Background and Structure of the Texas Business Organizations Code Business and Public Filings Division
Statutory Revision Program J Section 323. 007 of the Texas Government Code directs that the Texas Legislative Council execute a permanent statutory revision program for the revision of the statutes on a topical or code basis. J Purpose of the program is to clarify and simplify the statutes and to make the statutes more accessible, understandable and usable. Business and Public Filings Division
Statutory Revision Program J TLC may not alter the sense, meaning or effect of the statute. J Statutory revision process is nearing completion with enacted codes covering almost all areas of the Texas statutes. Business and Public Filings Division
Creation of the State Bar Business Organizations Code Committee J Committee formed in 1995 by the Business Law Section of the State Bar to study codification of the statutes related to the formation of forprofit and non-profit entities. J Texas Legislative Council provided drafting assistance. Business and Public Filings Division
Composition of Committee J Attorneys from large law firms as well as solo practitioners. J Business law professors from the University of Texas, Baylor University and Southern Methodist University law schools. J Representatives from the Secretary of State. Business and Public Filings Division
Substantive Changes J Numbering and organization of business law statutes was changing. J BOC Committee used opportunity to harmonize the statutes and provide more uniformity among entity types. J Uses common provisions when possible. Business and Public Filings Division
History of Code J Originally introduced in 1999 legislative session. J Code enacted in 2003 to be effective on January 1, 2006. J Supplemented by HB 1319 by the 2005 Texas Legislature. Business and Public Filings Division
Purpose of HB 1319 J Incorporates changes to the source law made during the 2003 legislative session. J Fills gaps J Clarifies J Corrects minor errors Business and Public Filings Division
What Does the Code Change? J New organization of statutes J Standardization of provisions J New terminology J Simplification of filing provisions J More uniformity of filing fees Business and Public Filings Division
Texas Business Organizations Code Codifies the Following Statutes: J Texas Business Corporation Act J Texas Non-Profit Corporation Act J Texas Professional Association Act J Texas Miscellaneous Corporation Laws Act J Texas Revised Partnership Act J Texas Revised Limited Partnership Act Business and Public Filings Division
Texas Business Organizations Code Codifies the Following Statutes: J Texas Limited Liability Company Act J Texas Real Estate Investment Trust Act J Texas Cooperative Association Act J Texas Uniform Unincorporated Nonprofit Association Act …and other stuff Business and Public Filings Division
Does Not Include J Texas Business & Commerce Code Assumed Names Trademarks J Most special purpose corporations Economic development corporations Telephone cooperatives Electric cooperatives Business and Public Filings Division
Code Structure Provisions common to most forms of entities are placed in a single title with provisions specific to entity type being placed in separate titles. Title 1. General Provisions Title 2. Corporations Title 5. Real Estate Investment Trusts Title 3. Limited Liability Companies Title 6. Associations Title 4. Partnerships Title 8. Miscellaneous and Transition Provisions Business and Public Filings Division Title 7. Professional Entities
The Wheel Business and Public Filings Division
General Provisions Title 1 “The Hub” J Provisions applicable to most entities J Contains 12 chapters pulling together similar or overlapping provisions found in prior law J Intent--to standardize, organize, and simplify Business and Public Filings Division
Hub Chapters Title 1 J Chapter 1: Definitions (key chapter) J Chapter 2: Purposes and Powers of Texas entities (Prohibited Purposes) Business and Public Filings Division
More Hub Provisions J Chapter 3: Formation and Governance J Subchapter A--Requirements for certificates of formation for all entities J Subchapter B--Amendments and restatements Business and Public Filings Division
Chapter 4 J Filings J Subchapter A--General provisions applicable to signatures, liability for false filing instruments, facsimile copies J Subchapter B--When Filings Take Effect General rule: On Filing Delayed effective dates and conditions Abandonments before effectiveness Business and Public Filings Division
Chapter 4 Continued J Subchapter C: Certificates of correction J Subchapter D: FILING FEES! All Entities 4. 151 For-Profit 4. 152 Nonprofit 4. 153 etc. Business and Public Filings Division
Chapter 5 J Names of Entities; Registered Agents and Registered Offices J Subchapter B: Names 3 May use assumed name 3 Unauthorized purpose in name prohibited 3 May not be same as or deceptively similar Business and Public Filings Division
More on Names in Chapter 5 J Organizational identifiers for all names J Professional entity names must not be contrary to regulatory statute J Cannot use “Lotto” or “Lottery” J Unauthorized use of certain words in veterans organizations Business and Public Filings Division
Chapter 5 J Name reservations in Subchapter C J Name registrations in Subchapter D Business and Public Filings Division
