Use a Series LLC for your REIT - Quine

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reitquine
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Use a Series LLC for your REIT - Quine

Post by reitquine » Sat Oct 13, 2012 12:36 pm

Reit Series LLC.jpg
REIT Series LLC, Quine
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What is a Texas Series LLC?

A series LLC is still a relatively new and sophisticated form of business entity. In simple terms, it’s like this: a single legal LLC is formed with the power to create separate series or “cells” within the LLC. So a single entity is formed with the ability to partition its assets and liabilities among various “sub-LLCs” or series. Each series has different assets, economic structures, even members, and managers. The profits, losses, and liabilities of each series are legally separate from the other series, thereby creating a liability firewall between them. This eliminates the administrative burden and expense of forming multiple LLCs for each asset or business venture. The structure is very similar to a parent corporation with subsidiaries only without the expense, formalities, and disadvantage of heavy/double taxation. It is the emerging form for a REIT. Contact J. Allen Quine for a help thinking this through. 713-979-7166.

Separate Series (Cells) Separate Assets and Liabilities

The assets of a particular series (or “cell” within the overall LLC) are protected from creditors or judgments against the assets of the LLC itself, or any other series within the LLC. To gain this advantage the LLC agreement must clearly provide for the establishment of one or more series. It is also necessary that separate and distinct records are maintained for each series and its assets are accounted for separately from the other assets of the LLC or any other series. Finally, to satisfy overall requirements of due process and notification, notice of such limitation of liability should be set forth in the LLC’s certificate of formation. See generally TBOC 101.602.

The business mind will see potential advantages in planning and strategizing. The Series LLC is ideal for businesses such as hedge funds, venture capital funds, oil and gas deals, fractional share arrangements, and separate but multiple real estate holdings. Complex business arrangements can sometimes be better managed by the use of a series LLC. Each series within the overall LLC enjoys what is tantamount to separate business entity status, with separate rights, powers and duties from the other series, as well as different rights or obligations regarding profits or losses. Each individual series has the ability to sue and be sued, enter into contracts, hold title to assets, and grant liens or security interests in its assets.

Series LLCs and Taxes

Like a regular LLC, the Series LLC avoids the double taxation of Class C Corporations. Income is taxable at the membership level as in a partnership. While some issues like the impact of bankruptcy still need to be resolved (likely the separate series will be considered as separate entities for purpose of bankruptcy), the Texas Comptroller’s office has indicated that rather than treat each separate series individually, for purposes of franchise tax liability, the income produced from the entire LLC entity will be treated as a whole. The Series LLC does not appear to be a way to avoid certain thresholds for tax liability.

Forming a Series LLC in Texas

A series LLC, formed under Texas law, is an LLC that provides in its governing documents for the establishment of a series of members, managers, membership interests, or assets that have separate rights, obligations and liabilities and business purposes from the general LLC. In order to receive any of the benefits of a series LLC, make sure the formation documentation and company agreement at least tracks the language required by §§101.602(a)(1)-(2) of the Texas Business Organizations Code. Make certain you intend and actually do maintain separate records for the assets of each series. See §§101.601-101.621 of the Texas Business Organizations Code for more information.

Shin6745
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Joined: Sun Nov 24, 2013 11:36 pm

Re: Use a Series LLC for your REIT - Quine

Post by Shin6745 » Sun Nov 24, 2013 11:41 pm

Nice info.

Maryam23
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Joined: Wed Dec 18, 2013 8:32 pm

Re: Use a Series LLC for your REIT - Quine

Post by Maryam23 » Wed Dec 18, 2013 8:52 pm

Nice post.

DanielBrian
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Joined: Thu Jun 17, 2021 2:57 am

Re: Use a Series LLC for your REIT - Quine

Post by DanielBrian » Thu Jun 17, 2021 3:39 am

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