Series LLCs are an incredible way for real estate investors to gain asset protection for their properties in a simple structure. However, they can be confusing if you have never heard of one.
In this article, we will tell you what a Series LLC is, what the advantages of a Series LLC are, and how to form a Series LLC.
What is a Texas Series LLC?
A Series LLC allows an investor to hold each property in a distinct entity under one filing. These distinct entities provide all of the asset protection benefits of an LLC without the complexity of forming multiple different LLCs for each property.
Each LLC within the Series can have its own name, organizational structure, and assets that are legally separate from each other. So, under one filing, you can set up a series for each property to keep the assets and liabilities of each property isolated and insulated from one another.
The advantages of Forming a Series LLC
Series LLCs hold all of the asset protection advantages of traditional LLCs. Plus, for real estate investors, they can provide some additional advantages.
If you have traditionally owned all your properties under one LLC, then the series LLC will provide you with an excellent asset protection solution. Unlike a traditional LLC, a Series LLC will place all your properties into legally separate entities so that liabilities arising from one property will not affect another.
Suppose you have traditionally owned each property under a separate LLC. In that case, the Series LLC offers you the benefit of simplicity since you will only need filing. This simplicity can also save you attorney, accounting, and registered agent fees.
How to Form a Series LLC
To form a series LLC, you first must set up the parent LLC as a management/parent company. For example, your parent company could be called “Windstone Properties LLC.”
Next, put each property into a separate series company. For example, the first Series would be called “Windstone Properties LLC – Series I.”
Ensure that your certificate of formation and LLC operating agreement properly identify your LLC as a Series LLC. Next, make sure that you are keeping adequate records. Adequate records include things like: financial statements, invoices, contracts, and company minutes. Keeping these records will provide proof that each Series is operating as a separate entity, so they are not at risk should a liability arise.
Do I need separate bank accounts for each Series LLC?
Yes, we recommend setting up separate bank accounts for each Series. Having separate bank accounts will prove you are not commingling funds. Commingling funds could put your properties at risk and negate the benefits of setting up a Series LLC.
However, having one bank account is possible if you keep very accurate and clean records of transactions by property in your accounting software.
Converting Existing LLCs
Converting your existing LLCs into a Series LLC is a simple process. To convert your existing LLCs into a Series LLC, you must amend your Secretary of State filings and company agreements. The conversion has to be done correctly, so we advise speaking with an attorney before converting them yourself.
Tax Effects of Series LLCs
A Series LLC has the same pass-through tax effect as a traditional LLC. Additionally, you do not need to file a separate return for each Series. Instead, all of the income and expenses for each Series will be reported on one tax return for the parent LLC.
Conclusion
Series LLCs provide the perfect entity structure for real estate investors. They are both a powerful and simple asset protection tool. We recommend anyone owning multiple real estate properties in Texas take advantage of the Series LLC.
At Windstone Financial, we specialize in helping real estate investors with their accounting and tax needs. If you need help setting up your Series LLC, click the button below to speak with a CPA!
