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As mentioned in our Texas LLC article, LLCs make up the majority of business formations in Texas. Since 2009, a new form of LLC has been available in Texas. Known as the Series LLC, this new form of entity has become popular among real estate investors desiring to isolate their investments for liability purposes. Unlike traditional LLCs that are recognized in all jurisdictions in the United States, the Series LLC is only recognized in a handful of states including Texas. In Texas, a Series LLC is formed much the same way as a traditional LLC, beginning with the filing of a Certificate of Formation with the Texas Secretary of State. However, the filing requirements are slightly different due to the structure of the Series LLC. It is important to note that only one filing with the Texas Secretary of State is required; this keeps start-up costs down. In general, the Series LLC includes a master LLC and sub-LLCs (called “series” or “cells”). Each series is separated from the other series under the master LLC for liability purposes. Each series has its own members and is liable for its own obligations and debts. An example of a typical Series LLC structure appears as below. ​ ​ ​ ​ ​ ​ ​ ​ In the above example ABC, LLC can hold assets as can Series A, Series B, and Series C. If formed and operated properly, the assets of each would be insulated and protected from the liabilities of the others. By statute each individual series has the power and capacity to sue and be sued; enter into contracts; acquire, sell, and hold title to assets of the series including real property, personal property, and intangible property; grant liens and security interests in assets of the series; be a promoter, organizer, partner, owner, member, associate, or manager of an organization; and exercise any power or privilege as necessary or appropriate to the conduct, promotion, or attainment of the business, purposes, or activities of the series. In order to properly isolate the liabilities and protect the assets of the master LLC and each series it is important that the Series LLC is properly formed form the outset. To ensure that this is done properly it is important that the formation is done by an attorney well versed in Series LLC formation. Apart from proper formation, it is imperative that the members maintain good record keeping. According to the Texas Business Organizations Code, asset protection is preserved only if the records are “maintained in a manner so that the assets of the series can be reasonably identified by specific listing, category, type, quantity, or computational or allocational formula or procedure.” Meaning that the assets and liabilities of a series should be separate from the assets and liabilities of other series and the master LLC. As with any business structure that provides asset protection, commingling of assets and liabilities could prove fatal. To ensure that your Series LLC is formed properly it is paramount that the formation and company documents are prepared by attorneys well versed in Series LLC formation. Contact the attorneys at Byers & Taylor, PLLC for additional information on Series LLCs and other business structure options. Byers & Taylor, PLLC offers a free business formation consultation and affordable flat rate Series LLC formation packages.

Texas Series LLCs

In the above example ABC, LLC can hold assets as can Series A, Series B, and Series C. If formed and operated properly, the assets of each would be insulated and protected from the liabilities of the others.

By statute each individual series has the power and capacity to sue and be sued; enter into contracts; acquire, sell, and hold title to assets of the series including real property, personal property, and intangible property; grant liens and security interests in assets of the series; be a promoter, organizer, partner, owner, member, associate, or manager of an organization; and exercise any power or privilege as necessary or appropriate to the conduct, promotion, or attainment of the business, purposes, or activities of the series.

In order to properly isolate the liabilities and protect the assets of the master LLC and each series it is important that the Series LLC is properly formed form the outset. To ensure that this is done properly it is important that the formation is done by an attorney well versed in Series LLC formation. Apart from proper formation, it is imperative that the members maintain good record keeping. According to the Texas Business Organizations Code, asset protection is preserved only if the records are “maintained in a manner so that the assets of the series can be reasonably identified by specific listing, category, type, quantity, or computational or allocational formula or procedure.” Meaning that the assets and liabilities of a series should be separate from the assets and liabilities of other series and the master LLC. As with any business structure that provides asset protection, commingling of assets and liabilities could prove fatal.

To ensure that your Series LLC is formed properly it is paramount that the formation and company documents are prepared by attorneys well versed in Series LLC formation. Contact the attorneys at Byers & Taylor, PLLC for additional information on Series LLCs and other business structure options. Byers & Taylor, PLLC offers a free business formation consultation and affordable flat rate Series LLC formation packages.

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  • Byers & Taylor

For most people, determining the business structure best suited for your intended purpose should be made after consultation with an attorney and accountant. Items such as taxes, liability protection, management, continuity, and transferability of ownership interest should be taken into consideration prior to selecting a business structure.

Most of the business created in Texas are a Limited Liability Company (“LLC”). The formation of a Texas LLC requires the filing of a Certificate of Formation that meets the minimum state law requirements with the Texas Secretary of State.

