. Mutual Funds As Series Corporations Or Trusts.

Each investment portfolio of a series company is an open end mutual fund with the umbrellaentity registering with the SEC. Each series is a separate mutual fund and has distinct objectivesand policies, and interests in each portfolio are represented by a separate class or series of shares.Shareholders of each series participate solely in the investment results of that series. In effect,each series operates as a separate investment company. Gordon Altman et al., A Practical Guideto the Investment Company Act, 2-3 (1996).

B. Single LLC With Special Or Schedular Allocations.

An LLC taxed as a partnership may have special allocations of income, gain, loss and expense.For instance, an LLC that is an ASC operator may have a percentage ownership interest in eachASC. However, not all owners of the LLC may be economic participants in each ASC. Therewould be a specified sharing of income, gain, loss and expense for each ASC managed by theLLC with specified members having a specified percentage of that ASC’s income, gain, loss andexpense.

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Similarly, an LLC can have schedular allocations, i.e., allocations that track particular assets andspecifically allocate the results of particular partnership assets or bundles of assets in a particularway.” Cuff, Some Basic Issues in Drafting Real Estate Partnership and LLC Agreements, 65NYU Inst. on Fed Tax’n § 18.07(19) (2007).

C. Multiple LLCs For Each Property Or Activity With Same Or OverlappingOwners.

Using commonly managed and operated LLCs presents a risk that a court will pierce the veil andattribute the liabilities of one of the commonly managed firms to the “sister” LLCs. A SeriesLLC statute effectively instructs courts to keep the liability separate as long as the members havefollowed the formalities and record-keeping rules. In other words, the series provisions useformalities as a shield even as the general LLC statutes provide that noncompliance withformalities cannot be used as a sword to pierce the veil.” Ribstein, Rise of the Uncorporation146 (2010).

D. Parent-Subsidiary Entities.

A parent-subsidiary structure allows one or more levels of limited liability entities, includingLLCs, corporations, LLPs, and limited partnerships, with each entity having limited liability.The parent may or may not own 100% of each subsidiary or lower tier entity. Similar to a seriesLLC, one parent LLC could own an unlimited number of subsidiary LLCs. However, the SeriesLLC itself apart from some or all of its aggregate owners may or may not have an economicinterest in one or more (or even any) of the series as it may not be ‘‘associated’’ with the series.Only those persons ‘‘associated’’ with each specific series have an economic interest in suchspecific series. In addition, the Series LLC may or may not have extensive governance controlwith respect to one or more series.

E. Series Statutory/Business Trusts.

Connecticut Conn. Code § 34-5167(b)(2)Delaware 12 Del. Code § 3804(a)District of Columbia D.C. Code § 29-1204.01Kentucky Ky. Rev. Stat. § 386A4-010Virginia Va. Code § 13.1-1231.DWyoming Wy. Stat. § 17-23-106

F. Protected Cell Companies (“PCC”).

“Protected cell company” and “protected cell” are terms used in the context of segregated orseparate accounts of insurance companies or captive insurers. A protected cell is an identifiedgroup of assets and liabilities insulated from other company protected cells. The assets of aprotected cell may not be charged with liabilities of any other protected cell or of the sponsoredcaptive insurance company generally. E.g., Del. Code Ann. tit. 18, § 6934(3); Mont. Code Ann.§ 33-28-301(2)(c); D.C. Code § 31-3931.04(b) (D.C. also provides an “incorporated protectedcell.” § 31-3931.04(a)); N.C.G.S. §§ 58-10-590(c) and (d) (2013). See Feetham and Jones,Protected Cell Companies (2d ed. 2010).

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G. Series Captive Insurance Company.

Delaware was the first state to have a “serial entity captive,” which permits use of Series LLCs toform the equivalent of a PCC without the minimum premium tax per cell applicable under thePCC statute.

III. USES FOR SERIES LLCs.

A series LLC is designed to allow the owner of an LLC that comprises separate businesses orseparate lines of business (e.g., manufacturing and transportation) to put each in a separate seriesand protect the assets of one series from the creditors of another.

A. Real Estate Development Or Investment in Multiple Properties With EachProperty in Separate Series.

B. Separating Operating Company Divisions, such a multiple products ormanufacturing, distribution, and sales.

C. Franchised Businesses With Multiple Locations.D. Ownership Or Leasing Of Multiple Watercraft or Aircraft.

IV. FORMATION.

A. Delaware.

A Delaware series is not a separate entity but has the power and capacity to, in its own name,contract, hold title to assets, grant liens and security interests, and sue and be sued. Del. CodeAnn. tit. 6, § 18-215(c). Assets associated with a series may also “be held directly or indirectly...in the name of the [umbrella] limited liability company,.” Del. Code Ann. tit. 6 § 18-215(b). Thestatutory limitations on distributions are applied separately to each series. Del. Code Ann. tit. 6,§ 18-215(i). Thus, one series may make distributions even though other series or the Series LLCmay be insolvent. The dissociation from a series of a member associated with a series does notcause him to be dissociated from any other series or the LLC itself. Del. Code Ann. tit. 6, § 18-215(j). a series is terminated and its affairs shall be wound up upon dissolution of the LLC. Del.Code Ann. tit. 6, § 18-215(k). Having no members is a dissolution event for an LLC under Del.Code Ann. tit. 6, § 18-801(4), but there is no comparable provision for a series, that is, there maybe a series without having any members associated with it.

On application by a member or manager associated with a series, judicial winding up ortermination is available with respect to a series. Del. Code Ann. tit. 6, § 18-215(l) and (m).

The creation of the limited liability shield for each series requires the satisfaction of thefollowing conditions:

1. The LLC agreement establishes or provides for the establishment of one ormore series;

2. The LLC agreement “so provides” for the liability limitation;

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3. Notice of the limitation on liabilities of a series is set forth in thecertificate of formation; and

4. Records are maintained for the series accounting for the assets associatedwith the series separately from other assets of the LLC or any other series.

The Delaware Act does not expressly provide for the application to a member associated with aseries the liability protection expressly conferred on members as to the liabilities of the LLC by 6Del. Code § 18-303. However, the general protection of § 18-303 should protect the membersassociated with a series. §18-215(d) seems to contemplate that result by providing thatnotwithstanding § 18-303, a member may agree to be obligated personally for liabilities of aseries.

B. LLC Articles (Certificate of Formation) - Series Provision.

Series. The Company shall establish separate series, as contemplated by Section _____________of the Act, each of which may have separate members, each of which will own separate assets,each of which will have separate rights and powers, and each of which may have separateinvestment or business purposes. The debts, liabilities and obligations incurred, contracted for, orotherwise existing from time to time with respect to a particular series shall be enforceableagainst the assets of such series only, and not against the assets of any other series or of theCompany generally, and none of the debts, liabilities, and obligations incurred, contracted for, orotherwise existing with respect to the Company or any other series thereof shall be enforceableagainst the assets of the particular series in question. Separate books and records shall bemaintained for each series established by the Company and each such Series’s assets.

