Articles Posted in Limited Liability Companies

Family Cabin
It might come as a surprise to non-Hoosiers that several parts of Indiana are popular locations for vacation cabins.  The best known are probably Brown County and the area around the Indiana Dunes.  Other locales include Lake Maxinkuckee, Lake Monroe, and Lake Patoka; the Amish country and the smaller lakes of northern Indiana; the wooded hills in other parts of southern Indiana; and the small towns on the northern bank of the Ohio River.  Saving the Family Cottage:  A Guide to Succession Planning for your Cottage, Cabin, or Vacation Home, by Stuart J. Hollander, David S. Fry, and Rose Hollander, 4th ed., 2013, is an excellent resource for owners of family vacation homes or other property to be preserved for shared use by future generations.  However, the principles are not restricted to leisure property.  For example, owners of family farms will also find useful advice for keeping the farm in the family for generation after generation.

One of the central concepts of Saving the Family Cottage is to avoid problems of real property owned jointly by several individuals — a situation that, of course, can arise when property is passed from one generation to the next. When property has multiple owners, disagreements between them can result in the property being partitioned. For some types of property, such as undeveloped land, the partitioning may mean that the property is divided into multiple parcels, like cutting a pie into pieces, with each owner receiving a piece of the whole.  In other cases, such as a vacation cottage, a dispute may result in the property being sold and the proceeds divided among the owners.

The authors’ primary solution to that problem — one that we and many estate planning attorneys heartily endorse — is to create a limited liability company to be owned by the family members and to transfer ownership of the property to the LLC. One reason is that transferring ownership of LLC interest from one person to another, unlike transferring ownership of real property, is generally not a matter of public record. A more compelling reason is that the law provides very few rules to govern the relationship between multiple owners of real property (or most personal property, for that matter) and very few mechanisms for resolving disputes that do not result in the termination of the joint ownership.  In contrast, the flexibility of LLCs (which we have touted in this blog multiple times) permits the owners to decide in advance who will make decisions concerning the property and how they will be made and how disputes among heirs will be resolved while keeping the property in the family.

If you are not already familiar with series LLCs or with the new Indiana series LLC statute that takes effect on January 1, 2017, you may want to read the articles at Part I, Part II, Part III, Part IV, and Part V.

In the first of these articles, I compared a series LLC to a parent LLC with subsidiary LLCs, and I stated that one difference between the two concepts is that a master LLC does not own its series in the same sense that a parent company owns its subsidiaries. Instead, the interest that makes up each series is held by persons who may or may not also hold interest in the master LLC or in other series. Although I believe that is commonly the way series LLCs are set up, I think it may be possible to set up a series LLC so that the master LLC does, in fact, hold part or all of the interest in its series. Let’s look at four possible structures, using the example of a real estate developer than develops and owns three apartment buildings.

Structure #1

[The previous articles on this topic are here:  Part I, Part II, Part III, Part IV.]

Now that we’ve discussed the formal public filings necessary to set up a master LLC and series, we’ll turn out attention to the content of operating agreements.

As mentioned in the last post, every master LLC must have an operating agreement, and prudence dictates that it be in writing, even though the statute does not, at least not expressly.  As a starting point, the operating agreement for a master LLC should have all the same elements as an operating agreement for a traditional LLC.

The first article on series LLCs contained some basic concepts and terminology.  The second and third ones addressed the fundamental questions of whether a series is a separate entity (answer:  yes, but it lacks some of the attributes of a separate entity) and of what defines or constitutes a series (answer, at least as contemplated by the Indiana statute:  a portion of the interest in the master LLC designated as the series). We’ll return later to some other metaphysical questions, but this article discusses the more mundane issue, how does one set up a series LLC in Indiana?

Organizing the Master LLC

As with a traditional LLC, a master limited liability company is formed by filing articles of organization[1] with the Indiana Secretary of State. Ind. Code § 23‑18.1‑3‑1 and § 23‑18.1‑6‑1.  An existing LLC can be converted to a master LLC with appropriate amendments to its articles of organization, but the amendment requires unanimous consent of the members, regardless of any provision of the operating agreement permitting the articles of organization to be amended with less than unanimous consent. Ind. Code § 23‑18.1‑3‑2.  It appears that it is permitted, but not necessary, for the articles of organization to include the names of the series that may be designated.  See Ind. Code § 23‑18.1‑6‑7, discussed below.

[Please read Part I and Part II before reading this article.]

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”

[This is the second of several articles on series LLCs, especially Indiana series LLCs.  Go here for Part I, which includes an introduction to the concept of series LLCs and some terminology.]

Is a series an entity?

That’s the question almost every lawyer asks when first introduced to series LLCs.  It is really shorthand for a lot of other questions:  Can a series enter into its own contracts?  Can it sue and be sued in its own name?  Can assets be titled in the name of the series, as opposed to the name of the master LLC? And so on.

This is the first of several articles about series limited liability companies in general and Indiana’s new series limited liability company statute in particular – a “series series” of  articles. (Sorry.  I couldn’t resist.)

Even as lame as that joke is, it demonstrates that terminology in this area can be very confusing, and the confusion is compounded by the fact that the series LLC statutes in different states use different words for the same concepts.  Here are some rules I’ll follow throughout these articles.

  • Generally, I’ll stick with the definitions contained in the Indiana statutes, and I’ll let you know when I don’t.

On March 23, Indiana’s governor signed House Enrolled Act 1336 which adds to the Indiana Business Flexibility Act to provide for series LLCs.  In general, I think it’s a good thing that Indiana has joined the dozen or more other states (plus D.C. and Puerto Rico) with series limited liability companies.  I expect to post a detailed analysis of the bill, pointing out the good and the bad, before too long.  In the meantime, here’s a letter I wrote in support of the bill.

February 16, 2016

VIA email Senator.Zakas@iga.in.gov