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By The Wyoming LLC Attorney Team

Aug 14, 2023

Texas Series LLC

How to Start an LLC

Series LLCs are a form of limited liability company that allows you to structure and separate your business into multiple entities. If you want to find out more about how Series LLCs can offer asset protection and how to form an LLC like a Series in Texas, this guide may be helpful. It covers the fees associated with setting up a Series LLC, the benefits of choosing this structure, the importance of an operating agreement, the requirements for establishment, the taxes involved, and the necessity of an annual report. Whether you're considering a single member LLC or multiple member entities under one umbrella, a search on Series LLCs can provide valuable insights into how to effectively manage and protect your business interests.

What Is a Series LLC?

Series LLCs were first invented in Delaware to help the mutual fund industry avoid filing multiple SEC filings for different classes of funds by keeping these filings all under one umbrella while allowing the individual funds’ activities to be conducted separately. This concept is similar to that of the segregated portfolio company or protected cell company which exists in offshore countries such as Guernsey, the British Virgin Islands, Bermuda, the Cayman Islands, Mauritius, and Belize.

A Series LLC is still a relatively new type of business structure in which an LLC can be split into separate units, called "series." Each series operates as an independent company with its assets, liabilities, and profits or losses. A Series LLC makes it easier for the owners to manage their business interests. For example, if you own a restaurant and want to invest in real estate but don't want to put your existing business at risk, then setting up a Series LLC may be beneficial. This is especially useful when you have multiple locations or divisions that need divided legal protection from each other.

A Series LLC has two types of members. These are general members and managers. The general members control the operations of the series by appointing managers. The managers have no ownership interest in the whole series but have management power over the divisions they have been appointed to by the general members.

It is important to remember that each state treats LLCs differently, and this is the same for Series LLCs. Some states may ban the formation of this entity entirely, others can be very open to it.

Does Texas Allow Series LLC?

Yes, Texas does allow Series LLCs. Texas does not have a specific law for series LLCs. If you're interested in forming your own Texas Series LLC and have specific questions regarding your situation you should speak with an attorney who can help you determine whether or not this type of business structure would be beneficial to your company.

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Which States Allow Series LLC?

To date, only nine states have passed laws allowing for the creation of Series LLCs, including:

  • Arizona
  • Colorado
  • Delaware
  •  Nevada
  • Illinois
  • Iowa
  • Virginia 
  • Wyoming

This list also encompasses Texas, meaning you will be able to set up an LLC with ease if you live locally. However, there are several factors at play when determining whether you should incorporate your company as one unit versus splitting it into separate legal entities. You need to consider tax law, the type of business activity you plan on conducting, and whether some assets need more protection than others alongside many other factors.

Which Are the Best States for a Series LLC and Why?

The best states for a Series LLC are those that allow the formation of an LLC with multiple layers of ownership.

  • Delaware is a good choice if you are looking for maximum flexibility and ease of use when creating your company. The state makes it easy to set up a corporation or limited liability company, allowing single-member businesses as well as corporations with hundreds or thousands of shareholders. In addition, there are no sales taxes on income earned outside of the state of Delaware.
  • Nevada has some similar advantages over other states like Wyoming because it does not require any registration fees.
  • Wyoming allows you to do all kinds of business from real estate development to manufacturing operations. This presents suitable legal conditions for setting up a limited liability company.

How Do You Form a Texas Series LLC?

To form a Texas Series LLC, you must first create an organizational document for the series. This document may be called anything, but it must include:

  • The name of your Series LLC.
    The name of your Series LLC must be unique in Texas – there cannot be two Series LLCs with the same name, in the same state. The name of the Series LLC must also include the term ‘LLC’ or a similar abbreviation. Finally, the name of the Series LLC must not include any language that may cause individuals to misinterpret the LLC as a government organization.
  • The names of each series within your Series LLC.
  • Your registered agent’s name and address.
    Your registered agent can be a company, such as an agency, rather than a person. You must include a street address on the document, rather than a, for example.
  • The members within your Series LLC, and their roles.
    In the document, you must specify if the Series LLC will be member-managed or manager-managed. A member-managed Series LLC is run by its owners, whereas a manager-managed Series LLC is managed by managers and employees. If you opt for a manager-managed structure, you must include the names and contact information of all chosen managers.
  • Any other information required by state law or as agreed upon in writing by all parties involved, such as a postal address and agency.
    Once you have created this document and filed it with state officials, there are two ways to establish a new series within your existing Series LLC:
    • By written agreement between all parties involved, including members and managers
    • By filing articles of amendment with state authorities that include all required information regarding the new series creation.

