Author: Jim Mosser

What Is A Series LLC?

By: James C. Mosser

This post is an overview of a longer article entitled “What Is A Series LLC?”

Many Texas practitioners deal with a client’s business formations as part of their everyday business or ancillary to the other matters they work on for clients. Since I am a lawyer at a small law firm, I am in the latter group.

I like the business formation landscape. There is plenty of interesting nuance and choices. This depends on the client and the purpose of the transaction. In certain circumstances, the new darling is the Limited Liability Company (LLC) and especially the Series LLC. The hot debate in Texas amongst those in the know concerns how to treat a Series LLC nonfiling entity.

Black’s Law Dictionary defines “entity” as “[a]n organization or being that possesses separate existence for tax purposes. Examples would be corporations, partnerships, estates and trusts. Entity includes person, estate, trust, governmental unit.”

However, there’s a problem with the supposedly official definition of an entity, which wrongly excludes the Series LLC.

Over the last two years, many Texas attorneys and commentators have discussed the Series LLC and advised that the nonfiling entity (Series) is not a legal entity. However, the Series specifically is described in the Business Organizations Code (BOC), starting at BOC 101.601. A scholarly reading of the BOC will reveal that these commentators are wrong.

Most commentators in Texas have decided that the Series LLC is not an entity. More egregious is that the Secretary of State has assumed the same position based on badly reasoned writings lacking in any legal theory or support. Then, to make matters worse, the State Comptroller has decided that the Secretary of State is the decision maker when it comes to determining what an entity is in the State of Texas, instead of the Texas legislature.

A reading of the state law given to us by the legislature shows the real definition: BOC 1.002, Definitions. At paragraph (18), “domestic entity” means an organization formed under or the internal affairs of which are governed by this code. This definitely includes the Series LLC.

However, because of the unfathomable attitude of the State Comptroller and the Secretary of State, we are left with a group of powerful regulators acting contrary to the Texas Constitution and the laws of Texas as passed by the Texas legislature!

So, who cares? You should care because if you are not a Texas filing entity according to the Comptroller, you pay taxes for the other Series entities that owe taxes, even if your Series does not owe any money.

A last note: Some commentators claim they do not know how a Series LLC will be treated by Texas (if it is foreign) or other non-Series States. I am not positive how it will be treated by Texas. But a properly formed Series LLC should be given the full faith and credit of the sister states old Public Acts and given effect to the “internal affairs doctrine related to the operations of a series limited liability company.” Art. IV, Sec. 1, of the United States Constitution.

Today, this leaves the Texas transactional practitioner in the position of not recommending the formation of a Series LLC in Texas. Maybe the real resolution is just to form multiple LLCs in Texas, as we have been doing for years.

To learn more about the Series LLC in Texas, read James Mosser’s full article, “What Is A Series LLC?”

As always, our blog posts are not legal advice and do not constitute an attorney-client relationship! If you want legal advice, you need to retain a lawyer.

Circuit Breakers for Stocks are Stupid

In the next few weeks, the SEC and the heads of various stock exchanges will be telling you how to invest your money. “ The biggest U.S. equity markets will urge regulators to begin a program next month for temporarily halting individual stocks that swing more than 10 percent…” So who does he, she, or they want to protect?

Well, according to former NYSE CEO Dick Grasso, they want to protect “the least sophisticated person in the market.”  Because “ [w]hen we protect that person, the market flourishes.

If you’re shorting your stock, circuit breakers don’t help you. If you’re long, circuit breakers don’t help you. It only impedes the market movement.

So why do we want to do this? Simple:  “they” want the amateurs to be safe. There is no professional trader that wants a circuit breaker to stop the market movement.  Well, unless he or she is on the wrong side of the trade. Then, of course, they want to be saved from their wrong decision.

If I’m long, I want the market to go up, unimpeded by the regulator’s circuit breaker. If I’m short, I want the market to go down unimpeded by the regulator’s circuit breaker.  And circuit breakers on individual stocks are a particularly bad idea for the dedicated trader. If Company X goes is verging on bankruptcy, that trader needs to dump his stock, but individual stock circuit breakers could prevent that transaction.

So what are they thinking about? They want to save you and your retirement dollar. WHAT? If they knew what they were talking about they would not talk. If I invested in any index fund 30 years ago, would I care about a circuit breaker? Of course not, I do not trade my retirement funds. I invest it and leave it there until I need to retire, 30 years later.

Ask anyone over 40, that has any experience in Las Vegas. Yes, Las Vegas. You only bet on sure things, and there are none in Las Vegas or on Wall Street. Bet against the house, any Wall Street firm or the Casino, and you lose. Invest in a no load indexed mutual fund, invest every week, day, month, year, the same amount all of the time, and you will end up with more money.

No one wins all of the time, every time.  Except the house, because they take a commission. That is why the banks, failed, why the traders failed, why if you gamble you fail. But if you are an investor you do not care. You invest money consistently every day, or month, or week, or year, all the time and you keep doing it, through the life of the your earning lifetime. You win.

If you gamble you may win, you may lose. If you trade, you do provide liquidity to the rest of the market. And you give the real investor the opportunity to leave the market 30 years after he or she started. Real investors do not panic. If the market is down when they invest it, always goes up. If the market is up when they invest, it always goes down.

Real investors never worry, because the market trend is always up. Yes, always. Go ahead, look at the market in 1776, and look at it today, ok, 1930 and today, 1950 and today, I do not care any day and today or any day plus 30 years. On a thirty year moving average, since 1776, the market has gone up. REALLY. Yes, there are flat parts. But it goes up.

So, no, I do not want somebody in Washington to decide when I should invest, or not invest, or turn the lights on, or turn the lights off. Let me decide, and let the gamblers take their chances.  Give me liquidity!

The Dow, down a 1000 points, was back up in two days, and down again. Did you correctly guess the direction, every hour, every day, of course not. No one did. No one can. Did you loose $1 trillion?

No.  No one did. The market goes up, and it goes down. Investors win, gamblers win some, lose some. And regulators keep trying to normalize a system built around (relatively) free-market forces.

Feeling wound up about this issue?  Go sit in on the SEC’s upcoming meeting.

Remember folks, at the end of the day there’s no substitute for having a lawyer of your own.


And as always, our blog postings are not legal advice, nor do they constitute an attorney-client relationship!