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The New Series Categories in Texas – Effective June 1, 2022

Updated: Nov 11, 2023

Beginning June 1, 2022, Texas will follow Delaware’s lead: series in series LLCs will now be categorized as series, protected series, or registered series. I gave a general explanation of what this means in a prior post. With the new provisions going into effect in less than a weeks, it's time for a more in-depth explainer. You can read the text here.


To recap: (1) a simple series is one that already exists or is otherwise not a protected or registered series. (2) A protected series is one formed according to new Tex. Bus. Orgs. Code section 101.602; protected series are not registered with the Texas Secretary of State. (3) A registered series is one formed according to new Tex. Bus. Orgs. Code section 101.602; registered series are registered with the Texas Secretary of State.


Simple Series


The simple (my word) series is meant as a catch-all for existing series. This will largely apply to those series formed prior to June 1, 2022. It may also include protected series that are formed improperly; however, I would be surprised if this is the case, as the protected series will become the new catch-all.


It might be worthwhile to convert simple series into either protected or registered series. However, it's unclear if there is going to be much benefit there, and if these requires amending contracts, deeds, financing statements, etc., it might not be worth it.


Protected Series


The protected series are those series formed on or after June 1, 2022, but do not register with the Secretary of State. The certificate of registered series will cost $300 (the same as a certification of formation), so many LLC and series members will likely prefer not to register. That is, moving forward, most series LLCs are likely to continue establishing and terminating series without registering them, resulting mostly in protected series.


Registered Series


The registered series is a series that has filed a certificate of registered series with the Texas Secretary of State. As mentioned, registration will cost $300 per registered series. So why would a business owner do this if they don't have to? As I indicated, I don't think they will (in large part, though some might in an effort to signal their sophistication to other parties). But use of registered series may be required by third parties (for example, lenders).


Which one should I choose?


That is largely up to you, if you decide to form a series LLC at all (most Texas LLCs are not formed as series LLCs). If you decide to go the protected route, make sure you or your attorney keeps up with the requisite record keeping. If you decide to go the registered route, make sure the cost is worth the benefits.


And you don't necessarily need to choose just one. For example, maybe your series LLC has two series, and each owns a separate piece of property: one a single family home, the other an apartment building. You decide to take out a second mortgage on the single family home, and the lender requires it be owned by a registered series. But the apartment has multiple units, and you would need to update all those contracts. It might be worthwhile to only have the first property's series convert.


Should I update my "simple" series?


As mentioned above, this is going to depend on the goals and assets of the business. For example, if your business relies on substantial credit, your creditors might require you to convert to a registered series. But if not, and conversion would mean updating a lot of contract and other documents, then again, it might not be worth it.


Conclusion


Beginning June 1, 2022, series in Texas series LLCs will fall under one of three categories. If you own or plan to organize a series LLC in Texas, be aware of these distinctions, and give serious consideration to which category might be best for your business.

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