Uniform Protected Series Act
Caution State Law Variances!
SECTION 401. LIMITATIONS ON LIABILITY.
(a) A person is not liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of:
(1) a protected series of a series limited liability company solely by reason of being or acting as:
(A) an associated member, series manager, or protected-series transferee of the protected series; or
(B) a member, manager, or a transferee of the company; or
Reporter's Comment to Subsection (a)(1) – This provision establishes the traditional, vertical liability shield to protect associated members, series managers, and protected transferees of a protected series of a of a series limited liability company against status-based liability for a debt, obligation, or other liability of the protected series or of the company and is based on Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 304(a). The shield is effective only against status-based liability – i.e., where the liability is asserted solely by reason of a person's status (e.g., associated member, series manager). The shield does not protect against direct liability for tortious conduct. For a detailed discussion of this issue, see Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 304(a), cmt., Shield Inapposite for Claims Arising from a Member's or Manager's Own Conduct.
The protection accorded a protected-series transferee also extends to the series limited liability company. See Section 303(d) (providing that, ("[i]f a series limited liability company owns a protected-series transferable interest of a protected series of the company, a provision of this ACT… which applies to a protected-series transferee of the protected series applies to the company in its capacity as an owner of the protected-series transferable interest").
(2) a series limited liability company solely by reason of being or acting as an associated member, protected-series manager, or protected-series transferee of a protected series of the company.
Reporter's Comment to Subsection (a)(2) – This provision is shorter than subsection (a)(1), because an enacting state's limited liability company act addresses most of the roles protected by a company's vertical shield – e.g., a member not in the capacity of an associated member of a protected series.
JayNote: Paragraph A of § 401 utterly rejects pure status-based liability arising from either the series organization or a protected series through the use of the language "solely by reason of being or acting", with emphasis on "solely". But the use of "solely" also connotes that if there are additional facts that may give rise to liability, then status may be taken into account in determining if the liability exists.
Example: Shortly after signing on as a member and manager of Alpha Protected Series LLC, and all of its protected series nos. 1-999, John is involved in an accident and is hospitalized in a coma. While John is in the coma, never having been disassociated as a member of manager, Alpha is taken over by a con artist who misuses the structure as a Ponzi scheme causing massive losses to investors. Under § 401(a), John can have no liability to investors, since the liability would be predicated solely by reason of John being or acting as a member or manager.
Example: While Alpha Protected Series LLC is being misused as a Ponzi scheme, Jerry as a manager of the series organization (but not of any protected series) has repeated opportunities to review financial statements that show financial abuse, but is too busy to bother with them. Notwithstanding § 401(a), Jerry can be liable to investors for negligence occasioned by his failure to examine the financial statements and catch the fraud.
(b) Subject to Section 404, the following rules apply:
(1) A debt, obligation, or other liability of a series limited liability company is solely the debt, obligation, or liability of the company.
(2) A debt, obligation, or other liability of a protected series is solely the debt, obligation, or liability of the protected series.
JayNote: Section 404(b) creates the so-called "internal shields" of a protected series LLC. In short, the liabilities of each protected series and the series organization are self-contained within those entities and are not shared with others.
Example: Beta Protected Series LLC has ten protected series (1-10), each of which consists of separate tractor dealerships. Protected Series #4 knowingly sells a defective tractor, causing the farmer's death and ensuing negligence action. Only Protected Series #4 can be liable to the farmer's estate, and not the series organization or any of the other series.
But what if, in the above example, a huge judgment is rendered against Protected Series #4 in excess of its insurance coverage and assets? Outside of bankruptcy, the farmer's estate cannot collect more than Protected Series #4's insurance coverage and assets. The question to which the answer is unknown and can only be speculated is whether Protected Series #4 can independently obtain bankruptcy protection without implicating the series organization and the other series in the bankruptcy. This is why, if the insolvency of a protected series is even just reasonably possible, it is probably better to form separate LLCs than to attempt to use a protected series under the UPSA (or any other state Series LLC Act).
(3) A series limited liability company is not liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of a protected series of the company solely by reason of the protected series being a protected series of the company or the company:
(A) being or acting as a protected-series manager of the protected series;
(B) having the protected series manage the company; or
(C) owning a protected-series transferable interest of the protected series.
(4) A protected series of a series limited liability company is not liable, directly or indirectly, by way of contribution or otherwise, for a debt, obligation, or other liability of the company or another protected series of the company solely by reason of:
(A) being a protected series of the company;
(B) being or acting as a manager of the company or a protected-series manager of another protected series of the company; or
(C) having the company or another protected series of the company be or act as a protected-series manager of the protected series.
Reporter's Comment to Subsection (b) – This provision establishes the novel, horizontal shields, which are explained in detail in Prefatory Note, Part 7. The provision is subject to Section 404, because the "asset by asset" exposure under that section interferes with the non-recourse aspect of the horizontal shields.
Reporter's Comment to Section 401 - This section provides two different types of liability shields:
For further explanation, see Prefatory Note, Part 7.
For claims to disregard the shields created by this section, see Section 402.
JayNote: Section 402(b) provides that the failure to follow the formalities is not a reason to disrespect the liability shields under § 401(a), but may be a reason to disrespect the liability shields under § 401(b).
Otherwise, section 401(b)(3) and (4) seem substantially redundant in effect with § 401(a), although ¶ (b)(3) and (4) are stated from the viewpoint of the "innocent" protected series and series organization. Suffice it to say that because the UPSA is a new act in the sense that it did not have a predecessor uniform act for guidance, and that the concept of Series LLCs and even the existing state acts are themselves relatively novel, the Drafting Committee was often here and elsewhere willing to accept possible redundancy for purposes of clarity.
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
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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 ... MRS Recovery Claims, Series LLC v. USAA General Indemnity Co., 2018 WL 5112998 (S.D.Fla., Oct. 19, 2018).
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?
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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
Now available for purchase at https://goo.gl/faZzY6
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