What Is a Series LLC?

What Is a Series LLC, and Can I Benefit from One?

      A series limited liability company (LLC) is a type of business structure that allows a group of subunits called “series” to be owned in a tiered structure. At the top level is the “parent” LLC, and below this are one or more “series.” As of June 1, 2022, Texas amended the series LLC laws, and the series are now called “Protected Series” or “Registered Series.” To make the most of this complex legal entity, business owners need a carefully drafted operating agreement tailored to their organization.

How a Series LLC Works

      The series LLC originated in Delaware in the 1990s. Since then, its use has expanded to other states like Texas, and is typically used for companies that benefit from protected units within a larger business entity, including real estate and other investors, and companies that have multiple brands.

Rather than forming multiple LLCs to protect one company’s assets from a related company’s liabilities, businesses can form a single entity—the series LLC—composed of multiple series that effectively function as separate business entities.

Each series can have its own assets, members, and operations. And since the series are legally walled-off from one another, the debts, liabilities, and obligations of one series are not enforceable against another series or against the parent organization.

For example, a real estate investment company could be organized as a series LLC in which each series owns a different property. If one of the properties is involved in a lawsuit that results in a judgment against the series that holds it, the LLC as a whole and the other series in it are protected from the liabilities of the series that owns that property. In a non-series LLC, however, every property owned by the LLC could be reached by the creditor to settle the debt.

Maintaining the liability shield. The liability shield that is such an attractive feature of series LLCs is not simple to maintain. Companies must maintain separate books, records, and bank accounts for the assets of each series. Failure to do so, which may arise from poor bookkeeping and accounting, could result in the loss of the liability shield.

Benefits of Series LLCs

Entrepreneurs, real estate investors, and other businesses can benefit from series LLCs in the following ways:
● Lower startup costs. Typically, only a single filing fee is required to set up a series LLC, versus multiple filing fees to form separate LLCs.
● Asset protection. Within a series LLC, when one series is involved in a legal dispute or creditor action, it does not affect the parent company or any other series. This can be particularly advantageous to holding companies.
● Flexibility. In addition to asset protection, one of the main benefits of a series LLC is the ability to set up each series differently. Management, financial rights, and voting rights can differ from series to series, giving members a great deal of independence and flexibility without sharing risk with other series.

Series LLCs Demand Experienced Legal Counsel

      Series LLCs are not an entity for the faint of heart—or the inexperienced. They present many benefits for sophisticated businesses, if administered property. Like forming a regular LLC, a series LLC involves naming the business, appointing a registered agent, filing paperwork with the Texas Secretary of State, and drafting an operating agreement. With the right planning, execution, and guidance from experienced attorneys, the benefits of a series LLC can outweigh its disadvantages for some businesses.

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Our attorneys can help you with your series LLC. For assistance with these and other business law, tax planning, or estate planning matters, contact our office today!

Legal Disclaimer – The information provided is designed for general information only and is not intended to be legal advice, nor does it create an attorney client relationship. Consult an attorney before making any legal decisions based on your individual circumstances.