New Texas Series LLC Provisions in Texas Business Organizations Code

New Texas Series LLC Provisions in Texas Business Organizations Code

 
Excerpt:
 
New amendments have been made to the Texas Business Organizations Code (the "TBOC") to permit a single limited liability company to establish series of members, managers, membership interests or assets to which different assets and liabilities may be allocated. Under the new TBOC provisions, through appropriate provisions in the company agreement and the certificate of formation of the limited liability company, a single limited liability company may establish and contain within itself separate series that are treated as enterprises separate from each other and from the LLC itself. Different series of membership interests in a single limited liability company may operate different businesses or hold and manage different investment assets, with each series having different members and/or management. In addition, due to the so called "internal liability shield" contained in the statute, the appropriate company agreement provisions may specify that the obligations of one series are not the obligations of any other series or of the limited liability company.

These new provisions allow considerably more flexibility in structuring limited liability companies in Texas. Based on experience in other states, including in particular Delaware, the so-called "series LLC" concept should be useful in structuring certain types of investment funds and in arranging more complex ownership and financing structures. There can be significant benefits in segregation of assets and liabilities among different members for accounting and financial reporting purposes and to allow for different management of separate businesses or investments owned by different series. However, the usefulness of these new provisions in providing an effective liability shield as between different series is questionable for various reasons as discussed below.

These new provisions are generally modeled after the series limited liability company provisions in Section 18-215 of the Delaware Limited Liability Company Act ("DLLCA"). The new Texas provisions generally have concepts similar to the DLLCA provisions, but in many instances the language in the Texas statute has been revised from its Delaware counterpart to conform to the other provisions of the TBOC governing limited liability companies, including in particular the provisions relating to distributions and winding up and termination of the series. [footnotes omitted]
 
  
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