On January 1, 2017, Indiana joined thirteen (13) other states in recognizing series limited liability companies (“Series LLCs”). Series LLCs were first introduced by the state of Delaware in 1996. Now authorized by Indiana Code § 23-18.1 et seq. (“Indiana Series Statute”), this Article explains what you need to know about Indiana Series LLCs and their unique limited liability protections.
What are Series LLCs?
A Series LLC is a limited liability company (“LLC”) that has designated one or more divisions of members, managers or LLC interests within the LLC. Each division of members, managers or LLC interests within the LLC is called a Series.
To form an Indiana Series LLC, one must first file articles of organization with the office of the secretary of state that authorize the entity to designate one or more Series. The LLC formed by this filing is known as the Master LLC. A Master LLC must have an operating agreement. If the Master LLC’s operating agreement designates one or more Series, the Master LLC becomes a Series LLC.
Each designated Series of the Master LLC may have separate rights, powers, or duties from the Master LLC or other Series of the Master LLC with respect to: (a) specified property or obligations; or (b) profits and losses associated with specified property or obligations. If stated in the Master LLC’s operating agreement, each Series may also have a separate investment objective or business purpose. The governance of any Series may be set forth in the Master LLC’s operating agreement or in a separate agreement referenced in the operating agreement, called a Series Agreement.
Limited Liability of Series Interests.
If the Indiana Series Statute is complied with, a Series may shield its assets from the liabilities of the Master LLC and other Series within the Master LLC. Only Series of the Master LLC made up of LLC interests (“Series Interests”) may experience this limited liability.
For a Series Interest to experience limited liability, all of the following must occur: (1) the Master LLC’s operating agreement or a Series Agreement provides for limited liability; (2) the Master LLC’s operating agreement establishes or provides for the establishment of one or more Series; (3) records maintained for the Series Interest account for the assets associated with that Series Interest separately from the assets of the Master LLC and any other Series of the Master LLC; (4) the Master LLC’s articles of organization provide notice of the limitation of liability of the Series Interest; and (5) the Master LLC has filed articles of designation for the Series Interest with the secretary of state.
To associate assets with a particular Series Interest, records must be maintained for the Series Interest that reasonably identify its assets and account for those assets separately from the other assets of the Master LLC and any other Series of the Master LLC. So long as they are reasonably identified, the assets do not need to be held directly in the name of the Series Interest.
Articles of designation for a Series Interest are analogous to articles of organization for an LLC. Articles of designation are filed by the Master LLC and must contain the name of the Series Interest and state whether it is member-managed or manager-managed.
Each Series Interest that experiences limited liability must be treated as a separate entity to the extent provided in the Master LLC’s articles of organization and may generally conduct business and exercise the powers of a LLC. Unless specifically stated in the Master LLC’s operating agreement, its debts and liabilities are not enforceable against the assets of any particular Series, and the debts and liabilities of any Series are not enforceable against the assets of any other Series of the Master LLC.
Applying the Series LLC Structure.
The Series LLC structure can be used for any type of business and across a variety of industries. A Series LLC may be used in place of a single LLC to separate business segments or assets, thereby limiting liability among them. A Series LLC may also be used in place of multiple LLCs.
Instead of a traditional holding company structure where one entity is formed to own multiple operating or asset holding entities, a Series LLC can be formed with multiple Series Interests that act as the operating or asset holding structures. For example, a real estate investment company can be formed as a Series LLC where each of the properties it owns is associated with a separate Series Interest. This use limits liability among the various properties without the necessity of creating and maintaining an entity for each property. It also allows the company to offer different terms of investment for each property.
Another possible application of the Series LLC structure is for a private investment company. For example, an investment company can be formed as a Series LLC where each investment the company operates is associated with a separate Series Interest. This use allows members of the Series LLC to limit their liability to each investment they participate in while avoiding or reducing the time and expenses of preparing new agreed investment terms and generally applicable state and federal securities law disclosures.
Advantages of a Series LLC over Multiple LLCs.
There are two main advantages to forming a Series LLC instead of multiple traditional LLCs: (a) lower formation and entity compliance costs; and (b) streamlined administration.
