Has anyone used the Series LLC in Wisconsin?

Question

I am debating on setting up an LLC for holding my Wisconsin property.  I am Looking at getting my second property sometime in the near future.  I have read that Wisconsin has a watered down version of the Series LLC law.  Has anyone here set up a Serise LLC in Wisconsin?  If so how has it worked out for you?

Brian Bradley · Answer

@Todd Blyton You can set up an LLC or Series LLC in any state as both @Scott Smith and @Ryan Seib stated. Both went into a lot of detail so I am not going to rewrite what they have all said. So this post will be shorter then what most have come to expect from me. When looking to set up a company for asset protection pick the states that have strong independent liability shields and charging order laws. Think of States like TX, NV, DE. Then look at the start up costs and maintenance costs from their. You will probably be investing all over as you grow, not just in one state. Pick the strongest state internal liability shield that you can, and the state with the best charging order laws. I like TX and NV. When setting up your Series LLC think about connecting it with a Land Trust. You transfer the property out of your name through the land trust that is connected to the child Series of the Parent Series LLC. Talk to your CPA and Attorney.

Scott Smith · Answer

I see a few different questions being posed, so I want to address them one at a time.

1.  Is the Wisconsin Series LLC a watered down version of the Series LLC Law? There is an article that outlines some of the "ideal" states to form a Series LLC in, but the Series LLC is just a continuation of existing LLC statute and law. I personally chose Texas because the combination of strong legal precedent and the benefits of cheap operational costs, and through which I can own property in any state within the USA as separate series. The key is comparing the different entities and identifying what fits your portfolio best.

2.  Have I set up a Series LLC in Wisconsin? No. I have transferred many properties in Wisconsin into Series LLCs, but I have not formed a Wisconsin Series LLC.

3. How has it worked? N/A

Ultimately it would still work in Wisconsin, I just find the operational costs to rack up over time and other states to lean in favor of LLCs (say Delaware.)

Sorry for not directly answering all your questions. But, I did want to bring up the point that you do not need the Series LLC to be formed in your state in order to transfer properties into the individual series and reap the benefits of other states both legally and financially.

Scott Schultz · Answer

My curiosity is what are you trying to accomplish my doing this?  I often wonder if LLC separation is a little over sold, it is a down line defense. meaning, first line should be best practices and maintaining your property in good safe working order, second should be insurance, 3 could be a Mortgage, and 4th a legal entity, and in reality unless there was gross negligence its doubtful a suit ever goes beyond insurance. sometimes i think people over complicate things for very little. just my 2 cents

Ryan Seib · Answer

By the way this may be a good time for a historical comment. LLCs are just a recent form of the expression of common sense in business dealings that arose in response to the idea of an outside investor. That is why Robert Kiyosaki in I think it was Rich Dads Guide to Investing starts by talking about renaissance-age Italian and English shipping investments and how people would ban together to fund a merchant ship sailing to Asia to bring back spices and haul in a great return. At the time it became clear that these shipping operations came with risks for investors who could be sued buy families of sailors lost or others. But they were not directly involved but only lent money to the enterprise they said! So yes things like corporations arose. And LLCs are a recent invention of state sponsored corporate forms to oversee and regulate the process of limited liability. As an attorney I can tell you that I have been involved in lawsuits where the LLC provided a barrier to personal liability for the owner of the LLC. Even if you get few published decisions on "piercing the corporate veil" and other such matters--way before it gets to that point in litigation the plaintiffs lawyers understand they do not have a good argument for piercing so they waive the argument so they do not irritate the judge, or settle the case on other grounds with a mere gesture at going for personal liability if the settlement does not work. But everyone knows it is all a frivolous sham because the LLC is indefatigable in the average case. Plus just look at any [any] corporate bankruptcy and you will realize if you think about it that none of the owners, managers, investors, board members, etc are named in that bankruptcy and will not owe any money to the corporations creditors as a result of bankruptcy. A case was literally just decided by the Wisconsin Court of Appeals a few weeks ago, Nash Finch v. Gordy's Foods, where the creditors were out about $40M on the insolvency of Gordy's Foods. Did those creditors go after the former owners of Gordy's? Of course not! They would get nothing but legal sanctions if they started suing investors/owners of a corporation who were not liable in any way.

