Recently, Texas has been hitting the top positions in the “Best States for Doing Business” ratings, and for a good reason. With no individual and corporate income taxes in place and a thriving economy, it attracts all types of entrepreneurs.
Diverse business opportunities are also among the state’s biggest benefits. Texas allows for a series LLC formation giving you a chance to dispose of your business property in the most efficient manner. Here is what you should know about forming a series LLC in Texas.
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Relatively new to the modern business environment, a series LLC structure quickly gains popularity. Mainly, it’s due to the fact that it offers the ultimate flexibility and protections without going into corporate complexities.
It’s a multi-facet legal framework enabling its owners to aggregate their activities under a holding-like umbrella while keeping each business independent. While you can get the most out of asset management, Texas series LLC registration is a straightforward process.
Starting a serial LLC in Texas is not much different from establishing a standard LLC. There are only a few nuances and details you need to observe. The whole process is regulated by Section 101.633 of the Texas Business Organizations Code and takes a few steps.
Series LLC regulations are state-specific, and naming rules for this type of entity can also vary by state. In Texas, though, common naming rules are applied to all types of LLCs. They are outlined in the Secretary of State’s guidelines. The key points are as follows:
Before you enter the desired company name in your formation documents, make sure the version you’ve set your eyes on is available in the state i.e. not used by any other entity filed in this jurisdiction. A quick name search will help you do that in mere minutes.
Notably, to be treated as a standalone entity, each series or subdivision in a holding cluster should operate under a different name. At the same time, it’s advisable that each cell’s name contain the words “protected series” and the parent company’s name.
This way, the child series would clearly demonstrate the links between them and the holding company. To make the name of each child entity eligible in Texas, you should file a name certificate which is essentially a DBA name registration.
A registered agent (RA) is a law requirement for an LLC. It could be either an individual (over 18 years of age) residing in Texas or an organization legally empowered to do business in the state.
It’s mandatory for an RA to have a street address in Texas (no P.O. boxes allowed) and to be able to present under that address during normal working hours i.e. from 9 a.m. to 5 p.m. to receive official correspondence addressed to your LLC.
The good news is that, unlike in many other states, in Texas, you need to nominate a single RA both for a parent company and for subsidiaries.
The only thing to remember is that, in Texas, an RA should provide written consent to perform this function for your company. With that, you can:
Out of those options, staying with a registered agent service in Texas is by far the best choice if you want to get the mailing process organized professionally without paying too much for that.
Legally, your Texas Series LLC registration is about preparing a Certificate of Formation and getting it approved by the Secretary of State.
Once your formation document is approved, your company becomes existent as a legal entity and pops up in state business records.
By and large, the Certificate of Formation in Texas is of general nature. It embraces such common info about your future entity as:
Normally, you are also free to add any other provisions you deem necessary. Thus, while other states might require filing a separate form for each series, in Texas, it’s enough to include a “Limitation of Liabilities” section to a Certificate of Formation.
In that section, you should clearly stipulate the parent LLC’s right to create a series. You can find the exact wording in section 101.602(a)(1)-(2) of the Texas Business Organization Code.
In Texas, you can file:
Secretary of State
P.O. Box 13697
Austin, TX 78711
James Earl Rudder Office Building
Austin, TX 78701
Though not required to be filed with the regulator, an Operating Agreement in Texas is a law requirement. This document outlines the following:
As such, the document is a vital operating tool since it reflects the company owners’ agreements on business management and control.
And it’s especially important for a series LLC since it will establish the relations between a parent company and subsidiaries and describe the liability protections between them in detail.
Note: You can create and enact new child series by making amendments to an Operating Agreement. Just don’t forget to file an amendment to the Certificate of Formation and an assumed name certificate for the new series.
An EIN or Employer Identification Number is your company’s tax identifier that makes it visible on the state and federal regulatory scene. It’s advisable that all legal entities get EINs after formation and a series LLC is not an exception. You’ll need this code to:
EINs are issued by the IRS service. It’s enough to apply for it online and you’ll get it for free in mere minutes.
IRS regulations in relation to series LLCs are not fully established yet. However, to maintain the independence of subsidiaries inside the cluster, it’s recommended that you get a separate EIN for each series.
To file a series LLC in Texas, you will have to pay a compulsory filing fee of $300. It’s charged only for a Certificate of Formation of a parent company. Child series are not included. If you pay by credit card, you’ll be also charged a 2.7% convenience fee.
Since you’ll have to register an assumed name certificate for each subdivision, you’ll have to pay $25 additionally for each cell of a bigger cluster.
There are also some other costs that might pop up on your final cheque.
|Name reservation to put the desired company name on hold till registration
|DBA name registration to use a different business name more appropriate for marketing purposes
|$25 per name
|Commercial RA service
|$50 to $300 per year
|License registration fees
|$50 to $500 per license or permit
To learn more about series LLC related costs and expenses, check our complete cost guide.
While starting a series LLC in Texas is technically about the entity state registration, operating the business on the right foot will require that you take a few more steps.
To get the best out of a series LLC structure, it’s vital to maintain the operational autonomy of both a parent company and each child series. A dedicated business bank account allows for splitting owners’ personal assets and business funds and property.
The same is true for a holding company and its subsidiaries. You should open a separate checking account for a series LLC and each of these cells. Otherwise, one series property could be claimed to settle the commitments of another series.
It’s vital to maintain clear and accurate financial records for each subdivision in a cluster to keep your multi-layer corporate veil intact.
While separate bank accounts ensure split cash flows, separate bookkeeping will further contribute to solid liability protection. Besides, it’s convenient since you’ll be able to monitor the efficiency of each sub-business.
While you can use special accounting software to manage your Texas series LLC’s finances, a professional accountant with a deep knowledge of series LLC regulations and laws is a must-have element.
Licensing is an important part of any business. The more so for a series LLC since each child cell can be engaged in a different activity. Hence, you should consider licensing requirements both for a parent company and for each series.
Luckily, Texas doesn’t have a statewide license rule, so, you’ll have to check at a local level. For example, if any of your subsidiaries is involved in a commercial activity, you will have to get a sales permit for this cell.
Series LLC registration in Texas comes not only with legal perks and benefits but also with statutory commitments and obligations. Thus, there are some rules you’ll have to stick to for your business to stay compliant with the state.
All LLCs in Texas irrespective of the subtype should submit an annual report to the Texas Comptroller's office and pay a franchise tax. You can create an account on the regulator’s website and file online.
When it comes to a franchise tax, it’s dependent on your gross revenue. Companies with an annualized revenue below $1.180.000 don’t have to pay a franchise tax. Meanwhile, those with a higher revenue will be open to tax rates from 0.375% to 0.75%.
An annual report and franchise tax payment due date is May 15 annually. You’ll incur a $50 penalty for late filing and tax overdue up to 30 days will result in a 5% penalty while an overdue over 30 days will bring a 10% penalty fee.
For the franchise tax purpose, a series LLC is regarded as a single entity which means it’s only a parent company that will have to file a report and pay that levy if qualified.
Taxation is the trickiest part of business for all entrepreneurs. Yet, a series LLC still enjoys the taxation flexibility of a limited liability company structure. It’s taxed as a pass-through entity by default and can choose a corporate tax status if necessary.
Besides, despite an overall structure complexity and separate bank accounts, a series LLC files a single tax return in Texas. There are still a lot of regulatory nuances you should be aware of, so it’s a good idea to have an experienced CPA on your side.