--OR—

CERTIFICATE OF FORMATIONOF

___________________________[DELAWARE – SERIES]

This Certificate of Formation, dated ___________, ______, has been duly executed pursuant toSection 18-201 of the Delaware Limited Liability Company Act (the “Act”) to form a limitedliability company (the “Company”) under the Act.

1. The name of the Company is _________________, LLC.2. The address of the registered office required to be maintained by Section 18-104 of the Act is:_________________________________________________________________________________3. The name and the address of the registered agent for service of process required to bemaintained by Section 18-104 of the Act is:_________________________________________________________________________________

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___________________________4. As permitted by Section 18-215 of the Act, the Company may have one or more series.The debts, liabilities and obligations and expenses incurred, contracted for or otherwiseexisting with respect to a particular series, whether now existing or hereafter established,shall be enforceable against the assets of that series only, and not against the assets of theCompany generally or any other series thereof, and none of the debts, liabilities, orobligations and expenses incurred, contracted for, or otherwise existing with respect to theCompany generally or any other series thereof shall be enforceable against the assets of theparticular series in question.

EXECUTED as of ____________, _______.____________________________________________________________________Authorized Person

C. Registration of Series.

Delaware, Iowa, Nevada, Oklahoma, Puerto Rico, Tennessee, and Utah do not require that aseries be registered with the state. Other states require registration.

District of Columbia. A series is formed upon the filing of the certificate of series designation.D.C. Code § 29-802.06(e).

Illinois. Set forth in the articles of organization a notice of the limitation on liabilities of a seriesand file with the Secretary of State a certificate of designation for each series that is to havelimited liability (805 ILCS 180/37-40(b)). Forms issued by the Secretary of State: Illinois FormLLC 5.5(S) (Articles of Organization), and Form LLC-37.40 (Certificate of Designation).

Kansas. A Kansas series limited liability company is formed by filing Form 51-32 (Rev.11/2/12), and Form LCD, Certificate of Designation, which must be filed for each series.

Missouri. The existence of a series begins upon the filing of articles of organization setting forththe name of each series with limited liability. Mo. Rev. Stat. §§ 347.186.2 (f) and .4 (1)(a).

Montana. The Montana LLC Act requires that the articles of organization must set forth, if theLLC has one or more series of members, the operating agreement in writing of each series ofmembers. Mont. Code Ann. § 35-8-202 (1)(h). It is not clear what this means.

Texas. H.B. No. 1624 effective 9/1/13 requires with respect to each protected series doingbusiness in Texas under a name other than the name of the LLC, for the LLC to file an assumedname certificate for the protected series.

D. Form of Agreement Establishing Series.

Agreement for ______________, LLC – _____________ SeriesThis Agreement (this “Agreement”) is entered into effective as of ______________, 20__ by

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_________________________, a Delaware limited liability company (“Company”) and theother signatories hereto to create a separate series (the “Series”) under the Limited LiabilityCompany Agreement of ______________, LLC (the “LLC Operating Agreement”). Unlessotherwise specified herein, all capitalized terms used herein shall have the meanings assigned tothem in the LLC Operating Agreement. Company and the other signatories hereto are hereinreferred to as “Series Members”. The Series created hereby and the rights and obligations of theMembers of such Series shall be governed by the LLC Operating Agreement as supplementedhereby.

1. Name of Series: _______________, LLC – ______________ Series2. Purpose: The purpose of this Series is to receive distributions (which may be direct or indirectthrough other entities) received by ______________________ in respect of the promoted orcarried interest owned by _______________ in______________________________________________.

3. Series Members and Series Sharing Ratios: The Series Members and the percentages inwhich they shall share any distributions in respect of the promoted or carried interest describedabove (their “Series Sharing Ratios”) are as follows:

Name: Series Sharing Ratio % Total %100.00%

The Series Sharing Ratios are subject to dilution if additional Series Members are admitted to theSeries as provided in Section 4 below.

4. Additional Series Members; Dilution. No additional Series Members shall be admitted tothe Series without Company’s prior approval. If Company so approves, additional SeriesMembers may be admitted to the Series and each Series Member’s Series Sharing Ratio shall besubject to dilution to reflect the admission of such new Series Member under the terms andconditions approved by Company, provided that no Series Member’s Series Sharing Ratio shallbe diluted by more than ___________ percent (______%) without such Member’s approval.Such admission shall be reflected as an amendment to this Amendment which shall be valid ifexecuted by Company and the new Series Members.

5. Distributions: Distributable funds shall be distributed to the Series Members in accordancewith their Series Sharing Ratios as set forth in Section 3 (as revised from time to time pursuant toSection 4). Company shall determine what funds received by the Series are available fordistribution from time to time, taking into consideration future needs of the Series and its currentobligations.

6. Series Member Vesting Provisions. [Add as agreed upon – cover events which lead to avesting and/or forfeiture of Series interests]

7. Transfers. No Series Member (other than Company) may transfer all or part of his interest inthe Series, or collaterally assign, pledge, or grant a security interest in his right to receivedistributions from the Series without the prior written consent of Company.

8. Management. Company shall have complete authority to manage all affairs of the Series

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without the approval, consent or other participation by any other Series Member.

Executed effective as of the date set forth above.

SERIES MEMBERS: ___________________________________

By: ___________________________________Name:_________________________________Title:__________________________________

E. Sample Delaware Series LLC Operating Agreement Language.

Be certain to distinguish language in the Agreement that is to be applicable only to the Companygenerally from language in the Agreement that is to be applicable to both the Company and toeach Series. See the language in Section 2.3(e) below. One can provide some of the specificrules for each Series either in the LLC Agreement or in a separate agreement or other document.These would be rules for management, allocation of cash flow and tax items, amendment anddissolution, etc. The separate document could even be a nearly complete LLC operatingagreement for that particular Series. Each situation determines which rules are in the LLCAgreement and which rules are in the Series Agreement. Nevertheless, the LLC Agreement itselfneeds to address some of the rules that apply to the umbrella LLC and to the Series.

All series members are members of the LLC itself. The Delaware Act uses the term "memberassociated with a series" rather than member of a series. That raises the question of whether onehas to be a member of the LLC to be a member associated with a series of the LLC. The safestoption is for all series members to be LLC members. In other words, they have membershipinterests in the LLC as well as associated with their particular series. Additionally, while Del.Code Ann. tit. 6 18-301(d) allows one to be a member of the LLC without owning a membershipinterest in the LLC, it seems prudent that everyone owns a membership interest and make acapital contribution, even if it is a nominal amount.

Section 2.3 Series Nature of the Company.

2.3 (a) Generally. The Company is organized as a Series Limited LiabilityCompany and is authorized to establish designated series of members, designated series ofmanagers, and designated series of limited liability company interests, including Members,Managers, and interests in the Company itself and Members, Managers, and interests in one ormore Series the Company shall authorize from time to time.

