Series LLC Basics
“Legal separation, and relatively low cost set-up & maintenance compared to traditional entity structures makes the Series LLC the ideal structure for real estate investors.”
The Series LLC is relatively new legal theory that more knowledgeable legal professionals in the real estate investing space agree is the ideal structure for REI’s to protect their assets. Delaware was the first state to adopt the Series LLC in 1996, and many states have adopted it within the last 5-10 years.
Currently only 18 states which includes the territory of Puerto Rico have Series LLC statutes and those statutes are not in any way uniform. Additionally, Series LLC’s do not receive any sort of standard treatment when used in non-Series LLC states.There is a “Parent” LLC that is formed and registered with the state. The Parent LLC formation documents permit the LLC to create separate and distinguishable “Child” LLC’s within its structure.
To illustrate this inconsistency, the State of Alabama does not require child LLC’s to be registered at the state level and has no specific naming rules. This is different from, let’s say Texas, which requires the filing of a “Certificate of Assumed Name” (essentially a DBA) for each Child LLC. Also If a Texas series does business under a specific name an assumed name certificate must be filed. If each or any series of the LLC conducts business under a name other than the name of the LLC, the LLC must file an assumed name certificate for the name of the series in compliance with chapter 71 of the Texas Business & Commerce Code. [See HB 1624, effective 9/01/13]
Investors & entrepreneurs just starting out are uniquely vulnerable to predatory individuals who know full well that the challenges these two demographics face. Despite usually being low on funds, investors & entrepreneurs are not typically low on assets to target. Also, ambitious & successful people often will fly by the seat of their pants before getting things perfect, often skipping and putting off doing the things they should be doing to protect themselves for some later point in time when they get around to it because popular culture idolizes “overnight” sensations. Predators know this & are well aware that big corporations have protections and layers that are very expensive for “shark” attorneys to pierce their corporate veils which is why those unprotected are the most vulnerable. It doesn’t have to be that way because getting the right structure in place from the beginning if you pick the right experts to help you doesn’t have to break the bank.
Laws can change, which is why it’s important for investors to either take the time to continually research and keep up-to-date with case law, or hire experts in this area to monitor case law & trends in the industry to help keep them abreast. If you are already a real estate investor or are considering becoming one and want more information on why setting up the proper business structure is important, it’s important that you work with companies that specialize in this very complex legal niche. Entity structuring for real estate investors & entrepreneurs has difference nuances, concerns and business practices than medium to larger-sized entities. The Series LLC, while a newer legal structure, for many investors & entrepreneurs is the ideal structure to provide protective layers against predatory lawsuits & while not guarantee, can stop lawsuits before they even begin.
Code of Alabama Section 10A-5A-11 | Texas Business Organizations Code §§101.601 to 101.621, 21.152(A),(C),(D), 21.153(A), 21.361(A)(2)
This original Leafy blog post was also featured on the Rated Builders Blog (YAY!) : https://rated-builders.com/series-llc/