Transcript:

Hi, this is Rick Fair with the Fair Law Group. Today, I want to talk about Texas Series LLCs, and in particular talk about all the controversy around naming a protected series; at least that is what we call them in our office. There is a lot of information out there on the internet from multiple states involving names and protected series and lots of information that is good or bad and somewhere in between.  What we are going to try to do today is distill some best practices of how to name a series and hopefully figure out the right one for your series LLC.

So, when forming an LLC in Texas, particularly a series LLC, there are absolutely zero consensuses on how you name a series here in the state of Texas. The Texas Business Organizations Code (TBOC) is silent on the issue and there is no current case law involved with it. And long story short, there’s a couple naming schemes that have been traditionally used since the series LLC was adopted here in Texas during the last decade, but we’re going to talk about all those schemes and sort of what we do at our office to address it.

So, here are some commonly used schemes that are used.  And these, I found doing our records research on the Texas Secretary of State’s website.  You can go look at the assumed name certificates, as there is a requirement here in Texas when you create a protected series, you do not actually file formation documents for the series.  We’re not like some other states yet, but you do have to file an assumed name certificate for it and so that’s sort of a treasure trove of different naming schemes people have used and what different attorneys have used.

And so, here are the three most common ones I have seen. So, we have got an LLC, we’re going to call it XYZ LLC, and they want to create a series. So, probably the most common scheme I’ve seen is XYZ LLC, and they put a dash, and then series 101, series 102, 103, all the way to if you want 900, you could do it that way or more.

That is the most common scheme I’ve seen number two behind that is, instead of using a 101 or 102 and a set of numbers, they’re using letters A, B, C, and D; all the way to X, Y, and Z. And then if you have more properties in that you could do something like AB, or AA, BB, etc.

I think the numbers are more popular simply because it offers flexibility, and you know there are some investors out there that have a ton of properties. And I think the numbering scheme makes more sense because at least you do not have to worry about multiple letters.

The third most common is XYZ LLC; you’ll put a dash there and then they’ll label the street address as 101 Main Street, if you own 101 Main Street, they’ll put 101 Main Street and then series after it. Or if you own 201 Main Street, you will list 201 Main Street and put series after it.  That is the most common I have seen as far as including specific property names, and we will see here in a little while when I talk about what we do at our office.  We recommend property names in there, especially if you are holding the properties for a decent amount of time if you are going to be renting them. I think it is a good idea to just go ahead and include the property description in there.  As for people that flip properties, we do not really recommend it.  They tend to use 101, 102, in a set of numbers. Just depending on your holding period and depending on how you set up your structure, it is probably best to just not name the series specifically and just use numbers and put it that way.

So, here is the elephant in the room with series LLC, I will do a whole video on this for people interested in series LLCs later; the Uniform Protected Series Act of 2017 (UPSA).  Now, let me be straight on this right now, Texas has not adopted this, as we have our own version of series LLC statutes we use right now. Ours is based off the state of Delaware.

But the UPSA is a cooperative comprehensive and uniform framework that deals with how to form and operate a protected series of a series LLC.  There is a lot of talk amongst scholars in this area in business formations, attorneys in this area talk about this. And I think eventually every state that this is my opinion, this is my personal opinion, I think that all the states involved with LLCs, and particularly series LLCs, are going to use some form of the Uniform Protected Series Act eventually.  We will see a list up here in a second but, Texas, so far, we are still holding on to Delaware’s model. But I think eventually we are going to use something like the UPSA, if not exactly the UPSA.  And if that happens, there are specific rules governing names that I will talk about in a second. And this is just sort of a policy we’ve adopted just trying to get ahead of the curve so to speak in our office so if we set up series protected series, we use a very specific scheme that’s regulated under the UPSA just in the event Texas decides to adopt the UPSA. We have used this naming scheme for a couple of years.

So, the first off, let us talk about where you can form a series LLC. Currently, this is based on research as of today, October 8, 2020.  There is a whole list of them. And, I mean, we are not at half yet we’re not even at half the states yet that have the series LLC.  This is still a very niche, complex structure for an LLC, and it kind of shows a lot of states have not taken it up, simply because there’s a lot of preexisting issues with their own LLC framework of how this would fit in. So, it is going to be a while before all the states pick up on this if they ever do.

