Series LLCs offer flexibility and asset protection, but for non-Texas investors, owning part of a Texas Series LLC could unintentionally trigger Franchise Tax nexus. In 2025, understanding when passive ownership becomes taxable presence is crucial to avoid penalties or unwanted filings.
What Is a Series LLC?
A Series LLC is a Texas entity structure under Texas Business Organizations Code §101.601–§101.621 that allows:
- One master LLC
- Multiple independent “series” or “cells”
- Each series has separate assets, liabilities, and members
Each series can operate like a mini-LLC, often used in real estate, investment portfolios, or multi-brand businesses.
What Triggers Nexus for Investors?
Nexus is a legal connection requiring tax reporting in Texas. Out-of-state investors can trigger nexus if they:
- Actively manage or control the Texas-based Series
- Receive pass-through income from Texas sources
- Engage in business activity through the Series
- Guarantee debts or participate in financial decisions
Passive investors in compliant, truly passive Series may not trigger nexus, but it’s a gray area.
What the Texas Comptroller Looks At
| Activity | Likely Nexus? |
|---|---|
| Passive investment (no control) | No |
| Voting rights or management authority | Yes |
| Services performed in Texas | Yes |
| Receiving rental income from Texas property | Yes |
| Sole member of a Texas Series | Yes |
Texas follows Substance Over Form , if you’re functionally doing business in Texas, you likely have nexus.
Example: California Investor in Texas Series LLC
Investor: Rahul (California resident)
Entity: LoneStar Prop Series LLC (Texas)
Involvement:
- Owns 40% of Series B
- Passive investor
- Receives rental distributions quarterly
Result:
- If Rahul does not manage the property or Series, no Franchise Tax nexus
- Must still report Texas-source income on federal return
- May receive Form 1099 or K-1 from the Series
Step-by-Step: Compliance for Out-of-State Owners
- Clarify your role: Are you passive or managing?
- Review the Series Agreement for voting/control language
- Track Texas-source income for federal reporting
- If nexus exists, register with Texas using Form AP-114 (Foreign Entity Registration)
- File Franchise Tax Report if required (Form 05-158-A)
Conclusion
Out-of-state investors in Texas Series LLCs need to be careful. Passive ownership generally avoids nexus, but anything resembling management, control, or income sourcing could require Texas tax registration and filing. In 2025, audit scrutiny around Series LLCs is expected to rise.
Call to Action
Schedule a consultation with Anshul Goyal, CPA, EA, FCA to review your Series LLC investment and determine whether you’re exposed to Texas nexus, Franchise Tax, or registration requirements.
Disclaimer:
This blog is intended for informational purposes only. Texas nexus law is based on activity, not residency. Series LLC investors should consult tax professionals for state-level compliance.
Top 5 High-Searched FAQs
1. Does passive investment in a Texas Series LLC trigger tax filing?
Usually no, unless there’s active involvement or Texas-source income.
2. What’s the difference between a Series LLC and a regular LLC?
A Series LLC has independent divisions (series) with separate assets and liabilities.
3. Do I need to register in Texas if I own a Series from out of state?
Only if you have nexus via management, income, or control.
4. Will I receive a K-1 from a Series LLC?
Yes, if you’re a member of a profitable Series.
5. Can one Series be taxed while others aren’t?
Yes, each Series is analyzed independently for nexus and tax.
About Our CPA
Anshul Goyal, CPA, EA, FCA advises U.S. and non-U.S. investors on Series LLC structures, nexus exposure, and state tax registration. With deep expertise in Texas tax law, he helps businesses and passive owners stay compliant while protecting their asset structures.