Is a Series Limited Liability Company Right for You?
C. Bruce Willis, II, Esq.
© Musgrove Law Firm, P.C. 2014
Texas has been at the forefront of the formation of new classes of business entities behind Delaware and Nevada since the inception of corporate law, whether it be corporations, limited liability companies, limited liability partnerships or limited partnerships. Texas adopted the concept of series limited liability companies through the Texas Business Organizations Code after the successes and ease of use of the entity in other states. Many business owners either (1) do not know what a series limited liability company is or (2) know the concept of a series limited liability company but did not know they are available in Texas or how to fully use the new entity to their benefit.
What is a Texas Series Limited Liability Company (“SLLC“)?
An SLLC is a limited liability company (the “Mothership“) with the ability to create a series of separate limited liability companies (each, a “Series Pod”) formed underneath the Mothership. Each Series Pod has its own members, managers and/or membership interests, liability and bank accounts, separate and apart from any other Series Pod formed under the Mothership and from the Mothership itself. Think of it as the concept of a parent company with subsidiaries, where the subsidiaries are their wholly-owned companies. The Mothership has one EIN, which is used for all of the Series Pods. Each Series Pod is generally owned 100% by the Mothership, but this does not need to be the case, as the Mothership can own 50% of the Series Pod, while a separate investor can own the other 50%. For books and records purposes, each Series Pod is a separate legal entity with its own books and records, and if 100% owned by the Mothership, the Series Pod is considered a disregarded entity for federal income tax purposes and has its own allocation and distribution of profits and losses with the property it holds. Each Series Pod will have its own separate name, as you may have guessed.
Starting a SLLC
Formation of the Series Pod is easier and more streamlined than a typical parent-subsidiary relationship and the cost is greatly reduced. Typically, each Series Pod is formed by the resolution of the Mothership’s governing authority of member(s) or manager(s), as the case may be, with an assumed name certificate of the Mothership. Other than this formation through assumed name certificate, the EIN of the Mothership will be used for each Series Pod and the only other documents needed will be the company agreement for the Series Pod to designate the member(s) and manager(s).
How Will the SLLC be Beneficial to My Business?
Typically, a limited liability company will suffice for the business needs of most clients, but there may be certain instances where the SLLC would work, such as income properties, various businesses held by a parent company for liability protection or any other property ownership, which may need separate liability protection separate and apart from each property. An example is aircraft. Suppose that a business owns a fleet of ten aircraft used for either air ambulances, general transportation for charter or transportation of freight. Each aircraft is owned by one company but with the enormous liability, costs, maintenance and insurance premiums, then each aircraft needs its own entity. Typically, this has been done with each aircraft being placed in its own S-corporation or limited liability company, but an SLLC with each aircraft in its own Series Pod would be perfect in this situation. Each aircraft would have separate liability from each other aircraft Series Pod and the profits, losses and taxes would flow through to the Mothership for accounting purposes. Thus, the SLLC would be easy for the business owner from both a legal and tax perspective. Another example is a husband and wife that own several different businesses. The husband and wife could form the Mothership as a holding company with each business in its own Series Pod. Again, the SLLC would be perfect as each business has its own separate liability from the other entities and annual tax and legal filings would be as if it was one entity filing for the husband and wife with one K-1, depending on whether husband and wife are filing separately and jointly.
If you would like more information, please feel free to contact me or one of our Firm’s other attorneys.