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St. Mary's Law Journal

Bernie R. Kray

Abstract

The primary advantage of a limited liability company (LLC) is to shield owners from personal liability for the contract and tort obligations of their business entities. To further protect business assets, practitioners often advised clients to form multiple LLCs, each containing single assets. Yet, business owners managing multiple assets and LLCs often found this approach ineffective and cost-prohibitive. Allowing for a single “master” LLC to compartmentalize different series of properties without the need for a distinct holding company, the “series” LLC was the next step. The series LLC permits companies to partition assets and liabilities among various cells or “series,” thereby allowing different economic arrangements with respect to the different series contained within a legal entity. The uncertain legal ramifications of the series LLC must be weighed by Texas practitioners. Despite its innovative features, uncertainty remains as to the legal implications of a series LLC. This includes treatment for tax purposes, bankruptcy, and how far courts will be willing to respect the efficiency of the internal liability shields. Whether Texas courts respect the concept and the limited liability of a series LLC will depend on whether the courts will hold series LLCs as separate legal entities and defer to the intent of the enacted series legislation. Without a definitive statute, proprietors using series LLCs cannot be certain their companies will be treated as anything different than traditional LLCs. Such unknowns as conducting business in other states, bankruptcy procedures, and complying with tax laws will continue to hinder widespread acceptance of the series LLC concept. Until binding decisions resolve these concerns, practitioners should proceed with caution.

Publisher

St. Mary's University School of Law

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