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SERIES LLC AMENDMENT TO THE ILLINOIS LIMITED LIABILITY COMPANY ACT
The Illinois Limited Liability Company Act (the “Act”) was recently amended to permit the organization of “Series Limited Liability Companies” (“Series LLCs”). The Series LLC amendment provides a new alternative organizational structure to business ventures that have previously utilized multiple limited liability companies to engage in a common transaction, such as real estate investors or land developers. While the operation of Series LLCs and the statutory consequences of the Series LLC Amendment to the Act have yet to be fully analyzed in practice or by the courts, the use of Series LLCs offers the following benefits.
Control, Asset Protection and Limited Liability
A Series LLC is essentially a traditional limited liability company that has the ability to organize unique “subsets” or “series”, each having individualized rights, powers, duties, and the right to share in the profits and losses with respect to specified property or obligations of the Series LLC (each, a “Series”). The individual Series are each organized as a limited liability company (“Series”) related to the “Master” Series LLC. The debts, liabilities and obligations incurred, contracted for or otherwise existing with respect to each Series are enforceable against the assets of that particular Series only, and are not enforceable against the Series LLC generally or any other Series related to the Series LLC, nor is any Series liable for the debts, liabilities or obligations of the Series LLC.
Separate Legal Existence and Purpose
Each Series of a Series LLC has a separate legal identity and may have a separate and distinct business purpose from the Series LLC and the other Series. Like a traditional limited liability company, an individual Series may contract, hold title to property, grant security interests, sue and be sued, and exercise all other powers afforded to limited liability companies under the Act. Contractual arrangements between Series and/or the Series LLC generally will not affect the limited liability of a Series unless otherwise agreed to by the parties to such an agreement.
Administrative Cost Savings
Although the filing fee required by the Illinois Secretary of State to form a Series LLC is greater than a traditional limited liability company ($750.00 for a Series LLC compared to $500.00 for a traditional limited liability company), significant cost savings can be realized when separate, individual Series of a Series LLC are organized as opposed to forming separate, traditional limited liability companies to achieve the same purpose. A Series LLC may create separate and distinct Series by filing a certificate with the Illinois Secretary of State, the cost of which is $50.00, while the fee to file articles of organization for a new limited liability company is $500.00. For example, a developer of five separate parcels of real estate may desire to sever and limit his liability vis-a-vis each of the parcels and establish separate “ownership” entities for each parcel. By utilizing traditional limited liability companies, the cost to achieve such severed liability would cost the developer $2,500.00. The Series LLC Amendment affords the same developer the opportunity to organize a Master LLC and five separate Series for each of the five parcels for a total cost of $1,100. Thus, the Series LLC format results in an initial costs savings to the developer of $1,400.00.
A Series LLC will also spend significantly less money on limited liability company annual reporting fees. Series LLCs file one annual report and identify each Series of the Series LLC. The annual reporting fee for a Series LLC is the same as a traditional limited liability company; each Series listed on the annual report pays an additional fifty dollars per year for annual fees. Thus, using our developer example above, under the traditional limited liability company structure, the developer would incur $1,250.00 of annual report fees a year, while the developer of a Series LLC would incur only $250.00 in annual report fees a year.
A Powerful Planning Tool in the Appropriate Situation.
The Series LLC is new to Illinois and its operation and use lacks substantial guidance from governmental entities and analysis by the Illinois courts. Uncertainty is the most predominant factor limiting the use of the Series LLC in Illinois. Illinois entrepreneurs, attorneys and accountants were similarly skeptical when the limited liability company became a viable alternative to corporate business organizations. Nonetheless, if applied in accordance with the statutory requirements to an appropriate situation, the Series LLC may be an ideal tool to facilitate business objectives in a cost efficient and effective manner.
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