11.22 Limited Liability Companies

11.22.1

In General

Limited liability companies are a form of business entity created by state statute to take advantage of the features of both corporations and partnerships. Although the most advantageous aspect of the limited liability company is its tax status, there are several other features which make it an attractive type of entity.

A limited liability company combines the advantage of the limited liability of a shareholder in a corporation with the federal tax benefits of partners in partnerships. Additionally the limited liability company provides added flexibility in the management of the company and distribution of profits.

Different terminology is used in limited liability companies as opposed to corporations and partnerships. Examples of the most commonly used terms are as follows:

Manager

A manager is a person designated by members to manage the limited liability company. This person is similar to a corporate officer or a managing partner of a partnership.

Member

This is an owner of an interest in the limited liability company. A member may be a partnership, general or limited, another limited liability company, a trust, an estate, an association, a corporation, a custodian or nominee or an individual.

Operating Agreement

This is the document agreed to by the Members (owners) which governs the management of the limited liability company in the conduct of its business and distribution of profits. This document must be in writing. The operating agreement is similar to the corporate charter and by-laws for a corporation or the partnership agreement for a partnership.

11.22.2

Series Limited Liability Company

Series Limited Liability Company

This is a new type of limited liability company. A "series llc" is a limited liability company under which a distinct series of ownership, management and economic rights is recognized such that each series owns and controls specific assets which are liable only for the debts and obligations incurred by that specific series. The goal is that the financial situation of one series will not affect the financial situation of any other series without having to set up a separate llc for each series.

Only a few states have adopted statutes permitting organization of "series limited liability companies" and it is unclear whether the limited liability features of each series will be recognized as to federal obligations or by states which have not adopted statutes permitting "series" llcs. The statutes governing limited liability companies, particularly "series" llcs, vary widely from state to state. Therefore, consult with your local underwriting counsel for specific guidelines in this area.