Caution State Law Variances!
SECTION 106. RELATION OF OPERATING AGREEMENT, THIS ACT, AND LIMITED LIABILITY COMPANY ACT.
(a) Except as otherwise provided in this section and subject to Sections 107 and 108, the operating agreement of a series limited liability company governs:
(1) the internal affairs of a protected series, including:
(A) relations among any associated members of the protected series;
(B) relations among the protected series and:
(i) any associated member;
(ii) the protected-series manager; or
(iii) any protected-series transferee;
(C) relations between any associated member and:
(i) the protected-series manager: or
(ii) any protected-series transferee;
(D) the rights and duties of a protected-series manager;
(E) governance decisions affecting the activities and affairs of the protected series and the conduct of those activities and affairs; and
(F) procedures and conditions for becoming an associated member or protected-series transferee;
Reporter's Comment to Subsection (a)(1) – For a discussion of how the concept of internal affairs applies to a protected series, see Section 105(1), cmt.
(2) relations among the protected series, the company, and any other protected series of the company;
Reporter's Comment to Subsection (a)(2) – See the comment to Subsection (a)(3).
(3) relations between:
(A) the protected series, its protected-series manager, any associated member of the protected series, or any protected-series transferee of the protected series; and
(B) a person in the person's capacity as:
(i) a member of the company which is not an associated member of the protected series;
(ii) a protected-series transferee or protected-series manager of another protected series; or
(iii) a transferee of the company.
Reporter's Comment to Subsection (a)(3) – These provisions focus on relationships involving, on the one hand, a protected series, its protected-series manager, associated members, and protected-series transferees and, on the other hand, other persons "internal" to a series limited liability company. Because a protected series exists within (i.e., under the aegis of) a series limited liability company and such company's operating agreement governs the company's internal affairs, this provision is arguably unnecessary. It is included for the avoidance of doubt.
Reporter's Comment to Subsection (a) – This provision derives from Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 105(a).
JayNote: Section 106(a) sets out what the Operating Agreement for a series LLC will govern in terms of internal affairs, including defining the relationships between the series organizations and the various protected series, as well as manager and transferees.
As an aside, every LLC has an Operating Agreement, if simply verbal. The ULLCA operates such that if there is no written Operating Agreement, or if the written Operating Agreement fails for some reason or another, the ULLCA will provide the default operating rules for the LLC.
With a series LLC, the lack of a detailed, sophisticated, written Operating Agreement is nothing short of legal suicide, and akin to putting on a blindfold and then driving full-speed into rush hour traffic: It will not be very long before something very bad happens.
The Drafting Committee discussed, and came to the consensus, that no matter what the UPSA provides, there will still be folks who will form a series LLC and then simply adopt a standard-form Series LLC Operating Agreement with pedestrian provisions. This is one of those places in the discussion where the idea to name the UPSA the "LFEA" or "Litigators' Full Employment Act" went around.
(b) If [cite this state's limited liability company act] restricts the power of an operating agreement to affect a matter, the restriction applies to a matter under this ACT in accordance with Section 108.
Reporter's Comment to Subsection (b) – This subsection is an extrapolation provision. See Prefatory Note, Part 6.
(c) If law of this state other than this ACT imposes a prohibition, limitation, requirement, condition, obligation, liability, or other restriction on a limited liability company, a member, manager, or other agent of the company, or a transferee of the company, except as otherwise provided in law of this state other than this ACT, the restriction applies in accordance with Section 108.
Reporter's Comment to Subsection (c) – This subsection is also an extrapolation provision. The phrase "except as otherwise provided by law of this state other than this ACT" 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. Cf. Section 104(d)(3), cmt.
(d) Except as otherwise provided in Section 107, if the operating agreement of a series limited liability company does not provide for a matter described in subsection (a) in a manner permitted by this ACT, the matter is determined in accordance with the following rules:
(1) To the extent this ACT addresses the matter, this ACT governs.
(2) To the extent this ACT does not address the matter, [cite this state's limited liability company act] governs the matter in accordance with Section 108.
Reporter's Comment to Subsection (d)(2) – This provision is an extrapolation provision pertaining only to those internal affairs of a protected series not otherwise addressed by the operating agreement or this act. For a general explanation of extrapolation, see Prefatory Note, Part 6.
