The Texas Legislature passed new laws regarding Texas series LLCs. The law went into effect on June 1, 2022.
Ostensibly, the law provides additional protection for individuals, businesses, and other entities conducting business under the protection of a series LLC. In addition, the statute (Tex. Bus. Org. Code § 101.601 Subchapter M) characterizes a series LLC as being "protected" or "registered."
In this article, we'll go over how the law defines the different characterizations of LLCs and the ramifications that this law may have on you as a real estate investor.
A series LLC created before the law took effect (June 1, 2022) will be called an ordinary series LLC.
This type of LLC is virtually indistinguishable from a "protected" series LLC. In other words, the law will treat an "ordinary" LLC the same way it would treat a "protected LLC."
A protected LLC is a series LLC created after June 1, 2022. The term "protected" did not exist in any laws before June 1, 2022, so any LLC created before that date is called "ordinary."
Both "ordinary" and "protected" series LLCs enjoy equal rights and legal protections. The only difference is in what they are named.
As long as you want to keep your "ordinary" (or "protected" if created after June 1, 2022) LLC, you don't need to do anything. If you want to create another "protected" LLC, the process has not changed.
A "registered" LLC is a new series LLC introduced by the statute that took effect on June 1, 2022. Delaware's registered series LLC provides the model for Texas' registered LLC.
The critical difference between an "ordinary" or "protected" series LLC and a "registered" series LLC is that the "registered" LLC must be publicly filed and registered with the Texas Secretary of State.
A registered series is an option, not a legal requirement.
To create a "registered" series LLC, you must file a certification of registered series with the Texas Secretary of State.
The state has the following fees:
For the certification of registered series, each costs $300 to file. The fee is in addition to the original $300 fee you must pay to create a general series LLC.
For example, suppose you create a series LLC and want to have one of the entities in the series registered. That would cost $600.
Any subsequent registered LLCs would cost an additional $300.
The registered LLC must contain the following:
You must publicly file a registered series. The public filing requirement may give banks, lenders, and title companies peace of mind regarding your LLC's proper and legal formation.
It may become the case that entities involved in real estate transactions prefer a registered series LLC because they can be sure that a registered series LLC is legal.
If you have an existing "ordinary" or "protected" LLC, you have the following options:
Currently, the statute's effect is in flux because of the newness of the situation in Texas. What may occur in the future is that entities such as banks, lenders, and title companies will only conduct business with a registered LLC.
The forms for converting or merging an ordinary, protected, or registered LLC are available online with the Texas Secretary of State.
Since June 1, 2022, Texas law has included a provision that differentiates between "ordinary," "protected," and "registered" series LLCs:
It is not apparent exactly how the new law will play out, and you have the following options:
The attorneys at Royal Legal Solutions are here to help you understand the power Texas Series LLCs can bring to your business. If you would like to achieve bullet-proof asset protection, take our quiz. Then, you’ll have to opportunity to schedule a meeting with an advisor to discover if this is a strategy you would benefit from.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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