Texas Series LLCs

Texas Series LLC

Unlike the traditional Texas LLC, a series LLC allows you to compartmentalize assets and liabilities within separate cells or "series" of a single LLC. In other words, the Texas series LLC provides a means of isolating the assets of one series from the liabilities and obligations of the LLC and the other series. The Texas series LLC is a relatively new and innovative business entity, but may be the perfect entity choice for a real estate investor or other person that has multiple large assets or lines of business. Before you form a Texas series LLC, we recommend contacting our LLC formation lawyer.

Texas Series LLC Background

On September 1, 2009, Texas joined a small group of states that allow the use of a series LLC. At the time, only Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee and Utah had enacted laws that authorized the use of series LLC.

What is a Texas Series LLC?

Essentially, a series LLC is one entity that can have multiple series. A "series" is similar to a subsidiary, but unlike a subsidiary, the series does not have to be wholly owned by the parent. If you form a series LLC in Texas, there is technically no limit to the number of subsidiary LLCs or series that you can establish.

Is a Texas series LLC right for me or my business?

Dividing assets and liabilities into different series, all within one LLC, can avoid many of the inefficiencies and costs associated with multiple related entities. For example, a series LLC could be used to hold multiple rental properties, each in a separate series and all within the one LLC. If your business has only one purpose or investment objective, you may not need a series LLC. Contact our business lawyer to discuss the specifics of your situation.

The Benefits of a Texas Series LLC

A huge benefit of a series LLC is that you only incur one filing fee regardless of the number of series within the LLC. A series LLC allows you to establish multiple series of assets, members and managers. As such, the debts, obligations and liabilities of a particular series will be enforceable only against that series’ assets, and will not be enforceable against the other series in the LLC or against the LLC generally, and vice versa. Each separate series may sue and be sued, contract, and hold title to its assets, including real estate and personal property.

Concerns with a Texas series LLC

The series LLC is a relatively new entity and the case law is not as developed as other entities such as the traditional LLC. The Series LLC is not for everyone. More predictable asset segregation comes from multiple entity filings. At this time the Series LLC is best suited for those who have decided that the costs to file and maintain multiple entities are not justifiable.

Situations where the Texas Series LLC may not be appropriate

The Texas series LLC may not be appropriate in the following situations:

• Where the tax and financial information of one series needs to be kept confidential from the members of another series
• Where some series will be engaged in for-profit activities while other series will be engaged in not-for-profit activities
• Where combined reporting for Texas franchise tax purposes will cause issues with allocating the franchise tax burden on each series
• Where the activities of one series create a substantially higher level of liability than the other series
• Where it will be difficult to keep clear records for each separate series, especially in connection with the ownership of assets (i.e., if each series is based out of the same office and the various assets are used by multiple series).
• Where a series will need to borrow from an institutional lender.

Do you have questions or do you want to make an appointment in this area?

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