Texas Series LLCs
TEXAS SERIES LLC
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.
Information in this article and others are provided for general and educational purposes only. It is not to be construed as legal advice upon which anyone should rely. The law changes, and legal counsel or financial advisement relating to your individual needs and circumstances is advisable prior to taking any action that has legal consequences. This firm does not represent you unless and until it is expressly retained in writing to do so.