If you are starting a business, one of the first issues that needs to be addressed is what type of business entity you want to form. There are partnerships, limited partnerships, C-corporations, S-corporations, and the limited liability companies (LLC). Out of these options, the LLC is one of the most popular and prevalent structures used by millions of people throughout the United States. The popularity of LLCs is generally due to the inherent flexibility as well as liability protections associated with this structure. Specifically, the principals (i.e., owners) of an LLC are generally shielded from personal liability in the event of a claim against the LLC.
Recently, there has been a variation of the LLC gaining prominence in multiple states – the protective series LLC.
What Exactly is a Protective Series LLC?
The protective series LLC originated in Delaware and was used primarily by mutual funds to hold different classes of securities under a single business entity. Maintaining various mutual funds within a single LLC helped ease administrative burdens by reducing securities filing requirements. So, in effect, a protective series LLC should be considered if you want to segment and silo multiple assets but manage those assets within the same overarching business entity.
Example of Protective Series LLC in Practice
To give you an idea of how a protective series LLC works in practice, let’s say we have a trucking company that owns and operates 10 commercial trucks. The owner may prefer to keep title to each of their trucks separate and create 10 separate LLCs, along with a “parent” LLC. The trucking company may opt to do this in order to mitigate the risk of any liabilities, debts, and obligations related to one of the commercial trucks impacting the other trucks. For example, this structure could help reduce the negative ramifications from an adverse judgment in a personal injury case after an accident. If all 10trucks were managed under the same LLC, then all 10 trucks could be exposed financially as a result of a single civil lawsuit and judgment.
The use of a protective series LLC would enable the parent trucking company to be the overlord of the various series LLCs. Each series would be the owner of a single truck with the parent LLC serving as the proverbial mothership to all series. It is important to note that each series maintains the characteristics of a standalone LLC, including separate legal rights, powers, and duties associated with the assets of the LLC.
Furthermore, if the business owner wants to close out one series because they may have, for example, sold one of the trucks, they can do so without negatively impacting the other series.
Have Questions About How to Structure an LLC? Speak to a Reputable Business Lawyer in Los Angeles Today
If you have questions about the most effective way to structure your LLC, take action by contacting the highly experienced and reputable business lawyer in Los Angeles, Afshin Hakim of Hakim Law Group. Our law firm represents an array of entrepreneurs, operating companies, venture capital firms, and financiers in various sectors of the economy. Our extensive experience enables our firm to handle a broad range of legal matters in the business world, including business formation, technology transactions, lending, employment and so forth. For further information or to schedule a consultation please contact HLG at 310.993.2203 or visit www.HakimLawGroup.com to learn more.