Registration of Delaware Series Permitted
October 1, 2019 - News
Delaware has seemingly always been at the forefront of entity law. Delaware created the concept of limited liabilities companies (LLCs), and was the first state to establish LLCs that were authorized to create one or more “Series.” A Series is somewhat similar to a subsidiary entity, but enjoys limited liability protection between each Series and the LLC itself (although this protection has not been tested by the courts). For a Delaware LLC to be authorized to establish Series, such authority must be reflected in its Certificate of Formation. The Series itself is created in the Limited Liability Company Agreement for the LLC, which is not a public document. Thus, there was no public record of the formation, existence or good standing of any particular Series created by the LLC. The inability to prove the existence of a Series in a verifiable manner has been limited to a certain extent by the adoption and use of Series in LLCs.
Effective as of August 1, 2019, the State of Delaware amended its Limited Liability Company Act (“LLC Act”) to permit an LLC (that is authorized to create Series) to register the Series with the Delaware Secretary of State. The registration of a Series with the Delaware Secretary of State puts the world on notice of the existence of a particular Series, as same will be publicly listed on the Secretary of State’s website, similar to the listing of a corporation or LLC on the website. A Good Standing Certificate can be obtained from the Secretary of State with respect to a registered Series. This registration is voluntary but can be helpful in many situations where it may be necessary to prove the existence and good standing of the Series. For example, the registration of a Series may be desirable in connection with opening bank or brokerage accounts at financial institutions that are required by federal law to perform diligence on the customer, or in connection with obtaining title insurance in the name of the Series in a real estate transaction. Further, lenders to Series may wish to require a borrower that is a Series to register with the Delaware Secretary of State so that a security interest in its assets can be properly perfected under the Uniform Commercial Code. As noted, a filing must be completed with the Delaware Secretary of State in order to register a Series. Contact me for more information on Series LLCs and whether you could be benefited by its registration with the Delaware Secretary of State.