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Business & Employment Law

Why and How To Do a Texas Series LLC

Many business owners initially start as sole proprietors because it’s the easiest way for you to start a business.  All you have to do is file an assumed name (DBA) and you’re done.  If you started your business without registering with the State as some type of corporation, limited liability company (LLC), or partnership, your business is set up as a sole proprietorship.

While setting up a sole proprietorship is easy to do, it can put your personal assets at risk.  As the individual business owner, you “carry” the assets and liabilities of the business.  Your personal assets—those assets that you own separate from your business assets—can be at risk if you have a legal claim or judgment against your business.

However, if you create a corporation or LLC you’re in a different situation.  With these entities you can legally keep your business and personal assets separate.  Most emerging businesses start off with either a corporation or standard LLC.  While these offer you protection, they may not be able to accommodate the growth of your business.

Example: You want to add a new owner with different equipment to expand the services your business provides. This new owner wants a different tax treatment than you currently have. The standard LLC can’t easily accommodate this change.

How the Texas Series LLC Can Help

The Texas Series LLC can allow flexibility to growing entrepreneurs with different facets to their business. As a start-up business, you have the option of setting up a Texas Series LLC while still functioning as a simple and standard LLC. As your business grows, the Texas Series LLC can grow with it.

In our last blog post (What You Need to Know About Asset Protection and Texas Series LLC), we showed you how a Texas Series LLC can be segregated into separate “sub-companies” called “series”. Your assets are held separately in each individual sub-company. Each separate sub-company is insulated from the debts and liabilities of your other sub-companies. Each separate series or “sub-company” can have its own (i.e., different) owners, interest, assets, distribution of profits and losses, and tax treatment.

As your business grows, your Texas Series LLC can create separate sub-companies to accommodate the growth. Using our example above, your business can create new and separate services for the new owner, housing the new equipment and services. The new owner can opt for a different tax treatment and even operate the new series in another manner.

Your Texas Series LLC isn’t just for adding new owners. You can use it for other types of growth as well:

  • If your business acquires new equipment (a new set of assets), they can be “housed” into a separate series and rented from the parent LLC.
  • If you have a new set of investors who don’t wish to operate in the business, a new Series can be created to accommodate them.
  • You can develop “Series A” to own real property, while “Series B” rents the property for business use.
  • Your options with a Texas Series LLC are endless

Currently, you can create a Texas Series LLC by filing documents with the Texas Secretary of State similar to those you use to file a standard LLC. However, Texas law also requires you to have specific language in your Texas Series LLC’s company regulations. You can also change your standard LLC or convert your corporation to a Texas Series LLC by amending your legal documents.

Keep in mind, this post is just for basic informational purposes. You should visit with your legal and tax specialists before you undertake any major changes to your business.