Series LLC Texas: Everything You Need to Know
A series LLC Texas is a variant of a traditional limited liability company (LLC) that has been authorized for use in this state. 5 min read
Updated May 5, 2022:
The Texas Series LLC
- A series LLC Texas is a variant of a traditional limited liability company (LLC) that has been authorized for use in this state. The difference between a standard LLC and series LLC is that the language used in the company agreement and certificate of formation for series LLC allows for the creations of sub LLCs, also called series, within the main company.
- Standard LLCs have been very popular in Texas, particularly among real estate investors. The reason LLCs are so popular in this state is that the franchise tax has applied to limited partnerships since 2007. The franchise tax in Texas only applies when the gross receipts of a business are more than $1.1 million. When a business entity reaches the $1.1 million limit, they can file for a new LLC in certain circumstances. However, if this income threshold is not reached, the business can simply file a no tax due report with the State of Texas.
- Many investors now choose to form LLCs instead of limited partnerships because forming an LLC is significantly more affordable and much less complex. The majority of new filings with the Texas Secretary of State are for LLCs.
- A series LLC allows real estate investors to maintain multiple businesses and properties with ease and allows the investor to organize their properties into separate series.
- You should not institute a series company until it is necessary to do so. Until that point, a standard LLC should suffice. However, there are no disadvantages to choosing a series LLC over a standard LLC, even if you don't currently have a need for a series company.
- Series LLCs first became available in Texas in 2009 but have been offered in Delaware since 1996. There are currently thirteen states that allow for series LLCs. The statutes for series LLCs in Nevada and Texas are very similar.
What is a Series Company?
- As outlined by Texas law, the governing documents of a series LLC will establish managers, members, and membership interests that will be completely separate from the main LLC. These groups established in the series LLC governing documents will also have distinct liabilities, obligations, and rights.
- Essentially, a series LLC will be under the parent LLC's umbrella but will operate independently. When describing the parent LLC, you would use the term series LLC. When referring to a cell or sub LLC, the term to use is series. Every series will have the same abilities as a standard LLC.
- The biggest benefit of series LLCs is that they allow for the creation of multiple independent entities with a single filing, and each of these entities will have the advantages of a normal LLC. Every series that is created can:
- Enter contracts.
- Sue a company or person or be sued.
- Own the title to assets.
- Provide asset interests or liens.
- Basically, a series LLC Texas is a type of LLC that provides tax benefits and legal protections to multiple LLCs while also shielding each individual LLC from the liabilities of the rest of the series. In terms of chapter 101 and tile 1 of the Texas Business Organization Code, an individual series is not considered a distinct domestic entity.
- LLCs within the larger series are allowed to have unique names, assets, and structures, even though only one filing will be used. However, even though the series acts as a stand-alone entity, they technically are not.
- If it decides to do so, a series can apply for its own federal tax identification number so that it can be treated individually for the purpose of federal taxes. Series are not required to have their own bank account, but they have the ability to open their own account. Series should have their own name which they operate under.
- Because series act as an individual entity in many respects, it can seem pointless to declare that they are not standalone entities. The Texas Comptroller, however, will treat a series LLC as an individual entity. When you form a series LLC, you will register with the Secretary of State as a single entity and will only need to pay one fee. You will also need to pay an annual fee to a registered agent for your series LLC Texas.
Form a new Texas Series LLC (or convert an existing LLC)
To create a new series LLC you must include specific language in the Certificate of Formation. This document also allows you to notify the public of your asset protection. For these reasons, avoid using templates and internet forms. They typically don't include the level of detail needed to establish a series LLC. Filing a Certificate of Amendment can convert a traditional LLC to a series entity. While this carries a lower filing fee than creating a new company, you'll need to replace your organizational agreement and other company documents. You should not convert an LLC that is burdened with lawsuits, debts or other pending obligations. In this case, it is advised to start a new business entity.
Insulation of Each Series
- In a series LLC, each business or property is protected from the legal and financial liabilities of the others and of the LLC as a whole. A property holding does not necessarily need to be a separate series if it is an asset of the overall LLC.
- If a property held by one series is sold for less than the amount owed to the lender, and the series is then subject to a judgment, that judgment would not be enforceable against the assets held by other series within the LLC. This is not the case with a traditional LLC, in which all assets are held together, and thus, are more vulnerable.
- For a successful series LLC, good recordkeeping is essential. Without separate records for the assets of each series account, the insulation from liability provided by a series LLC is no longer valid. This includes the ability to identify the separate series record by a specific:
- Categorization system
- The assets for each series must be kept distinct, as do the assets for the overall LLC.
- However, this does not require a separate account for each system. A simple coding system to distinguish the assets and liabilities for each series within a single account would suffice. Separate accounts are recommended if some holdings are subject to different management procedures or tax treatment.
- Records should be saved to prove in a court of law that funds were not commingled in case litigation arises.
Investors should avoid holding radically different businesses within the same LLC. This can create a situation in which one series is much more vulnerable to legal action and liability than the others. Within a series LLC, avoid establishing a series with a very different debt structure or a substantially different tax treatment than the LLC's other businesses.
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