By Reinaldo Gomez de la Vega
The origin of the limited liability company in the United States dates back to 1977, when Wyoming enacted legislation creating the “Wyoming Limited Liability Company”. This entity intended to blend the tax benefits of a partnership with the personal liability protections associated with corporations at the time. By 1996, every state had enacted legislation recognizing and providing for the formation of the limited liability company (“LLC”).[i] That same year, Delaware enacted legislation recognizing a new iteration of the LLC: the series limited liability company (“Series LLC”).
Like the LLC, the Series LLC provides the benefit of personal liability protections. The idea is to isolate the liabilities of the entity from its members. This is often referred to as the “vertical” shield between the entity and its members. In addition to the vertical shield, the Series LLC creates “horizontal” shields within the entity itself. Purely for sake of visualizing the construct, you can envision the Series LLC as a parent LLC containing multiple smaller LLCs within it; in theory, the assets of the parent or another LLC in such construct are shielded from the creditors of the other LLCs.
Only a handful of states have enacted Series LLC legislation; however, the number will likely increase. Florida is anticipated to eventually enact its own Series LLC legislation by way of proposed updates to the Florida Revised Limited Liability Company Act (the “Act”). Notably, the Protected Series LLC Task Force of The Business Law Section of The Florida Bar (the “Task Force”) drafted and proposed new Sections 48.062 and 605.2101 through 605.2802[ii] of the Florida Statutes as proposed legislation governing the organization and treatment of Series LLCs in Florida (the “Proposed Framework”). In its preparation of the Proposed Framework, the Task Force extensively analyzed and considered elements of the Uniform Protected Series Act (“UPSA”) adopted by the Uniform Law Commission in 2017 and the Series LLC acts of other states, including Delaware, Virginia, Texas and Illinois.[iii]
The Proposed Framework generally reflects the provisions of the UPSA, subject to a number of notable deviations discussed below. In addition to governing the organization and treatment of Series LLCs in Florida, the Proposed Framework also addresses foreign Series LLCs transacting business in Florida. This article briefly addresses key aspects of the Proposed Framework, as it relates to the formation, governance and benefits of the Series LLC in Florida.
Formation
The Proposed Framework allows a Florida LLC to file a protected series designation with the Florida Secretary of State. Upon such designation taking effect, the Florida LLC becomes a Florida protected series limited liability company (“Florida Series LLC”) with one or more protected series, as set forth in the designation.
From a legal perspective, a protected series is not a separate and distinct legal entity; however, each protected series is treated as a separate and distinct person capable of conducting its respective affairs, acquiring assets and assuming liabilities, including as a debtor under the Uniform Commercial Code. That said, the existence of a protected series relies directly on the existence of a Florida Series LLC. More specifically, the dissolution of a Florida Series LLC requires the dissolution of each of its protected series.[iv]
Further in light of the dependent nature of the protected series, a protected series is generally prohibited from acquiring or being acquired by an entity, merging with or into another entity or otherwise converting or domesticating.[v] The narrow exception to these limitations involves a merger of the Florida Series LLC in which each party to the merger is an LLC and the surviving entity is not created in the merger.[vi]
Governance
Under the Proposed Framework, a protected series is deemed to be treated as if it was a limited liability company subject to the overall provisions of the Act. In other words, except as otherwise provided, the provisions of the Act will apply to a Florida Series LLC and its protected series as such provisions apply to a Florida LLC.[vii] This approach deviates from that of the UPSA, which adopts the idea of application by analogy only to the extent expressly invoked under the UPSA.[viii] The broader application adopted by the Task Force intends to clarify that the default provisions applicable to a Florida LLC will apply to a Florida Series LLC and its protected series as well.
The activities and management of a Florida Series LLC and its protected series may be governed by a written operating agreement of the Florida Series LLC. The provisions of the operating agreement governing the protected series may be included in the body of the operating agreement, in an attachment or supplement, or by some combination of the two. Notably, while the Act allows an oral or implied operating agreement to govern a Florida LLC, the Proposed Framework restricts a protected series from being governed by an oral or implied operating agreement.
The management of a Florida Series LLC and protected series are covered by the “deemed” treatment as a Florida LLC discussed above. It follows that a Florida Series LLC may be managed by its members or one or more managers. Similarly, a protected series may be managed by its associated members or one or more protected series managers. In the event a protected series does not have any associated members, such protected series will be managed by the Florida Series LLC.[ix]
All duties, including fiduciary duties, of a protected series manager mirror those applicable to a manager of a Florida LLC under the Act.[x] Notably, however, a protected series manager of a protected series owes no duties to the Florida Series LLC or any other protected series in his, her or its capacity as a protected series manager.
Benefits
The key characteristic of the Series LLC is the horizontal shield associated with the designation of one or more protected series. Under the Proposed Framework, a protected series is not liable for the debts of the Florida Series LLC or any other protected series.[xi] Similarly, a Florida Series LLC is not liable for the debts of its protected series.
In the event a creditor seeks to levy on the assets of a Florida Series LLC or protected series, it may only do so to the extent of the “associated assets” of such Florida Series LLC or protected series.[xii] The Proposed Framework establishes a record-keeping requirement for purposes of properly associating an asset or liability with a protected series. Generally, a protected series must create and maintain records that sufficiently identify and describe the asset or liability such that a reasonable individual can identify the asset and determine relevant details of the transaction in which the protected series acquired the asset or assumed the liability.[xiii] The Proposed Framework provides similar rules for associating an asset or liability with a Florida Series LLC.
A notable deviation from the UPSA involves record keeping relating to the association of real property assets or liabilities. The Proposed Framework clarifies that deeds and other instruments granting a real property interest or otherwise affecting real property owned by a Florida Series LLC or protected series, that are properly recorded and in favor of a person who gives value without knowledge of the lack of authority of the person signing and delivering the instrument (1) is conclusive as to such authority and (2) constitutes a record for purposes of associating such real property asset or liability with the respective Florida Series LLC or protected series .[xiv]
Conclusion
Under the Proposed Framework, the Florida Series LLC would transcend the traditional vertical protections generally associated with Florida LLCs by providing a structure for horizontal asset protections within the entity itself. Given the potential significance of the Florida legislature adopting Series LLC legislation, practitioners are encouraged to review and analyze the Proposed Framework.
[i] Larry E. Ribstein, LLCs: Is the Future Here? A History and Prognosis, 13 B. L. Today 11 (2003-2004).
[ii] H.B. 1231, 2024 Reg. Sess. (Fla. 2024). https://www.flsenate.gov/Session/Bill/2024/1231/BillText/Filed/PDF
[iii] Protected Series LLC Task Force of The Business Law Section of the Florida Bar, Analysis of Proposed Revisions to Chapter 605 Addition of the Uniform Protected Series LLC Provisions Sections 605.2101-605.2802, (August 14, 2023).
[iv] H.B. 1231 § 605.2104.
[v] H.B. 1231 § 605.2603.
[vi] H.B. 1231 § 605.2604.
[vii] H.B. 1231 § 605.2108(3).
[viii] See Uniform Protected Series Act (2017).
[ix] H.B. 1231 § 605.2304(2).
[x] H.B. 1231 §605.2304(3).
[xi] H.B. 1231 § 605.2401(2).
[xii] H.B. 1231 §§ 605.2301, 2404.
[xiii] H.B. 1231 §605.2301(2)(a).
[xiv] H.B. 1231 §§ 605.2301(2)(b), 2301(3)(b).