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Series LLC’s The series LLC is a single entity which allows for the creation of a separate “series” of interests within it. Each series may hold difference assets, members or managers, voting rights, as well as different profit and loss distribution requirements. This entity was first introduced in Delaware and has since been adopted by many jurisdictions, but NOT in California. There are variations in the State’s filing requirements, fees, and reporting. The instructions for California’s 2005 Franchise Tax Form 568, which is used to report the income and expenses of LLC’s addresses series LLC by specifying that each series in a Delaware Series LLC is considered a separate LLC and must file its own Form 568 Limited Liability Company Return of Income and pay its own separate LLC annual tax and fee if it is registered or doing business in California. At this time, one may reasonably presume that these instructions should apply to series LLC’s created in other jurisdictions as well and that the Franchise Tax Board shall collect the annual franchise tax from each series of a series LLC registered or doing business in California. Outside of the tax question, the question for many is how the California courts will address questions involving series LLC’s. Up to now, California courts have deferred to the laws of the state where the entity was formed for questions arising out of the internal affairs of an entity. However there are exceptions. For example, in the case of a foreign LLC, if more than 25% of the members of a foreign LLC reside in California, then those members are entitled to all information and inspection reports provided under Corporations Code Section 17106, regardless of the law of the foreign jurisdiction. It appears that California shall apply the laws of the foreign jurisdiction relating regarding the issue of liability of the members and managers of a foreign Series LLC registered to do business in California. However, one must be cautious since there are no published opinions. As always, proceed with caution and the advice of counsel in this area.
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