Adkisson's

Uniform Protected Series Act

(UPSA)

Caution State Law Variances!

SECTION 301. ASSOCIATED ASSET.

 

JayNote: Arguably, § 301 is the single most important section of the UPSA. Treat lightly at your peril.

 

(a) Only an asset of a protected series may be an associated asset of the protected series. Only an asset of a series limited liability company may be an associated asset of the company.

 

Reporter's Comment to Subsection (a) – Only property that is an asset of a protected series may be an associated asset of the protected series. The same rule applies to the series limited liability company itself. Thus, associated assets are a subset of assets (although, if the recordkeeping is satisfactory, the subset will be co-extensive with the set).

 

JayNote: A series LLC has two types of assets: associated assets and non-associated assets. An associated asset has only one (1) owner, either a protected series or the series organization.

 

(b) An asset of a protected series of a series limited liability company is an associated asset of the protected series only if the protected series creates and maintains records that state the name of the protected series and describe the asset with sufficient specificity to permit a disinterested, reasonable individual to:

(1) identify the asset and distinguish it from any other asset of the protected series, any asset of the company, and any asset of any other protected series of the company;

(2) determine when and from what person the protected series acquired the asset or how the asset otherwise became an asset of the protected series; and

(3) if the protected series acquired the asset from the company or another protected series of the company, determine any consideration paid, the payor, and the payee.

 

JayNote: A series LLC is all about the record keeping of assets. If the record keeping for a particular asset is sound, then the asset will be an associated asset and thus not available to any creditors other than those of of the particular protected series (or the series organization) to which it is associated. If the record keeping is not sound, then the asset is an non-associated asset which is available on a first-come, first serve basis to the creditors of any protected series or the series organization. Subsection (b) defines what constitutes sound record keeping for protected series.

 

(c) An asset of a series limited liability company is an associated asset of the company only if the company creates and maintains records that state the name of the company and describe the asset with sufficient specificity to permit a disinterested, reasonable individual to:

(1) identify the asset and distinguish it from any other asset of the company and any asset of any protected series of the company;

(2) determine when and from what person the company acquired the asset or how the asset otherwise became an asset of the company; and

(3) if the company acquired the asset from a protected series of the company, determine any consideration paid, the payor, and the payee.

Reporter's Comment to Subsections (b) and (c) – These provisions state the recordkeeping required for an asset to be an associated asset of respectively a protected series or series limited liability company.

 

Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102(18) defines "record" as "information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form." The reference here and in subsection (c) to "a record or set of records" indicates that the necessary information may be found in one record (e.g., one spreadsheet) or a combination of records comprised so as to enable "a disinterested, reasonable individual" to make sense of the combination. Cf. Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 102(13), cmt. (stating that "an operating agreement may comprise several of separate documents (or records), however denominated").

 

In this context, a "reasonable individual" has at least a general familiarity with business records. However, the standard does not require familiarity with generally accepted accounting principles (GAAP) or any other particular set of accounting rules. It follows that records decipherable only by a forensic accountant do not meet the standard. By the same token, these provisions do not require that the recordkeeping comply with GAAP or any other particular set of accounting rules.

 

Unless the operating agreement provides otherwise, the owner of an asset (a protected series or the company, as the case may be) is responsible for meeting the recordkeeping requirements with regard to the asset. However, this decentralized approach can be a trap for the unwary. Records of a protected series might be clear beyond peradventure if considered alone but ambiguous when considered along with the records of another protected series or the series limited liability company. The operating agreement can address this problem by delegating recordkeeping responsibility for a series limited liability company and all its protected series to one person – i.e., the company, one of the protected series, or a third party (e.g., a management company).

 

Access to the records maintained under this section is governed by the same rules that apply to other information maintained by a series limited liability company or protected series. See, e.g., Section 305 (right of person not associated member of protected series to information concerning protected series) and 107(b) (prohibition against unreasonably restricting the rights stated in Section 305).

