Uniform Protected Series Act
Caution State Law Variances!
SECTION 201. PROTECTED SERIES DESIGNATION; AMENDMENT.
(a) With the affirmative vote or consent of all members of a limited liability company, the company may establish a protected series.
Reporter's Comment to Subsection (b) – Because a protected series designation is a record created by a limited liability company, an enacting state's limited liability company act determines who has authority to sign for the company and when the designation becomes effective, etc. See, e.g., Uniform Limited Liability Company Act (2006) (Last Amended 2013), Sections 203(a)(1) (stating that in general "a record signed by a limited liability company must be signed by a person authorized by the company"); 207 (pertaining to effective date and time).
JayNote: This section presumes that the company has already filed and had accepted Articles of Formation with the Secretary of State's office that authorize it to be a Series LLC. This section does not -- repeat not -- state that somebody can take just any old ordinary LLC and convert it to a Series LLC with nothing more than a unanimous vote of the members (unless, of course, a particular state's UPSA allows that, the point being that this § 201(a) doesn't itself authorize that).
(b) To establish a protected series, a limited liability company shall deliver to the [Secretary of State] for filing a protected series designation, signed by the company, stating the name of the company and the name of the protected series to be established.
JayNote: This section 201(b) is one of the most singularly-important sections of the UPSA, since it requires a filing with the Secretary of State to establish a protected series, which runs contrary to nearly every (if not every) series LLC statute already in effect as of the time that the UPSA was adopted.
The Drafting Committee spent a great deal of time on this issue before concluding that the filing of a designation would be a necessary predicate to establishing a protected series. There were two primary reasons for this:
(1) There was little confidence among Drafting Committee members that a protected series could alone make a bankruptcy filing stick, i.e., be considered a "person" for purposes of the U.S. Bankruptcy Code, unless the protected series (and not just the series organization) held the imprimatur of the State, through the Secretary of State, by a filing. Or, if a bankruptcy filing did stick, then the filing would very likely drag the series organization (and thus all the other protected series) into the bankruptcy through substantive consolidation or some other theory. As for the other then-existing series LLC statutes, those were seen as simply creating what amounts to little more than a "contractual side-deal", i.e., not an entity at all but merely an amorphous contractual arrangement, which would likely not rise to the level of "person" for purposes of the Bankruptcy Code.
(2) The Drafting Committee thought that a filing for each protected series would help to protect against potential abuses of series LLCs, including attempts to negatively change normal creditor-debtor relationships through nefarious means, i.e., creating innumerable unregistered shells by which complicated shells games could be played with creditors.
As a practical matter, and having a good deal of experience with this myself with Nevada series LLCs, it is very difficult (if not impossible with some major banks) to even open a bank account for a protected series in the absence of some piece of paper regarding the protected series (and not just the series organization) from the Secretary of State's office showing that indeed the protected series does exist. So, the registration of protected series is a good thing, both theoretically and pragmatically.
(c) A protected series is established when the protected series designation takes effect under [cite to provision of this state's limited liability company act determining when a record delivered for filing takes effect].
Reporter's Comment to Subsection (c) – A protected series may be established without associated members. Contrast Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 201(d) ("A limited liability company is formed when the certificate of organization becomes effective and at least one person has become a member.") Likewise, a protected series may be established without any assets (whether or not associated).
If a protected series is established without associated members, the series limited liability company:
JayNote: If one recalls the tranche characterization of protected series, the series organization creates a protected series by assigning a particular tranche of equity to the protected series. If there as yet no associated members, then the tranche of equity which has been assigned simply sits on the series organization's books as what amounts to "cabinet stock" until it is associated with a member.
Notably, the series organization can be -- and is by default in the absence of another member -- a member of the protected series, and also the only member of the protected series. This would be the cases where, for instance, the protected series are used to encapsulate various divisions of the series organization. For example, Big Oil LLC could be organized as a series organizations, with its divisions: exploration in Big Oil LLC Protected Series A, drilling in Big Oil LLC Protected Series B, refining in Big Oil LLC Protected Series C, etc. In such a scenario, Big Oil LLC as the series organization would be the member and manager of the protected series by default, although this arrangement could be modified by adding outside members, managers, etc.
(d) To amend a protected series designation, a series limited liability company shall deliver to the [Secretary of State] for filing a statement of designation change, signed by the company, that changes the name of the company, the name of the protected series to which the designation applies, or both. The change takes effect when the statement of designation change takes effect under [cite to provision of this state's limited liability company act determining when a record delivered for filing takes effect].
If an enacting state's limited liability company act requires a limited liability company's certificate of formation, however denominated, to identify a person or all persons with governance authority, the same requirement should appear in subsection (b).
Reporter's Comment to Subsection (d) – This provision uses "statement of designation change" to avoid confusion with statutes that use "statement of change" for a different purpose. See, e.g., Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 116 (Change of Registered Agent or Address for Registered Agent by Limited Liability Company).
The decision to file a statement of designation change will typically be ministerial and well within the ordinary course of the activities and affairs of a series limited liability company. For example, if a company changes its name, the company must change accordingly the name of each protected series of the company. See Section 202(b)(1), 202(c) cmt. In contrast, the decision to change the company's name might be neither ministerial nor in the ordinary course.
For the reasons stated in the comment to subsection (b), an enacting state's limited liability company act governs who has authority to sign a statement of designation change on behalf of a series limited liability company.
Reporter's Comment to Subsection (c) and (d) – A state that has enacted Uniform Limited Liability Company Act (2006) (Last Amended 2013) would cite Section 207.
Legislative Note: Subsections (b) and (d) presuppose that an enacting state's limited liability company act will determine who may sign this record. See, e.g., Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 203(a)(1) (stating that in general "a record signed by a limited liability company must be signed by a person authorized by the company"). If no such "catch-all" provision exists, either this act or the limited liability company act should be revised accordingly.
Reporter's Comment to Section 201 - This section contemplates the two types of records pertaining to a protected series which are delivered to the filing office. In each instance, it is the series limited liability company that prepares, signs, and delivers the record – not the protected series itself. With regard to a protected series designation, the rationale is obvious. With regard to a statement of designation change, the rationale has to do with how filing offices maintain and index filed records.
The operating agreement of a series limited liability company cannot vary the effects of this section, except to change the approval method stated in subsection (a). Section 107(a)(9).
JayNote: Section 201(d) is effectively another extrapolation provision of sorts which says that once a protected series has been registered with the Secretary of State, the registration may be amended to change similarly to the procedure for changing the same information for an ordinary LLC.
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