Learn the essential steps to creating a Texas series LLC, including the difference between the new protected and registered series.
Texas is just one of several states that offer a series LLC as a business entity type. But forming a Texas series LLC is an important process, and it’s more complicated than starting a regular LLC. In this guide, we’ll discuss all the essentials to starting a Texas series LLC: what it is, the new legislation introduced in 2022, and all the steps to starting your own.
At this time, ZenBusiness doesn’t provide series LLC formations, but we hope this article will provide useful information for anyone thinking about starting one.
In Texas, a series LLC is a limited liability company (LLC) that establishes different series in accordance with its operating agreement. These series can have different members, rights, assets, obligations, and more.
In a way, a Texas series LLC acts much like a holding company with an umbrella entity (called the “parent LLC”) and smaller entities underneath it. However, the series LLC only requires formation documents for one business entity. And as an LLC, it’s a flexible structure with manageable maintenance requirements.
In June of 2022, Texas introduced a new distinction for a series LLC: the terms “protected series” and “registered series.” Both registered series and protected series are names for different types of series underneath a parent LLC. Technically, Texas also allows an “ordinary” series, or a series that is internally created (not listed in any Texas formal documents). This type of series isn’t usually preferred because it doesn’t have any special asset protections. It also doesn’t act like a separate legal entity.
Most business owners prefer a protected series or registered series. But to use them correctly, it’s important to understand the slight difference between the two.
A protected series is any series created by a parent LLC that’s properly registered in the state; the parent LLC must have language in its Certificate of Formation and operating agreement describing its authority to create series. Meanwhile, a registered series takes it a step further: it’s created by the parent LLC, but the series also files a Certificate of Registered Series with the Secretary of State.
In the eyes of Texas law, both a protected series and registered series provide the same level of liability protection (provided all appropriate regulations are followed). But registered series have one clear advantage over protected series: a registered series can obtain a Certificate of Status from the Secretary of State.
If your registered series has a current Certificate of Status, you’ll probably have an easier time collaborating with other businesses. For example, if the LLC needs external investments, an investor might want to see the Certificate of Status before coming aboard. A protected series may still be able to get these investments, but it can prove trickier. If you’re unsure which option is right for you, you may want to consult with a business attorney.
The exact process for creating a series LLC varies from state to state. But in Texas, there are seven essential steps to get your series LLC up and running.
Please note: if you’re looking to form a series LLC for a professional service, you can’t use the standard LLC form. You’ll have to create a Texas professional limited liability company instead. We don’t currently offer formations for PLLCs or series LLCs, but we can help you understand the process somewhat.
Pick a title for your business. The very first step of creating your Texas series LLC is deciding what the entire series will be called. In general, you should pick a name that you like, but it should also be completely unique from other Texas business names. Our business search tool makes this easy.
Additionally, Texas law says your name should include a designator like “Limited Liability Company,” “Limited Company,” or an abbreviation of these. Texas also prohibits the use of certain words, such as “lottery,” affiliation with government agencies, and implications that you’re a veterans’ organization.
When you create a registered series, Texas law requires you to name it in a very specific way. Each series’ name must include the exact name of the parent LLC, plus the phrase “Registered Series” or its abbreviations. As long as you include those elements, you can integrate another element to differentiate that series from the others. For many series LLCs, this means adding a letter (A for the first series, B for the second, and so on) or a numeral or even a unique name.
For example, a parent LLC named “Bonnie’s Breads LLC” might create a series named “Baguettes by Bonnie, a registered series of Bonnie’s Breads LLC.”
If you want your series to go by a different name than this long title, you’ll need to register an assumed name by getting an Assumed Name Certificate for each series. As of this writing, there’s a $25 filing fee for each name you register. And if you ever stop using one of these assumed names, you’re required to file a Certificate of Termination.
Designate who will serve as your registered agent. Every entity that registers with the state must appoint a registered agent, an individual or business that accepts service of process and some other official communications on your behalf. It’s often a good idea to hire a third party to fill this role. That’s because the agent must be present at their listed address during all regular business hours.
From a legal perspective, your Texas registered agent will only be representing one LLC: the parent LLC. But practically, they’re representing one large LLC with lots of potential communications to field. It’s important to be transparent with your agent that you’re a series LLC; some agents have higher fees for series. Our registered agent services can fill this role for you easily.
Fill out and submit your series LLC formation documents. Texas doesn’t have a form that’s dedicated to series LLCs, so you’ll use the standard form: the Certificate of Formation. It requires some basic information about your LLC, such as your address, name, registered agent, info for the governing persons, and more.
You won’t find any sections asking if you’re forming a series LLC, so you’ll need to add that information yourself. The supplemental provisions section works perfectly for this to state that the LLC is authorized to create series. You might also state that the LLC being formed is the parent LLC. Business owners often find it helpful to enlist the help of a business attorney for this section.
Texas charges a $300 filing fee for this form (plus a 2.7% convenience fee if paying by card).
Write the operating agreement that will govern your series LLC. An operating agreement functions like a constitution for your business, describing the operating procedures for the business. Typically, this agreement defines how profits are distributed, the roles and responsibilities of each member, how membership can change, voting rights, and much more. For a series LLC, this company agreement is absolutely essential.
The operating agreement defines the parent LLC, describes how and when new series can be created, management structures for each series, and more. It should clearly delineate the business purposes and business assets of each individual series. If you need help writing one, our operating agreement template is a great place to get started.
