Texas Series LLC

For those familiar with ESPN’s 30-for-30 series, or are simply an authority on Internet memes, “What if I told you...” is a prefatory phrase used for some unexpected revelation. For instance, what if I told you a relatively unknown business organization strategy could harbor one’s real property, businesses and other promoted interests all in a tightly wrapped blanket of anonymity? That was unexpected, right? A Series LLC offers all of the aforementioned benefits and is slowly becoming a popular method for holding personal assets. Including Texas, the Series LLC is available in 15 U.S. states and signs indicate more will follow. 

TBOC §101.601

To fully grasp the Texas Series LLC, an analysis of §101.601 of the Texas Business Organizations Code is a fitting place to begin. First enacted in 2009, §101.601 et seq. provides: 

Sec. 101.601. SERIES OF MEMBERS, MANAGERS, MEMBERSHIP INTERESTS, OR ASSETS.

1. A company agreement may establish or provide for the establishment of one or more designated series of members, managers, membership interests, or assets that: 

2. has separate rights, powers, or duties with respect to specified property or obligations of the limited liability company or profits and losses associated with specified property or obligations; or 

3. has a separate business purpose or investment objective.

4. A series established in accordance with Subsection (a) may carry on any business, purpose, or activity, whether or not for profit, that is not prohibited by Section 2.003.

Added by Acts 2009, 81st Leg., R.S., Ch. 84 (S.B. 1442), Sec. 45, eff. September 1, 2009.

Simply put, §101.601 allows for the creation of a limited liability company (we’ll call it the Parent LLC), which may have any number of distinct series under its general structure. Each series has separate rights, power, duties, or objectives from the Parent LLC and other series. For visual learners, think of an octopus, or your preferred Cephalopoda. The common usage of the Parent LLC is that of a holding company and functions as a control base for the series underneath. In theory, a Series LLC could contain parcels of real property or a business operating in separate series under the Parent LLC. 

The Effects of Proper Formation

Sec. 101.602.  ENFORCEABILITY OF OBLIGATIONS AND EXPENSES OF SERIES AGAINST ASSETS.

1. Notwithstanding any other provision of this chapter or any other law, but subject to Subsection (b) and any other provision of this subchapter:

2. the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular series shall be enforceable against the assets of that series only, and shall not be enforceable against the assets of the limited liability company generally or any other series; and

3. none of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to the limited liability company generally or any other series shall be enforceable against the assets of a particular series.

4. Subsection (a) applies only if:

5. the records maintained for that particular series account for the assets associated with that series separately from the other assets of the company or any other series;

6. the company agreement contains a statement to the effect of the limitations provided in Subsection (a); and

7. the company's certificate of formation contains a notice of the limitations provided in Subsection (a).

Added by Acts 2009, 81st Leg., R.S., Ch. 84 (S.B. 1442), Sec. 45, eff. September 1, 2009.

Each series would not be completely “separate” if not for the language of §101.602(a), which specifies that the debts, liabilities, obligations, and expenses of the each series are enforceable against only that particular series, and not the Parent LLC or any other series. So, in the event one series incurs a debt, creditors will not be able to reach the Parent LLC or any other series in order to satisfy that debt. Think of this as an internal liability shield. However, here it is important to note that Texas added §101.622 in 2013, which states “a series has the rights, powers, and duties provided by this subchapter to the series but is not a separate domestic entity or organization.” Thus, the Parent LLC and its series are one entity for Texas tax purposes and no internal liability shield exists. 

As we see in §101.622(b), there are three main requirements to invoke internal liability shields for the Series LLC. First, records for each series must be completely separate; any signs of commingling between series will destroy the liability shields. Next, the Parent LLC’s company agreement must contain the language of §101.602(a) and provide for the creation of individual series. Finally, when forming the Parent LLC, the certificate of formation must also state the language of §101.602(a) (best placed in the “Supplemental Provisions/Information” box of the certificate). 

Anonymity

Although complete anonymity is impossible to achieve, utilizing a Series LLC in conjunction with an asset protection strategy could create many legal and psychological barriers for creditors. A specialized attorney is best suited to establish this kind of AP strategy, but it can have the effect of making all of one’s assets extremely difficult to identify. For instance, given that the Parent LLC owns each series, establishing an anonymity trust as initial manager of the Parent LLC and having one’s attorney as registered agent is a strategy some have employed.