A series LLC (“SLLC”) is
basically multiple entities within one company and each entity has its own
identity and existence. So if you are an investor, instead of having multiple
entities for multiple properties, you could have a one series LLC and each
component within Series LLC could each own a property without having to go
through forming multiple entities. Each Series within a company can have its
own business purpose, own assets, separate liabilities and need not even have
same members for all Series all this comes with the protection of limited
liability for each individual Series i.e. each component within a Parent
Series, LLC has same advantages of an LLC without having to waste resources on
forming separate LLC’s. A series has the power to: (1) sue and be sued, (2)
contract, (3) hold title to assets of the series, and (4) grant liens and
security interests in assets of the series[1].
Members and Managers also enjoy limited liability of the parent Series LLC and
its each individual Series within the parent Series LLC[2]
In Texas Series LLC’s are relatively new,
since September 2009 codified under Bus. Org. Code Subchapter M, §101.601-§101.621.
For a Series LLC’s to be enforceable as intended it must strictly adhere to
some basic requirements stated in Bus. Org. Code § 101.602[3]
namely that Certificate of Formation and the Company Agreement must contain
Notice of limitation of liability of Series and there must be separation of
accounts of each Series.
Traditional LLC
Owns one property
|
Series LLC
|
|||||
Series A
Owns one property
|
Series B
Owns one property
|
Series C
Owns one property
|
Series D
Owns one property
|
Series E
Owns one property
|
||
Not many people know
about it and those who do know are skeptical since it is not very much tested.
Series LLC’s may be new in Texas but States like Delaware whose model Texas
adopted, have had it since 1996. The
skepticism is understandable. There is not much case law on how things will be
handled if one series goes bankrupt, how do we handle the taxes, does each
series gets its own EIN number, since not all States have provision for Series
LLC, how will that Jurisdiction treat Texas LLC? Most of these issues are resolved if you just
consider each component as an entity in itself which concurs with the stand
taken by IRS. This will mandate you to have an EIN for each, file separate
taxes, maintain separate records etc. As
far as doing business in Jurisdictions which do not have provision for Series
LLC, a Series LLC which is well organized and maintained I do not see it as an
issue however to avoid undesired consequences if you do business beyond Texas and
other States that have provisions for Series LLC[4],
you may want to refrain from forming Series LLC and just stick to a traditional
LLC.
The popularity of Series
LLC is growing. More recently D.C. has
also adopted a provision for Series LLC. Further a Series LLC can wind up
individual series without winding up parent LLC or any other Series. A Series
LLC is a great tool for having multiple investments under one umbrella without
the added cost of forming multiple companies at the same time enjoying benefits
of insulation of each investment.
****The
information in this column is not intended as legal advice but to provide a
general understanding of the law.
[1] Bus. Org. Code § Sec.
101.605. GENERAL POWERS OF SERIES. A series established under this subchapter
has the power and capacity, in the series' own name, to:
(1) sue and be sued;
(2) contract;
(3) hold title to assets of the series, including
real property, personal property, and intangible property; and
(4) grant liens and security interests in assets
of the series.
[2] Bus. Org. Code § Sec.
101.606. LIABILITY OF MEMBER OR MANAGER
FOR OBLIGATIONS; DUTIES. (a) Except as and to the extent the company
agreement specifically provides otherwise, a member or manager associated with
a series or a member or manager of the company is not liable for a debt,
obligation, or liability of a series, including a debt, obligation, or
liability under a judgment, decree, or court order.
(b) The company agreement may expand or restrict
any duties, including fiduciary duties, and related liabilities that a member,
manager, officer, or other person associated with a series has to:
(1) the series or the company;
(2) a member or manager associated with the
series; or
(3) a member or manager of the company.
[3] Sec. 101.602. ENFORCEABILITY OF OBLIGATIONS AND EXPENSES OF
SERIES AGAINST ASSETS. (a)
Notwithstanding any other provision of this chapter or any other law, but
subject to Subsection (b) and any other provision of this subchapter:
(1) 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; and
(2) 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.
(b) Subsection (a) applies only if:
(1) the records maintained for that particular
series account for the assets associated with that series separately from the
other assets of the company or any other series;
(2) the company agreement contains a statement to
the effect of the limitations provided in Subsection (a); and
(3) the company's certificate of formation
contains a notice of the limitations provided in Subsection (a).
