Series LLC in Texas (What Is It & How to Get One?)

Jon Morgan
Published by Jon Morgan | Co-Founder & Chief Editor
Last updated: February 20, 2024
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Series LLCs, a relatively new entity in the US, are gaining traction, especially in Texas. Uncertainty surrounds benefits, setup, and relevance for business owners.

Drawing from over a decade of hands-on experience in LLC formation and management, I did a comprehensive research on what Texas Series LLCs are. I possess a wealth of knowledge about this structure.

Alongside my direct experience, I also partnered with a team of legal experts to give the legal intricacies and compile the pros and cons of this business structure.

Here is what we found.

Quick Summary

  • Series LLC in Texas is a relatively new concept of a flexible business structure that combines many LLCs under the protection of one main LLC.
  • Business owners appreciate the limited liability protection, separate series, efficient costs, and flexibility that Series LLC offers.
  • According to the Texas Comptroller, each sub-series within a Series LLC is assigned a unique Texas taxpayer identification number for filing a single franchise tax report.
  • From my perspective, the Series LLC in Texas seems like a smart choice for business owners seeking segmented liability protection and cost efficiency.


What is a Texas Series LLC?

A man writing about a Texas series LLC

A Texas series limited liability company represents a business entity made up of one or more "series."

The Series is separate and distinct from one another, meaning that the assets and liabilities of each Series are isolated from the other.

This structure can be especially beneficial for those conducting business in multiple states, as it allows them to operate in each state using a separate series that is considered a stand-alone legal entity under Texas law.

The Series LLC refers to the parent LLC - a subsidiary form of business ownership where the parent LLC owns or holds legal title to all property and assets in each LLC.

The Texas Series LLC provides members with great flexibility.

They can create multiple "series" within one entity, each with separate governing documents, membership interests, managers, and bank accounts.

Members enjoy limited personal liability for each series while benefiting from being part of a limited liability company.

The Texas Business Organization Code governs these entities and is available online.

The formation of a Texas series LLC is governed by Sec. 101.633 of the Texas Business Organizations Code [1].

The process begins with filing the certificate of formation with the Secretary of State. The document must include information about each Series, such as its name and registered agent.

The Formation of Series LLC in Texas

Shaking hands as a sign of agreement to a contract

The formation of a series LLC in Texas doesn't differ from the formation process for a traditional Texas LLC.

1. File the Certificate of Formation

As with most business entities, the first step is to file the Certificate of Formation with the Texas Secretary of State.

This document provides the name of the limited liability company, its business purpose, and other publicly available information. It also states whether or not this company will be operating as a series LLC in Texas.

The filing fee for the Certificate of Formation is $300. Only the master LLC pays this fee.

2. Find a Reputable Registered Agent

One of the most important aspects of opening an LLC in Texas is finding a reputable registered agent.

This is the individual or company that will accept legal documents on behalf of the limited liability company.

In Texas, a registered agent can be either an in-state resident or a business entity authorized to do business in the state.

Once the Certificate of Formation has been filed and the registered agent has been chosen, it's time to create your Series.

One important note: to form a series LLC in Texas, you must have an assumed name certificate for each company under the series umbrella.

This document proves that your company is operating under a registered trade name – in other words, its assumed name. Make sure to follow the naming guidelines for Texas entities.

3. Draft LLC Operating Agreement

The next step is to draft a series LLC Operating Agreement (company agreement) which details how all assets are managed within each Series.

All members of that Series must sign this company agreement.

While not required, it's generally recommended to include a provision in the company agreement stating what happens when one Series fails or fails to transact business.

The security interests are attached according to each business purpose and designation within the company.

Series LLC laws stipulate that a security interest can be granted to a lender to secure a loan, which is an attractive feature for businesses.

Taxes and Series LLCs in Texas

Calculating list of taxes in LLC

Each sub-series within a series LLC is given a Texas taxpayer identification number used to file one franchise tax report [2].

The master LLC is also responsible for paying the Texas franchise tax on its income.

The federal government treats a series LLC as a combined group of single entities for federal income tax purposes.

A master limited liability company or series LLC is a legal entity that allows business owners to aggregate multiple businesses under one corporate umbrella.

This can provide some tax advantages and simplify bookkeeping for small business owners.

In Texas, the state franchise tax applies to all business entities, including master LLCs.

When filing the Texas LLC annual report, the parent LLC does that on behalf of all of the entities in the Series LLC.