LLCs are a distinct type of entity that have traits of both a corporation and a partnership. Choosing to form an LLC allows the LLC’s owners, known as members, to structure the LLC in a way that meets the members goals. The LLC can be managed by the members or by managers elected by the members. The management structure must be stated in the in the certificate of formation.

In additional to the flexibility allowed with the management of the company, the LLC members can elect to be taxed at the individual level so that they experience pass-through tax treatment, and they report income or losses on their personal tax returns. This avoids the double taxation of a C-corp. LLCs give business owners significantly greater flexibility as far as federal income taxes are concerned.

The members of the LLC can consist of individuals, partnerships, corporations, trusts, and any other legal entity, and there is no limit on the number of members. More importantly, the LLC legally exists as a separate entity from its owners, thus protecting the members from the debts and liabilities of the LLC under most circumstances. Unlike sole proprietorships and certain partnerships, the personal assets of LLC members cannot be pursued by creditors attempting to collect on the LLC’s debts.

To quickly recap, the benefits of choosing a Limited Liability Company include:

  • Flexible management options,

  • Flexible tax options,

  • Flexible membership, and

  • Limited liability for members

When forming an LLC in Texas (or any other state) it is important to understand that there are no standard forms. Although the Texas Secretary of State provides a form Certificate of Formation, it provides the bare minimum for establishing an LLC in Texas.

In order to ensure that the members are protected, it is paramount that the company documents are prepared by attorneys well versed in LLC formation. The attorneys at Byers & Taylor, PLLC have years of experience forming and preparing company documents for LLCs used in a wide array of businesses from professional LLCs to LLCs used for small businesses and investment real estate. Byers & Taylor, PLLC offers a free business formation consultation and affordable flat rate LLC formation packages.

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  • Byers & Taylor

What is a Lis Pendens

A lis pendens is an affidavit filed in the real property records noting that there is a pending dispute in the court system over the title to the identified real property. This will stop a purchaser from obtaining bona fide purchaser status. Essentially this would mean that the purchaser could buy the property, but it would be subject to the dispute over the property, and the purchaser would be at risk of losing both his money and the property. It is very important to note that a lis pendens can only be filed if there is pending civil litigation where title or interest in the real property is being decided. For instance, a buyer suing for specific performance when a seller has breached a contract by not closing because they want to sell the property to another buyer for more money would likely be a situation where a filing a lis pendens would be proper. However, If the same buyer was only suing the seller for monetary damages, and not to obtain title to the property, a lis pendens would be improper. Further, even if money from the sale of property may be in dispute, a lis pendens is not appropriate. It is very unlikely that a title company would close a transaction and issue a title policy on a property where a lis pendens has been filed. The lis pendens is to only be used when disputing an actual interest in the property, and improperly filing a lis pendens could make the filer liable for damages for clouding an owner’s title as described below.

Removing a Lis Pendens

A properly filed lis pendens attached to a lawsuit will last the length of the litigation, unless the court expunges it during the trial. Thus, the final ruling of the court will determine the parties’ interest in the property, and the final ruling will remove the cloud on title. Further, if a lis pendens has been filed on the property, the owner of the property can motion the court to expunge the lis pendens if an interest in the property is not in dispute, if the plaintiff fails to provide evidence that shows a likelihood of success to their claim, or the plaintiff fails to properly notify the other party of the lis pendens. This will shift the burden onto the filing party to demonstrate that a preponderance of the evidence shows that their claim to an interest in the property is valid. There is a lot of mischaracterization of the usefulness of a lis pendens. The general public and even some attorney’s do not understand the limited scope and purpose of a lis pendens. Some examples of cases where we have helped clients who have suffered from the improper usage of a lis pendens include where a plaintiff threatened to file a lis pendens in the property records when the threatening party is not even claiming an interest in the property and another when the owner of the property is not even subject to the litigation, and the plaintiff clearly had no interest in the property. A well written attorney letter can help clear up these situations and protect an owner’s property interests.

Penalties for Falsely Clouding Title to Property

Wrongfully filing a lis pendens on another’s property can have significant consequences. Doing so is actually a criminal offense under Penal Code §37.01. Further, the Texas Civil Practice & Remedies Code Section 12.002 states that a person who fraudulently files a lien or claim of interest on real property could be subject to a fine of $10,000 or actual damages if greater, exemplary damages, and recovery of attorney’s fees and costs. Also Rule 13 of the Texas Rules of Civil Procedure provides for sanctions brought for law suits that are ”groundless and brought in bad faith or groundless and brought for the purpose of harassment.” A lis pendens can be a valuable tool to help protect property interests. However, whether you are considering filing suit to claim an interest in the property held by another, or you are being threatened with such, it is a good idea to seek legal advice to make sure that your interests are being properly evaluated and protected.

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