How to Form a Texas Series LLC

Any businessman can attest to the relative difficulty of setting up a Series LLC entity in Texas, in particular when you don’t have any knowledge even of the several legal steps required by the state of Texas. Thus, in case a Series LLC sounds appealing to you, although you haven’t yet decided on whether it’s worth dealing with, you may find this DIY guide helpful in learning how to begin the entire process.

Founded in Wyoming in the late 1970s, the Limited Liability Company, also known as an LLC for short, is a fairly new business model, and its popularity is steadily growing nationwide.

It was first introduced in Delaware and is now available only in a few states, one of which is Texas, but the business model is also expanding quickly to other parts of the USA.

As the name suggests, a Series LLC is like an LLC that consists of several divisions or, as it reflected in the name, more than one series. Each division in this Series may also have different business goals from those of their parent company (and usually there is also a liability and asset diversity between these divisions), offering a certain degree of security and legal independence provided the series is created correctly.

Speaking about the process of forming a Series LLC, there are several major factors at play, and if you want to take your company a step further, you should get more closely acquainted with all the legal technicalities of this process. 

IMPORTANT NOTE: If we mention the murky waters of Texas business law, it’s important to know that even with the best resources about the opening of this type of entity, it won’t guarantee you a smooth process if you are not someone overly familiar with this aspect of the state law. So, it would be better for you to seek legal advice in launching a Series LLC in Texas.

Still, for those who look for the stable growth of their businesses in a way that protects their personal assets, forming a Series of LLCs is a perfect course of action. A good online LLC service can handle this for you in a swift and secure fashion, or you may also form it yourself, using only your own resources.

What does Series LLC Mean?

As set forth earlier, a Series LLC is a group of divisions formed by a single parent company. Despite every division working under the same parent LLC, the nature of this model is to provide each division owner with more independence, financial autonomy, as well as legal security. This primarily ensures the parent company and other LLC divisions are less likely to face, for example, a lawsuit specifically targeted at a single division in the series.

If you’re closely familiar with the regular LLC business structure, you’ll probably find it more than convenient that Series LLC comes with the same limited liability insurances aimed to protect a regular company’s assets when met with any legal action. It means that an owner’s individual property, as well as interests of other sub-divisions, will not come under fire if a lawsuit is brought against an unconnected LLC division in the Series. 

This structure is what makes Series LLC so appealing to the business owners, since it removes legal dependency between all LLCs operating under the same parent company and, at the same time, creates a network of operations under a single parent company with no hassle of starting multiple independent LLCs.

How To Launch a Series LLC in Texas?

Select a Good Name for Your Series LLC

It will be really a good idea to choose a business name that reflects the type of business your company works with, or at least a name which will be hard to miss. Furthermore, a Series LLC should incorporate the business model in the actual name, whether it’s L.L.C., LLC, or Limited Liability Company.

Another crucial factor in naming your serial business is checking business name availability. There are many ways to do this process, such as the business name search tool that is designed to cross-check names, which have already been taken by other entities in Texas.

Corporate designations other than the one the company is set to work under are also off-limits, as well as specific business descriptors should be kept out of an LLC name if they don’t describe the type of business activity the company specializes in. For example, using “bank” in the name of a series LLC that is not related to banking.

There is also the issue of naming the LLC divisions themselves, since the state of Texas requires the owner and manager of every division to file the Form 503, also known as the Assumed Name Certificate, to register their independent segment.

We can consider this to be the equivalent of a trade name (or fictitious name) often assigned to ventures operating independently of their parent company’s legal name.

When there is something more you want to know about the subject, you may look through a more detailed guide on naming an LLC, which specifies the process of naming standard Series LLCs and LLCs.

Decide on a Registered Agent

The next step here refers to finding a reliable registered agent in Texas. This process requires a bit of careful consideration.

Of course, you are free to appoint any registered agent that seems most appealing to your company, but above all, it should be eligible to provide services in Texas from the company’s office and guarantee quick communication with the officials. 

An LLC registered agent is done to arrange a timely exchange of business documents between the company and the state, meaning the registered agent of your choice can securely process important paperwork in the required time frame, which is vital for handling lawsuits and regular payments.

What’s convenient about Series LLC is the fact there is no legal obligation to designate unique registered agents to every LLC division. It’s completely acceptable to choose only one agent regardless of the side of the Series.

In Texas, your registered agent has to fill out the Acceptance of Appointment and Consent to Serve as Registered Agent though there is no legal obligation to file it with the state authorities. However, you should have a copy of this form on hand.

File the Certificate of Formation

Most states require you to submit a single document that is called the Articles of Organization. Though in Texas, this document is known as Form 305 or the Certificate of Formation. Texas also allows you to use the same form to establish a Series LLC, though the rules for filling it out vary a bit.

The main distinction can be found in Article 4 of the document, in which you are legally required to supplement the form by citing Section 101.602(a)(1)-(2) of the Texas BOC.

The form itself states all pertinent data about your business: the company address, business name, info on your registered agent, and the address of their office in Texas.

