Converting an LLC to a Series LLC
The LLC is the most commonly formed business entity in Delaware and has enjoyed immense popularity since the State’s adoption of the entity type. In fact, LLCs comprised over 73% of new entities formed in Delaware in 2023 and 2022, and 73.4%, 72.3%, and 73.2% in 2021, 2020, and 2019.
The Delaware Legislature created the LLC business form to give maximum effect to the members’ freedom of contract with one another upon whatever terms they believe best suited to their circumstances and goals.
In a corporation, for example, Delaware law requires certain terms be included in the corporation’s constituent documents, mandates certain provisions related to corporate governance, and limits (to some extent) the ability of parties to change certain terms relating to voting or fiduciary obligations, among other things. In an LLC, however, the members are free to organize the LLC in whatever manner they choose, with near-total freedom to define the relationship among the members and the terms governing the operation of the entity.
Delaware adopted the Series LLC in 1996. The series LLC is an umbrella within which are “series” functioning as separate and distinct legal entities. Each series may have distinct membership, management, assets, objectives, and business lines, among other things, and is responsible solely for its own debts and liabilities, not those of other series or the LLC as a whole.
The Series LLC is not without drawbacks, many service providers, banks, attorneys, accountants, other businesses are still unfamiliar with the series concept. It often takes time to explain the series concept and to obtain approval for documentation needed, for example, from a bank’s lending group.
How to Convert to a Protected Series LLC
Generally, an amendment to the Certificate of Formation requires a majority of the percentage interests of the LLC’s members, as defined in the LLC’s operating agreement. As of 2022, only 22 states permit such a conversion; in other states, series LLC status must be elected at formation. In Delaware, an existing LLC can convert into a series LLC with relative ease.
This can be achieved by amending the original Certification of Formation filed with the Delaware Division of Corporations, Secretary of State’s office to include an extra article allowing the LLC to establish designated series of members, managers, or membership interests.
Should you like to make an amendment changing the existing LLC to a Series LLC, Harvard Business Services, Inc. will prepare a Certificate of Amendment, and forward it to you via email for signature. Once executed by a member of the LLC, the Certificate of Amendment will be filed with the State of Delaware. As soon as the approved document is available, we will forward it to you for your records; it is just that easy!
If you are interested in learning more about the Delaware Series LLC, we have put together an in depth webinar that discusses the pros and cons of the Delaware Series LLC.
For any questions about the service please call 800 345 2677 ext 6911
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