How to Create a Series LLC in Texas: A Comprehensive Guide

Creating a Series LLC (Limited Liability Company) in Texas is a relatively new but increasingly popular way to structure a business.

A Series LLC allows you to create separate “series” or “cells,” each with its own assets, liabilities, and operations, under the umbrella of a single LLC.

This is an attractive option for real estate investors, entrepreneurs with diverse business interests, and others who wish to segregate risk within distinct operational units.

This article will guide you through the steps to create a Series LLC in Texas, from the initial planning stage to ongoing compliance requirements.

Preliminary Steps: Planning and Preparation

Decide if a Series LLC is Right for You

Before creating a Series LLC, evaluate if this structure fits your business model and risk profile. Consult a business attorney and a tax advisor to understand the legal and financial implications.

Choose a Business Name

Pick a unique business name that aligns with your brand identity. You must include “Series LLC” or a similar phrase to denote your unique business structure. Conduct a name search through the Texas Secretary of State’s website to ensure the name is available.

Draft a Business Plan

Create a detailed business plan outlining the objectives, financial projections, and operational structure of your Series LLC and each individual series within it.

Steps to Form a Series LLC in Texas

1. File a Certificate of Formation

Submit Form 205, the Certificate of Formation for LLCs, to the Texas Secretary of State. You must specify that you’re creating a Series LLC. The filing fee is currently $300 (as of 2021; check for the most current fee).

2. Create a Company Agreement

While not mandatory in Texas, a comprehensive company agreement (also known as an operating agreement) is strongly recommended. This document should detail the operating procedures for the parent LLC and each individual series, including how assets and liabilities will be segregated.

3. Appoint a Registered Agent

Choose a registered agent with a physical address in Texas to receive official communications and legal notices. The registered agent can be an individual or a business entity authorized to do business in Texas.

4. Apply for an EIN

Obtain an Employer Identification Number (EIN) from the IRS for tax identification. Depending on your business needs, each series may also require its own EIN.

5. Open Bank Accounts

Open separate bank accounts for the parent Series LLC and each individual series to maintain clear financial segregation.

6. Obtain Necessary Licenses and Permits

Ensure you have all required federal, state, and local licenses and permits. Requirements may differ for each series within the LLC, depending on its business activities.

7. File Periodic Reports and Pay Taxes

Keep up with the reporting requirements, including the annual franchise tax report and any other federal, state, or local tax obligations.

Post-Formation: Ongoing Compliance and Management

Maintain Separate Records

Each series must maintain its own books, records, and bank accounts to ensure liability protection.

Draft Series-Specific Agreements

If your Series LLC will engage in distinct types of business activities, consider drafting series-specific agreements to govern operations, management, and profit-sharing for each series.

Monitor Legal Updates

The concept of a Series LLC is relatively new, and laws governing this structure may change. Stay updated on legislation and court decisions that may affect your business.

Annual Review

Conduct an annual review of each series as well as the parent Series LLC to assess their financial and operational health. Update your company agreement as needed.

Consult Professionals

Legal and tax landscapes can change, affecting your Series LLC’s operational and compliance requirements. Regularly consult with legal and tax advisors to ensure that you’re in compliance with current laws.

Conclusion

Forming a Series LLC in Texas can provide many advantages, including flexibility and liability protection among multiple series. However, this structure also involves complexities that should not be navigated without expert advice. By following this comprehensive guide and consulting with professionals, you can make informed decisions about forming and managing a Series LLC in Texas.

Disclaimer: This article is for informational purposes only and should not be construed as legal or financial advice. Always consult professionals for your specific needs.

ALSO SEE: Do You Need an LLC for Airbnb?

Frequently Asked Questions: Creating a Series LLC in Texas

General Questions

1. What is a Series LLC?

A Series LLC is a type of limited liability company that allows you to create multiple “series” or “cells,” each with its own assets and liabilities, under the umbrella of a single LLC.

2. Is Series LLC a Texas-specific concept?

No, Series LLCs exist in other states as well, although the regulations and benefits may vary from state to state.

3. Why would someone opt for a Series LLC?

A Series LLC is commonly used to segregate assets and liabilities, making it ideal for multiple investment properties or different lines of business.

4. Can any business type become a Series LLC?

Theoretically, yes, but it’s more practical for businesses that have distinct operational units or assets they want to separate.

