Changes to TBOC—Creation of Registered Series LLCs

Currently, Ch. 101 of the Texas Business Organizations Code (“TBOC”) permits the creation and use of a series in domestic limited liability companies (“LLC”) through provisions in a LLC’s company agreement, so long as the necessary provisions are contained in the certificate of formation. A Series LLC consists of a “parent” or “umbrella” LLC and at least one series that is established to own and operate particular assets or a particular business under said parent LLC.  

Financial and investment service entities and real estate investment companies have particularly benefited from the convenience in using series of LLCs in their organizational structures in Texas.  Some lenders have found the current practice to be unsatisfactory, frequently declining to make a loan directly to an individual series and, instead, insisting that the parent LLC execute the note and security agreement. This practice cuts across the primary purposes of forming a series LLC.

Fortunately, due to the passage of S.B. 1523—effective June 1, 2022, TBOC § 101.601 will be amended to create a “Registered Series” LLC which will require a special certificate of formation to be publicly filed under the name of the LLC—coupled with the newly required “RS” or “R.S.” designation within the entity’s name. These requirements will eliminate the doubt that has worried lenders, title companies, and other transactional parties as to whether a particular series had been properly formed, organized, or if one even existed and will provide an enhanced commercial functionality and utility to the Texas series LLC.

For more information on these changes you can refer to the Texas Legislature’s filings: S.B. 1523 Bill Analysis and Committee Report. For questions or concerns as to how these changes may affect your series LLC, please contact Kennedy Sutherland.