Texas Series LLC: What It Is and How to Form One

A Texas Series LLC is a special type of LLC that allows you to create separate “series” within one master LLC—each with its own assets, liabilities, and members. If one series gets sued, the others are protected. For real estate investors and entrepreneurs with multiple ventures, this structure offers liability protection without forming multiple separate LLCs.

What Is a Series LLC?

A Series LLC is an LLC with:

• One master LLC (the “parent” or “series organization”)
• Multiple series (sometimes called “cells” or “child LLCs”)
• Each series has separate assets and liabilities
• Liability in one series doesn’t affect other series

Think of it as: An apartment building where each unit is separately owned, but they’re all part of one building.

How Series LLC Works

Example: Real Estate Investor

Traditional approach: Form 5 separate LLCs for 5 properties

• 5 state filing fees ($300 × 5 = $1,500)
• 5 registered agents
• 5 franchise tax reports
• 5 separate bank accounts

Series LLC approach: Form 1 Series LLC with 5 series

• 1 state filing fee ($300)
• 1 registered agent
• 1 franchise tax report
• 5 separate bank accounts (one per series)

Each property is in its own series, with liability protection between them.

Liability Protection

How It Works

Each series operates as a separate liability shield:

Series A: Owns Property 1 Series B: Owns Property 2 Series C: Owns Property 3

If someone sues over Property 1, only Series A’s assets are at risk. Series B and C remain protected.

Requirements for Liability Protection

Texas law requires certain conditions for series liability protection:

1. Separate records: Each series must maintain its own records
2. Separate accounting: Assets and liabilities tracked separately
3. Disclosure: Notice of series structure in Certificate of Formation
4. Operating agreement: Must address series structure

If you commingle funds or fail to maintain separation, you risk losing the liability protection.

Forming a Texas Series LLC

Step 1: File Certificate of Formation

File Form 205 with specific language enabling series. The certificate must include:

• Statement that the LLC is a “series LLC”
• Notice that liabilities of one series are separate from others
• Reference to Texas Business Organizations Code Section 101.601

Step 2: Create Master Operating Agreement

The master operating agreement governs:

• How to create new series
• General rules for all series
• Members of the master LLC
• Amendment procedures

Step 3: Create Series Operating Agreements

Each series needs its own operating agreement specifying:

• Series name (e.g., “ABC Holdings LLC – Series A”)
• Series purpose
• Series members and ownership
• Series assets
• Series management

Step 4: Separate Each Series

For liability protection:

• Open separate bank accounts for each series
• Maintain separate financial records
• Keep series assets titled properly
• Execute contracts under series name

Step 5: Obtain EIN

Options:

• One EIN for entire Series LLC (simplest)
• Separate EIN for each series (may be required by some banks)

The IRS hasn’t issued definitive guidance on series taxation, so practices vary.

Texas Series LLC Costs

Adding New Series

Each additional series requires:

• Series operating agreement ($0-$200)
• Bank account (varies)
• No additional state filing fee

This is significantly cheaper than forming separate LLCs ($300 each).

Series LLC vs. Multiple LLCs

When Series LLC Wins

• Multiple similar ventures (real estate portfolio)
• Cost savings is priority
• Texas-based operations
• Willing to maintain strict separation

When Multiple LLCs Win

• Operating in multiple states
• Different members for different ventures
• Maximum certainty of liability protection
• Selling or transferring individual businesses

Who Uses Series LLCs?

Real Estate Investors

The most common use case:

• Each property in its own series
• One lawsuit doesn’t risk entire portfolio
• Cost-effective for multiple properties

Holding Multiple Businesses

Entrepreneurs with several ventures:

• Series A: Consulting business
• Series B: E-commerce store
• Series C: Investment portfolio

Investment Funds

Managing different investment portfolios or asset classes within one structure.

Franchise Operations

Multiple franchise locations, each in its own series.

Limitations and Concerns

Interstate Recognition

Not all states recognize Series LLCs:

• States that recognize: Texas, Delaware, Illinois, Nevada, and others
• States that don’t: Many states have no series LLC legislation

If you do business in a state that doesn’t recognize series LLCs, liability protection between series may not be honored.

Banking Challenges

Some banks don’t understand Series LLCs:

• May require separate accounts for each series (which you should have anyway)
• May want separate EINs
• May have limited experience with the structure

IRS Uncertainty

The IRS hasn’t issued comprehensive guidance on Series LLC taxation:

• Is each series a separate entity for tax purposes?
• How are K-1s handled?
• What about series with different members?

Current practice: Most treat the master LLC as one entity for tax purposes, with series as internal divisions.

Complexity

Series LLCs require:

• More complex operating agreements
• Strict record-keeping
• Ongoing attention to separation
• Professional guidance recommended

Limited Case Law

Series LLCs are relatively new. There’s limited court precedent on:

• When courts will respect series liability protection
• How strict the separation requirements are
• Treatment in bankruptcy

Series LLC Operating Agreement Essentials

Master Agreement Should Include

1. Series authorization: Authority to create series
2. Naming convention: How series are named
3. Creation process: How new series are established
4. General governance: Rules applying to all series
5. Member rights: Who can create/manage series
6. Dissolution: How series can be dissolved

Series Agreement Should Include

1. Series identification: Specific name and designation
2. Purpose: What this series does
3. Members: Who owns this series
4. Ownership percentages: Within this series
5. Assets: What belongs to this series
6. Management: How this series is managed
7. Distribution: Profit/loss allocation within series

Maintaining Series Liability Protection

Do

• Maintain separate bank accounts
• Keep separate accounting records
• Execute contracts under series name
• Title assets to specific series
• Follow formalities in operating agreement

Don’t

• Commingle funds between series
• Use one series’ assets for another’s debts
• Ignore record-keeping requirements
• Sign contracts without specifying series
• Treat series as one undifferentiated unit

Is a Series LLC Right for You?

Good Fit If:

• [ ] You have or plan multiple ventures
• [ ] Cost savings is important
• [ ] Operations are primarily in Texas
• [ ] You can maintain strict separation
• [ ] You understand the complexity

Not a Good Fit If:

• [ ] You operate in states that don’t recognize Series LLCs
• [ ] You want maximum certainty of liability protection
• [ ] You may sell individual businesses
• [ ] You prefer simpler structures
• [ ] Different ventures have different partners

Alternatives to Series LLC

Holding Company + Subsidiary LLCs

• One holding company LLC
• Separate LLCs as subsidiaries
• Each LLC is clearly protected
• More expensive but clearer protection

Single LLC with Good Insurance

• One LLC for all activities
• Robust insurance coverage
• Simpler but less protection between ventures

Multiple Standard LLCs

• Separate LLC for each venture
• Clear, well-established protection
• Higher cost but maximum clarity

Getting Started with a Texas Series LLC

Step-by-Step Process

1. Consult with an attorney familiar with Series LLCs
2. Plan your series structure
3. File Certificate of Formation with series language
4. Create comprehensive master operating agreement
5. Create series operating agreement for first series
6. Open bank accounts
7. Implement record-keeping systems

Professional Guidance Recommended

Series LLCs are more complex than standard LLCs. Consider working with:

• Attorney experienced with Series LLCs
• CPA familiar with Series LLC taxation
• Formation service with Series LLC expertise

Form Your Texas LLC Today

Whether a Series LLC or standard LLC is right for you depends on your situation. IncCraft helps Texas entrepreneurs understand their options and form the right structure.

Start your Texas LLC with IncCraft today—we’ll help you determine if a Series LLC makes sense for your business.