The limited liability company (LLC) has been an incredibly popular business structure for decades, but in the grand scheme of things, it’s still a relatively recent addition to the American business landscape.
There are actually still new variations of the LLC popping up across the country, with the most popular one being the series LLC.
The series LLC is only available in certain states, including Texas. A series LLC is a collection of LLCs that are grouped under one parent LLC. This enables businesses to separate different parts of the company into separate LLCs, allowing them to isolate the liabilities of each segment from the others.
Because the series LLC is still relatively new in some states, we get a lot of questions about what exactly the series LLC is, and how you can form one. That’s why we decided to write these articles, which break down how the series LLC formation process works in each state.
If you’re interested in forming a series LLC in Texas, read on to find out how it’s done.
That said, if you’re looking for a time-tested way to protect yourself and personal assets as a business owner, the traditional LLC is the way to go. You can either form it yourself or through an LLC service.
What Is a Series LLC?
Let’s start by briefly covering what a series LLC actually is. In general, a series LLC is exactly what it sounds like ― it’s a collection of LLCs that operate under the umbrella of a master LLC. While each LLC in the series is part of the larger company, this business structure also keeps each LLC financially insulated from the others. In theory, this means that a lawsuit against one of the LLCs should have no effect on the others in the series.
Each LLC in a series has the same limited liability protections that a standard LLC has, meaning that if you’re sued, creditors can only come after your business assets rather than pursuing your personal possessions. While a series LLC does still protect your personal car, house, bank accounts, etc., it also protects the other LLCs in the series from the lawsuit. In other words, creditors can only pursue the assets of one LLC, rather than the entire series.
How Can I Form a Series LLC in Texas?
Choose a Name for Your Series LLC
The first step to forming any type of LLC is to first select a name for your new business. You should choose a name that is memorable, and also one that briefly describes what your business does, or what your organization stands for. You will also need to run a business name search to make sure your chosen name is available in Texas, and isn’t already being used by another company.
Also, you’ll need to include either the phrase “limited liability company” or the letters “LLC” in your business name. Finally, you cannot include any terms that refer to specific business types ― like “bank” or “hospital” ― unless you actually run one of those businesses, and you also can’t use any words that refer to other business types, such as “incorporated” or “inc.”
Texas has specific rules for the naming of each LLC within the series as well. You will need to file the “Assumed Name Certificate” form for each of your individual LLCs. This form is similar to a doing business as (DBA) name application, as it is a simple document that enables you to create an assumed name for each segment for a period of ten years.
For more info on naming an LLC ― whether that’s a series LLC or a traditional LLC ― check out our comprehensive guide to naming an LLC.
Designate a Registered Agent
Next, you’ll need to choose a registered agent for your series LLC. The registered agent must have an office located in Texas, and they must be available to receive document deliveries from the state during all standard business hours.
You don’t need to worry about designating different registered agents for each segment of the LLC, as you can have the same registered agent for every LLC in the series if you want to. Finally, it’s important to note that your registered agent will need to fill out the “Acceptance of Appointment and Consent to Serve as Registered Agent” form. This document does not need to be filed with the state, but your series LLC does need to have a copy of this form in its records.
Prepare and File the Certificate of Formation
In Texas, the document used to form a series LLC is the same “Certificate of Formation” used for a traditional LLC. The only significant difference in the way a series LLC should fill out this form as opposed to a traditional LLC is that a series LLC needs to include the language from Texas Business Organizations Code Section 101.602(a)(1)-(2) in the “Supplemental Provisions/Information” box under Article 4.
The Texas Certificate of Formation — referred to as articles of organization in most states — is a relatively simple document that only requires some basic information about your business. You’ll need to indicate the name of your business, the name and address of your registered agent, your managerial structure, and the names and addresses of your owners (if you choose to have your owners manage the business) or your manager(s) (if you choose management by a manager).
Once you’ve filled out the “Supplemental Provisions/Information” box in Article 4, all that’s left is to have your LLC organizer sign and date the form, and also designate whether your formation will take effect immediately or at a later date. At this point, you’re ready to file this document with the Texas Secretary of State, and pay your $300 formation fee.
