House Bill 1611, effective October 1, 2019, adopts the Uniform Protected Series Act. This makes Arkansas the 17th state to authorize Series LLCs.
A Series LLC, in general, is an LLC with one or more series that function much like a separate entity. A series can have its own assets, members, managers, and business objectives. And if certain requirements found in the statutes are met the liabilities, debts, and obligations of each series belong to that series only.
Arkansas’ version of a Series LLC act is based on the Uniform Protected Series Act—a uniform law drafted and approved by the Uniform Laws Commission in 2017, which has now been adopted by four states. Here are some highlights of the Arkansas law.
Establishing a series
With the vote or consent of all members, an LLC may establish protected series. A protected series designation has to be filed with the Secretary of State for each protected series. The designation must include the name of the Series LLC and the name of the protected series.
Naming a series
The protected series name must begin with the name of the Series LLC and contain the phrase “Protected Series” or the abbreviation “PS” or “P.S.”
Registered agent
A Series LLC must appoint and maintain a Registered Agent like any other Arkansas LLC. The Registered Agent for the Series LLC is the Registered Agent for each protected series.
Annual report
A Series LLC must file an annual franchise tax report like any other Arkansas LLC.
However, it must include the names of each protected series for which it has filed a designation and which has not been dissolved.
Certificate of good standing
The Secretary of State may issue a Certificate of Good Standing for a protected series.
However, it will not issue one for a protected series that is not named in the Series LLC’s annual franchise tax report.
Associated assets
Only the assets that are associated with a protected series are protected from the creditors of another protected series or the Series LLC.
A non-associated asset is not protected.
An asset is an associated asset if the protected series creates and maintains records that state the name of the protected series and describe the asset sufficiently to permit a disinterested, reasonable individual to
- identify and distinguish the asset from other assets of the protected series, of the Series LLC or another protected series
- determine when and from what person the protected series acquired the asset or how it otherwise came to be an asset of the protected series
- if acquired from the Series LLC or another protected series, determine the consideration paid
An asset of the Series LLC is an associated asset of the Series LLC, and protected from creditors of a protected series, if similar recordkeeping requirements are met.
Associated member
Only a member of the Series LLC may be an associated member of a protected series.
Limitation of liability
A debt, obligation, or other liability of a protected series is solely the debt, obligation, or other liability of that protected series.
A claim seeking to disregard the limitation of liability is governed by the same law that would apply if each protected series was an LLC formed separately.
Entity transactions restricted
A protected series may not be a party to a merger, interest exchange, conversion, or domestication. A Series LLC may not be a party to an interest exchange, conversion, or domestication and may only be a party to a merger where the other parties are domestic LLCs and the surviving LLC will not be created in the merger.
Foreign protected series
A foreign protected series doing business in the state is required to register to do business. The law governing the registration of foreign LLCs applies to foreign series, including the activities that do not constitute doing business in the state and the penalties for failure to register. In determining whether a foreign Series LLC or a foreign series is required to register, the activities of the Series LLC are not attributable to any series, and the activities of a series are not attributable to the Series LLC or any other series.
Conclusion
The Act deals with additional issues regarding protected series including transfers of interests, management, remedies of judgment creditors, dissolution and winding up, among others. House Bill 1611 can be viewed in its entirety here http://www.arkleg.state.ar.us/assembly/2019/2019R/Bills/HB1611.pdf, or the Act can be found in the Arkansas Code, Sec. 4-41-101 et seq.