 

This act requires recordkeeping and states consequences for failing to do so but does not itself provide outsiders access to the records – e.g., to a third-party creditor searching for non-associated ("up for grabs") assets. The question is governed by other law, e.g., rules of discovery in civil matters, including rules pertaining to post-judgment disclosures and protective orders for confidential information.

 

Reporter's Comment to Subsections (b)(1)-(2); (c)(1)-(2) – These provisions impose substantial transparency requirements.

The reference in subsections (b)(2) and (c)(2) to "how the asset otherwise became an asset of the protected series/company" encompasses assets that are manufactured or otherwise created or developed "in house." Cf. Uniform Commercial Code, Section UCC § 2-501(1)(b) (pertaining to the identification of future goods).

 

Reporter's Comment to Subsections (b)(3); (c)(3) – These provisions impose additional transparency requirements in transactions between a series limited liability company and one of the protected series of the company or between two protected series of the company. In almost all instances, the person acquiring the asset will itself pay the consideration. However, a protected series or series limited liability company might acquire an asset through a third party beneficiary contract, including one in which the protected series or company is a donee beneficiary. Similarly, payment might be made to an assignee of the person transferring the asset.

 

JayNote: Subsection (c) defines what constitutes sound record keeping for the series LLC.

 

(d) The records and recordkeeping required by subsections (b) and (c) may be organized by specific listing, category, type, quantity, or computational or allocational formula or procedure, including a percentage or share of any asset, or in any other reasonable manner.

Reporter's Comment to Subsection (d) – The language in this provision derives from Uniform Commercial Code ("UCC") Section 9-108(b). However, both that provision and this one are examples of methodology in service of a goal. In the case of UCC Section 9-108, the goal is to "reasonably identif[y] what is described." Id., subsection (a). In this case of Section 301 of this act, the goal is substantially different: to permit a disinterested, reasonable individual to:

 

(1) identify the asset and distinguish it from any other assets of the protected series, any assets of the company, and any assets of any other protected series of the company;

 

(2) determine when and from what person the protected series acquired the asset or how the asset otherwise became an asset of the protected series; and

 

(3) if the protected series acquired the asset from the company or another protected series of the company, determine any consideration paid, the payor, and the payee.

 

SECTION 301(b). See also Section 301(c) (essentially identical language pertaining to associated assets of a series limited liability company).

 

Put another way, the goal of UCC Section 9-108 is to distinguish among types of property in which a debtor presumably has rights or the power to transfer rights, UCC Section UCC 9-203(b)(2), while the goal of Section 301 is to distinguish assets of a protected series from assets of the series limited liability company or another protected series of the company.

 

JayNote: There is no particular way that the records have to presented, but suffice it to say that the "best practice" will be to do so in a fashion that the records can be easily understood and read by either a judge or jury, for somewhat obvious reasons.

 

(e) To the extent permitted by this section and law of this state other than this ACT, a series limited liability company or protected series of the company may hold an associated asset directly or indirectly, through a representative, nominee, or similar arrangement, except that:

(1) a protected series may not hold an associated asset in the name of the company or another protected series of the company; and

(2) the company may not hold an associated asset in the name of a protected series of the company.

 

Reporter's Comment to Subsection (e) – Under this provision, for example, stock could constitute an associated asset of a protected series, even though the stock is held in "street name" by a brokerage firm.

 

Reporter's Comment to Subsection (e)(1)-(2) – These exceptions promote transparency.

 

Reporter's Comment to Section 301 - As explained in Prefatory Note, Part 7, with regard to horizontal shields this act distinguishes the non-liability rule, Section 401(b), from the non-recourse rule. The non-recourse rule protects only associated assets, and this section states the recordkeeping mechanics required to qualify an asset as an associated asset. Section 404 states the consequences of non-compliance.

