What Are Separate Series Agreements and Do I Need Them?

Many business owners familiar with traditional LLCs know that LLCs are controlled by an Operating Agreement. An LLC Operating Agreement is a private contract between an LLC’s members establishing their ownership percentages and management responsibilities in the company.

Series LLCs also use Operating Agreements. However, managing a Series LLC the right way requires preparing an additional set of documents called “Separate Series Agreements.” Separate Series Agreements are important for preventing disputes between Series LLC members and protecting company assets.

We cover what Separate Series Agreements are, what they should include, and why they are important.

What Are Separate Series Agreements in a Series LLC?

A Separate Series Agreement is essentially a mini-Operating Agreement for an individual protected series under a Series LLC. These Agreements are private contracts signed by the Members of a Series LLC who are also Members associated with that particular protected series.

A Series LLC is able to establish an unlimited number of separate cells, called “protected series”. A protected series has its own limited liability shield, similar to an LLC. If members properly associate business assets with a particular protected series, these assets receive protection from the liabilities of each other protected series therein and the Series LLC as a whole.

“Separate Series Agreements are important for clearly defining the ownership and management responsibilities of everyone involved in a Series LLC.”

For example, a serial entrepreneur operating multiple e-commerce websites can associate each online store with its own protected series. This way, the assets of any individual store, like its inventory, should not be subject to the liabilities of a separate store.

How to Prepare a Separate Series Agreement.

A well prepared Separate Series Agreement should include the following:

  • List the Series Members.

A Separate Series Agreement should list which Series LLC members are associated with a particular protected series. The Agreement should also detail each member’s individual ownership percentage in the protected series.

Series LLC members are able to structure the ownership of their company in any way that they want, so long as all members consent to the arrangement. This also applies to protected series. A member can maintain ownership in the Series LLC company as a whole without having ownership of any protected series.

It is advisable to include all members as owners of each protected series proportional to their percent interest in the Series LLC company as a whole. This simplified arrangement can reduce the likelihood of disputes between business partners.

Members of a Series LLC can be susceptible to becoming jealous of the success of other businesses held by separate protected series. By including all members in the ownership of each protected series, Series LLC owners can better align incentives and avoid internal conflicts.

“A Member can maintain ownership in the Series LLC company as a whole without having ownership of any protected series.”

  • List the Series Managers

Separate Series Agreements should name the managers of the protected series. Managers are authorized to carry out specific actions on behalf of the series. These may include:

    • Opening and closing business bank accounts;
    • Managing associated business assets;
    • Buying and selling property, and
    • Making necessary legal decisions.

Series LLC members themselves can be managers of a protected series. However, members can also appoint third party managers. A protected series can even list a business entity, like another LLC, as its manager. Series LLC members can maintain ownership in a protected series without having any management responsibilities pertaining to that series.

Separate Series Agreements should clearly define the management responsibilities of each individual involved in a protected series. Properly documenting the distinct responsibilities of each member or manager becomes increasingly important as the Series LLC organization grows and adds more protected series.

“Series LLC Members can maintain ownership in a protected series without having any management responsibilities pertaining to that series.”

  • Identify the Purpose of the Series

A Separate Series Agreement can include a “purpose” clause that limits the use of a protected series to certain activities.

A typical LLC Operating Agreement authorizes a company to engage in any lawful business activities. However, Series LLC members often establish protected series for specific purposes, whether it be to maintain an operating business, own a piece of machinery, or hold title to an income producing property.

Series LLC members can reduce the risk of conflict by limiting how a protected series can be operated. Members can achieve this by including a purpose clause in the Separate Series Agreement.

Why Are Separate Series Agreements Important?

Separate Series Agreements are important for clearly defining the ownership and management responsibilities of everyone involved in a Series LLC. Separate Series Agreements, paired with a well prepared Series LLC Operating Agreement, can plug certain holes that could potentially turn into costly disputes.

Entrepreneurs are often thinking about protecting their personal assets from business liabilities when deciding to form business entities. The truth is that most attacks on a business come from the inside, in the form of partner disputes.

Operating Agreements are typically the start and the end point for resolving disputes between Series LLC owners. Written agreements are an important piece to mitigating disputes between business partners. Business organizations require more agreements as they grow to mitigate risk.

Adopting Separate Series Agreements is an easy step that Series LLC owners can take to ensure that their organization functions properly. The Delaware LLC Act does not require Separate Series Agreements, however, it is best practice to have these agreements in place.


Read More –>What Is the Series LLC Operating Agreement, and Why Is It Important?






5 Steps to Form a Registered Series

Since 2019, the State of Delaware has allowed Series LLCs to create what are known as “registered series”. Unlike “protected series”, establishing a registered series requires making an additional public filing. By qualifying as a registered organization, registered series provide certain business benefits that protected series cannot. 

Establishing a registered series under a Delaware Series LLC is straightforward. However, there are some important points you need to consider to establish a registered series the right way. Here we cover the five steps you need to follow to form a Delaware Registered Series

How To Establish a Delaware Registered Series: 5 Steps

Establishing a Delaware Registered Series involves forming a Delaware Series LLC with a few additional steps. 

Step 1.)  File A Certificate of Formation

The first step is to form a Delaware Series LLC by filing a Certificate of Formation with the Delaware Secretary of State. The Certificate of Formation is the public document that brings your Series LLC to life. 