Pursuant to Section 18-215(b) of the Delaware Limited Liability Act, the debts,liabilities, obligations, and expenses incurred by, contracted for, or otherwise existing withrespect to a particular Series of the Company, whether such Series is now authorized and existingpursuant to the Limited Liability Agreement of the Company or is hereafter authorized andexisting pursuant to the Limited Liability Agreement of the Company, shall be enforceableagainst the assets associated with that Series only and not against the assets associated with any

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other Series or against the assets of the Company generally and none of the debts, liabilities, andobligations incurred, contracted for, or otherwise existing with respect to the Company generallyor any other Series of the Company shall be enforceable against the assets of such Series.

2.3 (b) Series Designation. Each Series shall be designated by a letter of thealphabet. The Series currently authorized are the *[number of Series] Series designated Athrough *______.

2.3 (c) Separateness of Series. The Company itself and each Series shall havetitle to its own assets and shall have obligation for its own liabilities and each shall keep recordsof same. The Company and each Series shall have its own Members and its own Manager orManagers and the Company shall keep records of same. Members and Managers of one may beMembers and Managers of any number of the others. The Company and each Series shall haveits own separate income, expenses, capital gains and losses, and other financial items and eachshall keep records of same.

2.3 (d) Designation of Series Members and Managers. The Members andManagers of each Series shall be designated in the Company records and in the records of suchSeries.

2.3 (e) Effect of Agreement on Series. Except as otherwise provided in thisSection 2.3 (for example, the exception in Section 2.3(f)), the provisions ofSections*________________ (in addition to applying to the Company and to the CompanyUnits) shall apply to each Series except to the extent that Series Rules of a particular Series shallbe duly adopted, in which case such Series Rules shall control in the event of, and to the extentof, any conflict between one of such Articles and such Series Rules. In that regard, whenconsidering matters relating to a Series, references in Sections *__________________ toMember(s) and Manager(s) shall be deemed references to the Member(s) and Manager(s) of theparticular Series as designated in the Company records and in the records of such Series, andreferences to the Company shall be deemed references to such Series.

For example, the voting rules of Section 5.9 shall apply to votes onCompany matters by the owners of Company Shares, and to votes on matters relating to aparticular Series by the owners of Shares of that Series.

2. Particular attention should be paid to the provisions regarding the Manager, amendmentof the Agreement, and dissolution of the Company.

3. There are often powers granted to the Company Manager that you do not want held byany particular Series Manager, or powers that are of such a general nature that they need onlyexist at the Company level. The following language provides that the Manager of a Series doesnot have such powers granted in the Agreement to the Company Manager. (I used the Manager’spower to make distributions in this example.)

2.3 (f) Certain Powers of Company Manager. The powers granted in Section6.1.5 to the Company Manager regarding the authority to make distributions shall be powerswith respect to the Company and with respect to each and every Series. The Manager for thispurpose shall mean the Manager of the Company only, and no Series Manager in his capacity as

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such shall have any power under Section 6.1.5.

4. I put a provision in the Agreement to prevent issues of amendment anddissolution from being done by the Series Members and Managers. I do not find in yourAgreement that you have provided for amendment of the Agreement or that you have a provisionfor how the Company is to be dissolved (perhaps because it is a single member LLC). If you addthese, I suggest the following to handle this point.

2.3 (g) Certain Limitations on Series. References in Section *_____ (toamendment of the LLC Agreement) and in Section * (to Dissolution and Termination of theCompany) to Members and to the Manager shall mean Members of the Company and theManager of the Company, respectively, and shall not be references to the Members orManager(s) of any Series. References in Section *____ and Section *_______ to Units shallmean Company Units and shall not be references to any Series Units. References in Section*____ and Section *_______ to the Company shall mean the Company only and shall not bereferences to any Series. No Series Rules may be adopted that would alter in any manner theeffect of Section *____ or Section *_______ of this Agreement.

5. Include a provision explaining the nature of the designation of the Company Unitsand the Series Units.

Section * Nature of Units. Units in the Company, as distinguished from Units in aSeries, are referred to in this Agreement and in the Certificates of Units issued by the Companyeither as “Units” or as “Company Units” or as “Units of the Company”. References to Unitswithout further modification are references to Company Units. Units of all Series collectively,are sometimes referred to in this Agreement as “Series Units”. Units of a particular Series arereferred to in this Agreement and in the Certificates of Units issued by the Company with thedesignation of the particular Series issuing such Units. For example, Units of Series A arereferred to as “Series A Units”.

6. The following is an example of a set of Series Rules.

Article X

SERIES A RULES

Section 10.1 Series A Manager. John Jackson and Jill Jones shall be the Managers ofSeries A (the “Series A Managers”). Subject to the terms of Article I through Article IX of thisAgreement, the Series A Managers shall be responsible for the management of Series A, and,when acting jointly, shall have the fullest right, power, and authority to manage, direct, andcontrol all of the business and affairs of Series A, to transact business on its behalf, and to signfor it or on its behalf or otherwise to bind Series A, except as otherwise limited by thisAgreement or by the Act. The Series A Managers, when acting jointly, may designate from timeto time the officers of Series A, including a President and Secretary, who shall serve at thepleasure of the Series A Managers and shall have the authority and duties assigned to them bythe Series A Managers. If either John Jackson or Jill Jones shall become incapacitated, then the

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other of them shall serve as sole Series A Manager during such incapacity. Upon the death ofeither John Jackson or Jill Jones, the other of them shall serve as sole Series A Manager. In theevent that John Jackson and Jill Jones cannot agree on a matter requiring the decision of theManagers, then such decision shall be made by Joseph Mediator and the Managers agree to bebound by such decision and that such decision shall be deemed the decision of the Managers.

Section 10.2 Series A Revenues, Expenses, and Profits. Series A Profits shall beallocated among the Series A Members in proportion to their respective Series A Units.

“Series A Profits” means Series A Revenues minus Series A Allowable Expenses.

“Series A Revenues” means the gross income from the sale of *_________ (such product issometimes referred to as the “Series A Product”.

“Series A Allowable Expenses” means (1) all start-up expenses for Series A incurred in 2004(and specifically excluding start-up expenses, if any, for any other Series), (2) direct expensesincurred with respect to the business of Series A, and (3) Series A General Overhead Expenses.

“Series A General Overhead Expenses” means all expenses of the Company other than directexpenses incurred with respect to the business of any Series times the ratio of Series A Revenuesto Company Revenues.

“Company Revenues” means all revenue received by the Company from operations (forexample, Company Revenue excludes capital and loans to the Company).

Section 10.3 Series A Operations. With respect to the Company, Series A owns theexclusive right to sell the Series A Product. As such all sales by the Company of the Series AProduct shall be made by Series A.

Either or both of John Jackson and the Company (either directly or through other Series createdfrom time to time) may engage in any business (other than the sale of Series A Product asdefined above) without the consent or involvement of Jill Jones. The Company may create fromtime to time other Series with which Jill Jones will have no involvement. The Company, or suchother Series as may be created, or both, may purchase from any supplier and may sell to anycustomer any products other than the Series A Product.

