What is a Series LLC?
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A characteristic of a series LLC is the liability protection that is available to each series, specifically assets owned by one series are shielded from the liability of other series of the LLC.
What is a Series LLC?
A series LLC is a unique business structure that allows an investor to segregate assets and liabilities into separate cells or series that operate as sub-companies (such as Series A, Series B, and so on). Although series are not considered separate legal entities, they function in many ways as if they are.
A series has the statutory power to file and defend lawsuits, enter into contracts, buy, sell and hold title to property, grant liens and security interests, and exercise any power necessary for conducting business. Additionally, a series can choose to obtain its own EIN and be treated separately for federal tax purposes, operate under its own assumed name, and even have its own bank account. Despite these characteristics, a series is not considered a stand-alone legal entity and the name of the series cannot be followed by "LLC." Therefore, neither a protected series nor a registered series has any legal existence or power independent of the company as a whole.
If you are considering forming a series LLC, it is important to seek legal representation to ensure that you comply with all applicable laws and regulations. It is also worth noting that the Texas Comptroller treats a series LLC as a single legal entity for its purposes, requiring only one filing fee and one franchise tax report filed under the entity's Texas taxpayer identification number.
A Series LLC vs. a Traditional LLC
A series LLC is similar to a traditional LLC in many respects, such as offering the advantages of informal management, a liability shield, and pass-through taxation. However, the key difference is that a series LLC compartmentalizes assets and liabilities within individual series, whereas a traditional LLC pools assets together. This unique characteristic of the series LLC means that any legal action or judgment taken against one series is restricted to that specific series, leaving the assets of other series or the company as a whole unaffected. This can be particularly beneficial when dealing with multiple properties.
For example, if a foreclosure results in a judgment against Series A, the judgment would only be enforceable against Series A and its assets, not against the assets of Series B or Series C or those of the company at large, assuming that the series company and its transactions were structured correctly. It's important to note that a series LLC can operate just like a traditional LLC until it's necessary or desired to implement the series aspect of the company. Therefore, there is no downside to forming a series LLC instead of a traditional LLC, even if there are no immediate plans to utilize the series aspect of the company.
Categories of Series
The BOC (Business Organizations Code) is a set of laws that talk about how series LLCs work. It was changed by the government and the new rules start on June 1, 2022. The new rules divide series LLCs into three categories: protected series, registered series, and ones that aren't either.
\- A "series" is a group of people or things that are part of the same LLC, and can be protected or registered.
\- A "protected series" is a series that follows certain rules to limit its legal liability, but doesn't file a special form with the government.
\- A "registered series" is a series that follows certain rules to limit its legal liability and must file a special form with the government.
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Whether you want to enter into a traditional or a series LLC, the attorneys at Wilson Whitaker Rynell have the experience and expertise to assist you through the LLC formation process.
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