Texas real estate investors who have formed a traditional LLC should consider upgrading to a Texas series LLC. In short, a series LLC is one of the best ways to protect your assets, but there are many reasons why it is likely in your best interest to form or switch to one. And a real estate attorney can help you navigate the process.
What is a Texas series LLC?
Per the Texas Secretary of State, “A series LLC, formed under Texas law, is an LLC that provides in its governing documents for the establishment of a series of members, managers, membership interests, or assets that have separate rights, obligations and liabilities and business purposes from the general LLC. Each individual series has the ability to sue and be sues, enter into contracts, hold title to assets, and grant liens or security interests in its assets.”
The “series,” therefore, helps provide you with a web of protection. A real estate investor must depend on solid contracts with tenants, buyers, sellers, and any party with whom you enter into an agreement. You must also depend on excellent insurance policies to protect you against any unknowns that might arise. In the event that you are faced with a failed contract or insurance policy, you need an ironclad entity structure as a last resort to preserve your assets.
Enter the series LLC.
What are the benefits of a Texas Series LLC?
The Texas series LLC can provide that ironclad status you might need if faced with a lawsuit, unexpected or catastrophic loss, or other tragedy. As stated in our article regarding the series LLC, each series within the entity has the power to:
- Sue and be sued
- Enter into contracts
- Acquire, sell, and hold title to assets of the series, including real property, personal property, and intangible property
- Grant liens and security interests in assets of the series
- Be a promoter, organizer, partner, owner, member, associate, or manager of an organization
- Exercise any power or privilege necessary or appropriate to the conduct, promotion, or attainment of the business, purposes, or activities of the series
For many Texas real estate investors, there may be an equal balance of flipping real estate and longterm rental holdings. A series LLC has the power to separate those two activities insofar as you could operate within one series to perform flips and within a different series to hold your rental properties.
Many investors are now choosing to upgrade their existing LLCs instead of filing a new one for practical purposes, such as already having formed a bank account, having existing relationships with lenders and vendors, and the desire to retain their existing EIN and state tax ID numbers.
How do you form or upgrade to a series LLC?
It’s best to consult an attorney when forming or upgrading to a series LLC. In order to receive the benefits of a series LLC you must:
- Include the language required by section 101.602(a)(1)-(2) of the Texas Business Organizations Code in your certificate of formation and company agreement
- Maintain separate records for the assets of each series
Sections 101.601-101.621 of the Texas Business Organizations Code provide additional information about what is required.
The real estate attorneys at The Farah Law Firm can help you navigate the process of forming or transitioning to a series LLC. If you have already formed a traditional LLC and are growing your real estate portfolio, it is not too late to switch. We can upgrade your LLC to a Texas series LLC by filing an Amended and Restated Certificate of Formation. This provision is allowed pursuant to section 3.063 of the Texas Business Organizations Code.
Turn to The Farah Law Firm
The process of upgrading your existing LLC to a series LLC is fairly easy, but it is imperative that you rely on an experienced real estate attorney to ensure that it is done correctly. Though you won’t see a major savings versus filing a new entity entirely, switching to a series LLC can provide for a smooth transition into a greater level of protection among your assets. Call our office to discuss the process and how converting your traditional LLC to a Texas series LLC might be beneficial for you.