The Company shall distribute the Series A Profits to the Series A Members from time to time,but at least as often as annually, in proportion to their respective Series A Units. By way ofclarification and emphasis, except with regard to the special rules for Series A, distributions toMembers will be made when and in the amounts determined by the Company Manager.

Section 10.4 Units; Transferability. No new Members shall be admitted to Series Aand no additional Series A Units shall be issued without the consent of both John Jackson andJill Jones.

A Series A Member may withdraw from Series A at any time during his lifetime by givingwritten notice to the other Member of Series A. Such withdrawal shall be effective not soonerthan ten days after such notice is given. Upon the effective date of such withdrawal, the

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withdrawing Series A Member shall receive the sum of $2,500.00 and his Series A Units shall becancelled. The Members agree to review this price approximately every six months and to adjustit to the extent they deem necessary. The Members also agree to substitute for it within threeyears of the date of this Agreement a price determined by a formula based upon the financialperformance of Series A.

A Series A Member’s Series A Units are transferable during his lifetime, but only upon thewritten consent of the other Series A Member.

Upon the death of a Series A Member, his Units shall be transferred to the person designated inthis Section; provided, however, that the other Series A Member shall have the right to purchaseall but not less than all of such Series A Units should the designee die within one year after thedeath of the Series A Member or should the designee desire to transfer such Series A Unitswithin one year after the death of the Series A Member. The purchase price upon the death of thedesignee shall be the amount in the designee’s Series A capital account. The purchase priceshould the designee desire to transfer such Series A Units shall be the amount of the bona fideoffer received by such designee for those Units, payable on the same terms as contained in suchoffer.

Section 10.4 Amendment of this Article. Amendment of the terms of this Article willbe only upon the consent of John Jackson and Jill Jones.

7. Use Schedules to distinguish between Company contributions and SeriesContributions:

SCHEDULE OF CAPITAL CONTRIBUTIONS

Amount of Capital Number of

Name Contribution Company Units

John Jackson $10,000.00 ***10,000***

Jill Jones $100.00 ***100***

SCHEDULE OF SERIES A CAPITAL CONTRIBUTIONS

Name Capital Contribution Units

John Jackson $5,000.00 ***5,000 Series A***

Jill Jones $5,000.00 ***5,000 Series A***

F. Series As Separate Entity.

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While a Delaware series is not a separate legal entity, a series may be a separate legal entity inother states. Nevertheless, a Delaware court has ruled that a Series may file a lawsuit in its ownname. GxG Management LLC v. Young Brothers and Co., Inc., 2007 WL 551761 (D. Me. 2007).

1. Illinois. A series is treated as a separate entity to the extent set forth in thearticles of organization; each series with limited liability, may, in its own name, contract, holdtitle to assets, grant security interests, sue and be sued and otherwise conduct business andexercise the powers of an LLC. 805 ILCS 180/37-40(b).

2. Iowa. The Iowa LLC Act provides that a series “shall be treated as aseparate entity to the extent set forth in the certificate of organization.” Iowa Code Ann. §489.1201.3.

3. District of Columbia. The articles of organization may provide that aseries be treated as a separate entity from the LLC, other series of the LLC, or members of theLLC. D.C. Code § 29-802.06(i). A series of an LLC has the capacity to sue and be sued in itsown name and the power to do all things necessary or convenient to carry on its activities. D.C.Code § 29-802.06(j).

4. Kansas. A series with limited liability shall be treated as a separate entityto the extent set forth in the articles of organization. Kan. Stat. Ann. § 17-76,143(b).

5. Missouri. A series with limited liability shall be treated as a separateentity to the extent set forth in the articles of organization. Mo. Rev. Stat. § 347.186 (4).

V. TAX TREATMENT.

A. Federal Income Tax.

Federal tax law controls the question of whether each series is a separate taxpayer. See Treas.Reg. § 301.7701-1(a)(1). A series organized or established under U.S. federal or state law,whether or not a juridical person for local law purposes, is treated as an entity formed under locallaw. Prop. Reg. § 301.7701-1(a)(5)(i).

1. Private Letter Ruling. PLR 200803004 concluded that each separateseries of a series LLC with more than one owner constituted a partnership, and each separateseries of a series LLC with one owner constituted an entity disregarded as an entity separate fromits owner for federal tax purposes. The Service also concluded that each separate series of aseries LLC was entitled to choose its own entity classification independent of the classificationof other series of the LLC. The ruling does not contain any detailed analysis, but the taxpayermade the following representations that IRS presumably relied on in issuing the ruling:

•Allocations of taxable income, gain, loss, deduction, and credit of each separateseries will be made separately and in accordance with Sections 704(b) and (c).

•The members of each separate series will share in the income and such otheritems only of that series.

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•The interest of members of each separate series will be limited to the assets ofthat series on liquidation, redemption, or termination.

•Each separate series will have its own investment objectives, policies, andrestrictions.

•Members of each separate series will vote only with respect to matters affectingthat particular series.

•The claims of creditors of each separate series will be limited to the assets of thatseries.

While the available guidance from the Service is limited, in many instances each separate seriesof a series LLC should constitute a separate entity for federal tax purposes. Because the analysisof whether a separate entity exists is fact intensive, however, a separate determination generallywill be required with respect to each series LLC to determine whether one or multiple entitiesexist. Factors that may indicate each series is a separate entity could include:

•Liability separation—the liabilities of each series may be satisfied only bylooking to the property of that series, and creditors of a series may not look to theincome or assets of any other series for payment. Under the proposed IRSregulations, a series will not cease to be a state law entity simply because itguarantees the debt of another series within the series organization.

•Separate business—each series conducts a separate business.

•Independent ownership—the members and/or their ownership percentages varyfrom series to series.

•Governance—the members of each series vote only on matters with respect totheir series.

•Separate books and records—each series maintains separate books and recordswith respect to the assets and operations of that series.

•Separate economics—the economics of each series (i.e., assets, liquidating andnonliquidating distributions, and allocation of profit and loss) are shared solelyamong the members of that series.

2. Similar Case & Rulings. Under somewhat similar law dealing with thefederal tax classification of Delaware series trusts, the more separate the property and obligationsof each trust series from the property and obligations of every other trust series, the more likelythe Service and the courts are to find that each trust series constitutes a separate entity for federaltax purposes. See, e.g., National Securities Series—Industrial Stock Series,13 T.C. 884 (1949),acq.; Rev. Rul. 55-416 and PLR 9847013.

3. IRS Proposed Regulations. Prop. Reg. § 301.7701-1(a)(5) do not referspecifically to series LLCs but rather to series organizations. However, the Preamble to the 2010

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Proposed Regulations specifically refers to series LLC statutes in various enumerated states andindicates other states that enact such a law will have a series statute. The Proposed Regulationsdo not address employment tax liability or foreign series organizations, except foreign insurancecompanies. Thus, it is not clear if each series is a separate entity for employment tax liability,and the same LLC member or manager might be a “responsible person” for more than one seriesor the series organization itself.

