How to Create a Series LLC in Texas

What Is a Series LLC?

A Series Limited Liability Company (Series LLC) is a unique form of LLC that allows for the creation of multiple, distinct series within a single LLC. Each series operates independently, with its own assets, liabilities, and members. This structure allows for the segregation of assets and liabilities, providing liability protection between series. The parent LLC, often referred to as the "master" LLC, oversees the individual series, but each series can function as a separate entity.

Does Texas Allow Series LLCs?

Yes, Texas permits the formation of Series LLCs under the Texas Business Organizations Code, specifically Chapter 101, Subchapter M. The statute requires that the Certificate of Formation explicitly states the LLC's ability to establish series. This special language is crucial for the legal recognition of the series structure.

How a Texas Series LLC Works

In a Texas Series LLC, the master LLC has the authority to create individual series, each with its own assets, liabilities, and members. The separation of liabilities is a key feature, ensuring that the obligations of one series do not affect another. Proper recordkeeping and adherence to structural requirements are essential to maintain this liability protection.

Benefits of Forming a Series LLC in Texas

Forming a Series LLC in Texas offers several advantages, including cost efficiency, as it eliminates the need to form multiple LLCs. The structure allows for effective asset segregation, protecting each series from the liabilities of others. Additionally, the administrative flexibility of managing multiple series under one umbrella can simplify operations.

Limitations and Risks of a Texas Series LLC

Despite its benefits, a Series LLC in Texas faces certain limitations and risks. Legal recognition of Series LLCs varies across jurisdictions, potentially complicating interstate operations. Banking and lending institutions may also be unfamiliar with the structure, leading to challenges. Furthermore, the tax implications can be complex, requiring careful compliance.

Who Should Consider a Texas Series LLC?

A Texas Series LLC is particularly suitable for businesses involved in real estate, asset holding, or intellectual property management, where asset segregation is beneficial. However, for businesses with simpler structures or those operating solely within jurisdictions that do not recognize Series LLCs, a traditional LLC may be more appropriate.

Step-by-Step: How to Create a Series LLC in Texas

Step 1: Choose a Name for the Series LLC

The name of the Series LLC must comply with Texas naming requirements, including the use of "Limited Liability Company" or abbreviations like "LLC." Each series should have a distinguishable name, often incorporating the parent LLC's name.

Step 2: Appoint a Texas Registered Agent

A registered agent is required for service of process and must be a Texas resident or a business entity authorized to do business in Texas. The agent must be available during normal business hours.

Step 3: File the Certificate of Formation

The Certificate of Formation is filed with the Texas Secretary of State. It must include basic information such as the LLC's name, registered agent, and management structure. Filing can be done online or by mail.

Step 4: Include Series LLC Language

The Certificate of Formation must include language authorizing the creation of series. Failure to include this language may result in the series not being legally recognized.

Step 5: Draft a Series-Compliant Operating Agreement

An operating agreement is crucial for internal governance and should outline the separation of assets and liabilities among series. It serves as a foundational document for the LLC's operations.

Step 6: Establish Individual Series

Series are created internally through resolutions or amendments to the operating agreement. Proper documentation and recordkeeping are essential to maintain liability protection.

Step 7: Obtain EINs (Parent and Series, If Needed)

An Employer Identification Number (EIN) is required for the parent LLC and may be necessary for individual series, depending on their activities.

Step 8: Open Separate Bank Accounts

Each series should have its own bank account to ensure financial separation and prevent commingling of funds, which could jeopardize liability protection.

Step 9: Comply With Texas Tax Requirements

Series LLCs must comply with Texas tax obligations, including franchise tax and sales tax, if applicable. Each series may have separate reporting requirements.

Texas Series LLC Filing Fees and Costs

The filing fee for the Certificate of Formation is $300. Additional costs may include registered agent fees and potential fees for each series, depending on their activities.

Texas Franchise Tax and Series LLCs

Series LLCs in Texas are subject to the state franchise tax. Each series is treated as a separate entity for tax purposes, requiring individual reporting and payment.

Ongoing Compliance Requirements for Texas Series LLCs

Texas Series LLCs must file annual reports and maintain accurate records for each series. Compliance with state regulations is essential to preserve liability protection.

Common Mistakes When Forming a Series LLC in Texas

Common errors include omitting required series language in formation documents, inadequate recordkeeping, and mixing assets between series, which can undermine liability protection.

Series LLC vs Traditional LLC in Texas

A Series LLC offers a flexible structure with potential cost savings for businesses with multiple assets or operations. In contrast, a traditional LLC may be simpler and more suitable for single-entity operations. The choice depends on the specific needs and complexity of the business.