I spoke with a California attorney today about her client’s interest in a Delaware Series LLC. The client was a real estate investor with over 25 different rental properties. The attorney asked whether a Delaware Series LLC was an effective asset protection solution for this client.
A Delaware Series LLC is a special type of limited liability company established in Delaware pursuant to specific Delaware statutes. The distinguishing feature of this type of LLC is that a single LLC can be comprised of two or more “series.” The series are similar to subsidiary entities. Each series can own distinct assets. In theory, liability of one series does not affect assets in any separate series or the Series LLC as a whole.
In the case of the California client, the client could create a single Delaware Series LLC and register the LLC to do business in California with a California registered agent. Thereafter, each of the 25 different real properties could be owned by a separate series. If any one property generated a lawsuit or liability, only the one parcel of real estate owned by that particular series would be at risk.
No Florida court, or California court for that matter, has considered whether the divisions between different series in a Delaware Series LLC will be respected for creditor protection purposes. In theory, Florida and any other state should recognize the separate series created pursuant to Delaware law, and liabilities of any one series should be contained within that series and jeopardize only assets titled in the name of that particular series. However, until the Delaware Series LLC has been examined and tested in a creditor protection court case in a state other than Delaware (and in Florida, in particular) the Delaware Series LLC’s asset protection is not as strong as that of other plans and entities which are battle tested.
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