Designate the parent LLC for the series. The parent LLC is the governing LLC for the series, and it’s the one that goes on file with the state. In many cases, this LLC is the one you filed a Certificate of Formation for, and you should make a note of that in the certificate itself. You’ll also want to include this designation in your operating agreement.
If you’re changing a pre-existing LLC into a Texas series LLC, you can make that change by designating it in the Certificate of Amendment and amending your operating agreement.
Add additional individual series to the parent LLC. Exactly how you do this depends on what type of series you’re hoping to create. If you’ve followed this guide so far, you’ll automatically create what Texas calls a protected series just by setting it up. But if you want the most secure and legitimate series available in the state, you’ll need to create registered series.
A registered series can get a Certificate of Status from the state. To become a registered series, you’ll have to file the Certificate of Registered Series for each series. There’s a $300 fee for this form. This is technically an optional step, but if you think you’ll need a Certificate of Status to work with other businesses, you’ll need to complete it.
Register an employer identification number (EIN) for each series. One of the most important aspects of running a series LLC is maintaining separation between each series. Their finances can’t mix; to make that happen, each individual series needs its own bank account. But to get its own account, each series needs its own employer identification number.
An EIN is a nine-digit code that acts like a Social Security number for a business. You can obtain one for free from the IRS. Getting an EIN doesn’t change how the whole series LLC is taxed; it just assigns a code to the series.
Once your Texas series LLC is all set up, there are a few guidelines to keep in mind to operate smoothly. Following these is essential to maintaining the limited liability protection of each separate series and the entire LLC.
One benefit of a series LLC is that each series is generally protected from the liabilities of each other series. They’re largely compartmentalized with separate rights and property. But to maintain that protection, it’s essential to keep each series distinct.
That means each series — even though they’re technically the same legal entity — should be operated like it’s a stand-alone legal entity. It should have its own separate records, separate bank accounts, and separate books. Any intermingling of series assets or finances could compromise the liability protections of one or more series. If bookkeeping isn’t your strong suit, hire someone to help you keep accurate financial records for each individual series to avoid legal trouble.
It’s not uncommon for a business entity to need to obtain some sort of license and/or permit. The most common licenses are industry-specific licenses at both the state and federal levels. But some cities and counties might require a local business license (Texas doesn’t require a general business license at the state level). If you’ll be selling qualifying goods or services, you’ll need to get a sales tax permit from the Texas Comptroller to collect sales tax.
It’s up to you to do some legwork and find out which licenses apply to your series LLC. Once you know which ones you need, be sure to obtain them before you start business.
Your Texas series LLC needs to comply with the state’s ongoing requirements to stay compliant. Thankfully, Texas keeps this pretty simple. One of the most important (and potentially expensive) is the state Franchise Tax, which applies to most LLCs. However, not all LLCs end up paying taxes, because Texas has a tax-due threshold of $1,230,000.
The plus side? This franchise tax report goes hand in hand with your annual report. So, even if you don’t owe any taxes, you’ll submit a Public Information Report and a No Tax Due Report.
The biggest advantage to forming a Texas series LLC is that it’s a very flexible business structure. It allows you to operate a business that acts like a corporation with subsidiaries without the corporate formalities of a corporation. And for annual filing purposes, it’s a single entity. Texas also gives the additional designation of registered series; being able to get a Certificate of Status can be a big advantage.
At this time, ZenBusiness doesn’t do series LLC formations, but we do offer many other services to help you run and grow your series LLC. We can help you secure an EIN, get a registered agent, and stay compliant. Let us handle the paperwork so you can focus on what matters: your business.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Articles Related to Texas Series LLC
On the surface, nothing. A standalone LLC and a series LLC both operate very similarly. But a standalone LLC can’t create separate “Sub-LLCs” that are independently liable. A series LLC can. For certain entrepreneurs, such as real estate investors, the series LLC is helpful. Instead of forming a separate LLC to own each property, the investor can form just one LLC and let each series own a property. Each LLC in the series is then shielded from the liabilities of the others.
That depends on whether you’ll have protected series or registered series under the parent LLC. If you’ll just be creating a protected series, the most basic expense is the $300 Certificate of Formation fee. But if you plan on creating a registered series, the cost will be the $300 initial Certificate and then $300 for each series you register.
Yes. To do so, you’ll need to file the Certificate of Amendment (there’s a $150 filing fee). You’ll also need to amend your operating agreement. With both amendments, you’ll need to integrate language that designates a parent company and authorizes the LLC to create series.
After that, if you plan to create registered series, you’ll file a Certificate of Registered Series for each series.
A single-member LLC (an LLC with just one owner) can create a series following the same procedures explained above.
A series company is usually treated like a single taxable entity for federal income tax purposes. By default, that usually means the LLC pays taxes as a partnership or sole proprietorship. But that’s just for federal tax purposes; don’t forget that Texas has a franchise tax for all businesses on the state level.
One of the most popular uses of a series LLC is for protecting real estate assets. In the past, many real estate investors would form a separate company to own each piece of real property they held. But with a series LLC, an investor can create just one business, and each series can hold individual properties. This keeps liability shields in place for each property.
Forming a series LLC as a domestic entity in Texas is simple. But becoming a foreign entity in another state can be a bit trickier; not all states recognize series LLCs. If you anticipate expanding into other states, you might consider a different entity type, such as a profit corporation.
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