Series LLC
A Texas LLC that has established one or more designated series within itself. Each series may have separate members, managers, assets, and limitation of liability, properly maintained, the assets of one series are protected from the creditors of another series.
A Texas series LLC is a Texas LLC that has established one or more designated series within itself. Each series may have separate members, managers, assets, and limitation of liability. Properly maintained, the assets of one series are protected from the creditors of another series and from the creditors of the LLC itself. The series LLC is most commonly used in real estate (one series per property), insurance, and complex investment structures.
Establishment
Under § 101.601, a Texas LLC may establish one or more series within the LLC if (a) the LLC's certificate of formation provides notice that the LLC may have one or more series and that the debts and liabilities of one series are not enforceable against the assets of another series, and (b) the LLC's company agreement establishes the series. Both requirements must be satisfied to obtain inter-series liability protection.
The internal liability shield
Under § 101.602, the debts, liabilities, obligations, and expenses incurred or contracted for or otherwise existing with respect to a particular series are enforceable against the assets of that series only, and not against the assets of any other series or against the assets of the LLC generally. This is the principal feature distinguishing a series LLC from a single LLC owning multiple assets.
Notice requirements
The internal liability shield is not automatic. It applies only if all of the following are satisfied: (1) the certificate of formation provides notice of the limitation; (2) the company agreement establishes the series; (3) the records maintained for the series account for the series' assets separately from the LLC's other assets and the assets of any other series; (4) the series' obligations and the persons who contract with the series have notice (constructive or actual) of the limitation. §§ 101.602–101.604.
Protected series and registered series (2022)
Effective June 1, 2022, Texas added two additional series LLC structures. A protected series is the original Texas series structure, the series exists internally within the LLC. A registered series is a series that has filed a certificate of registered series with the Texas Secretary of State, providing a public filing for each series. Registered series are useful where third parties (lenders, title companies, insurers) require evidence of series existence.
Separate operations
To preserve the internal liability shield, each series should maintain separate books and records, separate bank accounts, separate insurance, and separate contracts. The series should sign in its own name (rather than the LLC's name), and counterparties should have actual or constructive notice that they are dealing with the series and not the LLC generally. Failure to maintain these formalities can result in the loss of inter-series protection, a "series-piercing" outcome that has not yet been definitively addressed by Texas appellate courts but which is widely anticipated based on principles applied in single-LLC veil-piercing.
Tax treatment
The federal income tax treatment of series LLCs remains unsettled. Treasury proposed regulations in 2010 that would have treated each series as a separate entity for federal tax purposes; the regulations were never finalized. In practice, most series LLC sponsors treat each series as a separate entity for tax purposes based on the structural separation, but the Internal Revenue Service has not issued definitive guidance.
The Texas series LLC is most commonly used in real estate (one series per property, allowing inter-property liability separation without forming separate LLCs for each property), insurance vehicles, securitization structures, and complex investment partnerships. The principal advantages over forming separate LLCs are reduced filing fees and simplified administration. The principal disadvantages are the unsettled tax treatment, the unsettled treatment in non-Texas jurisdictions (some states do not recognize the inter-series liability shield), and the ease with which sloppy operations can compromise the protection. For most closely-held businesses, separate Texas LLCs remain the simpler, more conservative choice. Series LLCs work best where the cost savings and administrative simplicity meaningfully outweigh the legal uncertainty.
Companion article: Starting a Business in Texas
Practice guide: Texas LLC Operating Agreements