Can a Series LLC Subsidiary Be Sold?

Related Articles

One alternative to the popular limited liability company or LLC form of business incorporation is what is known as a Series LLC. The standard LLC is frequently adopted as a business structure because certain assets, such as real estate, are protected under federal law when a business is organized in this manner. A Series LLC is set up for similar reasons, but the business differs in its organization in that it is established with "series" of individual yet related business entities called cells. This organizational structure allows for the transfer of assets between cells. Whether or not a subsidiary cell can be sold is simply a matter of ownership rights within the Series LLC.


To determine whether or not a particular subsidiary in a Series LLC can be sold, look at the ownership issue a little more closely. In a Series LLC, there is no direct ownership interest, as Bradley T. Borden and Matthews Vattamala noted in a 2011 article in the Real Property, Trust & Estate Law Journal. The LLC agreement instead determines an indication of which managers or which particular members of the LLC will be associated with each cell. Therefore, those who hold interest in the subsidiary are not owners per se, but rather they're managers of the subsidiary within the series. Business entities that are not owned cannot be sold in the strict sense of the term.


The governing document for the Series LLC is the LLC agreement. This determines what the rights and responsibilities of the manager are within each cell of the series. The LLC agreement limits the ability of the manager or managers associated with a cell to act. Voting rights and the ability to act independently can be restricted by this agreement. Voting arrangements within the Series LLC tend to be complicated and prevent managers from acting on their own to facilitate transactions such as the sale of the cell.


The overall structure of a Series LLC seems to indicate the possibility of a sale of a subsidiary as an action that is legally allowable. However, given the lack of ownership of individual cells, no real possibility of such a thing happening exists. Subsidiaries essentially act completely independent of one another, but they're not prohibited from working together in a collaborative fashion. For the most part, though, each cell of the series is a separate business entity that is managed by the parent company of the series.


The advantage to the Series LLC is not in the ability of management to sell off subsidiaries; this would run contrary to the reason for the establishment of the subsidiaries in the first place. The establishment of separate cells within the Series LLC is primarily for the purpose of protecting property. Because each cell is independent of the others, each is protected from claims against the other cells. Such cells exist primarily for this property protection purpose and are not generally meant to be profit centers or entities to be bought and sold. Instead, they provide a cost-effective and fairly simple means of establishing separate legal entities to protect property from creditors.


About the Author

Jared Lewis is a professor of history, philosophy and the humanities. He has taught various courses in these fields since 2001. A former licensed financial adviser, he now works as a writer and has published numerous articles on education and business. He holds a bachelor's degree in history, a master's degree in theology and has completed doctoral work in American history.