It has been over two years since the Ohio General Assembly adopted the Series LLC.
The series LLC allows an LLC to segregate certain assets or activities into their various “silos” inside of the LLC shell, such that a liability affecting one asset/activity cannot infect the others, and it cannot infect the LLC as a whole.
So, what have we learned about this technique in the past 24 months? Two things, primarily.
- The use case
The most compelling use for the series LLC has been with real estate. Consider this scenario: Hold Co LLC owns ten properties. The corporate lawyer’s traditional response has been to drop these ten properties into ten subsidiary LLCs because a massive liability at one property can be a lien against the other nine. However, retitling the properties into ten different LLCs is time-consuming and costly, and it could also violate contractual covenants.
Alternatively, the members of Hold Co LLC could elect to convert to a Series LLC. To do so, Hold Co LLC would amend its articles and operating agreement as required by R.C. 1706.761 and then designate each of the ten properties into its own series. As long as separate records are kept, the series structure is in effect—on paper at least (which leads to the next point).
- The lack of adoption
Practitioners are not implementing the series LLC with much frequency, but that is to be expected. When it comes to something as precious as liability protection, lawyers and advisers want to see some proof of concept—beyond the well-crafted provisions within the Ohio Revised Code—before diving in. This proof of concept is strongest in the form of a court opinion. This author was unable to find any case law from Ohio appellate courts to uphold or challenge the series LLC liability shields. Until that proof of concept arrives via an appellate court opinion, practitioners will tread carefully.
Conclusion
Even for the skeptic, a series LLC usually makes sense when the alternative is doing nothing (such as the Hold Co LLC scenario described above). If a court rejects the series LLC protections, you’re in the same place as before.
Cavitch is assisting businesses and investors in establishing the Series LLC structure. Contact Michael R. Rasor at 216-621-7860 to discuss if this strategy is right for your situation.