Originating in Delaware, the Series LLC has become a popular legal entity amongst entrepreneurs looking to gain an edge for their business. Demand for the Series LLC has inspired other states to adopt this entity structure into their own laws. Twelve US states now allow for their own versions of the Series LLC. South Dakota is now one of these Series LLC destinations.
In 2020, The South Dakota state legislature introduced amendments to section 47-34A-101 et seq., of the state’s Uniform Limited Liability Company Act allowing LLCs to establish protected series. The state’s Governor signed the amendments into law in March of that year.
How is South Dakota Series LLC different from the Delaware Series LLC? We cover the ins-and-outs of South Dakota’s Series law and what it could mean for the future of the Series LLCs.
What Is A South Dakota Series LLC?
South Dakota used the Illinois Series LLC as the model for its own Series LLC law. The statute allows a Series LLC to own assets either in its own name, or through one of its protected series. South Dakota requires additional filings to be made in order to create individual protected series. Each protected series must file a “Certificate of Designation” with the South Dakota Secretary of State.
Like Illinois, South Dakota also allows protected series to be considered separate legal entities. The LLC’s formation document, called the “Articles of Organization”, must state this designation. Most states rarely include this provision in practice.
South Dakota also imposes strict naming conventions for Series LLCs. The law explicitly requires the entire name of the LLC to be part of the name of each protected series. The purpose for this is to avoid confusion by ensuring every protected series is distinguishable from any other entity listed in the public record.
“Each protected series must file a “Certificate of Designation” with the South Dakota Secretary of State.”
Series LLC Models: Illinois, Delaware, and the Uniform Protected Series Act
In the Series LLC space, there are two preeminent models which states tend to follow: the Illinois Series LLC and the Delaware Series LLC.
The Delaware Series LLC
A majority of states have chosen to follow Delaware’s lead when adopting Series LLC laws. Delaware introduced the first Series LLC law in 1996. The state legislature has since revisited and amended the law several times. The Delaware Series LLC remains the cutting edge for all legal entities today.
Core to the Delaware Series LLC is the ability to establish an unlimited number of protected series without requiring any additional public filings. LLC members can continuously create and dissolve protected series simply by amending the LLC’s internal Operating Agreement. This allows LLC members to seamlessly implement substantial changes to the company’s legal structure as the business grows and changes.
The Illinois Series LLC
Illinois’ Series LLC mirrors the original Delaware law by providing Series LLCs with internal liability protection. However, Illinois has chosen to implement several key differences.
First, forming an Illinois Series LLC requires an additional set of filings. Illinois requires each protected series to file a “Certificate of Designation”. This filing makes the protected series an entity of the public organic record. There is a $50 filing fee associated with creating individual protected series in Illinois.
Illinois also imposes specific naming conventions for protected series. The name of each protected series must include the full Series LLC name. For example, a protected series for “Illinois Example LLC” could have a name along the lines of “Illinois Example LLC Series 1”.
“Illinois requires a $50 filing fee for creating individual protected series.”
The Uniform Protected Series Act
The Uniform Law Commission drafted the Uniform Protected Series Act (UPSA) in 2017 with the intent of enhancing the Illinois approach to the Series LLC. The goal of the UPSA is to provide uniformity across state level Series LLC laws. This serves to promote further adoption of the Series LLC, as well as make it easier for protected series to operate across different jurisdictions. Several states have adopted the UPSA to represent their own Series LLC law. Some of these states include Tennessee, Colorado, Arkansas, Virginia, Iowa, and Nebraska.
The UPSA is more prescriptive than both the Delaware and Illinois models. The Act includes more rules and requirements aimed at preventing proprietors from abusing the Series LLC to harm innocent creditors. It can be said that the Illinois Series LLC is a middle-ground between the Delaware Series LLC and the UPSA.
How Does South Dakota Treat Foreign Series LLCs?
South Dakota’s law allows Series LLCs from other states to operate in South Dakota by filing a “Certificate of Authority”. This is also known as a foreign qualification. It is important to note that a Series LLC cannot obtain a Certificate of Authority on behalf of its protected series. Each protected series of a foreign Series LLC is required to complete its own foreign qualification in order to do business in South Dakota.