Ryan Seib · Answer

The WI statutes do not allow the concept of series LLC as we know them. I pasted the statute below, and the Delaware statute beneath it for contrast. Much is left out of Wisconsin. For one, it does not allow for liability protection between the different child entities.

Not to say such protection is not 'possible' in some sense should it be taken to court. But it is certainly unlikely. Courts are not really supposed to make up things in the statutes that are not explicitly there already. Notice also the statute says the operating agreement is what provides for the series, not law or other government sanction. I am addressing the statute is because it is the only information available. There is no case law in Wisconsin on that statute or on the series LLC.

So, based on the statutory language it seems clear that limited liability between child LLCs would not be allowed (which is the main reason to use them). Now what about forming a series LLC in another state and using the series to own property in Wisconsin? This is possible and has been done often. Forming a Delaware Series would be fine for example. And each child can own a property in Wisconsin. The liability protection should extend back to the series allowances in Delaware, if any lawsuit is brought in Delaware or brought using Delaware law.

But, each Delaware child LLC would probably need to register separately in Wisconsin (depends on what the LLC is doing). And pay separate fees as a foreign entity. And each such registration then becomes discoverable through the normal processes in Wisconsin. Also, if lawsuits are brought in Wisconsin (which they almost certainly would be) then the Delaware liability protections would probably not apply. Best practice would be to enter all contracts with a choice of law provision. Thus you could use another state's series LLC to do things in Wisconsin. There are benefits. So I would say consider it. There are a lot of other considerations too such as the complexity of the operations of the series LLC vs separate LLCs, the maintenance cost differential between those choices, and how they fit with one's business goals.

WISCONSIN

183.0504 183.0504  Series of members, managers, or limited liability company interests.An  operating agreement may establish, or provide for the establishment of,  designated series or classes of members, managers, or limited liability  company interests that have separate or different preferences,  limitations, rights, or duties, with respect to profits, losses,  distributions, voting, property, or other incidents associated with the  limited liability company.

DELAWARE

§ 18-215 Series of members, managers, limited liability company interests or assets [Effective until Aug. 1, 2019]

(a) A limited liability company  agreement may establish or provide for the establishment of 1 or more  designated series of members, managers, limited liability company  interests or assets. Any such series may have separate rights, powers or  duties with respect to specified property or obligations of the limited  liability company or profits and losses associated with specified  property or obligations, and any such series may have a separate  business purpose or investment objective.

(b) Notwithstanding anything to the  contrary set forth in this chapter or under other applicable law, in the  event that a limited liability company agreement establishes or  provides for the establishment of 1 or more series, and if the records  maintained for any such series account for the assets associated with  such series separately from the other assets of the limited liability  company, or any other series thereof, and if the limited liability  company agreement so provides, and if notice of the limitation on  liabilities of a series as referenced in this subsection is set forth in  the certificate of formation of the limited liability company, then the  debts, liabilities, obligations and expenses incurred, contracted for  or otherwise existing with respect to a particular series shall be  enforceable against the assets of such series only, and not against the  assets of the limited liability company generally or any other series  thereof, and, unless otherwise provided in the limited liability company  agreement, none of the debts, liabilities, obligations and expenses  incurred, contracted for or otherwise existing with respect to the  limited liability company generally or any other series thereof shall be  enforceable against the assets of such series. Neither the preceding  sentence nor any provision pursuant thereto in a limited liability  company agreement or certificate of formation shall (i) restrict a  series or limited liability company on behalf of a series from agreeing  in the limited liability company agreement or otherwise that any or all  of the debts, liabilities, obligations and expenses incurred, contracted  for or otherwise existing with respect to the limited liability company  generally or any other series thereof shall be enforceable against the  assets of such series or (ii) restrict a limited liability company from  agreeing in the limited liability company agreement or otherwise that  any or all of the debts, liabilities, obligations and expenses incurred,  contracted for or otherwise existing with respect to a series shall be  enforceable against the assets of the limited liability company  generally. Assets associated with a series may be held directly or  indirectly, including in the name of such series, in the name of the  limited liability company, through a nominee or otherwise. Records  maintained for a series that reasonably identify its assets, including  by specific listing, category, type, quantity, computational or  allocational formula or procedure (including a percentage or share of  any asset or assets) or by any other method where the identity of such  assets is objectively determinable, will be deemed to account for the  assets associated with such series separately from the other assets of  the limited liability company, or any other series thereof. Notice in a  certificate of formation of the limitation on liabilities of a series as  referenced in this subsection shall be sufficient for all purposes of  this subsection whether or not the limited liability company has  established any series when such notice is included in the certificate  of formation, and there shall be no requirement that any specific series  of the limited liability company be referenced in such notice. The fact  that a certificate of formation that contains the foregoing notice of  the limitation on liabilities of a series is on file in the office of  the Secretary of State shall constitute notice of such limitation on  liabilities of a series. As used in this chapter, a reference to assets  of a series includes assets associated with a series and a reference to  assets associated with a series includes assets of a series.