Formation and Setup

5. How do I form a Series LLC in Texas?

You’ll need to file a Certificate of Formation with the Texas Secretary of State and specify that you’re creating a Series LLC.

6. Is the filing fee for a Series LLC different from a standard LLC?

As of 2021, the filing fee for both a standard LLC and a Series LLC in Texas is $300.

7. Do I need a unique name for each series?

No, but it’s advisable for clarity and record-keeping.

8. Do I need a separate EIN for each series?

It’s recommended, especially if each series has distinct business activities.

Legal and Financial Implications

9. Does each series have its own liability?

Yes, the assets of one series are generally protected from the liabilities of another.

10. Can I have different owners for each series?

Yes, each series can have its own set of members (owners).

11. Is a company agreement mandatory?

While not required by Texas law, a comprehensive company agreement is strongly advised.

12. What licenses and permits will I need?

This will vary depending on the business activities of each series.

13. Are Series LLCs more difficult to manage?

They can be, due to the need to maintain separate records and accounts for each series.

Tax Implications

14. How are Series LLCs taxed?

The parent LLC and each series can be taxed as a separate entity, but consult a tax advisor for specific advice.

15. Do I need to file separate tax returns for each series?

This is a subject of debate, and tax laws may vary. Consult a tax advisor for guidance.

16. Is each series subject to franchise tax?

Yes, the State of Texas requires franchise taxes for each individual series.

Compliance and Record-Keeping

17. What kinds of records should I maintain?

Each series should have its own financial records, contracts, assets, and liabilities.

18. How often should I update the company agreement?

Annually, or whenever significant changes occur within the Series LLC or individual series.

19. Are there annual reporting requirements?

Yes, you’ll need to submit an annual franchise tax report and any other mandated reports for each series.

20. Can I convert a standard LLC to a Series LLC?

Yes, the Texas Secretary of State’s office provides a process for conversion.

Adding or Closing Series

21. Is there a limit to the number of series I can create?

There is no statutory limit to the number of series you can create under a Texas Series LLC.

22. How do I add another series?

You can add a series by amending the company agreement and taking any additional required steps, such as obtaining a new EIN or business licenses.

23. Can I close one series without affecting the others?

Yes, you can dissolve one series without it affecting the parent Series LLC or the other series.

24. How do I dissolve a single series?

Consult your company agreement for dissolution procedures and consult a legal advisor to ensure compliance with state law.

Miscellaneous

25. Can a Series LLC own property?

Yes, each individual series can own its own property.

26. Can a series enter into contracts?

Yes, if properly structured, each series can enter into its own contracts and agreements.

27. Can I have a Series LLC with just one series?

Yes, but the main benefits of a Series LLC come from having multiple series.

28. Can a Series LLC sue or be sued?

Yes, both the parent LLC and individual series can sue and be sued.

29. Can a series merge with another series?

Yes, series can merge or convert according to the provisions in the company agreement and state law.

30. How is a Series LLC affected by bankruptcy?

Bankruptcy laws are complex and may vary depending on the structure of the Series LLC. Consult a legal advisor for specific guidance.

31. Can a series have its own branding?

Yes, each series can operate under its own name and brand, as long as it is not misleading or infringing upon another business.

32. Do all series have to operate in Texas?

No, but you may need to register or qualify to do business in other states.

33. Can a Series LLC have foreign (non-U.S.) members?

Yes, like a regular LLC, a Series LLC can have foreign members.

34. Can I transfer ownership of a series without affecting the others?

Yes, each series can have its own set of members and ownership can be transferred per the provisions in the company agreement.

35. Can I create a Series LLC if I have existing litigation or debts?

Yes, but this could be problematic in terms of segregating liabilities. Consult a legal advisor.

36. Are there any industry-specific restrictions for Series LLCs?

This may vary, so it’s crucial to consult industry guidelines and a legal advisor.

37. Can a Series LLC own shares in another company?

Yes, each series can independently own shares in another company.

38. Can a Series LLC be a nonprofit?

No, as of my last update in September 2021, Series LLCs cannot be classified as nonprofit entities.

39. Can I use a Series LLC for estate planning?

Some people do use Series LLCs for estate planning, particularly to segregate assets, but consult an estate planning advisor for your specific situation.