The second of this group of articles on series limited liability companies addressed the question of whether a series is an entity under Indiana law and concluded that the best answer is probably, yes, even though it lacks some of the attributes that one would ordinarily expect of an entity. But exactly what is it that makes up a series?
The definition of “series”
Ind. Code § 23‑18.1‑1‑2‑7 defines the term “series” as follows:
“Series,” in the context of a series limited liability company, means a limited liability company series of interest established from time to time by the filing of articles of designation that:
(1) has separate rights, powers, or duties with respect to specified property or obligations; and
(2) to the extent provided for in an operating agreement, may have a separate business purpose or investment objective from that of:
(A) the master limited liability company; or
(B) any other series of the master limited liability company.
The most important word in the definition, in my view, is “interest.” Interest in a limited liability company is defined by Ind. Code § 23‑18‑1‑10 as
. . . a member’s economic rights in the limited liability company, including the member’s share of the profits and losses of the limited liability company and the right to receive distributions from the limited liability company.
In other words, a series is made up of a designated part of the LLC’s interest, or economic rights. From that it naturally follows that the owners of a series are the members who own interest that make up the series. If the LLC is member-managed, the members who own the interest have the authority to make decisions regarding the business and affairs of the series is vested in the members who own the interest in accordance with Ind. Code § 23‑18‑4‑1(a). If it is manager-managed, the managers who are appointed by the members who own the series (or who are otherwise designated by the LLC’s operating agreement) have that authority as provided by Ind. Code § 23‑18‑4‑1(b). It’s all very straightforward.
Or so it would seem.
But what about this?
Unfortunately, there is a fly in the ointment. Ind. Code § 23‑18.1‑4‑2 reads:
An operating agreement of a master limited liability company may establish or provide for the establishment of one (1) or more designated series of members, managers, or limited liability company interests that:
(1) have separate rights, powers, or duties with respect to:
(A) specified property or obligations of the limited liability company; or
(B) profits and losses associated with specified property or obligations; and
(2) to the extent provided in the operating agreement, may have a separate business purpose or investment objective.
It should be immediately obvious that the above section is largely redundant to the definition of series. Notably, the language in the above section appears to have been drawn from the Delaware series LLC statute (the first series LLC statute and the one on which several other state statutes are based) which differs from the Indiana statute in that it does not define “series.” Accordingly, the redundancy in the Indiana statute does not exist in the Delaware statute.
Of greater significance is that the above section conflicts with the definition of “series” in two respects. First, the definition of series states that a series is established by filing articles of designation, a new instrument that is filed with the Indiana Secretary of State after, or perhaps at the same time, articles of organization are filed for the master LLC. The above section conflicts with the definition in that it provides that a series is established by, or in accordance with, the operating agreement. As with the redundancy noted above, that conflict does not exist in the Delaware statute because, once the Delaware equivalent of a master LLC is created, no additional public filing is necessary to create a series within the master LLC.
The second conflict with the definition is that the above section contemplates that a series can be a series of members, or a series of managers, or a series of interest. As discussed above, the definition of “series” provides that a series is made up of interest, not members and not managers.
I do not know what to do with Ind. Code § 23‑18.1‑4‑2. I could be wrong, but it appears to me that it should not be there, that it is likely an artifact from the Delaware statute that should have been jettisoned when the definition of series and the concept of articles of designation (both of which are, in my view, good ideas) were added to the Indiana statute. However, if one treats a series as being made up of interest (rather than members or managers), establishes each new series by filing articles of designation, and writes an operating agreement that is consistent with those articles (in other words, if one stays true to the definition of series), it seems unlikely that Ind. Code § 23‑18.1‑4‑2 will cause any mischief. But there is a lot of uncertainty in all of that.
Click here for the next post, which discusses the nuts-and-bolts of setting up a series LLC in Indiana.