Filling out the Certificate of Formation in Delaware is simple. The Certificate of Formation for a Delaware Series LLC requires the following: 

  1. The name of the Series LLC, 
  2. the address of the company’s Registered Agent, and 
  3. an additional article providing notice of the company’s ability to establish series. 

The additional article should cite Delaware Code Chapter 18, Section 215. This section provides notice to the public that the Series LLC may establish protected and registered series with their own  liability shields. 

Step 2.) Draft an Operating Agreement

The Series LLC Operating Agreement is the internal company document that details how the Series LLC is structured. The Operating Agreement is a private contract between the members that sets forth their ownership percentages in the company and their management responsibilities in associated series. 

Members need to have a properly prepared Series LLC Operating Agreement to ensure that the Series LLC functions properly. The Series LLC Operating Agreement is the starting point, and often the end point, for resolving disputes concerning LLC ownership and liability. A well crafted Operating Agreement can act like a prenuptial agreement between LLC members that provides for fast and fair resolutions to conflicts. 

Step 3.) Draft Separate Series Agreements. 

Members should include Separate Series Agreements for each registered series as exhibits to the main Series LLC Operating Agreement

Separate Series Agreements are necessary to establish individual series and provide for their ownership and management. For example, a member could be a manager of one series while having no ownership or management of any of the other associated series. Members can establish these kinds of arrangements within Separate Series Agreements. 

Step 4.) Name Registered Series 

Delaware law requires registered series to follow strict naming conventions. The name of a Delaware Registered Series must begin with the name of the Series LLC followed by the name of the specific series.

Here is an example of how to name a registered series:

Members of a Delaware Series LLC should maintain a complete list of the names of all associated series.  

Step 5.) File a Certificate of Registered Series

The final step to create a Delaware Registered Series is to file the Certificate of Registered Series. The Series LLC needs to file a Certificate of Registered Series with the Delaware Secretary of State for each new registered series it creates. 

The Certificate of Registered Series requires the names of both the Series LLC entity and the newly established registered series

Benefits of a Delaware Registered Series.

Delaware Registered Series qualify as “registered organizations” under the Uniform Commercial Code. This means that a registered series provides some specific benefits that a protected series does not. 

Here are some of the benefits of choosing a registered series over a protected series:  

The primary benefit of a registered series is the ability to obtain secured financing. Since a Delaware Registered Series qualifies as a “registered organization” under the Uniform Commercial Code (UCC), lenders of a registered series can perfect their interests in business assets by filing a Delaware UCC-1 Financing Statement. 

Filling a UCC-1 allows lenders to provide public notice of their collateral interest in an asset. Lenders are require to file a Financing Statement to perfect their security interest over an asset. 

Registered series benefit from secured financing because the interests of secured creditors are limited to the business assets pledged. 

Unlike traditional, protected series, a Delaware Registered Series is able to obtain a Certificate of Good Standing from the state in its own name. A Certificate of Good Standing is an official document providing proof that a business entity has paid its franchise tax balance and is compliant within its state of formation. 

A Certificate of Good Standing serves many important purposes. For example, banks will typically require LLCs to obtain a Certificate of Good Standing before opening a business account. Many states, like New York and Texas, also require Delaware LLCs to obtain a Certain of Good Standing before they can be granted authority to do business within their borders. 

How Much Does a Delaware Registered Series Cost?

The costs associated with establishing a Delaware Registered Series under a Delaware Series LLC come in the form of filing fees and annual fees. 

Filing the initial Certificate of Formation to create a Delaware Series LLC requires paying a $90 filing fee to the Delaware Secretary of State. In addition, there is another $90 filing fee associated with filing the Certificate of Registered Series to form each registered series

In regards to annual fees, Delaware requires Series LLC is required to pay annual franchise tax. The Delaware Annual Franchise Tax is a flat fee of $300 due on June 1st of each year after formation. 

Delaware requires Series LLCs to make only one franchise tax payment no matter how many individual protected series they create. However, there are additional fees to maintain registered series. Delaware Series LLC owners must pay an annual fee of $75 for each registered series. This fee must be paid to keep the registered series in good standing with the state. 

Converting A Protected Series to a Registered Series

If a protected series of a Delaware Series LLC already has significant business history, the members may consider converting the existing protecting series instead of establishing a new registered series. Converting a protected series to a registered requires some additional filings and is more costly than simply creating a new registered series. However, a conversion may be necessary to maintain continuity in the business’ activity.

The following steps are required to convert a protected series to a registered series :

Step 1.) Vote on a Plan of Conversion

All members associated with the particular series must approve a conversion to a registered series.

Series members can prepare a Plan of Conversion document to include with the Separate Series Agreement to document the approved conversion.

Step 2.) File a Certificate of Conversion

After the conversion is approved, members need to file a Certificate of Conversion with the Delaware Secretary of State.

Step 3.) File a Certificate of Registered Series

Next, a Certificate of Registered Series must be filed with the state. This document creates the public record of the registered series. Keep in mind that the name of the registered series needs to follow the naming conventions filed under Delaware law.

Step 4.) Amended the Operating Agreement and Separate Series Agreements

Finally, the Series LLC Operating Agreement should be amended to include the new registered series. In addition, the Separate Series Agreement should also be amended to reflect that the series has been filed as a registered series.