Other information should outline the operating hierarchy of the entity, like a manager- or member-run, relevant information on company owners and managers, and the entity’s LLC organizer with name and signature. Their job is also to indicate a clear date for the creation of the business venture, whether it’s scheduled or effective immediately.

Once all documents are complete, the form has to be sent to the Texas Secretary of State with the mandatory $300 fee.

Apply for an EIN

Moreover, every LLC division should be prescribed their own Employer Identification Number, or an EIN, which is an ID number issued by the IRS for business taxation purposes.

Similar to your personal SSN, the EIN functions as a nine-digit identification number tied to all financial operations of a company. It is used in tax forms, financial documents, issuing payments, whether one-time or in payroll form.

To get an EIN for your business, you need to download a form from the official IRS website, that is free of charge, fill it out, and file. Then the company will be given its own business EIN identification code.

Create a Company Agreement

Even though Texas has no legal obligation to support the formation of LLCs with an Operating Agreement, though in the state it’s known as a company agreement, it is still recommended you have one.

There is also a small difference involved in preparing this document for Series LLC. As with the clause included in the serial Certificate of Formation, this form requires a citation of Section 101.602(a)(1)-(2) found in the Texas BOC.

This agreement works when it is compiled with great elaboration, where the LLC divisions’ functions are disclosed in clear detail. When the document is thoroughly exhaustive on the issue of individual directions of the LLCs, it would save you the pain of writing numerous agreements to go with every entity.

On top of this, an Operating Agreement will also cover the hierarchy of each company, including the possible assignment of a manager. As a rule, other information should stipulate the course of action in the event of replacing ownership and/or management or dissolution process for each division. It won’t hurt to add the information on owner voting privileges, investments, asset distribution, etc.

Establish a Financial Support Network

Keep in mind, any business entity should be tied to its own bank account instead of a personal one, which the owner might be in possession of. This is the case for all LLC types and any other forms of business. 

Yes, the entire process is a little bit lengthier with Series LLCs given that LLCs divisions require exclusive bank accounts, all different from that of the establishing company.

Nevertheless, this approach is imperative for sustaining the insulated structure of the serial ownership, allowing every division to enjoy financial independence and work at its full potential, as a division in the Series which would be impossible if an LLC division depended financially on the bank account of the parent LLC.

A qualified accountant is likely to handle all financial operations much better, so you can allocate a finance professional for all divisions. It would also help to invest in accounting software to optimize the processing of financial transactions.

Obtain Licenses

While Texas does not obligate business owners or managers to get a general business license, certain industries expect you to be licensed when there is a Series LLC involved. 

To see if your company needs any permissions for legal operation in Texas, you can look through the list offered by the Texas Department of Licensing and Regulation to help local entrepreneurs understand any licensing issues. The website includes a handy search tool for easier navigation and you can also apply for a license (or a renewal) online.

Remember that you may also be requested to oversee licensing on a local level depending on the nature of the company, so always check with local authorities on the subject of permits.

Follow Maintenance Protocols

The smooth sailing of any enterprise, especially a multi-division one, requires careful maintenance, and in the case of Texas, submitting the Franchise Tax Public Information Report every year.

Unlike biannual or annual reports in many states, this document should be directed to the Texas Comptroller of Public Accounts when you submit the franchise tax payment if applicable. This tax is not necessary in cases of entities, which turn out less than $1,180,000 in any given year (only Texas revenue is taken into account), though such companies are still required to submit the report to update the state on the internal dealings.

For companies, which exceed the minimal annual revenue of $1,180,000, the tax is calculated based on the types of sales. As such, retail and wholesale revenue is subject to the 0.375% tax rate, while other sales are taxed at the 0.75% rate.

This document informs the relevant authorities of any changes (if any occur) in the time elapsed from the preceding report. This typically covers any revision in company and division names, addresses, changes in ownership, or registered agents including their new names and addresses.

Can I Outsource a Series LLC Formation in Texas?

Texas provides three courses of action in this regard: you can rely on your own abilities and save significant sums of money (as well as potentially miss any errors in documents or legal processes), find a reliable LLC creation service, or go for the other option where you hire a lawyer to aid you.

While the first option may be outside your realm of capabilities, hiring an attorney can be pretty expensive. An online service is much cheaper and offers to take care of most legal proceedings for you.

However, one downside of this is the relative rarity of business formation services compared to other more established services used in such cases. Texas is more generous in that regard, offering multiple services for Series LLC creation, such as the acclaimed Northwest Registered Agent.

Being one of the leading registered agents in this industry, the company offers a complete service package for company establishment together with customer support and overviewing all business documentation received by the enterprise.

Conclusion

The formation of Texas Series LLC is not too dissimilar to the process of setting up a standard LLC. The most crucial step of the process is to fill out the appropriate sections of the Certificate of Formation as well as company agreement with language from Texas BOC and file for an Assumed Name Certificate to legitimize every LLC division.

Therefore, if you’d rather save yourself the headache of navigating the complex organizational papers and processes, it would be interesting for you to hire attorney services, who can supervise each step of starting a Series LLC in Texas for you.