Indiana has relatively low filing fees to form and maintain an entity, which makes the possible cost savings attributed to formation and compliance of an Indiana Series LLC insignificant for most businesses. The current cost to form a traditional LLC is Ninety Dollars ($90.00), while the cost to form a Master LLC is Two Hundred Twenty Five Dollars ($225.00). The possible savings with forming a Series LLC arise in forming each Series Interest, which costs only Thirty Dollars ($30.00) rather than the Ninety Dollars ($90.00) required to form a LLC. To offset the higher cost of forming the Master LLC, a Series LLC must form at least five (5) Series Interests to experience a net lower formation cost than multiple LLCs. A Series LLC is also less expensive to maintain than multiple LLCs because only the Master LLC is required to file a biennial business entity report rather than each Series LLC, which currently costs Twenty Dollars ($20.00) to file.
In Indiana, the more significant advantage in forming a Series LLC is the ability to streamline its administration. Rather than negotiating and documenting the terms governing each LLC in multiple operating agreements, the terms of the Master LLC’s operating agreement can apply to the Master LLC and generally to each Series. The specific terms governing each Series can be documented within the Master LLC’s operating agreement, or in a Series Agreement that applies to all Series (or there can be a Series Agreement for each Series).
The reduced time and cost of negotiating and preparing multiple agreements is most significant when there are numerous members and fewer separate Series Agreements. Consolidated agreements governing Series LLCs may also reduce the time and expense of complying with state and federal securities laws where the suitability of an investor can be established and disclosures applicable to the entire Series LLC can be made fewer times. It is not likely that a Series LLC will experience administrative efficiencies with regard to bookkeeping time because records of the assets associated with a Series Interest must be maintained separately to obtain limited liability, and, as discussed in more detail below, it is presently recommended that each Series Interest file separate tax returns.
Uncertainty Surrounding Series LLCs.
The greatest risk of using the Series LLC structure is the general uncertainty surrounding Series LLCs. Like traditional LLCs ten (10) years ago, Series LLC are untested in the courtroom. Therefore, the applicability of concepts like piercing the corporate veil are not known in the context of Series LLCs. And because of the differences among the Series LLC laws in the jurisdictions in which they are recognized, the limited precedent that has been created may not be applicable in Indiana.
Series LLCs are also not recognized in every state. Because it is also unclear whether states that do not recognize Series LLC will recognize each Series as a separate entity or their limited liability, a company that intends to operate in states that do not recognize Series LLCs should closely evaluate whether the benefits of a Series LLC outweigh the risk of uncertainty in those states. Additionally, it is not clear how a Series LLC will be treated in bankruptcy or under the uniform commercial code. For example, can a Series singularly file a petition for bankruptcy, or must the Master LLC or the entire Series LLC file? Similarly, is a financing statement effective against only a Series, or is it effective against the Master LLC or entire Series LLC as well?
Most significantly the IRS has not issued final regulations on the tax treatment of Series LLCs. In 2010, the IRS issued proposed regulations that generally allow each Series: (a) to be treated as a separate entity for federal income tax purposes; (b) to choose its own tax treatment under check-the-box regulations; and (c) to be liable for only the federal income tax liabilities of that Series. Until final regulations are promulgated, a Series LLC should continue to treat each Series as its own entity for federal tax purposes by obtaining separate employer identification numbers and filing separate federal tax returns.
For assistance with your questions about Series LLC or to discuss whether a Series LLC is right for your existing or future business, please contact Katie S. Cannon, Riley Bennett Egloff LLP.
 The following states and U.S. territories recognize Series LLCs: Alabama, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nevada, Oklahoma, Tennessee, Texas, Utah, and Puerto Rico.
 See Del. Ann. Code Title 6 §§ 18-215.
 Under the Indiana Series Statute, a foreign Master LLC may be authorized to transact business in Indiana, an existing LLC may elect to become a Series LLC, and certain domestic entities may elect that the surviving entity in a merger, consolidation, conversion or share conversion be a Series LLC. See I.C. §§ 23-18.1-3-1 through 23-18.1-3-3.
 These cost savings will be more significant in states with higher formation and compliance costs, and would be most significant if the Series LLC is registered with the SEC.
 See Prop. Treas. Reg. §§ 301.6011-6, 301.6071-2 and 301.7701-1(a)(5), 75 Fed. Reg. 55699 (November 8, 2010).
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