Texas Series LLCs

Texas Series LLC

Pros and Cons of the Series LLC

What is a Series LLC (SLLC)?

The Texas legislature has joined a handful of other states and authorized the use of Series LLCs. A Series LLC is essentially a slight variation of the traditional LLC. The primary difference between these two entities is that the Series LLC incorporates special language into the certificate of formation and the company agreement that unlocks the ability to create an unlimited number of "series" or sub-LLCs within the structure of a single LLC. Each series is essentially an independent LLC under the umbrella of the parent LLC (aka Series LLC). The term "Series LLC" is the correct terminology used to describe the parent or umbrella LLC; and the term "series" is the proper way to describe each sub-LLC or cell.

Benefits of the Texas Series LLC

Cost: The primary benefit of a Series LLC lies in the cost. The Texas Secretary of State charges a $300 filing fee to form a traditional LLC, corporation or Series LLC. The Texas SOS does not, however, charge for each new series (which are essentially new LLCs). In other words, you can have the benefit of multiple seperate and distinct LLCs, for the cost of one LLC. Please note that you must now file Assumed Name Certificates with the state and in the county of your principal place of business. This will set you back about $50/series.

Liability Protection: If operated properly the debts, liabilities, obligations, and expenses incurred with respect to a particular series are enforceable only against the assets of that series, and are not enforceable against the assets of the LLC generally or any other series and vice versa.

The Texas Series LLC provides a means of insulating the assets of one series from the liabilities and obligations of the LLC and the other series which is a significant advantage over a traditional LLC in which all assets would be available to satisfy the liabilities and obligations of the LLC. The Texas Series LLC can be the perfect entity choice for a real estate investor or other person that has multiple large assets or lines of business.

Problems with the Series LLC

The downside to a Series LLC is the legislature created a caveat to the firewall that is associated with a sub-series. The firewall only exists if the records maintained for a particular sub-series account for the assets associated with that sub-series separately from the other assets of the LLC or any other sub-series. It should not be difficult to comply with this caveat, but you may have to prove compliance every time a sub-series is sued. Proving compliance will likely require a hearing along with the disclosure of financials (which will feel very intrusive especially when handing over to an adversary).

What Can a Series Do?

Each series within a Series LLC may (1) own assets (real estate and personal property), (2) borrow money, (3) incorporate different ownership and/or management structures, (4) have different business purposes, (5) sue and be sued, etc. For all intents and purposes, each series can do anything a traditional LLC could do.

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. Contact our Dallas business lawyer to discuss your specific situation and determine if the Series LLC is right for your business.

Additional Series LLC Information:

Series LLC Information for Real Estate Investors
How much does it cost to form a Texas Series LLC?
Do you have to maintain a separate bank account for each series in a series LLC?
How do I name a Series LLC?
Do I need separate EINS for each Series?
Concerns with the Series LLC