 

The rules stated in this section and the consequences provided in Section 404 sharply distinguish the protected series construct from more traditional affiliate relationships – e.g., a holding company with subsidiaries. Although concepts of affiliate liability apply in both contexts, see Section 402(a), traditional affiliate relationships face neither the recordkeeping requirements of this section nor the asset-by-asset exposure consequences of Section 404.

 

EXAMPLE: Karsai LLC is a series limited liability company with three protected series: Karsai LLC Protected Series A ("PS-A"), Karsai LLC Protected Series B ("PS-B"), Karsai LLC Protected Series C ("PS-C"). The following sequence of events occurs:

 

1. PS-A transfers an asset to PS-B in a transaction voidable under the UVTA.

 

2. PS-B fails to comply with subsection (b)(3); the asset is therefore a non-associated asset of PS-B.

 

3. A judgment creditor of PS-C invokes Section 404, seeking to levy on the non-associated asset of PS-B. A judgment creditor of PS-A invokes the voidable transactions act, seeking to recover the asset from PS-B.

 

Which creditor prevails is determined by other law.

 

JayNote: Either the series organization or any of the protected series may have their assets held through a trustee, nominee, agent, etc., just like any other legal entity. What they cannot do, however, is hold assets in such capacity for each other. The public policy reason behind this prohibition is to prevent a series LLC from being used as a giant shell game where assets which appear to be held by one protected series are actually owned by another, or at least the wrongdoer lies and says that such is the case. This keeps the creditor from having to play "asset whack-a-mole" among the protected series and the series organization.

 

 

UPSA AND WEBSITE CONTENTS

 

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.

 

SERIES LLC COURT OPINIONS

 

UPSA COURT OPINIONS

 

None

 

- - - - -

 

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 ... MRS Recovery Claims, Series LLC v. USAA General Indemnity Co., 2018 WL 5112998 (S.D.Fla., Oct. 19, 2018).

 

180605 ... North Dakota ... Nevada Act ... Flaten v. Couture, 912 N.W.2d 330, 2018 ND 136 (2018).

 

Updated List

 

SERIES LLC ARTICLES BY JAY ADKISSON

 

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 BY JAY ADKISSON

 

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

Click here for more information

 

Now available for purchase at https://goo.gl/faZzY6

MORE INFORMATIONAL WEBSITES BY JAY ADKISSON

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business, by the author of the book Adkisson's Captive Insurance Companies.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

  • Collecting On A Judgment - An explanation of common creditor remedies, strategies and tactics to enforce a judgment, including a discussion of common debtor asset protection strategies.

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Charging Orders - The confusing remedy against a debtor's interest in an LLC or partnership is explained in reference to the Uniform Partnership Act, the Uniform Limited Partnership Act, and the Uniform Limited Liability Company Act.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States, and special treatment of the California Anti-SLAPP Act.

 

CONTACT JAY ADKISSON

 

Contact Jay Adkisson:

 

Phone: 702-953-9617     Fax: 877-698-0678     jay [at] jayad.com

 

Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date an time certain.

 

Las Vegas Office: 6671 S. Las Vegas Blvd., Suite 210, Las Vegas, NV 89119, Ph: 702-953-9617, Fax: 877-698-0678. By appointment only.

 

Newport Beach Office: 100 Bayview Circle, Suite 210, Newport Beach, California 92660. Ph: 949-200-7773, Fax: 877-698-0678. By appointment only.

 

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© 2019 by Jay D. Adkisson. All rights reserved. No part of this website may be copied in whole or in any part without the express written permission of Jay D. Adkisson. Nothing herein is any advertisement or offer by the firm to practice in any jurisdiction where no attorney of the firm is licensed to practice law. This website does not give any legal advice or opinion, and is no substitute for the advice and counsel of an attorney consulted in the relevant jurisdiction. Other. Questions about this website should be directed to jay [at] jayad.com, by phone to 702-953-9617 or by fax to 877-698-0678. This website is http://www.protectedseriesact.com