Here are things Business owners should keep in mind when forming a series LLC in Texas:

  • First, the master LLC pays the Texas franchise tax on its income. This means that each sub-series within the limited liability company will be taxed individually at the local level.
  • Secondly, series LLC is treated as one group for taxes, enabling single consolidated returns and one-time corporate tax payments.

The Advantages of Series LLC in Texas

Woman talking to coworker while holding files

Series LLC structure offers many benefits to LLC owners, many of which are similar to a traditional LLC.

These benefits include asset protection, tax savings, and flexibility.

Series LLC Provide Asset Protection

One of the key advantages is that each Series can be structured to have its own separate bank account or credit card for each LLC subsidiary. This allows for greater overall control over assets while maintaining separate legal entities.

All in all, series LLCs offer substantial asset protection due to their ability to treat each Series as a distinct legal entity. This separation limits liability in legal matters or financial challenges.

Tax Benefits

Series LLC in Texas also offers tax benefits since it is considered a pass-through entity for tax purposes.

The Texas Comptroller (the state's chief tax collector) treats Series LLCs as a single legal entity, which means that the owner of a Series LLC is responsible for filing one income tax return and paying taxes on the sole entity's profits [3].

Series LLCs are popular for holding different asset types, such as real estate or intellectual property.

Profits and losses from each Series pass through to individual members, eliminating the risk of double taxation.

The Texas Comptroller treats Series LLCs as a single legal entity, simplifying income tax filing. This approach streamlines tax management, as owners file a single return for the entire entity.

Normally you would have a choice of incorporating multiple subsidiary LLCs or corporations so as to get the benefit of legal separation of liability or just keeping them as separate book entries, and risking that the bankruptcy of one would spill over and bring down the entire structure. The Series LLC is a fairly new structure recognized by some but not all states in the US by which you get the best of both worlds – filing a single LLC, with multiple internal buckets that each has its own liability protection. –  Gil Silberman, Managing Partner of Luca Ventures.

The Downsides of Series LLC in Texas

Holding a folder while giving a thumbs down

Even a series LLC has some downsides, although they are typically much less than those of a traditional LLC.

They include:

  • Separate record-keeping is required for each Series within the limited liability company.
  • Maintaining record-keeping separately can be burdensome if your business is large and has multiple Series. Second, each Series must have separate bank accounts.
  • If you have multiple Series, this can also be cumbersome and expensive.
  • Each Series has its separate assets, which can be confusing if you're tracking down multiple assets.

For these reasons, I believe it's important to weigh the pros and cons of forming series LLCs in Texas before deciding.

The assets and liabilities of a sub-series should be kept distinct from those of other sub-series and the company as a whole.

The accounting, record-keeping, and bank accounts of multiple LLCs shouldn't be mixed together.

If they fail to maintain things separately, they may risk one child LLC jeopardizing the financial position of the others.

Related Articles:

FAQs

Does Each Series in a Series LLC Need Its Own EIN?

Each series in a Series LLC needs its own EIN.

When applying, use the name of each child LLC along with the name of the master LLC to ensure proper identification. For example, "Texas Business Series LLC, an individual protected series of Texas Series LLC."

How Do I Change My LLC to Series in Texas LLC?

To change your traditional LLC to a Series LLC in Texas, ensure your current LLC is free of liabilities and tax obligations.

Amend the Certificate of Formation and operating agreement to reflect the change. File the Certificate of Amendment with the Texas Secretary of State, along with other required documents and filing fees.

Can a Series LLC in Texas Be a Single-Member Business?

A Series LLC in Texas can be a single-member business. It is popular among real estate investors.

If you are the sole member, you can own all assets in one Series, but multiple Series LLCs are required for operating multiple businesses under a single name.

Is Forming a Texas Series LLC Worth It?

Forming a Texas Series LLC can be worth it if your business structure benefits from the unique features it offers.

A Texas Series LLC is beneficial for businesses needing segmented liability protection and cost efficiency, offering a flexible structure for diverse ownership and management.

However, it demands meticulous record-keeping and faces limited interstate recognition.

If you're considering starting a series LLC in Texas, we encourage you to check ZenBusiness if you want trusted legal support through every step.

I highly recommend assessing alignment with business goals and administrative capacity before deciding, considering both benefits and complexities.


References: 
1. https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm

2. https://comptroller.texas.gov/help/research-exemption/taxpayer.php?category=programs

3. https://comptroller.texas.gov/

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