VW Blog

Answering Questions About Texas Series LLCs

September 30, 2011   |   By Kevin Vela

As we wrote a few months ago, Texas Series LLCs are rapidly becoming the preferred investment vehicle entity in Texas.  As I’ve been forming Series LLCs for clients, I keep getting the same questions, so I thought it would be helpful to answer a few of them here.

1) How do I name them?
While the Texas legislature did us all a favor by establishing a means to create Series LLCs, it left out several crucial details which the legal community has been left to fill in. What most attorney’s have agreed on is that adding “Series A” to the end of the name (or “Series B”, “Series C” etc.) is the cleanest way to name the series entities.  For example, if you were to establish Newco Holdings LLC, the first Series would be “Newco Holdings LLC – Series A.”  Moreover, you could file an assumed name certificate for  Newco Holdings LLC – Series A in order to use an entirely different name, but still retain an accurate Series name.  Signing a legal document may be a bit cumbersome – “Newco Holdings LLC – Series A d/b/a Widgets R Us” but it’s a small annoyance for the convenience of a Series LLC.

2) Do I need to get a separate EIN for each Series LLC?
Although we do not have a clear answer from the law, I recommend to my clients that they get a separate EIN for each Series LLC.  If you will recall, one of the key components of a Series LLC is that the “records of a series [must be] maintained in a manner so that the assets of the series can be reasonably identified by specific listing, category, type, quantity, or computational or allocational formula or procedure…” This can arguably be accomplished by good accounting records, but if you have several Series sharing one bank account, the funds will be commingled and you may jeopardize your Series LLC status and protection.  Thus, I advise my clients to establish separate EINs and bank accounts for each LLC within a Series.

3) Does the management structure have to be the same?
Again we are left to interpret the intent of the legislature, but the prevailing wisdom seems to be yes – keep the management (or member structure) the same throughout each Series LLC.  This is one that I think is the most likely to be interpreted differently (so that each Series can have a different manager/member setup), but until we get further direction from the legislature or judiciary, I advise my clients to keep the same management structure for each Series.

Posted in Real Estate, Startups, Texas Series LLCs
Kevin Vela
Kevin Vela is the managing partner at Vela Wood. He focuses his practice in the areas of venture financing, mergers & acquisitions, corporate law, capital raises, and real estate investment activities. You can see Kevin's attorney profile HERE.

  • Alex

    Regarding #2, how can one apply for different EIN for each series. When I called IRS, they said that an EIN is only 1 per legal entity, which is the LLC, not each series?

    • Kevin Vela

      Good question Alex. Their is a proposed IRS reg to treat these separately (http://www.irs.gov/irb/2010-45_IRB/ar11.html – let me know if you can get all the way through it), but it’s not a law yet. Now, you can get separate EIN using a DBA certificate, but they will likely be filed as one. Check with your CPA.

      Note, that under Texas law, each cell within a Series is recognized as it’s own legal entity, and thus afforded the same rights. There is much deliberation over whether other states will recognize each cell as a separate entity, and different states have come to different conclusions. That’s one you have to handle on a case by case basis.

  • Obair Qudsi

    Say Newco’s Series want to purchase shares being offered in a private placement by a tech startup called Techco. If Newco’s Series is named “Newco Holdings, LLC – Series A” or “Newco Holdings, LLC – Series A Techco Shares”, can it (through Newco’s or the Series’s Manager) sign the LLC or LP Agreement with Techco and the Subscription Agreement as “Newco Holdings, LLC – Series A Techco Shares” without having to get a D/B/A certificate showing “Newco Holdings, LLC d/b/a Newco Holdings, LLC – Series A Techco Shares”? (I’m assuming it’s the same analysis if you replace Newco Holdings, LLC – Series A Techco Shares with simply Newco Holdings, LLC – Series A.)