Uniform Protected Series Act
Caution State Law Variances!
SECTION 104. POWERS AND DURATION OF PROTECTED SERIES.
(a) A protected series of a series limited liability company has the capacity to sue and be sued in its own name.
Reporter's Comment to Subsection (a) – The capacity stated here distinguishes a series limited liability company and its protected series from the protected cell captive insurance companies [PCC] discussed in Pac Re 5-AT v. Amtrust N. Am., Inc., No. CV-14-131-BLG-CSO, 2015 WL 2383406, at *4 (D. Mont. May 13, 2015) (stating that "absent a statutory grant to the contrary, a protected cell does not have the capacity to sue and be sued independent of the larger PCC").
JayNote: Section 104(a) further emphasizes that a protected series is a separate juridical entity from the series organization, and effectively its "own person" at for purposes of maintaining or defending legal actions. As to the Reporter's Comment, note that a protected cell captive that utilizes a series LLC under the UPSA would have the capacity to sue and be sued independent of the larger captive organization, notwithstanding the Pac Re 5-AT decision.
Section 104(a) cannot be toggled off.
(b) Except as otherwise provided in subsections (c) and (d), a protected series of a series limited liability company has the same powers and purposes as the company.
Reporter's Comment to Subsection (b) – Under this provision, if the operating agreement of a series limited liability company restricts the company's power, purpose, or both, the restriction applies to each protected series of the company. The provision is a default rule.
JayNote: This is an extrapolation provision which tells us that a protected series has basically the powers and purposes of the series organization itself, i.e., if the series organization can do something, then presumably the protected series can do that too.
Further note that this provision can be toggled off: A protected series may have lesser powers and purposes than the series organization (though not greater).
(c) A protected series of a series limited liability company ceases to exist not later than when the company completes its winding up.
Reporter's Comment to Subsection (c) – A protected series may not exist outside the context of the series limited liability company that established the protected series, except as a result of a merger under Section 604 (in which a protected series may be "relocated" from a series limited liability company that does not survive the merger to the series limited liability company that does). Generally, an organization's disappearance as a result of a merger is not treated as a dissolution, and the merger does not effect the winding up of the organization. See, e.g., Uniform Business Organization Code (2015), Section 2-206(b) ("Except as otherwise provided in the organic law or organic rules of a merging entity, a merger under this [part] does not give rise to any rights that an interest holder, governor, or third party would have upon a dissolution, liquidation, or winding up of the merging entity.")
JayNote: A protected series is an appendage of the series organization and cannot exist in the absence of the series organization. Thus, if the series organization terminates, all the protected series of that organization likewise terminate. Note that this provision significantly denigrates the concept of a protected series as an independent stand-on-its-own-two-feet separate juridical "person", and instead paints a protected series as simply an appendage of the series organization.
Section 104(c) cannot be toggled off.
(d) A protected series of a series limited liability company may not:
(1) be a member of the company;
(2) establish a protected series; [or]
Reporter's Comment to Subsections (d)(1)-(2) – These provisions preclude structures that would be painfully Byzantine or would push the extrapolation construct beyond any understandable application. For a discussion of the extrapolation construct, see Prefatory Note, Part 6. However, these provisions do not prevent a protected series of a series limited liability company from being a manager of the company or a protected-series manager of another protected series of the company or acting otherwise as an agent for the company or other protected series.
Reporter's Comment - Section 104(c) provides that a protected series cannot exist on its own; therefore, a protected series is not entirely distinct from the series limited liability company on whose existence the protected series depends. Section 501(1) reflects this reality by stating that the dissolution of a series limited liability company causes the dissolution of each of the company's protected series. Section 502(d) reflects this reality by providing that a series limited liability company has not completed its own winding up until the company has completed the winding up of each of the protected series of the company.
JayNote: Well, the concept of a series LLC where one series organization can create a bunch of protected series is difficult enough by itself. If you start trying to conceptualize structures where one protected series can create another like so many amoeba or where there is cross-ownership, then such things can only be understood after a healthy dose of tequila, peyote and mescaline. Which is to say that the Drafting Committee didn't want series LLCs to go down the rabbit hole into the surreal world where protected series can grow and multiply on their own and marry and interbreed. Thus, the prohibition of § 104(d) which had near-unanimous support within the Drafting Committee for the aforementioned quite practical reasons.
Section 104(d) cannot be toggled off by drafting the Operating Agreement otherwise.
(3) except as permitted by law of this state other than this ACT, have a purpose or power that the law of this state other than this ACT prohibits a limited liability company from doing or having; or
Reporter's Comment to Subsection (d)(3) – A limited liability company may not use a protected series to evade a requirement of other law. This provision's introductory language – "[e]xcept as permitted by law of this state …" – refers to situations in which state law authorizes a protected series of a series limited liability company to operate under the auspices of a license obtained or regulatory filing made by the company in the company's name.
JayNote: This provision prevents "license multiplying" using a series LLC. For example, suppose a state has a law that says that an LLC can have only one liquor license. To form a Series LLC with many protected series so that the single liquor license can then be extended to numerous locations would violate § 104(d)(3), unless state law otherwise allowed.
(4) [insert other provisions].
Reporter's Comment to Subsection (d) – The prohibitions stated in this subsection leave available a wide range of activities and affairs. For example, subject to a contrary provision in the operating agreement, every protected series, like every limited liability company, has the power to make contracts and own real and other property. These powers are key attributes to the concept of a legal person, are possessed by every limited liability company regardless of its state of organization, and therefore, under this provision, are possessed by every protected series established under this act.
Reporter's Comment to Subsections (a), (c) & (d) – These provisions are non-variable. See Section 107(a)(3)-(5).
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