Most people have heard of an LLC or Limited Liability Company and the LLC is widely used as the business entity of choice in Texas for business operations or holding real estate or other investments. The LLC combines the best qualities of a corporation and a partnership in one entity that protects from liability and provides significant tax benefits as well. Although most people know about LLCs, few have heard of the new version know as the Series LLC.
Following the lead of progressive states like Delaware and Nevada, last year Texas became the eighth state to allow what is called a Series LLC. In September of 2009, the Texas legislature amended Title 3 Chapter 1 of the Texas Business Code to provide for Texas LLCs which can have a series of sub-entities that are part of the original LLC, but have the characteristics of individual LLCs such as different ownership, different management and limited liability. This progressive legislation keeps Texas at the forefront of desirable jurisdictions for business operations and confirms its place a as premier business location.
To understand the advantage of a Series LLC, consider the following example – A real estate developer or investor owns multiple projects or properties, A, B, C & D. Prior to the Series LLC, in order to insulate Property A from the Liabilities of the other properties or vice versa, it would be necessary to set up four LLCs and incur the expense of set up and maintenance for each one. It would also be necessary to have separate LLC’s if the developer or investor wanted to have different partners or investors in each of the properties.
Now, with the Series LLC, it is no longer necessary to go to the expense and trouble of setting up separate LLCs for each property or to allow for separate investors. With one Series LLC, separate properties can be held in different Series, i.e., Series A, B, C, & D of the LLC and they are insulated from the liabilities of each other. If there is an accident at property A and litigation is filed against that property, the other three properties are protected from claims against property A. Each Series can also have different ownership and different management, if desired, and the LLC can have one Tax ID # and file one tax return. When new projects are added later, a new Series is added to the LLC with no additional filing fees to the state and no new entity fees. Although the Series LLC can file one tax return if desired, it is also possible to obtain separate Tax IDs for each of the Series and to file separate returns if that is preferable.
There is no doubt the Series LLC will enjoy great favor as a business entity in Texas for these reasons and many more. I will address other issues such as asset protection strategies in future articles.