(c) A series established in accordance  with subsection (b) of this section may carry on any lawful business,  purpose or activity, whether or not for profit, with the exception of  the business of banking as defined in § 126 of Title 8. Unless otherwise  provided in a limited liability company agreement, a series established  in accordance with subsection (b) of this section shall have the power  and capacity to, in its own name, contract, hold title to assets  (including real, personal and intangible property), grant liens and  security interests, and sue and be sued.

(d) Notwithstanding § 18-303(a) of this  title, under a limited liability company agreement or under another  agreement, a member or manager may agree to be obligated personally for  any or all of the debts, obligations and liabilities of one or more  series.

(e) A limited liability company  agreement may provide for classes or groups of members or managers  associated with a series having such relative rights, powers and duties  as the limited liability company agreement may provide, and may make  provision for the future creation in the manner provided in the limited  liability company agreement of additional classes or groups of members  or managers associated with the series having such relative rights,  powers and duties as may from time to time be established, including  rights, powers and duties senior to existing classes and groups of  members or managers associated with the series. A limited liability  company agreement may provide for the taking of an action, including the  amendment of the limited liability company agreement, without the vote  or approval of any member or manager or class or group of members or  managers, including an action to create under the provisions of the  limited liability company agreement a class or group of the series of  limited liability company interests that was not previously outstanding.  A limited liability company agreement may provide that any member or  class or group of members associated with a series shall have no voting  rights.

(f) A limited liability company  agreement may grant to all or certain identified members or managers or a  specified class or group of the members or managers associated with a  series the right to vote separately or with all or any class or group of  the members or managers associated with the series, on any matter.  Voting by members or managers associated with a series may be on a per  capita, number, financial interest, class, group or any other basis.

(g) Unless otherwise provided in a  limited liability company agreement, the management of a series shall be  vested in the members associated with such series in proportion to the  then current percentage or other interest of members in the profits of  the series owned by all of the members associated with such series, the  decision of members owning more than 50 percent of the said percentage  or other interest in the profits controlling; provided, however, that if  a limited liability company agreement provides for the management of  the series, in whole or in part, by a manager, the management of the  series, to the extent so provided, shall be vested in the manager who  shall be chosen in the manner provided in the limited liability company  agreement. The manager of the series shall also hold the offices and  have the responsibilities accorded to the manager as set forth in a  limited liability company agreement. A series may have more than 1  manager. Subject to § 18-602 of this title, a manager shall cease to be a  manager with respect to a series as provided in a limited liability  company agreement. Except as otherwise provided in a limited liability  company agreement, any event under this chapter or in a limited  liability company agreement that causes a manager to cease to be a  manager with respect to a series shall not, in itself, cause such  manager to cease to be a manager of the limited liability company or  with respect to any other series thereof.

