In 2021, the 87th Texas Legislature updated Title 3, Chapter 101, Subchapter M of the Texas Business Organizations Code, concerning series limited liability companies (1). While Texas has recognized series limited liability companies for more than 10 years, they are still viewed with caution and skepticism by many. The 2021 updates should help change this misguided view of series limited liability companies.
A series limited liability company is comprised of a parent-like limited liability company that may establish quasi-subsidiaries called series, which are not actually separate legal entities. The limited liability company and each series may have distinct and separate assets, members, managers, membership interests, and business or investment purposes. Under the old statutory scheme, not much was required to establish a series—notice of the statutory liability limitation and the ability to establish series in the Certificate of Formation and Company Agreement (a/k/a Operating Agreement) of the limited liability company and maintenance of separate books and records for the limited liability company and each series. Importantly, notice that a specific has been established is not required. The major benefit afforded to this relationship is liability limitation, where the debts, liabilities, obligations, and expenses of the limited liability company are not enforceable against any series and likewise, the debts, liabilities, obligations, and expenses of any series are not enforceable against the limited liability company or any other series.
The minimal formality, notice, and transparency of a series has created concerns in conducting business with a series. The new statutory scheme seeks to alleviate such concerns with the recognition of two different types of series: protected series and registered series (2). A protected series may be established by satisfying the same requirements under the old statutory scheme. Whereas, a registered series may only be established by satisfying the additional requirement of registering with the Texas Secretary of State with the filing of a Certificate of Registered Series. Ultimately, the filing requirement for a registered series creates an air of formality by providing actual notice that a series has been established and provides a public record with the Texas Secretary of State to verify its existence. Beyond the differences in establishing protected and registered series, it appears they will continue to operate in a similar manner. However, moving forward, it is reasonable to assume many people and companies will have a preference, or even a requirement, to conduct business with a registered series only.
The new statutory scheme should increase the popularity and use of series limited liability company in Texas. We at Starr Law Firm, P.C. have recognized the utility and value of series limited liability companies and promoted them to our clients since their recognition in Texas. If you are interested in forming a series limited liability company or any other entity, contact one of our experienced and knowledgeable attorneys today.
- As of this writing, these new laws do not go into effect until June 1, 2022 and the Secretary of State is currently in the process of promulgating the form of Certificate of Registered Series.
- Section 101.601(c) of the TBOC implies the recognition of a third type of series that does not satisfy the requirements for the liability limitation, without any specifics as to the establishment of such a series.