What is a Series LLC?
In the state of Iowa, “series LLCs” are permissible under Article 14 of Iowa’s Revised Uniform Limited Liability Company Act, also referred to as the Iowa Uniform Protected Series Act. A series LLC includes multiple (potentially unlimited in number) liability “baskets” (referred to as “protected series” in Iowa) under a single organizational umbrella and is tantamount to separately incorporating several different LLCs. Each protected series, or cell, in a series LLC has its own profits, losses, and liabilities and is legally separate from each other protected series. Series LLCs are so enticing because they provide a similar sense of limited liability to their “sub-LLCs”, protecting each sub-LLCs individual assets from causes of action against the assets of another sub-LLC. These “sub-LLCs” also have their own economic structures, members, managers, and assets.
The process of filing a series LLC is more arduous than that of filing a standard LLC. To establish a protected series, an LLC must first receive an affirmative vote or consent from all LLC members. Upon receiving member approval, a protected series may be created by filing a protected series designation with the secretary of state, signed by the company, stating the company’s name and the protected series to be established.
Similar to a standard LLC counsel should draft an operating agreement to govern the series LLC and each individual protected series. The operating agreement should generally set forth certain fundamental terms, including:
- Management Structure
- The method used to maintain separate and distinct records for each series
- The method for adding or dissolving series
- A statement that the debts, liabilities, and obligations incurred, contracted for, or otherwise existing with respect to a particular protected series shall be enforceable against the assets of that protected series only, and not against the assets of the series LLC generally
- Terms contemplating the death or disability of a member
- Indemnification rights (if any) in the event the LLC or a member is sued in connection with the business of the LLC
- Member Rights and Responsibilities
- The authority of members to bind the LLC and participate in day-to-day management
- The voting rights, if any, of each member in making certain key decisions
- The circumstances under which a member may withdraw from the LLC, and the way in which the member’s economic interest is calculated upon withdrawal
- The ability or restrictions of a member to sell or pledge its interest to a third party
- The circumstances and terms under which new members may be admitted
- Profit and Loss Allocation
- The ownership percentage of each member, or the way it is calculated at any given time
- The manner in which profits, losses, and expenses are allocated, and by whose authority
- The circumstances under which the LLC will be liquidated, and the priority of claims among the members upon liquidation