Texas Series LLCs

Texas is one of a handful of states that recognize series limited liability companies. A series LLC is similar to to a corporation with several subsidiaries or an LLC holding company structure. The series LLC comprises a parent LLC and other LLCs that are distinct from each other for liability purposes. The parent LLC controls the series. Each LLC has its own members and is responsible for its own debts and obligations.

A Texas series LLC can carry on any business, purpose, or activity that is not otherwise prohibited by Texas LLC law. Each series has the power and capacity to:

  • Sue and be sued;
  • Enter into contracts;
  • Acquire, sell, and hold title to the series’ assets;
  • Grant liens and security interests in the series’ assets; and
  • Exercise any power or privilege as necessary or appropriate for the business operations of the series.

These broad powers allow each series to act similarly to an independent limited liability company.

Attorney Practice Note:  A series may conduct business under a different name than the parent LLC. It is good practice to file an assumed name certificate for each series with the Texas Secretary of State and the appropriate county clerk. Further information on best practices for naming can be found in our discussion of series LLCs.

How to Create a Texas Series LLC

Texas series LLCs are authorized by Section 101.601(a) of the Business Organizations Code (BOC):

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

  • 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
  • Has a separate business purpose or investment objective.

At first glance, this provision implies that a series LLC can simply be created by adding provisions in the LLC operating agreement. But this is not the case. Section 101.602(b)(3) of the BOC provides that the liability protection benefits of Texas series LLCs is forfeited if the LLC’s certificate of formation does not contain a notice of the limitation of liability provided by the Texas series LLC law.  The Texas Certificate of Formation form (Form 205) does not provide this notice required by law. Most Texas LLC attorneys will add the required information using the Supplemental Provisions/Information box or an attachment to the Certificate of Formation.

Attorney Practice Note: The notice requirement of Section 101.602(b)(3) of the BOC illustrates the problem with many do-it-yourself LLC formations. The process for filing a Certificate of Formation with the Texas Secretary of State is deceptively simple. Many people assume that simply filing a Certificate of Formation with the Texas Secretary of State is all that is required.  While filing the Certificate of Formation does create the LLC, it often does not achieve the liability protection that the LLC is intended to accomplish.

Although Texas law has strict requirements for authorization of a series LLC, no separate filing is needed when a series is established.  This means that while the Secretary of State records may indicate whether separate series are authorized, they will not indicate whether a series has actually been created.

Attorney Practice Note: To take advantage of the more flexible and cost-efficient Texas series LLC structure, a traditional LLC can be converted to a series LLC. The certificate of formation and operating (company) agreement must be revised to convert the LLC to a series LLC.

Limitation of Liability and Texas Series LLCs

The real benefit of a series LLC is confining liability to a particular series.  To illustrate, let’s assume that the operating agreement of Parent LLC creates two series: Series A and Series B.  Let’s assume that Series A is successfully sued. The BOC provides that the creditor can only look to the assets of Series A to satisfy its judgment. This protection is provided by Section 101.602(a)(1) of the BOC:

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.

This protects both Series B and Parent LLC from the lawsuit against Series A. But what about protecting Series A from liabilities associated with Parent LLC? Let’s change the facts and assume that instead of Series B being involved in a lawsuit, it is Parent LLC that is successfully sued. This scenario is not covered by Section 101.602(a)(1); however, protection is provided by Section 101.602(a)(2) of the BOC:

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.

Taken together, Section 101.602(a)(1) and (a)(2) provide complete segregation of liability.  The parent LLC and each series are all treated as separate companies, and the assets of one cannot be used to satisfy the liabilities of the others.

The protection offered by Texas series LLCs is dependent on properly operating the series LLC. The liability protection will be forfeited if the LLC does not maintain separate records for each series and account for the series assets separately from other assets of the parent LLC or any other series.