Texas Series LLC
A Series LLC is a relatively new entity choice in Texas
What is a Series LLC?
Series LLC Terminology
Series LLC vs Traditional LLC
Example One – 3 Rental Properties w/ 1 Traditional LLC: Imagine a scenario where you own three rental properties that you rent to three separate families. You can create one traditional LLC to own all three rentals. This structure would protect the LLC’s owners from the liabilities associated with the three rentals. If, for example, someone is injured in rental #1 the injured party would have to sue the the LLC, not the owner(s) of the LLC. This is the standard LLC liability shield everyone is familiar with. The downside to having only 1 LLC is that all of the LLC’s assets (the three rentals) would be at risk. In this example, all three rentals would be at risk if someone is injured in one of them. To insulate each rental property from the liabilities of the others, we used to create an LLC for each rental property (See Example 2). Now that the Series LLC is an option, we can create one Series LLC and one sub-series for each rental property (see Example 3).
Example Two – 3 Rental Properties w/ 3 Traditional LLCs: Using the same three rentals as the example above, suppose you created three traditional LLCs instead of one. Each LLC owns one rental. The LLC’s owners would have the same liability protections, but with this multi-LLC structure each rental would be protected from the liabilities associated with the others. If a tenant is injured in rental property #1, the injured party would sue LLC #1 (not the The LLC’s owner or the other LLCs). As such, the LLC’s owner AND the other two rentals are safe and protected. The downside to having three traditional LLCs is that you must file three annual reports, have three bank accounts, and file three federal tax returns (or three schedule Cs if a single-member LLC) which means keeping three sets of financials.
Example Three – 3 Rental Properties w/ 1 Series LLC and 3 Sub-Series: Same scenario as above, but instead of one traditional LLC (example 1) or 3 LLCs (Example 2), you can now create one Series LLC with three sub-series. A Series LLC is just one LLC, so it only requires one EIN, one bank account, one annual report, one set of books, one federal filing, etc. Each sub-series insulates the assets owned within it from the liabilities associated with the other assets. If your tenant is injured in rental property #1, the injured party would sue sub-series #1 (not the LLC’s owner or the other sub-series). Just like in example 2, the LLC’s owner AND the other two rentals are safe and protected.