The limited liability company (“LLC”) is the most popular legal entity formed in Texas and throughout the United States. LLCs have been around for a long period of time. However, the series limited liability company (“SLLC”) is a relatively new concept, first permitted in Texas in 2009. Because SLLCs are still relatively new, you might be asking, what is a SLLC and should I consider a SLLC for my business? This post attempts to answer both questions.
First, what is an SLLC? A SLLC is a form of alternative entity in which one or more series are established within a single LLC. Under Texas law, an organizer forms a “master” LLC (the series LLC) and provides in its certificate of formation and company agreement the power to form individual series. Importantly, only the master SLLC is the filing entity – the creation of individual series does not require an additional public filing. These series can have rights, powers, and duties separate from other series and hold assets individually. Texas law allows a single SLLC to create an infinite number of individual series. Here’s the bottom line: A SLLC allows a single “master” LLC to compartmentalize different series of properties or operations, perhaps with diverse business purposes or objectives, without the need for a distinct holding company governing multiple separate subsidiaries. This mechanism allows a business to partition its assets and liabilities among various series all within a single entity.
Another interesting thing about the SLLC. The actual entity for state law purposes is the SLLC itself – not the individual series within the SLLC. This means that an individual series within a SLLC is not a separate legal entity under Texas law. However, and here is the important part: an individual series does have the power to contract, hold title to assets, grant liens and security interests, and sue and be sued in its own name. Thus, despite not being a separate legal entity, clearly for all intents and purposes, an individual series operates as an entity in its own right.
Now that we understand (hopefully) what a SLLC is and how it is created, the obvious question is what is the benefit? A traditional LLC offers liability protection for its members and offers flexibility regarding management and structure. However, a SLLC offers what a traditional LLC does, and more. An SLLC’s most obvious advantage is its potential to segregate assets and liabilities within a single entity. In the case of the SLLC, each series’ assets are shielded from the liabilities of the other series and the SLLC itself. Additionally, the liability shield of an SLLC protects the owners against personal liability of the obligations of the parent LLC and each series.
So, what does this mean? It means that if one series is liquidated or attacked by creditors, the liability shield created by Texas law prevents a creditor from penetrating the remaining series’ or SLLC’s assets to satisfy a judgment. This is a can be a huge advantage.
The potential application for an SLLC is boundless. However, some areas give the SLLC a distinct advantage over other traditional business entities. Generally, the SLLC model is well-suited where the assets of each series and their respective costs, expenses, and revenue streams can be tracked separately with ease – as each individual series must keep distinct records. It can also be a good option when a single business owns several assets that can be segregated and managed separately because of the ease in creating series to own and manage the assets.
Correctly forming and setting up a SLLC can be a complicated ordeal. Let our experienced attorneys assist you through the process quickly and efficiently. Contact us today.