How the Nevada Series LLC Protects Your Assets in Other States
I frequently get questions about how setting up a Nevada Series LLC works to protect your assets that you have in other states. This is an important topic.
Most of our clients are not located in Nevada, and they often wonder how their state might treat assets owned by an LLC formed in Nevada. The good news is that the United States Constitution, under the Full Faith and Credit Clause, guarantees that one state will recognize the laws of other states. An entity set up in Nevada, including a series LLC, that owns property in California, must be recognized by a California court. That's not to say that all states will treat the entities the same way, but they cannot disregard it outright.
Other clients are concerned that because the Series LLC is relatively new (it was first introduced in Deleware in 1996), it has not been tested like other entities like the LLC or corporation. But the series LLC is, at its core an LLC, and LLCs have a longstanding history of protecting assets. That’s one of their main purposes. The series LLC, though a variation of the LLC, is one that is trending, so to speak, among the states. More and more states are adopting their own versions, and those that haven't (like California) have cases that speak favorably of series LLCs created in other states.
There are a number of blogs out there that call into doubt the efficacy of the series LLC because of it hasn't been around as much as other entities. But doubting something without reason is not a sound strategy. Series LLCs have been created by various state legislatures. In response, I undertook to read every case in what is perhaps the most radical (legally speaking) of all the states: California. Of the 41 California state and federal cases that mention or discuss the series LLC, none of them did so unfavorably, and some were quite favorable.
In fact, There is no court case where California has rejected the Series LLC. There is no court case where California has suggested it would reject it.
But besides the constitutional guarantees, California has several cases that shows it has no animus towards Series LLCs: Here are a few examples:
MAO-MSO Recovery II, LLC v. Mercury Gen., No. CV1702525ABAJWX, 2021 WL 6102913, at *4 (C.D. Cal. Nov. 29, 2021); MSP Recovery Claims, Series LLC v. Farmers Ins. Exch., No. 217CV02522CASPLAX, 2018 WL 5086623, at *14 (C.D. Cal. Aug. 13, 2018): in these cases, a California federal court had to determine whether a Series LLC had the authority to sue on behalf of the subseries created within it. California disagreed with other courts in other states and took the position that, yes, the parent Series LLC could sue on behalf of the sub-series. This is significant because it represents California taking a position where it affirmatively recognizes a series LLC created in other states and actually does so favorably.
N. Am. Wellness Ctr., LLC v. Holmes, No. 3:14-CV-2584-CAB-BGS, 2015 WL 1291372, at *2 (S.D. Cal. Mar. 23, 2015): in this case. California uses language to suggest that an LLC and series in a Series LLC are functionally similar.
Wagner v. Spire Vision LLC, No. C 13-04952 WHA, 2015 WL 876514, at *5 (N.D. Cal. Feb. 27, 2015): in this case, one of the issues hinged on whether the Series LLC had been created before or after a transaction, suggesting that if it had been creating before, the issue would be resolved favorably for the plaintiff, but if it had been backdated to be created fraudulently, it wouldn’t. The court did not find any fraud.
Miranda v. Gaslamp Tavern Oceanview Series, LLC, No. G043982, 2012 WL 1385491, at *1 (Cal. Ct. App. Apr. 23, 2012); Gilmore Bank v. Dalrymple, No. G047902, 2014 WL 2763658, at *2 (Cal. Ct. App. June 18, 2014). These two cases merely mention the Series LLC but don’t really discuss it. This is significant because California is acting like the Series LLC is no big deal. Nowhere does it say anything like “the Series LLC is not recognized in California …” They just treat it like another entity.
Jacobson v. Persolve, LLC, No. 14-CV-00735-LHK, 2015 WL 2061712, at *4 (N.D. Cal. May 1, 2015): in this case, the court treats series in a Series LLC just like any other separate entities in its corporate veil piercing analysis and suggests that overlapping ownership between the series is evidence of alter-ego which could lead to piercing the corporate veil. This is why we teach our clients to keep separate books and to make sure to observe corporate formalities in their separate series.
There are many other cases involving a Series LLC in California, none of which have any language that would suggest that California looks upon them unfavorably.
That being said, there are never any guarantees in the law. All it takes is one case with a set of bad facts to set bad precedent. But from what California has signaled so far, they have no reason to dislike the Series LLC. And in fact, nationally Series LLCs are a growing trend. More and more states are adopting them so they can be created in their own states.
If you have any questions, you know where to find me.