In general, the 2010 Proposed Regulations will apply on the date final Regulations are publishedin the Federal Register. The treatment set forth in the Proposed Regulations is not elective; it ismandatory. A “series” established under state law is treated as an entity formed under local law,for purposes of the check-the-box regime, even if under local law it is not treated as such. Prop.Reg. § 301.7701-1(a)(5)(i). Thus, each series and the LLC itself must file their own tax return.The proposed regulations also state that the tax classification of the series is determined using thetraditional check-the-box analysis. Prop. Reg. § 301.7701-1(a)(5)(iv). Under this analysis, anentity that is separate from its owner(s) and is not an ordinary trust or a corporation will beclassified as either a disregarded entity (if it has one owner) or a partnership (if it has two ormore owners), unless it makes an election to be treated as an association taxable as a corporation.Treas. Reg. § 301.7701-3.

Neither the Delaware statute nor the Proposed Regulations specify how members are to be"associated" with a particular series. The Delaware statute leaves it to the LLC agreement tospecify how members are associated with a particular series and their relative rights.

a. Income Tax Filing Requirements. Since the proposed regulationstreat a series as a separate entity for federal tax purposes even though it might not be a separateperson under state law, the proposed regulations require that statements be filed annually by eachseries and series organization. Prop. Reg. § 301.6011-6. The Service has not yet indicated whatthat information should be. Prop. Reg. § 301.6011-6(a).These statements are not required to befiled until the proposed regulations are finalized. Prop. Reg. § 301.6011-6(c). When filing isrequired, the statements will be due on or before March 15 of the year following the period forwhich the return was filed.

b. One Return vs. Multiple Returns; Series As Disregarded Entities.There is a potential under the Proposed Regulations for either the series organization to own theinterests in the series or for members of the series organization that are associated with a series tobe treated as owning interests in the series for federal income tax purposes. In many situations,the distinction may be clear. If all the members in the series organization have their return fromthe series blended at the series organization level and the documents themselves state that theseries are owned by and associated with the series organization, there may be little ambiguitythat the series should be treated as disregarded and that the series organization and the seriesshould be collectively treated as a single tax entity. If, however, the members take their returnfrom each series separately, without reduction or increase by losses or income from other series,and the documentation states that groups of members are associated with particular series, therewould be little ambiguity that the series should be treated as multiple tax entities.

c. Pre-Sept. 14, 2010 Series Can Be Treated As One LLC.

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There is an exception that allows all series to be treated as one entity if 6 tests are met and nopersons who were not owners prior to September 14, 2010 in the aggregate acquire a 50% ormore "interest" in any part of the series LLC. Prop Reg §301.7701-1(f)(3)(ii)(A) says that ataxpayer's treatment of a series in a manner different than required by the final regulations willbe respected on and after the date final regulations are published if all of the following tests aremet:

(1) The series was established prior to September 14, 2010;(2) The series (independent of the series organization or other series of the series organization)conducted business or investment activity, or, in the case of a series established pursuant to aforeign statute, more than half the business of the series was the issuing of insurance or annuitycontracts or the reinsuring of risks underwritten by insurance companies, on and prior toSeptember 14, 2010.(3) If the series was established pursuant to a foreign statute, the series' classification wasrelevant (as defined in §301.7701-3(d)), and more than half the business of the series was theissuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurancecompanies for all taxable years beginning with the taxable year that includes September 14,2010;(4) No owner of the series treats the series as an entity separate from any other series of theseries organization or from the series organization for purposes of filing any Federal income taxreturns, information returns, or withholding documents in any taxable year;(5) The series and series organization had a reasonable basis (within the meaning of section6662) for their claimed classification; and(6) Neither the series nor any owner of the series nor the series organization was notified inwriting on or before the date final regulations are published in the Federal Register thatclassification of the series was under examination (in which case the series' classification will bedetermined in the examination).

New 50% or more owners exception. Prop Reg §301.7701-1(f)(3)(ii)(B) provides that the rulesabove will not apply on and after the date any person or persons who were not owners of theseries organization (or any series) prior to September 14, 2010 own, in the aggregate, a fiftypercent or greater interest in the series organization (or series). For purposes of the precedingsentence, the term interest means—(1) In the case of a partnership, a capital or profits interest; and(2) In the case of a corporation, an equity interest measured by vote or value.Thus, if a series is not subject to special tax status rules applicable to REITS, REMICS or trusts,or otherwise classified as a per se corporation, it will be treated as a “business entity” eligible forclassification as a corporation (upon election) or as a partnership (if it has at least two members)or a disregarded entity (if it has only one member).

Example. Proposed Treasury Regulation § 301.7701-1(a)(5)(x) (Example 1) provides thefollowing example. Domestic Series LLC is a series organization. Series LLC has three members(1, 2, and 3). Series LLC establishes two series (A and B) pursuant to the LLC statute of state Y,a series statute within the meaning of paragraph (a)(5)(viii)(B). Members 1 and 2 are the ownersof Series A, and Member 3 is the owner of Series B. Series A and B are not described in§301.7701-2(b) or paragraph (a)(3) of this section and are not trusts within the meaning of

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§301.7701-4. Series A and Series B are each treated as an entity formed under local law. Thedefault classification under §301.7701-3 of Series A is a partnership and of Series B is adisregarded entity.

Importantly, the proposed regulations state that the result may be the same even in thoseinstances in which the liabilities and obligations of one series may be paid from the assets ofanother series or the series organization.

4. EIN. Until the IRS adds the Series LLC to the list of legal structuresapplying for an EIN and addresses the many issues raised by a Series LLC in the current EINonline application process, the best approach to apply for EINs for a Series LLC is describedbelow. One issue with the current system is the IRS’s limit of one EIN per day per responsibleparty. It will take three days to apply for three series EINs, and four days 4 if the umbrella LLCalso applies for an EIN.

If one wants to file one tax return for an entire Series LLC, then the LLC and each series couldbe treated as disregarded entities without their own separate Tax ID/ EIN and file their taxes onone return. However, if each series has different businesses, or different ownership, a separateEIN for each series seems to be the appropriate choice. If each series of an LLC owns a separatepiece of real estate and the parent LLC and each series have the same ownership, one EIN shouldbe sufficient.

When applying for an employer identification number (“EIN“) on IRS.gov you must provide thelegal name of the LLC that is applying for the EIN. The dilemma presented to applicants is thatthe name of the LLC on file with the Texas Secretary of State (and the one that should thereforebe used) will not match the name of the particular series for which you are applying for an EIN.And if you have multiple series inside the LLC you will not be permitted to use the name of theLLC on subsequent applications for additional series.

For example, if the legal name of the LLC is PARENT, LLC, a Texas limited liability company,then the legal name used for the EIN application is PARENT LLC [the comma is omitted on theEIN application as IRS.gov does not permit the use of special characters). If, however, the legalname of the LLC is PARENT, LLC, a Texas series limited liability company, then the same legalname is used as in the previous example (i.e., PARENT LLC).