(h) Notwithstanding § 18-606 of this  title, but subject to subsections (i) and (l) of this section, and  unless otherwise provided in a limited liability company agreement, at  the time a member associated with a series that has been established in  accordance with subsection (b) of this section becomes entitled to  receive a distribution with respect to such series, the member has the  status of, and is entitled to all remedies available to, a creditor of  the series, with respect to the distribution. A limited liability  company agreement may provide for the establishment of a record date  with respect to allocations and distributions with respect to a series.

(i) Notwithstanding § 18-607(a) of this  title, a limited liability company may make a distribution with respect  to a series that has been established in accordance with subsection (b)  of this section. A limited liability company shall not make a  distribution with respect to a series that has been established in  accordance with subsection (b) of this section to a member to the extent  that at the time of the distribution, after giving effect to the  distribution, all liabilities of such series, other than liabilities to  members on account of their limited liability company interests with  respect to such series and liabilities for which the recourse of  creditors is limited to specified property of such series, exceed the  fair value of the assets associated with such series, except that the  fair value of property of the series that is subject to a liability for  which the recourse of creditors is limited shall be included in the  assets associated with such series only to the extent that the fair  value of that property exceeds that liability. For purposes of the  immediately preceding sentence, the term "distribution'' shall not  include amounts constituting reasonable compensation for present or past  services or reasonable payments made in the ordinary course of business  pursuant to a bona fide retirement plan or other benefits program. A  member who receives a distribution in violation of this subsection, and  who knew at the time of the distribution that the distribution violated  this subsection, shall be liable to a series for the amount of the  distribution. A member who receives a distribution in violation of this  subsection, and who did not know at the time of the distribution that  the distribution violated this subsection, shall not be liable for the  amount of the distribution. Subject to § 18-607(c) of this title, which  shall apply to any distribution made with respect to a series under this  subsection, this subsection shall not affect any obligation or  liability of a member under an agreement or other applicable law for the  amount of a distribution.

(j) Unless otherwise provided in the  limited liability company agreement, a member shall cease to be  associated with a series and to have the power to exercise any rights or  powers of a member with respect to such series upon the assignment of  all of the member's limited liability company interest with respect to  such series. Except as otherwise provided in a limited liability company  agreement, any event under this chapter or a limited liability company  agreement that causes a member to cease to be associated with a series  shall not, in itself, cause such member to cease to be associated with  any other series or terminate the continued membership of a member in  the limited liability company or cause the termination of the series,  regardless of whether such member was the last remaining member  associated with such series.

(k) Subject to § 18-801 of this title,  except to the extent otherwise provided in the limited liability company  agreement, a series may be terminated and its affairs wound up without  causing the dissolution of the limited liability company. The  termination of a series established in accordance with subsection (b) of  this section shall not affect the limitation on liabilities of such  series provided by subsection (b) of this section. A series is  terminated and its affairs shall be wound up upon the dissolution of the  limited liability company under § 18-801 of this title or otherwise  upon the first to occur of the following:

(1) At the time specified in the limited liability company agreement;

(2) Upon the happening of events specified in the limited liability company agreement;

(3) Unless otherwise provided in the  limited liability company agreement, upon the vote or consent of members  associated with such series who own more than 2/3 of the then-current  percentage or other interest in the profits of the series of the limited  liability company owned by all of the members associated with such  series; or

(4) The termination of such series under subsection (m) of this section.

Unless otherwise provided in a limited  liability company agreement, a limited liability company whose original  certificate of formation was filed with the Secretary of State and  effective on or prior to July 31, 2015, shall continue to be governed by  paragraph (k)(3) of this section as in effect on July 31, 2015 (except  that "affirmative'' and "written'' shall be deleted from such paragraph  (k)(3) of this section).

