A limited number of states, including Texas, allow companies to form a series LLC. Series LLCs are useful to real estate investors with multiple properties who want to avoid complex business structures with numerous entities. Investors wanting to spread investments into different asset types can also benefit from setting up a series LLC.
The series LLC is similar to LLC, but with the advantage of being able to treat each series as a sub-company with separate assets and liabilities. An individual series could refer to revenue streams, ventures, or properties that are isolated and insulated from one another.
Each series may operate as a separate entity from other series in the LLC. It can purchase and dispose of properties, file and defend lawsuits, grant liens, and enter into contracts. While each series comes with powers and privileges, it is technically not a stand-alone legal entity.
For state tax purposes, the series LLC registers as a single entity. It will only have one state taxpayer identification number for the combined group. The series LLC will only pay for one filing fee and one franchise tax report. For federal tax purposes, each series may have a different assumed name and separate employer identification numbers.
Forming a series LLC carries the advantage of limiting the exposure of the individual series. If a series gets sued and becomes liable to the plaintiff, only assets from that series can be used to satisfy the judgment. Assets from another series and of the company at large will not be affected. This structure acts as an effective shield against liability and provides flexibility in operating the business.
Series LLCs have to file a Certificate of Formation containing the “notice of limitation on series liability.” The Certificate of Formation for a series LLC should emphasize how each series operates independently and will not be responsible for satisfying liabilities and debts of another series or of the company. The series LLC also has to have a comprehensive company agreement that governs internal operations and specifies that any liability for each series is limited to the assets of that series.