Texas Series LLC: Liability Protection for Real Estate Investors
Article by Joanne Cassidy
The Texas Series LLC is a valuable tool for real estate investors who want to enjoy liability protection while owning and operating multiple real properties. Real estate owners and investors have long formed limited liability companies and limited partnerships to hold title to real property. Those entities protect the individual’s assets from being subject to liabilities arising as a result of property ownership. However, if the owner or investor forms a separate LLC for each property, the mere formation of a separate LLC for each property can be expensive.
The Series LLC saves time and money and protects owners and investors of multiple properties from personal liability and liability “spill-over” from one property to another.
This is how it works. The Texas Series LLC lawyer creates one LLC with a certificate of formation, organizational consent, operating agreement and membership certificates. The formation document uses special language to identify the entity as a Series LLC and names other, somewhat independent, series LLCs, called “Series” formed within the Company.
The concept of a Series LLC is a little odd, but the benefits of this type of entity make it worth the effort to understand it. Think of the Series LLC as a main office and each Series as a satellite office. The Series, or satellites, each own one or more properties. Each Series may have rights, powers and duties that are separate from each other Series. Each can have separate rules regarding profits and distribution, can sue on its own behalf, and can borrow money and grant liens without involving any other Series.
The practical benefit to the investor is that property owned by one Series is not subject to the debts or obligation of any other Series. By using a Series LLC, the real estate investor is able to protect each property from liabilities arising out of each of the other properties he owns. In addition, the investor saves money because he pays only one filing fee for the Series LLC and files only one tax return for multiple properties.
The Series LLC is not difficult to manage, but the original filing is technical and must be prepared correctly.I strongly advise anyone interested in forming a Series LLC to consult with an experienced Series LLC TX attorney prior to creation of the entity.