Bulletin: TX2022004

Dear Associates:

This bulletin summarizes the Texas legislative changes that took effect June 1, 2022, to Subchapter M of the Series Limited Liability Company sections of the Texas Business Organizations Code (TXBOC). This bulletin also provides our guidelines for transactions involving a Texas series LLC.

A series LLC can compartmentalize members, managers, membership interests, and/or assets and liabilities in a series separate from the LLC. The series are not separate entities from the LLC; however, if properly formed, the goal of a series LLC is to be shielded from liability of actions under other series. Only a few states have adopted statutes permitting organization of series LLCs and it is unclear whether the limited liability features of each series will be recognized as to federal obligations or by states which have not adopted statutes permitting series LLCs. State statutes governing LLCs, particularly series LLCs, vary widely from state to state. Therefore, do not disregard a lien or bankruptcy against the series LLC and do not disregard a bankruptcy or federal lien against other series formed under that series LLC.

There are three categories of series LLCs that are valid in the state of Texas:

Protected Series – will have both a Certificate of Formation and Company Agreement that contain a statement of limitations of liability of the series, separate records and accounting for each series, and follows TXBOC. Sec. 101.602.

Registered Series – will have a Certificate of Formation, Company Agreement with a statement of limitations of liability of the series, a certificate of registered series filed with the Secretary of State, separate records and accounting for each series, and follows TXBOC Sec. 101.602. This provides a sense of public validity of the series, and the Secretary of State can issue a Certificate of Fact confirming the existence of the series.

Ordinary Series – which will not have a certificate of registered series, nor the limitation language in the Certificate of Formation, and not formally established in accordance with TXBOC Sec. 101.602. These would be the least reliable of the 3 categories and may cease being used over the next several years.

STG does not require any particular form of series LLC to be used or in title. However, the deed should specifically reflect which series the title is vested and name the main series LLC. Failure to do this could result in the property being acquired as an asset of the main series LLC and the loss of series insulation and protection.  The management structure of the main LLC and the series LLC must be the same.  If the main LLC is “member managed” the series must be “member managed” and vice versa if the main LLC is “manager managed” the series must be “manager managed.” There is no limit on the number of series a Texas series LLC may hold. 

The Registered Series LLCs changes require the inclusion of the phrase “Registered Series or RS/R.S.” in the name and contain the name of the company at large.

Example vesting for a Registered Series is as follows:

AAA, LLC-Series A (RS), a registered series of AAA, LLC a Texas series limited liability company.

Protected Series and Registered series may file assumed name certificates with the Secretary of State as part of the new changes. The filing with the county offices in which they do business is no longer the only option. Tex. Bus. & Com Code § 71.002(2) and 71.051.

Also, there is a new process to convert a Texas LLC to a Texas series LLC by means of a Certificate of Conversion. This can also be used to convert a Texas series LLC to a Texas LLC. TXBOC Sec. 101.631. The Company Agreement must be reviewed to determine if it prohibits a conversion or specifies the manner of adopting a plan of conversion. 

Senior Underwriter approval is required when insuring a transaction involving a series, LLC.

Items to provide to Senior underwriter for approval:

• Inform whether the series LLC is created and domiciled in the state where the land to be insured is located.
• Certificate of Formation highlighting the language of limitation of liability for each series.
• Company Agreement with a notice of limitation of liability for each series highlighted and list of the individual(s) with authority to act/sign.
• Highlight where the Company Agreement has express language that allows for the automatic creation of a series by acquiring an asset into a series named in the deed or provide the transfer instrument or Resolution that authorizes the creation of the series signed by the authorized parties per Company Agreement.
• Highlight evidence in the company agreement that the company records and accounting are maintained separately from the other assets of the company or other series or require confirmation from the manager(s) or the company accountant.

If the Certificate of Formation does not contain the limitation of liability language or is not formed as a series LLC, amendment to the Certificate of Formation or Conversion process may be required. Other applicable responses to the Considerations outlined in the Underwriting Manual located on Virtual Underwriter at: Section 11.22.2. 

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