Series LLCs

What Are The Benefits Of A Series LLC?

The main benefit of the Series LLC is the ability to segregate the LLC’s assets without the complexity or expense of setting up and managing multiple standalone LLCs. The Series LLC does the following:

• enables investors to place multiple assets in a single LLC.
• compartmentalizes the liabilities associated with each of those assets, essentially creating a firewall between each series. The debts, obligations and expenses incurred by one series are not enforceable against the assets of any other series or the main LLC.
• It reduces the administrative burden of forming and maintaining multiple LLCs

Consider the following scenario: a Texas real estate investor owns three rental properties. Currently they are titled in his individual name. He wants to limit his exposure to liability by placing the properties into an LLC. If all three properties are placed into a single LLC, he is shielded from personal liability. However, he has also placed all of his eggs in one basket. Because all three properties are all held in the same LLC, if something goes wrong with property #1, a litigator can also go after the equity in property #2 and Property #3. 

Alternatively, he can create separate LLCs for each property. This ensures that if something happens in connection with property #1, a litigator will be unable to go after the equity in the other properties. However, this requires setting up and maintaining multiple LLCs.

Another option for the investor is to form one Series LLC and establish three series, one for each property. As the investor acquires more properties over time, additional series can be created to hold the properties.

What Makes A Series LLC Different From A Normal LLC?

A regular LLC and a Series LLC are both LLCs. The difference is that the Series LLC may establish protected series.

Does Each ‘Series” Within My Series LLC Function As Its Own Entity?

Yes. Although a series is not technically a separate entity under Texas law, a series has the power and capacity in its own name to sue and be sued; contract; acquire, sell, and hold title to its assets; grant liens and security interests in its assets; serve as a promoter, organizer, partner, owner, member, associate, or manager of an organization; and exercise any power or privilege necessary or appropriate to conduct the business and activities of the series.

Can A Aeries LLC Be Used To Hold Texas Real Estate?

Yes. A series can take title to real estate just like a conventional LLC. A Series LLC makes an ideal asset protection vehicle for holding real estate investments. A typical entity structure for real estate investments typically consists of one ‘master’ Series LLC, and then a series for each property. Once LLC and its series are established, the properties can then be transferred by deed to their respective series.

Can My Texas Series LLC Own Property Out-Of-State?

Possibly, but if you own property located outside of Texas, best practice would be to hold such property in a separate, standalone LLC. Although Texas and several other states have series LLC legislation, not all states recognize the Series LLC. Therefore, the possibility exists that an out-of-state court might not honor the liability protection of the series.

Does Each Series Need Its Own Bank Account?

No, it is not necessary for each series have its own bank account. However there is no prohibition against each series having its own account. Many investors operate their Series LLC using one bank account and just keep separate books for each series.

What Are The Recordkeeping Requirements For A Series LLC?

Separate books must be maintained for each series to ensure protection from liability. The underlying theory is that if you want a series to be treated as separate entity for purposes of liability protection, then you need to treat each series as its own entity. This includes keeping separate records for each series. This is not terribly difficult or burdensome to do but is an important aspect of operating a Series LLC (or any legal entity, for that matter).

What Is A Registered Series?

As of June 2022, Texas law allows for the creation of registered series. The registered series is different from the ordinary, protected series. A registered series does everything a protected series does, except it is publicly filed. For regular, protected series, there are no public filings indicating the existence of the series, except for the series’ assumed name certificate. 

Registered Series are likely to become the preferred choice for real estate investors who will be financing the purchase of real estate. Third parties such as lenders and title companies are going to be more comfortable doing business with a registered series rather than a protected series. Indeed, protected series are usually unable to directly obtain financing from lenders, except private hard-money lenders.

Once established, the Series LLC is not difficult to manage, but the initial creation and setup of the LLC is technical and must be prepared correctly. Anyone interested in forming a Series LLC should consult an attorney experienced in the creation of Texas Series LLCs.