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March | April | 2016 CCIM.com
not much precedent as to how these entities
will be respected going forward.
To begin with, not all state statutes regard-
ing the series LLC are identical. Series LLCs
are not available in all states, and, where
they are not available, each series may not
be recognized as a separate entity for state
tax purposes.
In addition, without guiding case law, it is
unclear exactly what type of record keeping,
accounting, and other formalities will pre-
serve liability segregation among the series
and avoid the "piercing" of the liability veil.
Likewise, it is unclear what practices would
be insuf cient and expose a client to greater
than anticipated liability. Thus, the best
course of action is to maintain the strictest
possible accounting and other record-keep-
ing standards to maximize the chance of the
limited liability being respected.
T is issue is of particular concern with
respect to claims involving creditors and
other third parties that may not have ade-
quate notice of the segregation of assets
and liabilities in a series LLC. It remains
unclear how Article 9 of the Uniform
Commercial Code applies to the series LLC
and how a series will be treated in bank-
ruptcy. To f le a petition, a specif c series
would need to be considered a "person"
under the Bankruptcy Code, a designation
that includes an individual, partnership, or
corporation. If a series does not fall under
one of those categories, the series and its
stakeholders may not have bankruptcy
protection, and bankruptcy courts may
consider the assets of all the series to be
part of a bankruptcy estate.
These uncertainties, and the fact that
lenders do not fully understand the issues
involved, may also cause dif culties in secur-
ing f nancing.
T ere is also a question as to whether a
series has the legal capacity to hold title to
real estate, unless the state provides explicit
language. In 2007, Delaware amended its
statute to make clear series may own, con-
tract, hold title to assets, and grant liens
and security interests. Many states, includ-
ing Illinois, have followed Delaware's lead
and contain similar explicit language. For
those states where the LLC statute is silent,
however, there remains some ambiguity.
Regardless, it may be possible to limit liabil-
ity by limiting recourse under loan docu-
ments to a particular series.
Although the number of states allowing
series LLC continues to grow, real estate
owners considering this structure should
closely consider the legal uncertainties and
business risks involved.
Jeffrey M. Friedman is a partner and Kelly M.
Greco is an associate with Fox Rothschild LLP.
Contact them at jfriedman@foxrothschild.com
and kgreco@foxrothschild.com.
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