The Texas legislature has followed the State of Delaware’s lead by providing for a new type of series LLC, a “registered series,” which is formed by filing a certificate of registration with the Texas Secretary of State.
Since 2009, Texas law has permitted the creation and use of series LLCs, a unique form of limited liability company in which the articles of formation allow for unlimited segregation of membership interests, assets, and operations into independent series. Until recently, however, LLCs in Texas did not have a mechanism to register their series with the Texas Secretary of State or to obtain a certificate of good standing (called a certificate of fact) from the Secretary of State for a series. This lack of transparency often caused consternation from third parties transacting with such series.
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In 2021, the Texas legislature passed Senate Bill 1523 to address this issue. The legislation, effective June 1, 2022, provides LLCs with the option of formally registering their series with the Texas Secretary of State through the filing of a certificate of registration. The existence of a registered series will be confirmable in the Secretary of State’s public records, and interested parties will be able to obtain a certificate of fact from the Secretary of State for each registered series. The legislature anticipates that this legislation will enhance the attractiveness and improve the functionality of series LLCs in Texas. The original type of series will remain available and has been renamed a “protected series.”
Readers will note that this legislation is very similar to legislation passed in Delaware in 2019, which allowed for the formation of registered series through a filing with the Delaware Secretary of State and acted as a model for the Texas bill.
Series LLCs are becoming an increasingly popular option for businesses as more and more states pass legislation authorizing their creation and use. Currently, around twenty states (plus Washington, D.C.) have adopted statutes permitting series LLCs.
What is behind this increase in popularity? Series LLCs offer a method of liability segregation without the cost and upkeep of forming multiple LLCs. Instead, they permit a single LLC to be formed with the designation that it will allow for series to be created within the limited liability company agreement. Thereafter, each individual series will operate like a separate entity with a unique name, bank account, and separate books and records. Each series within the LLC may enter into contracts, sue or be sued, and hold title to real and personal property, and the assets owned by each series are shielded from the risk of liability of the other series within the same series LLC.