All limited liability company acts provide default rules to govern issues of internal affairs that a limited liability company's operating agreement omits to address. See, e.g., Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 105(b). Comparable gaps can exist at the protected series level, but this act does not provide a comprehensive set of "gap fillers." Instead, if a question arises within the domain of subsection (a) and neither the operating agreement nor this act provides an answer, the answer is determined by extrapolating to the protected series level the rule for the analogous situation at the limited liability company level. Section 108 provides the extrapolation mechanics – i.e., treating a protected series as if it were a limited liability company, an associated member of the protected series as if it were a member of that "as if" limited liability company, etc. See Prefatory Note, Part 6.
Thus, together with Section 108 this provision creates a paradigm for determining the rules applicable to a matter within subsection (a). The following list states the paradigm; "non-variable provision" means a provision of an enacting state's limited liability company act (including this act as inserted in the statute) which an operating agreement may not vary or waive.
To this paradigm must be added one other situation. Suppose the terms of the operating agreement purport to comprehensively address a subsection (a) matter (i.e., an internal affair) in a way permitted by this act, but the terms (i) are ambiguous; (ii) incomplete (i.e., a gap exists); or (iii) are called into question due to some generally applicable principle of contract or other law (e.g., waiver). How should the court handle the situation?
This act does not directly answer the question, but for reasons of logic and policy the answer should be the same as if the problem existed at the company level of a series limited liability company or with the operating agreement of an ordinary limited liability company.
This provision applies only to matters within subsection (a). For provisions providing for extrapolation as to other matters, see Sections 304(c), 304(f), 501(4)(A), 502(a), and 503(2).
A protected series does not have an operating agreement of its own, so the operating agreement of a series limited liability company must address issues pertaining to the company's protected series. An operating agreement may do so in its main body, through a different exhibit or appendix for each protected series, through an exhibit or appendix applicable all protected series, or through some combination.
Most limited liability company acts permit oral and implied-in-fact operating agreements. See, e.g., Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102(13) (defining operating agreement as an agreement among all the members, "whether oral, implied, in a record, or in any combination thereof"). However, given the complexity inherent in the protected series construct, prudence demands a written operating agreement – and, moreover, one not subject to amendment except through a signed writing. See Uniform Limited Liability Company Act (2006) (Last Amended 2013), Sections 105(4) and 107(a) and comments to each.
Unless prohibited by the operating agreement, associated members of a protected series may make contracts among themselves pertaining to the protected series. To the extent permitted by other law (principally the law of contracts), such contracts bind the parties but have no effect on the operating agreement or the rights and duties of members of the series limited liability company who are not party to the agreement (whether or not the non-party member is an associated member of the protected series).
JayNote: Somewhat obviously, the hierarchy of governing authority in an LLC is:
It cannot be overemphasized that the key to a successful series LLC is a sound, custom-drafted, sophisticated Operating Agreement. Can't say that enough.
ARTICLE 1. GENERAL PROVISIONS
SECTION 101. SHORT TITLE. SECTION 102. DEFINITIONS. SECTION 103. NATURE OF PROTECTED SERIES. SECTION 104. POWERS AND DURATION OF PROTECTED SERIES. SECTION 105. GOVERNING LAW. SECTION 106. RELATION OF OPERATING AGREEMENT, THIS ACT, AND LIMITED LIABILITY COMPANY ACT. SECTION 107. ADDITIONAL LIMITATIONS ON OPERATING AGREEMENT. SECTION 108. RULES FOR APPLYING LIMITED LIABILITY COMPANY ACT TO SPECIFIED PROVISIONS OF ACT.
ARTICLE 2. ESTABLISHING PROTECTED SERIES
SECTION 201. PROTECTED SERIES DESIGNATION; AMENDMENT. SECTION 202. NAME. SECTION 203. REGISTERED AGENT. SECTION 204. SERVICE OF PROCESS, NOTICE, DEMAND, OR OTHER RECORD. SECTION 205. CERTIFICATE OF GOOD STANDING FOR PROTECTED SERIES. SECTION 206. INFORMATION REQUIRED IN ANNUAL BIENNIAL REPORT; EFFECT OF FAILURE TO PROVIDE.
ARTICLE 3. ASSOCIATED ASSET; ASSOCIATED MEMBER; PROTECTED-SERIES TRANSFERABLE INTEREST; MANAGEMENT; RIGHT OF INFORMATION
SECTION 301. ASSOCIATED ASSET. SECTION 302. ASSOCIATED MEMBER. SECTION 303. PROTECTED-SERIES TRANSFERABLE INTEREST. SECTION 304. MANAGEMENT. SECTION 305. RIGHT OF PERSON NOT ASSOCIATED MEMBER OF PROTECTED SERIES TO INFORMATION CONCERNING PROTECTED SERIES.
