Alabama is a leader in legal change

You may have thought I was going to discuss a controversial topic. Despite Alabama’s notoriety in allowing same-gender marriage, Alabama is barely noticed as a leader in our country for cutting-edge law regarding Limited Liability Companies (“LLCs”). The Alabama Limited Liability Company Law of 2014 became effective on January 1, 2015.

Ok, so maybe you’re not excited.  But in my practice, this is a huge development. The new 2014 LLC Law completely replaces and makes significant changes to ways LLCs are formed, protected and managed. It gives Alabama some of the most developed laws governing LLCs. Alabama first allowed LLCs in 1997 and subsequently revised the statutes on LLCs as part of an overhaul to the Business Code on January 1, 2011. Now we have something special.

The changes are comprehensive. For starters, the terminology is different. A “certificate of organization” forms an LLC, rather than “articles of organization.” The “limited liability company agreement” is the main managing document of the LLC, rather than the “operating agreement.”

Other features include the implementation of a notice-filing system for LLC formation, simplification of signature requirements and the addition of a more expansive LLC purpose language. The flexibility provided in the 2014 LLC Law now acknowledges common practices of using LLCs for estate planning and asset protection.

The most exciting change is the adoption of law creating a Series LLC. Alabama joined Florida to be the 14th State enacting this cutting-edge concept. A Series LLC allows its owner(s) to establish one or more designated series of assets within the one LLC. Each series may have separate owners identified with that series, may have independent management and may have a distinct purpose. The essential aspect is an internal limited liability shield for each series that isolates the assets and liabilities of one series from another or from the Series LLC itself.

Previously, this could be accomplished with multiple LLCs, each of which owned directly or indirectly by a master LLC. Think of a large corporation with subsidiaries. This can now be accomplished efficiently without confusing administration, complex business structuring and duplicative costs. There are practical concerns however. No guarantee exists that States without Series LLC legislation will the internal limited liability shield of a series within an Alabama Series LLC. Bankruptcy is another significant concern. The Bankruptcy Code is federal law which is not compelled to follow Alabama law in allowing one series of a Series LLC to file bankruptcy separate and distinct from another series of or the Series LLC itself. Those uncertainties are the downside of being cutting-edge.

Nevertheless, a Series LLC can be appropriate and beneficial. Real estate and investment activities should consider this planning.  This planning could also be considered by a business, such as professional or manufacturing, seeking to cordon off liability for distinct assets or separate lines of activity.

Take action

  • Contact us now to schedule a business planning consultation.

  • Consider the benefits provided in the 2014 LLC Law.