Acquire an EIN
Next, you should obtain a federal tax ID number known as an Employer Identification Number (EIN) from the Internal Revenue Service for each LLC in your series. The EIN is essentially a Social Security Number for your business, as it is a nine-digit numerical code that you can use to identify your business on tax forms, and it also helps you open business bank accounts and hire employees.
It’s quite easy to get an EIN from the IRS. All you need to do is fill out the free form located on the IRS website, and you’re good to go. You will receive your number immediately upon filing.
Draft a Series LLC Company Agreement
Legally speaking, Texas does not require series LLCs to create a company agreement — referred to in most states as an operating agreement — although we think it’s still incredibly important. The company agreement is a vital document, because it describes many aspects of how your series LLC will operate.
In this agreement, you’ll outline what the different segments of your series LLC are, indicate the roles of each member/owner, detail the owners’ voting rights, and explain the financial contribution and allocation plans.
You should also indicate whether you want your business to be managed by its members or by a manager, discuss how an owner can be replaced if necessary, and outline a dissolution procedure if you ever need to close up shop.
In addition, Texas series LLCs should include in their company agreements the same text from Section 101.602(a)(1)-(2) of the Texas Business Organizations Code that you included in your Certificate of Formation.
Create a Financial Infrastructure
It’s crucial for any LLC to open a business bank account, as this helps you maintain the separation of personal and business finances that is required of all formal business entities. However, there’s an extra layer to this step for series LLCs, as you’ll need to open a bank account for the series’ parent LLC, as well as for each of the separate LLC segments under its umbrella.
If you fail to open a separate bank account for each segment, you will run the risk of losing the isolated liability of each LLC in the series. You need to be able to prove that these segments are truly separate if you want to maintain the liability shields between them.
In addition, this would be a good time to either hire an accountant or purchase accounting software for your series LLC. For traditional LLCs that don’t have particularly complex accounting needs, it’s usually sufficient to use accounting software, but a series LLC is a bit more complicated, and we therefore prefer hiring an accountant to make sure everything is done correctly.
Obtain Licenses and Permits
There is no general business license required by the state of Texas, but there are plenty of professional licenses that may apply to your business depending on what industry you operate in. Texas makes it pretty simple to figure out which licenses and permits you need, with the Texas Department of Licensing and Regulation website.
You can use the “Search TDLR Licenses” function to figure out which licenses you need, and the “Apply or Renew Online” tool to actually acquire them. Also, keep in mind that there are federal licenses for some industries, and you may also need to acquire licenses in your county or municipality.
Understand Maintenance Requirements
All traditional and series LLCs operating in Texas are required to file an annual Franchise Tax Public Information Report. This report keeps the state updated regarding some crucial details of your business, like your business name and address, and the names and addresses of your owners or managers.
The report is filed with the Texas Comptroller of Public Accounts, along with your franchise tax payment. Businesses that generate less than $1,180,000 in Texas-based sales are exempt from payment, but they still must file a report. For businesses making more money than this, the rates are 0.375% for retail or wholesale sales, and 0.75% for all other income.
Can I Hire Someone to Form My Series LLC?
When forming a series LLC in Texas, you have three options. You can tackle the DIY route, you can hire an attorney, or you can use a reputable online business formation service. The DIY option can be quite the hassle, and hiring a lawyer is obviously very expensive. That’s why we prefer hiring a business formation service.
These companies provide convenience and peace of mind that you don’t get from the DIY route, and they’re also much cheaper than hiring a lawyer to form your business. However, compared to the dozens of services that form traditional LLCs, there aren’t nearly as many companies offering series LLC formations.
Fortunately, one of our favorite LLC formation providers does offer series LLC formations, and that’s Northwest Registered Agent. They will not only form your series LLC, but their industry-best registered agent service (included at no extra charge) includes local scanning of every document they receive on your behalf. They also have the best customer support available for LLC formation services.
The process of forming a series LLC in Texas isn’t too terribly different from the formation process for a standard LLC. However, you do need to make sure that you include the language from Texas Business Organizations Code Section 101.602(a)(1)-(2) in both your Certificate of Formation and your company agreement. In addition, each LLC in your series requires an Assumed Name Certificate.
At the end of the day, if you want to skip some of the hassles and worries that come with forming your own Texas series LLC, you always have the option to hire Northwest Registered Agent to handle it for you.
We hope this article helped you develop your understanding of how to form a series LLC in Texas!