Remember that you must update all of your business’s paperwork before attempting to file for a Series LLC, such as the information on your Certificate of Formation. Without any revised content to provide during the process, many applications are rejected.

Similarly, some companies choose to separate their finances beforehand, so they have fewer processes to worry about after the series has been formed. By simply setting up two individual bank accounts, you can create an easy way to separate your assets from different subsidiaries, which can save you plenty of time in the future.

How to Use a Texas Series LLC

The most common use of a Series LLC is to protect your assets, privacy, and business. Series LLCs offer many of the same benefits as a holding company would, but are often less expensive to form and maintain.

A Series LLC in Texas allows you to create a separate legal entity for each asset or group of assets that you own. This gives you an additional layer of protection against creditors who may be trying to take your property away from you to pay off debts or judgments against them.

In addition to protecting these assets from being seized by creditors and others looking for payback, a Texas Series LLC also protects any personal information associated with those assets like bank account numbers and social security numbers, keeping them confidential so no one else ever has access.

Another benefit when using this type of legal structure is privacy; namely when registering businesses under names such as "XYZ Properties Inc". As this can provide businesses with greater privacy and anonymity.

When setting up a Series LLC, all members must agree on what assets will be placed under each series' umbrella. This way if one person gets sued or has debts due from another person or entity outside of the business itself, those assets will not be taken away from them by creditors or other parties looking for compensation.

How Do Series LLCs Pay Taxes?

Taxes work differently when you have this kind of entity and it can help you to save money in the long run. Unlike a traditional LLC, which is taxed at the entity level, a Series LLC is taxed differently. Instead, each member of the Series LLC pays taxes on their share of income from the series.

Here is how this is done:

  • First, determine how much money was made by each business by subtracting expenses from revenues. This gives you your profit.
  • Then, multiply this number by its corresponding pro rata percentage to get an idea of how much tax should be paid on it. This gives you your taxable income.
  • Finally, you must add up all these taxable amounts together from all of your Series LLC subdivisions before applying for any deductions or credits.

You will probably notice that this method differs significantly from how taxes are calculated for traditional LLCs, however, if done correctly and consistently it can lead to substantial savings over time. Using this method allows you to do more business and sell more of your products for a lesser amount of taxable payments. We recommend exploring the services offered by our partners at Bench. Their team of experts handles your bookkeeping and income tax preparation, allowing you to concentrate on the growth of your business.

What Are the Main Reasons for Forming a Texas Series LLC?

People form LLCs for many reasons. Not only can they save you money, protect your personal assets, and reduce liability, but they can be beneficial for many other reasons too.

Here is a comprehensive list of what you can benefit from by setting up a Texas Series LLC:

  • Tax savings
  • Asset protection
  • Shareholder protection
  • Free reign over your company’s decisions
  • A small number of employees
  • More potential for profits

Risks of Series LLCs

The risks of Series LLCs are the same as those of any other LLC. The most obvious risk is that if you use your Series LLC to conduct business, it may be subject to lawsuits or other legal actions that can directly affect the names of the people involved. This can be mitigated by following best practices and taking steps to minimize your liability as an owner or manager of an entity, like keeping good records and ethical codes. You should also consider getting insurance coverage for your business, as this will add an extra layer of protection.

Being involved in a Series LLC can affect communications between the leaders of each subdivision. If you are all located in different areas of the state, in separate offices, then communication can suffer.

Forming a Series LLC in Texas is a simple process, and can be done in just a few minutes. Before proceeding, we recommend you watch the following video Series LLCs to see if a Series LLC is right for you. If you decide that a Series LLC is right for you after watching the video, we still strongly recommend that you first speak with an attorney before ordering this product.