What this is: Much variation exists between the states when it comes to registering foreign series LLCs to do business in another state.
What this means: When planning to use a series LLC structure in the domestic state, it’s important to consider where else the company and the individual series cells may wish to operate as not all states have statutes allowing for series LLCs to qualify to do business.
What is a Series LLC?
Twenty-one states now allow for the establishment of series LLCs, a unique structure that allows an LLC to create separate series that have separate members and managers, maintain separate assets and pursue separate business purposes and objectives from the LLC that created them (the master LLC) and other series of the LLC.
Most importantly, the series is not liable for the debts and obligations of the master LLC or the other series (likewise, the master LLC is not liable for the debts and obligations of the series) if certain criteria are met.
Applying for Authority: Navigating State Laws
As series LLCs become more popular, the need to qualify either the master LLC or the individual series cell to do business in another state is more likely to occur. The differences among state laws regarding the formation and registration of series LLCs can greatly impact not only the procedures for doing so but also potential risks to the company.
Variations seen in state laws when it comes to the qualification of a series LLC and/or the individual series cells established by the master LLC can be categorized into 3 groups. Let’s take a look at what a series LLC might find, depending on the state where it wishes to apply for authority to do business.
State Does Not Explicitly Lay out Rules
Currently, there are 30 states that do not have laws that allow for the establishment of domestic series LLCs. The vast majority of these states also do not address how to qualify a series LLC from another state to register as a foreign entity. In those cases, these “master LLCs” would meet the definition of a foreign LLC and an Application for Authority to do business for the series LLC would most likely be accepted by the filing officer. However, there is a real risk to qualifying a series LLC in this way because there is a chance that the courts in a state with no series LLC law will not recognize the limited liability shield between the master LLC and its individual series cells or the shield between one series and another.
If the desire is to register the individual series cell either with or without the master LLC, the picture in states without statutes addressing the qualification of a series LLC becomes even more unclear. In many cases, the laws pertaining to qualification specify the qualification of a foreign LLC. In others, the laws may indicate that a foreign entity may apply for authority to do business. The question, which does not always have an easy answer, is whether an individual series cell can be considered a “foreign LLC” or a “foreign entity.” There is a possibility that a filing officer will accept an Application for Authority submitted by an individual series, but they may not. Even if they do, the company still faces the risk that the courts in that state will not recognize the liability shield between the individual series and the master LLC or the other series cells in the company.
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Which 2 States Require Foreign Series LLC Qualification Without Domestic Formation?
There are 2 states that have laws regarding the qualification of foreign series LLCs, even though they do not have laws that allow for the formation of a domestic series LLC:
Florida
Florida’s laws indicate that the state may require each individual series cell of a series LLC to file a separate “Application by a Foreign Limited Liability Company for Authorization to Transact Business in Florida.”
Arizona
Arizona also lays out a way for a series LLC to qualify to do business. However, AZ Rev Stat § 29-3901(D) explicitly states that a foreign series is liable for the debts, obligations or other liabilities of the designating foreign company and of any other foreign series of that designating foreign company.
A Note on California
Then there is California, which neither allows for the formation of domestic series LLCs, nor has laws addressing the qualification of a foreign series LLC. California’s Franchise Tax Board, however, requires the individual cells of a series that do business in California to register to pay franchise taxes.
State Laws Only Address Qualification of Series LLC Company
In some states, the laws only discuss the qualification of the series LLC company and do not indicate a way for the individual series cells to apply for authority to do business separately from the master LLC.
State-by-State Nuances
There are a number of states, including Kansas, Nevada, North Dakota, Ohio, Tennessee, Texas and Utah, which have a way for a series LLC company to qualify to do business and include a statement of the internal limited liability shield between series cells and the master LLC, but they do not outline a method where the individual series registers. There are a few states where the name of the individual series is listed on the Application for Authority for the master LLC, including South Dakota, Wyoming and Montana. Note that Montana has an additional, highly unusual requirement. The operating agreement for each separate series must be added as an attachment to the application for authority filing. There is a similar requirement to submit operating agreements for domestic series cells.
State Laws Outline Filing Procedures for All 3 Possible Combinations
- Master LLC and all series qualify.
- Master LLC and some series qualify.
- Series cells qualify without the master LLC.
Which States Provide Separate Registration for Master LLCs and Series Cells?
Six states (Arkansas, Illinois, Indiana, Iowa, Nebraska and South Dakota) have a registration process that allows a master LLC to qualify and lays out a separate path to qualify only the series cells that will also be doing business in the state. This is usually accomplished by filing a Certificate of Designation or similar document for each individual series cell.
Additionally, these states expressly permit an individual series cell of a foreign series LLC to qualify to do business in the state independently; the master LLC does not have to register as a foreign LLC. In those cases, a series usually files an Application for Authority, often using a form that specifically denotes they are a foreign series.
A Note on Virginia
A state that almost fits these criteria, but with one important distinction, is Virginia. Although series cells file a separate Application for Certificate of Registration as a foreign protected series, the master LLC must first qualify as an LLC and the series cannot qualify without its master LLC.
Conclusion
As you can see, there is a lot of variation between the states when it comes to registering foreign series LLCs as a foreign company. When planning to use an LLC structure in the domestic state, it’s important to consider where else the company and the individual series cells may wish to operate. A series LLC may not be the best option if the master or its cells will be operating in states where the internal liability shield is in question or, as in Arizona, even eliminated by state laws.
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Would a company use a series LLC if they wanted to do business under a different name?
That would not be a typical reason for creating a series LLC, although in some states an assumed name filing is done to register the names of the series cells. If the company only wishes to do business under another name and not to create separate series of assets and interests, they would file a certificate indicating their intention to do business under a different name in every state where they are doing so. The name of this certificate can vary, as does the filing process, the need to maintain the name and the jurisdiction where it is filed. Read our article, Doing Business Under a Different Name: Fictitious and Assumed Name Registration in the US, to learn more.
How do I maintain the good standing of my company in all 51 jurisdictions?
In order to maintain the good standing of your company in all 51 jurisdictions, you’ll be responsible for payment and filing of income and franchise tax reports and returns. Note that your accounting firm may not handle the filing of the annual and franchise tax reports due to the secretaries of states where you are registered. Your designated registered agent partner is likely to be able to assist with these annual reports and franchise tax payments. To learn more, read our article, How Do I Form and Register My Company Nationwide?
What is the difference between a registered series and a protected series?
Different states can use different terms to refer to the individual series cells. In Delaware, the term “protected series” refers to series which have limited liability protection but are not registered with the Secretary of State. The term “registered series” are series cells which are registered with the Delaware Secretary of State and have limited liability protections. For more information on Delaware series LLCs, read our article, Delaware Series LLC: Understanding Registered Series LLCs.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
