Texas Series LLC

The Series LLC

A Series LLC is a relatively new entity choice in Texas

What is a Series LLC?

A Texas Series LLC is a limited liability company (LLC) that has the ability to create one or more sub-series within a single LLC structure. If operated properly the debts, liabilities, obligations, and expenses incurred with respect to a particular sub-series are enforceable only against the assets owned by that particular sub-series, and are not enforceable against the assets of the LLC or any other sub-series.

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.

Series LLC Terminology

“Series LLC” is proper term for the master LLC or the actual LLC. A Texas Series LLC can have series or cells within the Series LLC framework. These individual cells are called “series”, but we often use the term “sub-series” instead to avoid confusion with the Series LLC.

What can a (sub) series do?

Each sub-series can own assets (i.e. real estate), (2) borrow money, (3) incorporate different ownership and/or management structures (not recommended), (4) have a different business purpose, (5) sue and be sued, etc.

Series LLC Benefits

The primary benefit of a Texas Series LLC is the start up cost. There is a one time state filing fee of $308.10 to create the Series LLC or Master LLC (+ $300 if you want to have us to create your Series LLC). After the Series LLC is created, it will only cost you about $50 in recording/filing fees to create each sub-series. We charge $300 total (includes the recording/filing fees) to create a sub-series for you.

Series LLC Downside

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).