Now here’s the state’s following the UPSA right now. So, the UPSA got drafted in 2017, and the first enactment we saw was Nebraska in 2018 and 2019 we had three: Iowa, Virginia, and Arkansas. And here in 2020, we are seeing Colorado and Tennessee discuss the UPSA. Now, what is important to note is when we go back to this list, Colorado is not on there.  Tennessee, yes. Tennessee is thinking of adopting the UPSA specifically to supplement their current rules they have regarding series LLCs and Colorado does not currently have series LLC protection now, but they were thinking about adopting the UPSA as the structure for how they will govern the creation of series.

And I think a lot of states that have not enacted series LLC protection are probably going to follow Colorado’s model of this mentality.  We are just going to start fresh and start with UPSA since already exists and goes with that. But Tennessee’s an interesting model and I think that’s sort of setting the stage for existing states to say, okay, we have rules in place, but we’re seeing this trend towards using this uniform framework, so we’re going to follow it anyway.

And here is what the UPSA says about names. If you look at section 202, it says that all individual protected series names should include one of the following phrases in their series names, you either use “protected series,” P.S.,” or just “PS.”

The phraseology of protected series is used repeatedly in the UPSA. And that is one of those things that I think if the UPSA is ever adopted here in Texas, the naming convention is going to come with it.  We are going to have a lot of work to do, but maybe there will be a grandfather provision for series already in existence before the UPSA rules take effect.  Hopefully so because that is going to be an awful lot of series that are going to have to be amended and file new assumed name certificates and modify their documents to reflect the change the name of their series.

So, that is the three: “protected series,” “P.S.,” or just “PS.” And here is a lot of information and our current structure we’re using right now.

Me personally, with what I’ve done with my own properties, I use the first one I use like 101 Main Street, the name of the property, because most of the properties that I have personally we hold, and we rent. So, for example, 101 Main Street, a protected series of Whatever LLC. I tried to be abundantly clear about what this is one of the biggest issues, I’ve run into with clients over the years that had preexisting series LLCs and then they come to us for whatever their issue is.  But I see a lot of warranty deeds deeding property over and they do not specifically list that it is a series of the series LLC.

A lot of times, you will see just the name of the LLC and then maybe something stating that it’s a Texas series LLC. Well, you are technically deeding the property over to the master LLC, not the series when you draft deeds like that. And this has caused a lot of problems for clients that we’ve had to fix over the years and something I hope to try to tell everybody to avoid by using a naming scheme that is abundantly apparent that it’s a series.

And if you’re ever sued and a Plaintiff’s attorney tries to say the property is owned by the master LLC, you have a better argument by clearly showing the name is of a specific series of a series LLC.

So, the first list. One listed up there like the one I typically use myself and if clients come to me and say hey, which one would you recommend that’s the one I point him to first, the second one, going back to sort of what we saw initially. In this video, but all I’m including is the name of the property address and then protected series written down I’m trying to be extremely specific about the fact it’s a protected series PS is cool, that works, there’s a lot of other variations there.

So, there is still a lot of ability to have flexibility with choosing a name there, you know, kind of summing all this up is there is not a ton to go on about this.

Our personal preference is we are going to follow the UPSA at our office and we are going to use “protected series,” “PS,” or anything of that nature; just whatever the client chooses. And I use it personally with my own properties, and it is just what I think is trying to be kind of what we say our motto is on our website being forward-looking about things, trying to look into the future, and try to avoid problems before they happen.

I don’t have a crystal ball and I don’t know how the legislature is going to treat this if and when they adopt the UPSA, but I’m going to try to be as prepared as possible for that day when they do.  I want to do that personally and I want to do that with clients. So, if you have any questions about the series LLC. Interesting set one up, you need a series set up, or maybe need the operating agreement. Check our information below we would be happy to talk to you and see if we can help you in any way possible. I hope you enjoyed the video and be looking out for other videos about the series LLC I will be doing shortly. Have a good day.