Limited Liability Companies are popular business entities that most people are familiar with because of their ease of formation and administration. Series LLCs, though, are a unique type of LLC that are also very useful but vary from that of a traditional LLC. Savvy businesspersons are now considering Series LLCs more and more when starting new businesses. One of the main differences in features is that a Series LLC divides the liability among the various business ventures in which an LLC is engaged.
To illustrate, suppose you start a real estate investment company that buys houses to resell or rent to prospective tenants. If all of the properties are owned by the same LLC, then liability from one property can carry over to the others. If the LLC is sued because of one of the properties, the other properties are at risk to satisfy a resulting judgment. Considering one of the major benefits of an LLC is to distinguish a member’s personal liability from that of the LLC, Series LLC takes it one step further and separates each business venture’s liability from other ventures under the same LLC.
Series LLC are a good mechanism by which you can protect the other properties from claims unrelated to one of the properties from a different LLC in the Series. This can be accomplished by structuring a new LLC (or restructuring your current LLC) as a Series LLC. This Series LLC acts as an “umbrella” LLC and each of the properties is kept segregated from others by a “sub-LLC” within the umbrella. In Texas, the segregation occurs by each property being owned by its own, individual “doing business as” (d/b/a) designation. This segregation by “doing business as” can only occur if the business entity is a Series LLC, and not our everyday LLC. And this filing of a d/b/a helps to set apart one sub-series, also called a “cell” sometimes, from the other sub-LLCs in the Series.
Alternatively, you could start a new LLC to own each of the property separately, but the filing fees alone can be costly. Once you sell the property, then you will pay additional filing fees for dissolution. Instead, you can start a Series LLC once, and add a dba each time you purchase a new property. Keep in mind, Series LLCs must be authorized by state statutes and currently only a handful of states, including Texas, allows Series LLCs.
For additional questions about Series LLCs and their applicability to your business, give us a call. We’re always happy to help!
ABOUT THE AUTHOR
Adeel practices in business law and estate planning. He assists his clients in business formation, corporate governance, and advises them on their day-to-day operations affected by the everchanging environment of business. He also advises clients on managing their estate plans through wills, trusts, and other related documents.