How does a series of PARENT, LLC apply for an EIN? One approach is to use both the seriesname and the LLC’s name in the EIN application. For illustration, let’s assume series LLC’slegal name is PARENT, LLC, and assume the first series is 123, LLC, an individual series ofPARENT, LLC, a Texas series LLC. Using this example, the legal name on the online EINapplication would be 123 LLC, a series of PARENT, a Texas series LLC

Now, when applying for an EIN for 456, LLC–the second series–I am able to (1) obtain an EINfor this individual series of the company and (2) notify the IRS that this company is a series of aTexas LLC.

Neither the IRS, nor the public, will find a Certificate of Formation in Texas for 123, LLC. What

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can be found, however, is an assumed name (fictitious name) certificate for 123, LLC thatidentifies it as a series of PARENT, LLC.

5. Employment & Employee Benefit Issues. For both employment andemployee benefit purposes, a variety of issues arise if a series is treated as the employer forfederal tax purposes but the umbrella series organization is treated as the employer for state lawpurposes. The Preamble to the Proposed Regulations notes that several requirements must besatisfied to be treated as an "employer." It is not clear how the requirements should apply toseries. Treasury and the IRS have requested comments on how these issues should be addressed.

B. State Tax Treatment.

1. California. The California Franchise Tax Board has stated its position thateach component series of a Series LLC, “for example a Delaware Series LLC,” is treated as aseparate LLC and must file its own Form 568, Limited Liability Company Return of Income, andpay its own separate LLC annual $800 tax and fee if it is registered or doing business inCalifornia, and state income tax per series of zero to $11,790 based on gross California receipts.See California 2013 Limited Liability Company Tax Booklet, Section F, p. 7; FTB 3556 LLCMEO p. 4 (Rev. 11-2013). “... the same filing guidelines and estimated taxes that apply to aregular LLC will apply to each unit of a series LLC.” FTB 1123, Guide to Forms of Ownership17 (2013).

2. Delaware. In a Private Letter Ruling dated September 16, 2002, theDelaware Department of Finance, the Division of Revenue, ruled that (1) each “series” of theLLC will be disregarded for purposes of Delaware taxation since a series is merely a segregationof assets and liabilities within a Delaware limited liability company, and each series will bewholly-owned by the taxpayer for purposes of federal income taxes; and (2) any transfer ofassets among the series will be treated as assets among or within the same entity, triggering noDelaware taxes so long as the assets remain within the LLC.

3. Florida. One of the earliest state rulings on federal-state conformity wasFlorida Department of Revenue Technical Assistance Advisement (TAA) No. 02(M)-009 (Nov.27, 2002), in which the DOR indicated that it will follow the federal income tax treatment ofeach series in an LLC, unless that treatment conflicts with Florida law.

4. Illinois. “The limited liability company and any of its series may elect toconsolidate their operations as a single taxpayer to the extent permitted under applicable law....”805 ILCS 180/37-40(b). ST 13-0046-GIL said that Illinois will follow the proposed federalregulations.

5. Kansas. The LLC and any of its series may consolidate their operations asa single taxpayer, without affecting the limitation of liability. Kan. Stat. Ann. § 17-76,143(b).

6. Massachusetts. Massachusetts Letter Ruling 08-2 (Feb. 15, 2008) ruledthat “each LLC Series and any additional series established by LLC in the future will beclassified for Massachusetts income and corporate excise tax purposes in accordance with itsfederal classification. We do not rule on whether each series of an LLC is a separate LLC.”

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7. Tennessee. For Tennessee franchise and excise tax purposes, a SeriesLLC (referred to as a Master LLC) and each individual series must file its own separate return ifthe Series LLC and each individual series are wholly-owned by a limited partnership. Tenn.DOR Ltr. Rul. 11-42 (2011). Although the Tennessee DOR looks to the proposed federalregulations in addressing the classification issue, Tennessee’s franchise and excise tax lawdeparts from federal law and grants disregarded entity status to a single-member LLC only if it isowned by a corporation. Therefore, in order to be disregarded for Tennessee franchise andexcise tax purposes, a series must be (1) a single-member LLC that is (2) disregarded for federaltax purposes, and (3) whose single member is a corporation. See, Carter and Long, TennesseeIssues Guidance on Tax Treatment of Series LLCs, State Tax Today, November 28, 2011.

Tenn. DOR Notice #13-15 (Nov. 2013). Provides guidance regarding registration and filingrequirements for series LLCs. Notice #13-16 provides guidance on whether an SMLLC isdisregarded for franchise and excise tax purposes.

8. Texas. In contrast to California, for Texas franchise tax purposes a seriesLLC is treated as a single legal entity. It pays one filing fee and registers as one entity with theTexas Secretary of State. The Series LLC files one franchise tax report and one PublicInformation Report as a single entity, not as a combined group, under its Texas taxpayeridentification number. If one of the series has nexus in Texas, the entire series LLC has nexus inTexas. A series LLC files one state margin tax return. See, Texas Comptroller of PublicAccounts, Franchise Tax FAQs, Question 19 (updated 2014). Accord, Tex. Comptroller Priv.Ltr. Rul. 201005184 (May 5, 2010).

VI. DRAFTING & OTHER PRACTICAL ISSUES.

A. Ownership.

Practitioners should clearly specify the rights and benefits of persons that are to be "associated"with the series. This is particularly important if taxpayers want to create a structure in which theseries organization is a holding company with multiple wholly owned series that are to bedisregarded as separate entities for federal tax purposes. In this event, the relevant agreementsshould clearly indicate that the series organization exercises all management of the series andowns all economic interests of the series.

B. Effectiveness Of Series Liability Shield In Non-Series States.

The internal affairs doctrine provides that the state law where an LLC is formed governsquestions about the internal affairs of the entity, its managers and members. However, thisdoctrine probably will not govern a third party creditor who is not an owner or otherwiseassociated with the LLC except by contract or as a creditor. Thus, for a series LLC that operatesin a non-series state, there will be a question whether the non-series state will respect the internallimited liability shield of the series.

For example, section 801(a) of the Uniform Limited Liability Company Act (2006) provides that"[t]he law of the state or other jurisdiction under which a foreign limited liability company isformed governs: (1) the internal affairs of the company; and (2) the liability of a member asmember and a manager as manager for the debts, obligations, or other liabilities of the

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company." Most states have similar provisions in their partnership and LLC statutes.

The liability that is of concern here, however, is not the liability of a member or manager fordebts of the company; it is the liability of one part of the company for another part of thecompany. Practitioners should consider other legal theories for protecting the series liabilityshield and not assume that the internal affairs doctrine protects them. See the narrow reading ofthe foreign law recognition provision of the California LLC Act in Butler v. Adoption Media,LLC, 2005 WL 2077484 (N.D. Cal. 2005), in which the court read the reference to “internalaffairs and the liability and authority of its managers and members” to mean no more than acodification of the internal affairs doctrine, that is, it does not apply to disputes that includepeople or entities that are not part of the LLC, such as creditors. Therefore, the court appliedCalifornia law to an Arizona LLC doing business in California. Alphonse v. Arch Bay Holdings,LLC, 548 F. App’x 979 (5th Cir. 2013), on remand on a procedural issue, 2014 WL 6674029(E.D. La. Nov. 24, 2014) remanded the case to the district court to consider the choice of lawquestion where a series LLC was involved.

