In this business law breakdown, RRS Managing Partner Paul Skeith discusses series limited liability companies, from forming a series LLC, to liability protection, to things to look out for, to the benefits of a series LLC.
Series LLCs in Texas
A series LLC can be thought of as being a “mothership” LLC, with several mini LLCs or subunits that are called series LLCs. Each one of those series have their own set of books, and they have separate liability protection from each other and from the mothership LLC.
The whole reason why you would have a series LLC is to separate the liability between the assets and the different series. An example might be different pieces of real estate where you’re worried about if something goes wrong with one of them it might spill over, and people might try to collect against the other assets.
Benefits of Series LLCs
What’s really attractive about a series LLC is that if something goes bad with one of the properties, it won’t spill over into the others if there is something serious. Sometimes, the temptation might be to treat everything like it’s all the same, but you don’t get the liability protection unless you treat them separately.
Forming Series LLCs
In order to form a series LLC, or any LLC, you file a certificate of formation with the Texas Secretary of State, and that’s what creates the LLC. In that document, you just need to say that you might have series or you will have series; you don’t have to specify what type of series you will have.
Things to Look Out For
Something that a creditor should look out for when dealing with a series LLC results from the fact that all you have to do is say in the certificate of formation with the secretary of state that we’re going to have series. The issue is, if you’re a creditor, you might be thinking that you’re doing business with all of the LLC and all of its assets, but in reality, you might not be able to collect against some of the series, because those have separate asset protection.