(l ) Notwithstanding §  18-803(a) of this title, unless otherwise provided in the limited  liability company agreement, a manager associated with a series who has  not wrongfully terminated the series or, if none, the members associated  with the series or a person approved by the members associated with the  series, in either case, by members who own more than 50 percent of the  then current percentage or other interest in the profits of the series  owned by all of the members associated with the series, may wind up the  affairs of the series; but, if the series has been established in  accordance with subsection (b) of this section, the Court of Chancery,  upon cause shown, may wind up the affairs of the series upon application  of any member or manager associated with the series, or the member's  personal representative or assignee, and in connection therewith, may  appoint a liquidating trustee. The persons winding up the affairs of a  series may, in the name of the limited liability company and for and on  behalf of the limited liability company and such series, take all  actions with respect to the series as are permitted under 18-803(b) of  this title. The persons winding up the affairs of a series shall provide  for the claims and obligations of the series and distribute the assets  of the series as provided in 18-804 of this title, which section shall  apply to the winding up and distribution of assets of a series. Actions  taken in accordance with this subsection shall not affect the liability  of members and shall not impose liability on a liquidating trustee.  Unless otherwise provided in a limited liability company agreement, a  limited liability company whose original certificate of formation was  filed with the Secretary of State and effective on or prior to July 31,  2015, shall continue to be governed by the first sentence of this  subsection as in effect on July 31, 2015.

(m) On application by or for a member  or manager associated with a series established in accordance with  subsection (b) of this section, the Court of Chancery may decree  termination of such series whenever it is not reasonably practicable to  carry on the business of the series in conformity with a limited  liability company agreement.

(n) If a foreign limited liability  company that is registering to do business in the State of Delaware in  accordance with § 18-902 of this title is governed by a limited  liability company agreement that establishes or provides for the  establishment of designated series of members, managers, limited  liability company interests or assets having separate rights, powers or  duties with respect to specified property or obligations of the foreign  limited liability company or profits and losses associated with  specified property or obligations, that fact shall be so stated on the  application for registration as a foreign limited liability company. In  addition, the foreign limited liability company shall state on such  application whether the debts, liabilities and obligations incurred,  contracted for or otherwise existing with respect to a particular  series, if any, shall be enforceable against the assets of such series  only, and not against the assets of the foreign limited liability  company generally or any other series thereof, and whether any of the  debts, liabilities, obligations and expenses incurred, contracted for or  otherwise existing with respect to the foreign limited liability  company generally or any other series thereof shall be enforceable  against the assets of such series.

Todd Blyton · Answer

Thank you Scott,

This will give me information that will be great for when I start doing more investing outside of Wisconsin.

Scott Schultz · Answer

I would be interested if anyone has had their LLC format challenged, I have a Master that is then the agent my other LLC's im only speculating the concept would hold up, I would love to see some case law and how the different structures have been challenged and the outcome.

Ryan Seib · Answer

Hi Rick S, Ah sorry I did not see your question and was not notified of it. But better late than never usually! Yes my comments about the RA (ie Registered Agent) were simply that an LLC is required to have an RA by state law. This is the address at which your LLC accepts services of lawsuits, state notices, etc. The regulations do not allow you to have a PO box as your RA, but some people do that. I do not recommend it. My comment about the checking account is that any amount of business entities and/or persons can "share" a checking account if they decide to. There is no law and no regulator who will stop you from doing so. The only constraint is what the bank will allow. And of course if you run all your business and personal cash through a single checking account, you do not even have to tell your bank. And many small business owners do this. At the same time, do not do this, for financial, liability, and common sense reasons. Best practice is to have at least 1 bank account for each entity and keep the cash flow separate (ie do not commingle and transfer funds in and out frequently). I hope that helps!

Todd Blyton · Answer

My thoughts were consolidated costs and record keeping while potentially allowing for segregated liablility protection due to frivolous  lawsuites when multiple properties are held.  My personal goal is to have an entity set up for instate holdings as at some point my wife and I would like to reside in her home country,  I feel it would be easier to manage our holdings in an entity when we are outside of the country.

Rick S. · Answer

Ryan Seib, Attorney

"I apologize if the above does not make sense in any way. Happy to clarify if so."

Please clarify the RA comments and sharing 1 checking account for WI series LLC and single WI LLC's for 1 or 2 properties/LLC.

Thanx

Has anyone used the Series LLC in Wisconsin?

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