ARTICLE 4. LIMITATION ON LIABILITY AND ENFORCEMENT OF CLAIMS
SECTION 401. LIMITATIONS ON LIABILITY. SECTION 402. CLAIM SEEKING TO DISREGARD LIMITATION OF LIABILITY. SECTION 403. REMEDIES OF JUDGMENT CREDITOR OF ASSOCIATED MEMBER OR PROTECTED-SERIES TRANSFEREE. SECTION 404. ENFORCEMENT AGAINST NON-ASSOCIATED ASSET.
ARTICLE 5. DISSOLUTION AND WINDING UP OF PROTECTED SERIES
SECTION 501. EVENTS CAUSING DISSOLUTION OF PROTECTED SERIES. SECTION 502. WINDING UP DISSOLVED PROTECTED SERIES. SECTION 503. EFFECT OF REINSTATEMENT OF SERIES LIMITED LIABILITY COMPANY OR REVOCATION OF VOLUNTARY DISSOLUTION.
ARTICLE 6. ENTITY TRANSACTIONS RESTRICTED
SECTION 601. DEFINITIONS. SECTION 602. PROTECTED SERIES MAY NOT BE PARTY TO ENTITY TRANSACTION. SECTION 603. RESTRICTION ON ENTITY TRANSACTION INVOLVING PROTECTED SERIES. SECTION 604. MERGER AUTHORIZED; PARTIES RESTRICTED. SECTION 605. PLAN OF MERGER. SECTION 606. STATEMENT OF MERGER. SECTION 607. EFFECT OF MERGER. SECTION 608. APPLICATION OF SECTION 404 AFTER MERGER.
ARTICLE 7. FOREIGN PROTECTED SERIES
SECTION 701. GOVERNING LAW. SECTION 702. NO ATTRIBUTION OF ACTIVITIES CONSTITUTING DOING BUSINESS OR FOR ESTABLISHING JURISDICTION. SECTION 703. REGISTRATION OF FOREIGN PROTECTED SERIES. SECTION 704. DISCLOSURE REQUIRED WHEN FOREIGN SERIES LIMITED LIABILITY COMPANY OR FOREIGN PROTECTED SERIES PARTY TO PROCEEDING.
ARTICLE 8. MISCELLANEOUS PROVISIONS
SECTION 801. UNIFORMITY OF APPLICATION AND CONSTRUCTION. SECTION 802. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. SECTION 803. TRANSITIONAL PROVISIONS. SECTION 804. SAVINGS CLAUSE. SECTION 805. SEVERABILITY CLAUSE. SECTION 806. REPEALS; CONFORMING AMENDMENTS. SECTION 807. EFFECTIVE DATE.
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Protected Series Agreements and Forms -- A list of the "best practices" agreements and records that all protected series structures should have.
UPSA COURT OPINIONS
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NON-UPSA COURT OPINIONS
191212 ... Ohio ... Delaware Act .. MSP Recovery Claims, Series LLC v. Phoenix Ins. Co., 2019 WL 6770981 (N.D. Ohio, 2019).
181019 ... Florida ... Delaware Act ... MRP Recovery Claims, Series LLC v. USAA General Indemnity Co., 2018 WL 5112998 (S.D.Fla., Oct. 19, 2018).
2020.03.17 ... Series LLC Not Allowed To Play Pea-Shell Game In City Of Urbana Opinion
2020.02.16 ... Talisman Casualty Denied Diversity Jurisdiction Of Protected Cell Series LLC In National WW II Museum Case
2019.01.28 ... Understanding The Protected Series Act: Article 8 And Final Thoughts
2018.11.24 ... Understanding The Protected Series Act: Treating Out-Of-State Series
2018.11.18 ... Understanding The Protected Series Act: Mergers
2018.10.29 ... Understanding The Protected Series Act: Dissolution And Winding Up Of Protected Series
2018.10.21 ... Understanding The Protected Series Act: Liability Limitations And Claims
2018.08.30 ... Understanding The Protected Series Act: Assets, Members And Management
2018.08.28 ... Understanding The Protected Series Act: Creating A Protected Series And Service Of Process
2018.07.18 ... Understanding The Protected Series Act: The Framework of UPSA - Part 2 of a Series
2018.06.18 ... Understanding The Protected Series Act: What Is A Protected Series?
More articles on Series LLCs by Jay Adkisson click here
The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association
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