Texas Series LLC (2024)

A Series LLC is a type of LLC that has the unique ability to create separate and distinct cells (also known as “series”) within a single LLC.

Each series resembles an independent LLC because each series: (1)can do almost anything an LLC can do and (2)insulates the series' assets from the liabilities of the Series LLC and the other series. The Series LLC provides a structure that allows the members (i.e. owners) of the Series LLC to keep multiple assets (or businesses) separate while still operating under the framework of a single LLC. For this reason, a Series LLC is often used as an alternative to a multiple LLC structure.

The primary benefit of a Series LLC is the ability to silo or segment liabilities by using multiple series while only forming and maintaining a single state-registered entity (the Series LLC).

Watch a short video explanation of the Series LLCs→

In addition to the traditional LLC benefits, the advantages of using a Texas Series LLC are: (1) it can protect multiple assets better than a single traditional LLC (as each series insulates the asset it owns from the liabilities of the LLC and the other series), and (2) it is a single entity (LLC) and therefore only requires the filing of one Certificate of Formation with the Texas Secretary of State (and one filing fee), one bank account, one bookkeeping account, etc.

A Series LLC can be used, for example, by a real estate investor who owns multiple properties. Each property would be held by a separate series. If property 1 is owned by series 1 and a tenant in property 1 files a slip and fall lawsuit, the proper defendant would be series 1. If a judgment is rendered in favor of the tenant and remains unpaid, the injured tenant/judgment holder would be able to seize only the assets of series 1 (i.e., property 1). Therefore the remaining assets of the Series LLC and the other series are protected.

What are the disadvantages of using a Texas Series LLC? Series LLCs can be more complex to manage and maintain than a traditional LLC, as they require exact language and precise record-keeping. As such, it is essential to consider the specific needs of your business and weigh the advantages and disadvantages before deciding if a Texas Series LLC is the right choice for your situation.

Read more about the differences between a Series LLC and a traditional LLC.

There are potential drawbacks to using a Series LLC. As noted above, a Series LLC can be more complex to maintain than a traditional LLC due to the statutory requirement to keep precise records to account for series assets separately from the company's other assets or any other series. Failure to maintain records properly can result in the loss of the liability barriers provided by each series. In other words, failure to maintain proper records could essentially reduce the enterprise to a traditional LLC. As such, some scenarios dictate the use of traditional LLCs.

It may not be appropriate to use a Series LLC when:

(1) A series will own assets in a state that has not authorized Series LLCs. Not all states have authorized Series LLCs, and those states that have authorized them have differing requirements. Accordingly, using a Texas Series LLC (or a series within the Texas Series LLC) outside of Texas runs a greater risk of being viewed as a single traditional LLC, thus putting its assets at a greater risk.

(2) The owners of one series must differ from the owners of the Series LLC. If you own the Series LLC but wish to acquire multiple properties with different equity investors, we recommend using multiple traditional LLCs.

(3) The liabilities associated with one business or asset do not justify the additional segmentation that comes with a series. If your business is to buy and sell TVs, creating a series for each TV is not sustainable nor typically advisable.

(4) The value of the assets should justify the added costs of using a series. If your businesses are service-based without valuable assets, we typically use a single traditional LLC, perhaps with multiple assumed names, aka DBAs.

(5) The length of time you hold the asset is short. If you are flipping houses, for example, you may want to keep costs down by not creating (and subsequently terminating) a series for each acquisition. Many of our clients who flip real estate will use a traditional LLC for flipping (or a flipping series).

Texas Series LLCs are great for specific scenarios due to their benefits. The unique benefits of the Texas Series LLC predictably outweigh the drawbacks (i.e., the added complexity of this relatively new entity structure), especially when protecting multiple assets like real estate investors often desire.

To learn more about the Series LLC or discuss further, you can contact our Texas Series LLC lawyer anytime via our contact us page.