Some series LLC states address the limited liability question of a foreign series doing business inthat state, and others do not. Some statutes with series provisions have specific provisions thatrecognize the internal liability shield of a foreign LLC. E.g., 805 ILCS § 80/37-40(a); Okla.Stat. § 2054.4.M. The D.C. Act provides that the law of the jurisdiction of the formation of aforeign LLC governs the liability of a series of a Series LLC. D.C. Code § 29-105.01(a)(3).Derived from Uniform Business Organizations Code § 1-501(a)(3). Kansas and Missourirecognize the internal shield of a foreign series. Kan. Stat. Ann. § 17-76,143(o); Mo. Rev. Stat.§ 347.186.6 (2).

Although Florida and Texas require the registration of a series of a foreign LLC that transactsbusiness in that state, their statutes do not address the subject.

C. Registration of Foreign Series LLC.

1. California. The Secretary of State requires a good standing certificate forregistration but most states do not issue those for a series .Thus, the registration will have to befor the foreign umbrella Series LLC, not an individual series.

2. Delaware. If a foreign LLC that is registering to do business in Delawareis governed by an agreement that provides for a series, the application shall state that the debtswith respect to a particular series are enforceable against only the assets of that series. Del. CodeAnn. tit. 6, § 18-215(n).

3. Florida. Pursuant to F.S.A. § 605.0902(3), the Florida Department ofState may require each individual series or cell of a foreign series LLC that transacts business inFlorida to make a separate application for a certificate of authority as if each series or cell were aseparate foreign limited liability company. A foreign series must list its name on the application,furnish a certificate of good standing for the foreign umbrella series LLC. If the good standingcertificate does not indicate or specify the formation of a “foreign series LLC,” submit a coverletter stating that fact.

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4. Illinois. Form LLC-45.5(S) (Application for Admission to TransactBusiness for a Foreign Series LLC). This application is accompanied by a Certificate of GoodStanding or Existence, duly authenticated within the last 60 days by the officer of the state orcountry wherein the LLC is formed. If the Certificate of Good Standing or Existence does notaffirm the ability to establish series, this application also is accompanied by a duly authenticatedcopy of the Articles of Organization as amended.

5. Kansas. The series of a foreign LLC may register to do business in thestate. Kan. Stat. Ann. § 17-76,143(o). Form LTB 51-33 (Rev. 11/6/12). (Foreign SeriesLimited Liability Company Application for Admission to Transact Business), also requires that acertificate of designation be filed for each series being registered to do business in the state.

6. Missouri. The Missouri Act provides that a foreign LLC, “on behalf ofitself or any of its series, or any of its series on its own behalf may register to do business in thisstate in accordance with this chapter.” Mo. Rev. Stat. § 347.186.6 (2).

7. Texas. The Texas Act specifies supplemental information that must beincluded in the application for registration of a foreign LLC, the agreement for which providesfor a Series. V.T.C.A., Bus. Org. Code § 9.005(b). The instructions for Form 304 (Rev’d 5/11),the application form for registration of a foreign LLC, state that Form 313 rather than Form 304is to be used for a Series LLC. Form 313 (Revised 5/11) (Application for Registration of aForeign Series Limited Liability Company). The Commentary for the form states that a serieslimited liability company that is treated as a single legal entity under the laws of its jurisdictionof organization is treated as a single legal entity for purposes of registration. By comparison, theTexas Foreign or Out-of-State Entities FAQs, item 7 states “A series LLC formed under the lawsof another jurisdiction will be treated as a single legal entity for qualification purposes. The LLCitself rather than the individual series should register as the legal entity that is transactingbusiness in Texas.” The instructions to Item 6 of the form direct the applicant to check eachstatement that describes each of the characteristics specified.

If any series of a foreign LLC transacting business in Texas transacts business under a nameother than the name of the LLC, the LLC must file an assumed name certificate. Form 503.According to the Commentary, the assumed name certificate must contain the legal name of theentity as contained in its certificate of formation or comparable document filed with the secretaryof state.

8. Utah. The Utah Division of Corporations and Commercial Code hasissued “Frequently Asked Questions for a Foreign Series LLC.” The Division states that aforeign Series LLC may register and file an application, and a certification of goodstanding/existence from the state of organization must also be filed with the application. As withCalifornia, that suggests that the Series LLC, not merely an individual series, must register.

D. Charging Orders.

Is the entry of a charging order, which is the exclusive remedy by which a judgment creditor of amember or assignee may satisfy a judgment out of the judgment debtor’s LLC interest,applicable to the interest of a member associated with a series?

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Texas and Kansas provide that to the extent not inconsistent with the series subchapter, the LLCchapter applies to a series and its associated members and managers. V.T.C.A. Bus. Org. Code §101.609(a); Kan. Stat. Ann. § 17-76,143(j).

E. Signing Contracts & Documents.

To avoid personal or umbrella LLC liability, a contract should be in the name of the series. Asample signature block is as follows:

“XYZ Series, a Separate Series of ABC, LLC, a Kansas limited liability company

By: __________________

Name:___________________

Title:__________________

F. Series Contractual Limitation Of Liability.

____________________ acknowledges that it has been advised that Series is a separate series of________________, a Delaware limited liability company (the “Company”) and that such Serieshas been established as provided in Section 8-215 of the Delaware Limited Liability CompanyAct (“Act”); accordingly, as provided in such provision of the Act, the debts, liabilities, andobligations incurred, contracted for, or otherwise existing with respect to the Series shall beenforceable only against the assets of the Series in such capacity and not against the assets of theCompany or any other series thereof. Notwithstanding anything contained in this Agreement,__________________ agrees to such limitation on liability and further agrees that: (i) it shalllook solely to the assets of the Series from time to time for the satisfaction of any debt, liability,or obligation arising under or out of the transactions contemplated by this Agreement, (ii) it shallhave no recourse to any assets of the Company or any other series established by Company forthe satisfaction of any such debts, liabilities, or obligations, and (iii) it hereby waives andrelinquishes any right to pursue any assets of Company or any other series established byCompany for the satisfaction of any such debts, liabilities, or obligations.

G. Fraudulent (Voidable) Transfers.

The Uniform Fraudulent Transfer Act, revised in 2014 as rhe Uniform Voidable TransactionsAct (2014) new Section 11(b) provides that a series organization and each protected series of theorganization is a separate person for purposes of the Act, even if a protected series is not aperson separate from the organization or other protected series of the organization.

