Texas Series LLC for a Fund
A Texas series LLC is one LLC that can establish separate series, each with its own assets, members and liabilities. Texas law says debts of one series generally cannot reach another if the formation documents give notice of the limitation and the company keeps separate records. A fund can use it to run several property or investment pools under one entity, but the structure is less tested in bankruptcy and in other states' courts, and lenders and investors may be unfamiliar with it.
How it works
The Texas Business Organizations Code lets an LLC create one or more series in its company agreement. Each series can have its own members, managers, assets and business purpose. The law provides that the liabilities of a series are enforceable only against that series' assets, and not against the assets of other series or of the umbrella LLC, if specific requirements are met. A series itself is not a separate entity like a stand-alone LLC but can sue and be sued in certain circumstances.
Requirements for the liability shield
- The company agreement must establish the series and provide for separate rights and obligations.
- Records must separately account for each series' assets and liabilities.
- The certificate of formation must give notice of the limitation of liability among series, and the notice must be in the filing.
- The company should operate each series separately, with its own bank account, contracts in the series' name and clear records.
Why a fund might use it
| Advantage | Caveat |
|---|---|
| One filing and one umbrella entity for several property pools | Each series must still be documented and operated separately |
| Lower formation cost than many separate LLCs | Lenders may require a standalone LLC |
| Flexible allocation of assets and members | Investors may be unfamiliar with the structure |
Where it is uncertain
- Other states. Not every state recognizes series LLCs, and a court outside Texas may apply a different rule.
- Bankruptcy. How a bankruptcy court treats series shields is not fully settled.
- Lenders and title companies. Many require a traditional LLC and may be unfamiliar with a series.
- Securities treatment. Each series' interests may be separate securities that need their own offering analysis.
How to decide
A series LLC can suit a local operator with several small properties and a lender that accepts it. For larger deals, institutional investors and multi-state activity, separate LLCs under a holding company are usually safer. See holding company structure and Delaware vs Texas for a fund.
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Book Free ConsultationFrequently asked questions
Is a series LLC the same as a holding company with subsidiaries?
No. A series is inside one LLC. A holding structure uses separate legal entities, which are generally more widely accepted.
Can a series sign contracts?
Yes, in its own name, subject to the company agreement and statute, and the contract should identify the series.
Will banks lend to a series LLC?
Some will, many will not. Ask the lender before you form one.
Does each series need its own Form D?
If a series offers interests to investors, each offering needs its own securities analysis and filings as applicable.