Another Look at Texas Series LLCs
January 2, 2012 | By Vela Wood
Well, it’s been nearly three months since we’ve last discussed Texas Series LLCs as a great tool for investors. That does not seem like long, but since they are the infants of the Texas entity world, three months is a substantial growth period. During this time, there has not been any significant case law which has shaped my opinion, but I have had the opportunity to brainstorm with other attorneys (namely Real Estate attorneys) whom are regularly using Series LLC, read up on some law review articles, and receive some input from the Secretary of State office. Furthermore, I’ve formed several Texas Series LLCs for clients in recent months and now have the benefit of hindsight. Thus, I have a few new thoughts to share. (As always, please do not rely solely on the info below, as every situation is different. Please consult with your attorney about Texas Series LLCs.)
1) While I’m still recommending to clients that they have a separate bank account for each Series, I do not feel that it is absolutely necessary to do so. A single member LLC with very little cash coming in/going out among the Series cells (more on that below) should be able to easily and clearly delineate within its own records and a separate bank account for each cell is likely not needed. Further, some can get away with one EIN. It’s a case by case basis, but a single member Series LLC will most likely need only one EIN.
2) A few other states refer to the entities within the Series (Series A, Series B, Series C, etc.) as “cells” to distinguish them from the master, which in itself is a “Series LLC.” This makes a lot of sense and I’ve been doing it with my clients as of late, and I think that the legislature will likely adopt something like this down the road in Texas.
3) Back in September, I wrote that the management/member structure for each cell should be identical, but I’m ready to back off of that thought. Section 101.607 of the Texas Business Organizations Code states that a company agreement may:
“[e]stablish classes or groups of one or more members or managers associated with a series each of which has certain express relative rights, powers, and duties, including voting rights…”
My interpretation (and that of several of my colleagues) is that this allows each cell to have one or more members or managers, and the membership structures from cell to cell do not need to be identical. For safety’s sake, I corresponded with a staff attorney at the Secretary of State’s office. While staff attorneys can not offer legal advice (and I’m not doing so either through this medium), the staff attorney confirmed my interpretation. Now, I’m not going to prescribe one Series LLC for a client and then let her go carte blanche with dozens of cells underneath the parent with myriad ownership structures, but I do feel comfortable with different ownership structures per cell in some cases.
I recently went to an attorney luncheon (I know, sounds like fun) to discuss Series LLCs (fun-ner [I know that’s not a word, but you get the point]), and the place was packed. This tells me that lots of attorneys and investors are considering Texas Series LLCs and I think we’ll see widespread adoption of them in 2012.
If you are considering forming a new LLC in Texas, and think a Series LLC may be for you, please reach out to us or your attorney for more info. Happy New Year!
Posted in Real Estate, Texas Series LLCs
Vela | Wood is a boutique corporate law firm that focuses on small businesses, entrepreneurs, and startups.