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Texas Series LLC: What's the Point?
November 12, 2015
Texas Series LLCs are a fairly new type of LLC that allows for asset protection in a unique manner. Series LLC are formed in a very similar way as an LLC (see LLC formation rules here), except the form submitted to the state for formation must indicate the LLC is a Series LLC.
Series LLCs differ from LLCs in that a Series LLC can create new subcompanies that perform specific functions for the Series LLC. Each subcompany can enter into its own contracts, create its own liabilities, sue and be sued, and hold its own assets.(TX BOC Title 3 Ch. 101 Subch. M Sec 101.605) For instance, a real estate company could be a series LLC with Series "A" being a management company, Series "B" a land development company, Series "C" a brokerage service, and so on.
However, each subcompany created does not need to be registered with the state. (TX BOC Title 3 Ch. 101 Subch. M Sec 101.601) The Series LLC is responsible for keeping accurate bookkeeping and records for each series respectively. Therefore, in order to maximize liability protection, it is imperative to manage accounting and compliance records with the utmost care and professionalism for each subcompany. Also, each subcompany's organization structure and regulations are added to the original certificate of formation for the Series LLC. A new and separate document is not created or filed with the State.
Furthermore, Series LLCs offer unique liability protection insofar as each subcompany is treated as a separate entity. ( TX BOC Title 3 Ch. 101 Subch. M Sec 101.602(1)) A lawsuit against subcompany "A" would not be a lawsuit against the Series LLC, or subcompany "B", or any other subcompany that is in existence under the Series LLC. Keeping with the example above, a lawsuit against the management company, or subcompany "A", would not include subcompany "B" (land development company), or subcompany "C" (the brokerage service). Therefore, each subcompany's assets are independent of the others, and are not subject to liability, in most cases, because of a lawsuit against a different subcompany.
In addition to the separation of liabilities from one subcompany to another, the assets of each subcompany are shielded from one another. Therefore, if a lawsuit against subcompany "A" occurs, and subcompany "A" does not hold any assets of the Series LLC, (because they are located in other subcompanies) then the assets of the Series LLC and all other subcompanies are protected from liability. In this way, Series LLC are a very unique and uncommon way to shield assets from liability.
In conclusion, forming a Series LLC in Texas is a great way to shield and protect assets and liabilities from what would normally be all under one roof if a standard LLC were created instead. Series LLCs in Texas are normally created for the purposes of a real estate company, but Series LLCs can be used for any type of business. Contact your attorney today to learn more about Texas Series LLCs.