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Selecting a Series Limited Liability Company vs. Multiple Individual Corporations

Selecting a Series Limited Liability Company vs. Multiple Individual Corporations
Hendershot Cowart, P.C.

One way to setup multiple corporations and isolate the legal liability of each is to setup a Series Limited Liability Company (LLC). A series LLC creates an unlimited number of sub-LLCs, each with a separate business purpose or investment objective, under an umbrella of a parent LLC.

Special language is incorporated into the certificate of formation and the company agreements that allows numerous corporations who each are a separate juridical entity. Texas business organizations code chapter 101, section 101.602 states "the debts, liabilities, obligations, and expenses incurred...with respect to a particular series shall be enforceable against the assets of that series only, and shall not be enforceable against the assets of the limited liability company generally or any other series." As well, the same holds true that the sub-series are exempt from the obligations of the parent LLC. Essentially, the parent LLC is protected from liability of the series, and each series is theoretically protected from the liabilities of the parent and other LLCs.

The assets associated with a series may be held in the name of the series or in the name of the LLC. Its members or managers are not liable for the debts or obligations of the LLC or series but hold express rights, powers or duties to each series as stated in the company agreement. Each series duty is separate, in that an event that terminates members' rights to one series, or a member that sells their interest to outside investors, does not affect the members' relationship with the parent LLC or any other series.

The Series LLC ultimately is suitable for complex arrangements for individuals who are experienced and have the opportunity to look out for their own interests. A series LLC is a substitute for creating multiple LLC's but is a much more complex entity that should be left in the hands of a seasoned attorney, who can transform the series LLC into a tremendous planning tool. Forbes cites the typical LLC is similar to a hang glider...whereas the Series LLC is a 747 jetliner, which is full of complex systems and a suicide mission that only a pilot who is type-rated could maneuver from the left-hand seat. Essentially, formation and management of a series LLC should be left to an experienced attorney.

Hendershot Cowart, P.C. has over two decades of experience setting up corporations and handling litigation on behalf of large institutions in Texas and throughout the nation.