If a series is not a legal person, then no disposition of the property allocated to it to another seriesor to the primary LLC can be a voidable transfer under the UFTA. That is because a “transfer”avoidable under the UFTA or UVTA can be made only by a “person.” UFTA § 1(9) (1984)(“person”); id. § 1(12) (“transfer”); UVTA §§ 1(11), 1(16) (2014). As a result, if the series is nota legal person, an LLC’s insolvent Series A could convey an asset without adequateconsideration to Series B, and a creditor of Series A could not reach that asset in the hands ofSeries B. The liability shield provided by the law enabling the creation of the series allows the

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creditor of Series A to pursue only property of Series A, and the conveyance of the asset inquestion could not be avoided under the UFTA. Section 11 of the UVTA simply states thatSeries A is deemed a legal person for purposes of the UVTA, whether or not it is considered alegal person for other purposes.

This result arguably could be reached without new section 11. The UFTA and its successor theUVTA is not the exclusive law of voidable transfers. The official comments describe twosituations in which it would be appropriate for a court to invoke common law to avoidconveyances of property that should be avoided under the spirit of the act but that, for more orless technical reasons, are not subject to the act. UVTA § 1 cmt. 2 para. 6 (2014). A conveyanceby a series to another series without consideration is very similar.

A state whose law does not enable organizations to create series should nonetheless enact section11 because choice of law considerations might result in a transfer made by a series of anorganization formed under the law of State X being governed by the voidable transfer law ofState Y, which does not empower organizations to create series. Even if State Y rejects the seriesconcept there is no downside to its enactment of section 11. The comments to section 11 make itclear that enactment of section 11 is not endorsement of the series concept. UVTA § 11 cmt.para. 2 (2014).

H. Secured Transactions - UCC Revised Article 9;.

A separate Delaware series is likely not a “registered organization” within the UCC RevisedSections 9-102(70) and 9-503(a)(1). It may be “other cases” under 9-503(a)(4), in which does(4)(A) or (4)(B) apply? An Illinois, D.C., Iowa, or Kansas series, which requires the filing of acertificate of designation, should be treated as a registered organization.

Under the express provisions of the umbrella UCC, qualifies as a “Registered Organization” andthe filings may be made in its name with a precise description of the assets that are security.Creditors have a long track record of limiting their security interests in specific assets, and thenewness of Series LLCs does not change a long established UCC practice. Second, if you wantto include Series itself to be the debtor, then precise information about the Series should be onfile with the secretary of state. Where this is not required, as in Delaware, the Articles shouldcontain the distinct name Series name and list of the purpose and governing persons andmanagement structure. For discussion of the “uncertainty as to the identity of its debtor, itsdebtor’s name, and how to complete and where to file a financing statement,” see Powell, SeriesLLCs, the UCC, and the Bankruptcy Code – A Series of Unfortunate Events, 41 U.C.C. L.J. #2,101, 110 (2008).

I. Bankruptcy.

A bankruptcy petition may be filed by, inter alia, corporations and partnerships. LLCs areeligible debtors in bankruptcy, See In re ICLNDS Notes Acquisition, LLC, 259 B.R. 289, 292(Bankr. N.D. Ohio 2001)(holding an LLC eligible because it draws its characteristics from bothcorporations and partnerships and, therefore, “is similar enough to those entities to be eligible”);In re 4 Whip, LLC, 332 B.R. 670 (Bankr. D. Conn. 2005)(holding a de facto, imperfectlyformed, LLC may be a debtor in bankruptcy.

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May a separate series that is insolvent file a bankruptcy petition separate and apart from theLLC? A bankruptcy petition may be filed by any “person.” 11 U.S.C. § 109 (a). “Person”includes an individual, partnership, or corporation. 11 U.S.C. § 101(41), but does not include anestate or trust (other than a business trust). 11 U.S.C. § 101(15). It is unclear whether a seriesthat is not defined as an “entity” under state law, such as Delaware, may be a “person” under theBankruptcy Code. According to one commentary, “...it would appear that an individualDelaware series is not a ‘person’ for purposes of federal bankruptcy law and, therefore, cannotfile a petition in bankruptcy without statutory authority.” Conaway and Tsoflias, The DelawareSeries LLC: Sophisticated and Flexible Business Planning, 2 Mich. J. of Private Equity &Venture Capital Law 97, 124 (2012).

The other unresolved issue is whether the series limited liability will be respected in bankruptcy.To support separate treatment of a Series, careful records and steps to avoid veil piercing need tobe applied to the Series LLC operations to prevent consolidation.

J. Titling Assets.

Some states allow assets to be titled in the name of a series. While that would generally seem tobe a good idea, there could be special issues involving conveyance of good title, especially withreal estate. Real estate transactions rarely take place without a title insurance policy beinginvolved, and it appears that some title insurance companies are not willing to write titleinsurance policies in the name of a series. Similarly one can expect difficulties with lenders whoare asked to make loans to a series. Lenders invariably want a certificate of good standing (or taxclearance) and a certificate of good standing from the Secretary of State for a borrower that is anentity. In some states, such as Texas, the only certificate of good standing that can be issued bythe Comptroller or certificate of fact (existence) issued by the Secretary of State is for theumbrella LLC – not the series,

Where there are no lender or title insurance issues, a real estate deed could read as follows:____________________ (“Grantor”), for and in consideration of the sum of $10 and other goodand valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hasGRANTED, BARGAINED, SOLD, and CONVEYED and by these presents does GRANT,BARGAIN, SELL, AND CONVEY unto XYZ SERIES, A SEPARATE SERIES OF ABC,LLC, A TEXAS LIMITED LIABILITY COMPANY (“Grantee”), etc.

Delaware. The 2007 amendment specifies that assets may be titled in the name of the series.Del. Code Ann. tit. 6, § 18-215(c). The Act further provides: “Assets associated with the seriesmay be held directly or indirectly, including in the name of such series, and the name of thelimited liability company, through a nominee or otherwise.” Del. Code Ann. tit. 6, § 18-215 (b).

Illinois. Each series may in its own name hold title to assets, but the name of the series mustcontain the entire name of the LLC. 805 ILCS 180/37-40(b).

Texas. Assets associated with a series may be held in the name of the series or in the name ofthe LLC. V.T.C.A., Bus. Org. Code § 101.603(a).

K. Securities Law.

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There is little authority dealing with whether a series is a security for state and federal laws.

L. Mergers & Conversions.

A series many neither merge or convert to another type of entity.

M. Dissolution.

Series within an LLC may be terminated and wound up without terminating the umbrella LLC.However, dissolution of the umbrella LLC requires that all series within it must be terminated.Of course, the LLC Operating Agreement may specify the events or the time that will require theSeries within the LLC to terminate and wind up. 6 Del. Code §18-215(k). Additionally, themembers associated with the Series within the LLC, also have the right, by a two-thirds vote byinterest in profits under the statute, to terminate the Series within the LLC. 6 Del. Code §18-215(k)(3). These statutory provisions on the events requiring the termination and winding up ofthe Series within the LLC may be varied by the LLC Operating Agreement.