Benefits of Forming a Series LLC in Texas

A limited liability company (LLC) is a very common business organization that is recognized in every state. An LLC has the liability protections of a corporation but is taxed like a partnership. A relatively new variant is the “series LLC.” In this form of organization, a parent or master LLC is authorized to create subsidiaries known as “cells.” Each of the cell LLCs operates independently from all of the others, has separate assets and maintains its own books and business records.

The series LLC is recognized in Texas by statute. Depending on the size of the business and the profession or industry involved, a series LLC structure can offer several advantages, including these:

• Increased liability protection — LLCs are designed to shield the individual owners of a business from personal liability to creditors and other potential claimants. The distinguishing characteristic of a series LLC is that each subsidiary’s obligations are separate and apart from those of other subsidiaries. The owners can run several businesses independently without each putting the others or the master LLC at risk. This mitigation of risk can be particularly useful in managing parcels of real estate.
• Cost savings — In the past, owners of multiple businesses had to establish multiple LLCs to divide and mitigate risk. This meant paying separate fees to state regulators to create and maintain the individual LLCs. The series LLC eliminates much of these duplicative efforts. The governmental mandates are handled through the one parent company.
• Less complexity than a corporation — The parent-subsidiary model can also be accomplished by organizing the company as a corporation. However, corporations are subject to strict procedural and recordkeeping requirements, which usually bring higher accounting and administrative costs. In addition, a corporation pays taxes on its revenue before paying dividends to shareholders, who are then taxed on those dividends. That means the revenue is essentially taxed twice. By contrast, an LLC is a pass-through entity for income tax purposes, in which profits and losses are reported on the owner individual tax returns.

Note that there is at least one disadvantage to the series LLC. There must be strict separation of funds and other assets among the cell LLCs. Commingling can result in a loss of liability protection.

There are usually several factors to be considered in deciding whether a series LLC is the best legal structure for your company. A qualified business formation attorney can analyze your specific situation and provide useful guidance.

The Law Offices of Kevan I. Benkowitz in Plano is one of the most respected business law firms in Texas. Our commercial lawyers handle all business matters ranging from formation to litigation. If you need assistance with a business issue, feel free to contact us online or call 972-464-2645 for an initial consultation.