Series LLC: Are You Getting What You Paid For?

Texas recently passed legislation which allows for the formation of a “Series” Limited Liability Company (LLC),  making Texas one of 8 states to recognize such entitities. Proponets of the LLC claim that the Series LLC offers asset protection not offered by a traditional LLC. In short the Series LLC is supposed to allow for the formation of separate series or “file cabinents” (or whatever other term may be used to describe them) so that assets placed in one series are protected from potential liability created by any other series. The rub being, for instance, that a real estate investor who might traditionally set up an LLC for each property he/she owns can now set up an LLC with a series for each property. If an occurance takes place at one property that subjects that property to liability, the other properties are shielded from joined–or are they? An article written by the American Bar Association  (“ABA”) in 2007 raises questions  about the actual protections claimed by proponents of the Series LLC (http://www.articlesbase.com/corporate-articles/series-llcs-not-good-enough-for-the-aba-192612.html). The biggest question being whether the courts will recognize the separation between series when an LLC is sued. It is quite possible that the courts will look through the language of the organizational documents and treat the Series LLC as a Traditional LLC therefore looking to all the LLC assets for for the repayment of a judgement, for instance. As with any new area of law, it generally takes time for the law to develope and the dust to settle. To date I am unaware of any Texas case law setting forth the  final rule on Texas LLC’s.  To that end it may be worth considering  and continuing with maintaining separate LLCs until the law is further defined. You may be risking  more than you think.

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