Our office recently encountered a new complication with an individual, protected series of a Texas Series LLC and assumed name certificates that resulted from the recent passage of Texas House Bill 3609, which went into effect September 1, 2019. For a quick recap of the law regarding Texas Series LLCs and assumed name certificates H.B. 3609, we first must look to the now outdated Section 71.103(a) of the Tex. Business & Commerce Code, which (until September 1) indicated that “a corporation, limited partnership, limited liability partnership, limited liability company, or foreign filing entity…shall file the [assumed name] certificate in the office of the secretary of state and in the office or offices of each county clerk” (emphasis added).
Basically, if you filed as an incorporated entity (LLC, Series LLC, corporation, etc.) with the Texas Secretary of State and conducted business using a name other than the one in which you officially filed with the Texas Secretary of State, you were required to file an assumed name certificate with both the Texas Secretary of State and the county or counties in which you primarily conducted business.
However, H.B. 3609 eliminated the requirement to file “in the office or offices of each county clerk.” In practice, this means that assumed names for an incorporated entity, including a Texas Series LLC, may only be filed with the Texas Secretary of State now. We have already seen in our practice that Texas counties will no longer accept assumed name certificates for incorporated entities. In fact, representatives from the counties we have spoken with so far have indicated that an assumed name certificate with any mention of “LLC,” “Corp.,” “Inc.,” or other typical designation of an incorporated entity will not be accepted.
While this may not seem like a vital issue, it has significant ramifications for an individual series of a Texas Series LLC that wishes to operate under an assumed name. In the past, we often had clients file assumed names for an individual series in the county in which the series operated. For instance, if XYZ LLC – Series A wanted to conduct business (open a bank account, make business cards, draft up contracts, etc.) as “500 Main Street Holdings” in Travis County, we could simply file an assumed name certificate for XYZ LLC – Series A d/b/a (doing business as) 500 Main Street Holdings with the Travis County Clerk’s office. Now, as a result of H.B. 3609, we can no longer do this.
To further complicate matters, the Texas Secretary of State has long held that an individual series of a Texas Series LLC is not a legitimate filing entity, and thus cannot file an assumed name certificate. Effectively, H.B. 3609 has rendered it impossible for an individual series of a Texas series LLC to file an assumed name certificate at any level of government in Texas. We confirmed with a representative of the Texas Secretary of State today (October 11, 2019) that the passing of H.B. 3609 did not create an avenue for filing an assumed name certificate for an individual series at the state level, and that an individual series of a Series LLC still cannot file an assumed name certificate with the Secretary of State despite the bill’s prohibitions against filing at the county level.
The practical implication of this for real estate investors is that operating one specific individual series of a Texas Series LLC as a management arm for the properties held by other individual series of the same Texas Series LLC is now highly discouraged. While we have never recommended using an individual series as a management arm of a series LLC due to potential veil piercing arguments, we reluctantly have drafted management series for clients who understood these risks and were abundantly clear that they did not want to create a separate traditional Texas LLC for the sole purpose of being a management arm of their real estate holdings.
Generally, our point of compromise for clients who understood these risks was to have them file an assumed name certificate for the management series in the county in which they primarily operated out of. So, if XYZ LLC – Management Series was created for the sole purpose of being the management arm of XYZ LLC’s other properties being held in separate, individual series, we would have the clients file an assumed name as “XYZ Property Management,” or something similar. While not a perfect means of isolating the management risks from the properties, it was a better alternative than clients drafting landlord/tenant agreements under the actual series name. Now, with the passage of H.B. 3609, clients can no longer do this.
This also means that entrepreneurs using a Series LLC will need to be more aware of their naming conventions for each individual series, as H.B. 3609 eliminates all methods of filing an assumed name certificate for an individual series. In essence, the formal name of each individual series is the only name that series can use currently.
If you have any questions about Texas Series LLCs or would like more information about forming one, please feel free to call us at (817) 677-1199 [Monday – Saturday between 9:00 AM and 9:00 PM].