TEXAS SERIES LLC BACKGROUND
On September 1, 2009, Texas joined Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee and Utah as the handful of states in the U.S. at the time that permitted the formation of a relatively new entity type known as a Series limited liability companies (a “Series LLC”).
While a Series LLC shares many of the same characteristics and benefits as its older and more commonly known cousin, the traditional Texas LLC, the Series LLC differs in that it permits you to segregate the assets and liabilities of the company in several separate series. The Series LLC provides a means of isolating the assets of one series from the liabilities of the other series within a single Series LLC.
The ability to divide assets, liabilities, and even the operation and management of the assets into wholly separate series, under the umbrella of one LLC, can be useful in reducing some of the costs and hassle associated with operating multiple related, but separate, entities. Some Texas real estate investors are beginning to utilize the Series LLCs to hold and manage multiple rental properties, with each property being placed in a separate series and all the properties under one series LLC.
Because the series LLC allows you to establish multiple series of assets, members and managers the debts, obligations and liabilities of each series will be enforceable only against the assets of that particular series, and will not be enforceable against the other series in the LLC or against the LLC as a whole.
Since the Series LLC is still a relatively new entity type in Texas, the case law and court rulings indicating how a court will treat a Series LLC are not as developed as other entity types such as the corporation and traditional LLC. As time passes and more cases involving Series LLCs are litigated, we will be able to better analyze how the Texas court systems treat Series LLCs and insuring that the separated assets of each series are truly segregated from the liabilities of another series.
Eric R. Thiergood, Sr.