By Michael Salad, Esq. and Sean Dougherty
Florida’s new Series LLC law offers business owners a new planning option. However, for those who already operate multiple LLCs, the more important question is whether consolidating existing entities makes sense.
Owners who already maintain multiple LLCs should not automatically assume that Florida’s new law means they should consolidate their existing entities.
Should Existing LLC Owners Consolidate?
Although Florida law permits such restructuring, the analysis is fact-specific and extends well beyond reducing administrative burdens.
Before restructuring, business owners should carefully evaluate how a conversion may affect:
- Existing operating agreements;
- Mortgage documents and due-on-transfer provisions;
- Lender consent requirements;
- Title insurance policies;
- Documentary stamp tax implications;
- Property and casualty insurance policies;
- Commercial and residential leases;
- Vendor and service contracts;
- Existing guaranties; and
- Licensing, permits or regulatory requirements.
In some situations, maintaining existing LLCs and utilizing a Series LLC for future acquisitions may be a more practical approach.
Any restructuring decision should only be undertaken after careful legal, tax, lending, title, insurance, and contractual analysis.
Why Is Strict Recordkeeping Essential?
A Series LLC does not eliminate ongoing compliance and recordkeeping obligations. Florida’s liability protections depend upon maintaining clear separations between the parent LLC and each protected series.
Florida law requires assets to be properly associated with and identifiable to a protected series through adequate recordkeeping.
Importantly, Florida law imposes rigorous recordkeeping requirements. Records must be maintained in a manner that clearly identifies the assets of each protected series and distinguishes those assets from those of the parent LLC and every other protected series.
In many respects, Series LLC owners should treat each protected series as though it were a separate business, even though each series operates under a single parent entity.
Accordingly, owners should maintain separate records and carefully segregate:
- Assets;
- Liabilities;
- Records;
- Contracts; and
- Financial accounts associated with each series.
Failure to maintain these separate records and asset segregations may jeopardize the intended liability protections and could expose the assets of one protected series to claims against the parent LLC or another protected series that otherwise would have remained isolated.
Business owners should not mistake a simplified organizational structure for a simplified compliance obligation.
What Questions Remain Unsettled?
Because Florida’s law is new, several legal and practical questions remain unresolved, including:
- How bankruptcy courts will treat protected series;
- Whether other states will recognize Florida’s liability protections;
- How creditors will pursue claims against individual series;
- How lenders and title insurers will adapt to the new structure; and
- Whether insurance carriers and regulatory agencies will readily accept Series LLC ownership structures.
Although several states permit Series LLCs, many jurisdictions have not adopted comparable legislation. As a result, uncertainty remains regarding how courts in states that have not authorized Series LLCs will treat Florida Series LLCs and their protected series.
Business owners with assets located outside Florida should exercise caution because jurisdictions that have not adopted comparable Series LLC legislation may not recognize Florida’s internal liability protections.
These issues will likely develop over time through litigation, regulatory guidance, and market practice.
The Bottom Line
Florida’s new Series LLC law introduces an innovative business planning tool, but it is not a universal replacement for traditional LLC structures.
Business owners should resist the temptation to consolidate existing entities simply because the law now permits it.
The question is not, “Can I convert my existing LLCs into a Series LLC?” but rather, “Should I?”
The answer will depend on:
- The nature of the assets involved;
- Existing financing arrangements; and
- The owner’s long-term business objectives.
Many investors may continue to benefit from separate LLCs, while others may find that a Series LLC provides a more efficient structure to own and manage multiple assets.
As Florida begins implementing this new framework, careful planning will be essential to maximize its benefits while avoiding unintended consequences.
If you own multiple investment properties or are considering expanding your real estate or other business portfolio, now may be an ideal time to explore whether a Florida Series LLC may protect your assets while simplifying your business structure.
Consulting with experienced business, tax and estate planning counsel can help determine whether a Florida Series LLC aligns with your investment goals, liability concerns, and long-term planning objectives.
Michael Salad is an attorney in Cooper Levenson’s Business & Tax practice group. He concentrates his practice on estate and asset protection planning, probate and trust administration, special needs planning, business transactions, mergers and acquisitions and tax matters. Michael holds an LL.M. in Estate Planning and Elder Law. Michael is licensed to practice law in Florida, New Jersey, New York, Pennsylvania, Maryland, Connecticut, Georgia, Massachusetts, Alabama, Arizona, Virginia, Michigan, North Carolina, and the District of Columbia. Michael may be reached at (954) 889-1850 or via e-mail at msalad@cooperlevenson.com.
Sean Dougherty is a Summer Associate at Cooper Levenson. He is a J.D. Candidate at NSU Shepard Broad College of Law. Sean may be reached at sdougherty@cooperlevenson.com
The content of this post should not be construed as legal advice. You should consult a lawyer concerning your particular situation and any specific legal question you may have.