Virginia Series LLCs
Series limited liability companies, also called Series LLCs or SLLCs, are available as a business type in Virginia beginning on July 1st, 2021. Series LLCs allow for a tiered structure while offering liability protection. But are Series LLCs right for your business?
Published June 24, 2021, updated June 30, 2021.
Delaware was the first state in the US to offer Series LLCs back in 1996. Legislation was first introduced in Virginia in 2016 (House Bill 130) to bring a form of Series LLCs to the state, which was continued to 2017, but then the bill was left in a committee and didn’t move forward (HB 130). Legislation was again introduced later in 2017, but again was left in a committee (HB 1984).
It wasn’t until 2019 when legislation was successfully passed and signed by the Governor (HB 2272). A new Article 16, Protected Series, was created as part of the Virginia Limited Liability Company Act. The legislation had a delayed effective date of July 1, 2020. On April 22, 2020, the effective date was delayed (possibly because of COVID-19) to July 1, 2021 (HB 1149).
Virginia’s Series LLC laws are based on the Uniform Protected Series Act (UPSA).
What is a Series LLC, and what's the advantage over having multiple separate LLCs?
A Series LLCs consists of a main LLC with separate divisions or “sub-LLCs”, each called a “protected series” in Virginia, underneath it. Each protected series is legally distinct from the main LLC, as well as from each other (Va. Code 13.1-1089). (A protected series cannot, however, be an owner of the main LLC, nor can a protected series have its own series underneath it, but it can be a manager of the main LLC.) Each protected series is treated like a separate entity, with its own assets and liabilities. Each protected series can also be wound up or dissolved without affecting the main LLC or other protected series.
The assets of each protected series are legally separate from the other protected series and from the main LLC, as long as they are properly identified as being an asset of that protected series, meaning proper documentation is extremely important (Va. Code 13.1-1099.2).
A debt, obligation or other liability of the main LLC belongs solely to the main LLC, and a debt, obligation or other liability of a protected series belongs solely to that protected series (Va. Code 13.1-1099.7). The failure to observe the formalities of being a separate entity can be grounds to disregard this provision, so make sure each protected series is actually treated like its own LLC (Va. Code 13.1-1099.8).
Note, however, that all relevant statutory requirements must be met, or an asset of the protected series can be deemed to be an asset of the main LLC, and a creditor of a protected series can be deemed to be a creditor of the main LLC (Va. Code 13.1-1094).
In addition, each protected series can provide for different ownership arrangements. A “member,” or owner, of a protected series must be the main LLC itself or an associated member. An “associated member” of a protected series is one who is also a member of the main LLC. Not all members of the main LLC need to be associated members of each protected series. Even if a member of a main LLC is not an associated member of a particular protected series, they still have certain rights to obtain information about that protected series (Va. Code 13.1-1099.6). Associated members and the main LLC are treated just like a traditional LLC member, meaning that the only remedy for a creditor of a member to seize the member’s ownership interest is by a charging order from a court (Va. Code 13.1-1099.9).
The operating agreement, or governing document, of the main LLC governs the internal affairs of each of the protected series, and the relationships between each of the protected series and the main LLC (Va. Code 13.1-1092).
The main LLC and all protected series share the same registered agent (Va. Code 13.1-1097).
What are Series LLCs used for?
The most common use for Series LLCs is in the realm of real estate. Real estate developers or investors often create a separate LLC for each property that they own. This limits the liability between the properties - if one property is sued, that doesn’t affect the other properties. However, there is a lot of administrative work to create and maintain separate LLCs. A Series LLC lets each property be legally distinct from the other properties, but simplifies the administrative burden.
A Series LLC could be used in any context where a business wants to separate the liabilities of certain activities, assets, or lines of business from each other, without needing to create separate LLCs.
How do you form a Series LLC in Virginia?
The main LLC needs to be created first. Then, the main LLC will file, with the Virginia State Corporation Commission (SCC), a statement of protected series designation. After review, the SCC will issue a certificate of protected series designation, and the protected series is established (Va. Code 13.1-1095). The cost for filing each statement of protected series designation is $100. A statement to change or cancel a protected series has a filing fee of $25.A protected series’ name must begin with the full name of the main LLC and contain the phrase “protected series" or the abbreviation "P.S." or "PS" (Va. Code 13.1-1096).
The main LLC and each protected series will need to pay an annual registration fee of $50 (Va. Code 13.1-1099.1).
The SCC has recommended statement of protected series designation forms with instructions to form, change or cancel a protected series:
- Statement of Protected Series Designation by a Virginia Limited Liability Company (Form LLC1095A): PDF | Word
- Statement of Designation Change of a Virginia Protected Series by a Virginia Series Limited Liability Company (Form LLC1095E): PDF | Word
- Statement of Designation Cancellation of a Virginia Protected Series by a Virginia Series Limited Liability Company (Form LLC1099.12): PDF | Word
What are some drawbacks to Series LLCs?
There is legal and taxation uncertainty with Series LLCs. As the Series LLC is so new in Virginia, there are no court cases or decisions yet regarding how certain statutes and provisions could be interpreted in the future. There also has been no guidance yet from the Virginia Department of Taxation as to how protected series or Series LLCs will be taxed, such as whether they will be taxed together or separately (although in most other states the series are not treated as separate entities for tax purposes). In addition, there’s still uncertainty with how a bankruptcy court would treat a Series LLC - for example, if one protected series can file for bankruptcy on its own, or if the whole Series LLC would need to enter bankruptcy.
A Series LLC may not be cheaper or easier to handle than separate LLCs. As the main LLC and each protected series need to pay a filing and annual registration fee in Virginia, there’s no cost savings there. In addition, the structure of the Series LLC makes it more complex, and could actually lead to more administrative time and costs. Under IRS proposed regulations issued in 2010, each protected series is treated as a separate entity for federal taxation purposes.
A Series LLC also cannot convert to a different type of entity or domesticate as a foreign limited liability company (Va. Code 13.1-1099.15). A Series LLC may only merge with another LLC (Va. Code 13.1-1099.16). A protected series cannot be a party to a merger or convert to a different entity type (Va. Code 13.1-1099.14).
A little less than half of other states allow Series LLCs, so it may be difficult to move the business to another state (“domesticate” it there), or even register it as a foreign entity in another state, if a Series LLC is not an option in that state. A different state which doesn’t recognize a Series LLC may treat each protected series as its own LLC anyway. (The other states and territories that currently allow a form of Series LLCs are Alabama, Arkansas, Delaware, D.C., Illinois, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Wisconsin and Wyoming. Some states, like California, do not authorize the formation of domestic Series LLCs, but allow for registration of foreign Series LLCs.)
Have more questions about setting up a Series LLC, or which structure is right for your business?Contact us to set up a free consultation.
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