We’ve encountered a plethora of inquiries concerning the most favorable structure for investment vehicles or Special Purpose Vehicles (SPVs). Among the vast array of options, the Series Limited Liability Company (SLLC) stands out prominently. After Assure, a popular 3rd-party SPV administrator went belly-up just in time for Thanksgiving holiday season,
Burrell Law has helped clients utilize SLLCs to structure private illiquid investments so that clients can have mini private equity fund vehicles. These SPVs have allowed clients to pool capital and participate in hot private investment opportunities for which they might have otherwise failed to make the minimum investment threshold. Some emerging fund managers have used SLLCs to build a track record before launching a larger PE fund.
Let’s delve into the nuances and advantages of this unique entity, particularly focusing on favorable jurisdictions such as Delaware.
1. What is a Series Limited Liability Company (SLLC)?
At its core, an SLLC is a structure designed to permit a single LLC (the “master LLC”) to spawn several sub-LLCs (often termed “series” or “cells”) under its umbrella. Each series operates as a separate entity, with distinct assets, members, and liabilities, yet all are housed within the overarching master entity. Delaware and Washington, D.C. are two of a dozen or so jurisdictions that permit the formation of SLLCs.
2. Benefits of the SLLC Structure
- Asset Isolation: The most compelling advantage of the SLLC structure is the inherent ability to segregate assets. Each series can insulate its assets and liabilities from the other series. This is especially valuable for investment managers handling multiple investment portfolios. If one investment goes sour, the liabilities tied to that specific venture won’t spill over to other assets held in other series within the same SLLC.
- Cost Efficiency: Establishing multiple traditional LLCs can be both time-consuming and expensive. With an SLLC, however, the establishment of new series under the master structure is generally more streamlined and cost-effective than setting up standalone LLCs.
- Operational Flexibility: Each series under an SLLC can be tailored with its own operating agreement, investment strategy, and management structure. This allows sponsors and investors the flexibility to structure each investment optimally, depending on its nature and goals.
- Simplified Administration: With the SLLC structure, there’s a centralized administration at the master level, meaning fewer annual filings, reduced administrative overheads, and easier management.
3. The Delaware Advantage
While several states have acknowledged the SLLC structure, Delaware reigns supreme as the jurisdiction of choice. Here’s why:
- Robust Legal Framework: Delaware boasts an evolved, business-friendly legal environment, with a trove of case law and statutes supporting the SLLC structure. The Delaware Limited Liability Company Act provides detailed guidance on the formation and operation of SLLCs.
- Favorable Tax Treatment: Delaware’s tax code is crafted to benefit businesses, and SLLCs are no exception. The state does not levy taxes on the income of LLCs that aren’t generated within Delaware, offering significant tax advantages to out-of-state entities.
- Renowned Courts: Delaware’s Court of Chancery is internationally recognized for its expertise in corporate law disputes, assuring entities of a fair, swift, and informed legal adjudication process.
The Series (Master) Limited Liability Company, especially when domiciled in Delaware, presents an enticing option for investors and fund managers seeking flexibility, protection, and cost efficiency. While it’s essential to consult with legal counsel to ensure that the SLLC structure is the right fit for a particular venture, its advantages are undeniably compelling for a broad range of investment scenarios.
This blog post is intended for general informational purposes only and should not be construed as legal advice from any of the attorneys at Burrell Law, P.C. Always consult with a qualified attorney of your choice regarding the formation of SLLCs or for any specific legal matters. Feel free to contact us to see if we can help you or your business.