Indiana Business Law Blog
The first article on series LLCs contained some basic concepts and terminology. The second and third ones addressed the fundamental questions of whether a series is a separate entity (answer: yes, but it lacks some of the attributes of a separate entity) and of what defines or constitutes a series (answer, at least as contemplated by the Indiana statute: a portion of the interest in the master LLC designated as the series). We’ll return later to some other metaphysical questions, but this article discusses the more mundane issue, how does one set up a series LLC in Indiana?
Organizing the Master LLC
As with a traditional LLC, a master limited liability company is formed by filing articles of organization[1] with the Indiana Secretary of State. Ind. Code § 23‑18.1‑3‑1 and § 23‑18.1‑6‑1. An existing LLC can be converted to a master LLC with appropriate amendments to its articles of organization, but the amendment requires unanimous consent of the members, regardless of any provision of the operating agreement permitting the articles of organization to be amended with less than unanimous consent. Ind. Code § 23‑18.1‑3‑2. It appears that it is permitted, but not necessary, for the articles of organization to include the names of the series that may be designated. See Ind. Code § 23‑18.1‑6‑7, discussed below.
The articles of organization must include the same information as the articles of organization for a traditional LLC and also authorize the designation of at least one series. The name of the master LLC must meet the same requirements as the name of a traditional LLC, except that it must contain the suffix “-S” after the corporate designation, e.g., “LLC-S.”
If the series LLC is to have internal limited liability (see Part II for a discussion of that term), Ind. Code 23‑18.1‑5‑3 requires the articles of organization for the master LLC to include “the notice of the limitation on liabilities of a series as required by [Ind. Code § 23‑18.1‑5‑1].” Ind. Code § 23‑18.1‑5‑1 provides:
(a) Notwithstanding any other law, the debts, liabilities, and obligations incurred, contracted for, or otherwise existing with respect to a particular series are enforceable against the assets of the series only, and not against the assets of the master limited liability company generally or any other series of the master limited liability company if all the following apply:
(1) The operating agreement so provides.
(2) The operating agreement of the master limited liability company establishes or provides for the establishment of one(1) or more series.
(3) The records maintained for the series account for the assets associated with the series separately from the other assets of the master limited liability company and any other series of the master limited liability company.
(4) Notice of the limitation on liabilities of a series as referenced in this subsection is set forth in the articles of organization of the master limited liability company.
(5) The master limited liability company has filed articles of designation for each series that is to have limited liability under this section.
(b) Unless otherwise specifically provided in the operating agreement, the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to:
(1) the master limited liability company generally are not enforceable against the assets of a particular series; or
(2) any series of the master limited liability company are not enforceable against the assets of any other series of the master limited liability company.
(I added the italics.) The statute is not clear whether the articles of organization may simply state that the series will have limited liability “as provided in Ind. Code § 23‑18.1‑5‑1,” or if it must recite the statutory language. That question may be answered if the Secretary of State develops a special form of articles of organization for series LLCs. Otherwise it seems prudent to include both a citation to the statute and to quote the above language, at least the part I’ve shown in italics.
Most articles of organization should contain at least one other provision. Ind. Code § 23‑18.1‑4‑4 provides that a series must be treated as a separate entity “to the extent set forth in the articles of organization of the master limited liability company.” Although there may be some situations in which it is desirable to have the series treated as separate entities for some purposes but not others, I am at a loss to come up with an example. In most cases, the articles of organization should contain a provision such as, “Each series shall be treated as a separate entity to the maximum extent permitted by Ind. Code § 23‑18.1‑4‑4 and other applicable laws.”
The series LLC statute requires each master LLC to have an operating agreement. Although it does not specifically require the operating agreement to be in writing, it would not be prudent for a master LLC to have only an oral operating agreement, and, in fact, courts might reasonably hold that oral operating agreements are insufficient. We’ll discuss the contents of the operating agreement in the next post.
Organizing a Series
A series is created by filing articles of designation[2] with the Indiana Secretary of State. Ind. Code 23‑18.1‑6‑2. The articles of designation must include the name of the series and state whether the series will be managed by managers or by its members. (Apparently, a master LLC managed by its members can include a series managed by managers, and vice versa.) The name of the series with limited liability must include the full name of the master LLC and the word “series.” The name of each series must be distinguishable from the names of all other series previously created by filing articles of designation or listed in the articles of organization of the master LLC. Ind. Code § 23‑18.1‑6‑7. Articles of designation do not include a registered agent or registered office because the registered agent for the master LLC serves as the registered agent for all series. Ind. Code § 23‑18‑6‑8. The governance of the series can be addressed either by the master LLC operating agreement or by a separate “series agreement.” Ind. Code 23‑18.1‑4‑6.
The next article discusses series agreements and operating agreements for series LLCs.
[1] One difference between articles of organization for a master LLC and articles of organization for a traditional LLC is the filing fee. For a traditional LLC, it is $100 for a paper filing (as opposed to online). For a master LLC, it is $250.
[2] The fee for a paper filing is $30.
[Revised Sept. 6, 2016 to add the footnotes.]