Registered Agents and Offices Subchapter E J Designation of agent and office J Changes to registered agent/office J Change by a registered agent to name or address J Resignation of registered agent Business and Public Filings Division
Other Chapters J Chapter 6: Meetings and Voting J Chapter 7: Liability J Chapter 8: Indemnification and Insurance Business and Public Filings Division
Chapter 9: Foreign Entities J J J Foreign entities required to register Permissive registration Registration procedures Name changes Withdrawal of registration Business and Public Filings Division
Chapter 9 Again J Failure to register--late filing fee J Revocation of registration by SOS J Reinstatement after revocation J Activities not constituting the transaction of business Business and Public Filings Division
Chapter 10: Mergers, Interest Exchanges, Conversions and Sales of Assets J Subchapter A--Mergers J Subchapter B--Exchanges of Interests J Subchapter C--Conversions J Subchapter D--Certificates filed with the SOS J Subchapter E--Abandonment of Merger, Exchange, or Conversion Business and Public Filings Division
Chapter 11: Winding up and Termination J The new dissolution provisions J Includes voluntary and involuntary terminations J Also reinstatement procedures Business and Public Filings Division
Chapter 12 Administrative Powers of SOS and OAG J Adoption of procedural rules J Interrogatories J Appeal from SOS decisions Business and Public Filings Division
The Spokes Title 2 through Title 8 Business and Public Filings Division
Title 2 Corporations For-Profit Nonprofit Special-Purpose Corporations Lodges Business and Public Filings Division
Title 3 Limited Liability Companies Business and Public Filings Division
Title 4 Partnerships General Partnerships Limited Liability Partnerships Limited Partnerships Business and Public Filings Division
Title 5 Real Estate Investment Trusts Business and Public Filings Division
Title 6 Associations Cooperative Associations Unincorporated Nonprofit Associations Business and Public Filings Division
Title 7 Professional Entities Professional Associations Professional Corporations Professional Limited Liability Companies Business and Public Filings Division
Title 8 Miscellaneous and Transition Provisions When the Code takes effect When it applies to entities already in existence What happens to the TBCA and other existing laws Business and Public Filings Division
Structure and Organization Texas Business Organizations Code Title 1 Chapters 1, 4, & 5 Common Provisions Apply to all entities Title 2 Title 3 Title 4 Title 5 Title 6 Title 7 Corporations Limited Liability Companies Partnerships REITS Associations Professional Entities Chap. 20 Chap. 151 Chap. 22 For-profit Corporation Nonprofit Corporation Chap. 251 Chap. 252 General Provisions Cooperative Association Unincorporated Nonprofit Associations Chap. 152 General Provisions Definitions Chap. 153 General Partnership (LLPs) Chap. 301 Limited Partnership Chap. 304 Chap. 302 Chap. 303 Professional Limited Liability Co. Professional Association Professional Corporation
Navigating the BOC J Look to Title 1 for the general provision J Then look to the specific title governing the entity --The “spoke” E. g. , corporations--Title 2 If the provision of Title 1 conflicts with a provision in the specific title governing the entity, the provision in the specific title supercedes the provision in Title 1. Business and Public Filings Division
Navigating the BOC Professional Entities J Look to Title 1 for the general provision J Then look to the specific title governing the professional entity--The “spoke” E. g. , Title 7 J Also look to the spoke provision for the type of professional entity-- E. g. , Title 2 for a professional corporation; Title 3 for a professional limited liability company. Business and Public Filings Division
Short Titles for Spoke Provisions J Texas Corporation Law Title 2 and Title 1 to the extent applicable to corporations J Texas For-Profit Corporation Law Chapters 20 and 21 and Title 1. . . Business and Public Filings Division
Short Titles for Spoke Provisions J Texas Nonprofit Corporation Law Chapters 20 and 22 and Title 1…. J Texas Limited Liability Company Law Title 3 and Title 1…. Business and Public Filings Division
Short Titles for Spoke Provisions J Texas General Partnership Law Chapters 151, 152 and 154 and Title 1… J Texas Limited Partnership Law Chapters 151, 153 and 154 and Title 1. . . Business and Public Filings Division
Short Titles for Spoke Provisions J Texas Real Estate Investment Trust Law Title 5 and the provisions of Title 1… J Texas Cooperative Association Act Chapter 251 and the provisions of Title 1. . . Business and Public Filings Division
Short Titles for Spoke Provisions J Texas Professional Entities Law Title 7 and the provisions of Titles 1, 2 & 3… J Uniform Unincorporated Nonprofit Association Act Chapter 252 Business and Public Filings Division
Short Title for Spoke Provisions J Texas Professional Association Law Chapters 301 and 302, and Chapters 20 and 21 and Title 1… J Texas Professional Corporation Law Chapters 301 and 303, and Chapters 20 and 21 and Title 1. . . Business and Public Filings Division
Short Titles for Spoke Provisions J Texas Professional Limited Liability Company Act Chapters 301 and 304 and the provisions of Title 1 and Title 3. . . Business and Public Filings Division
Continuing Role of the BOC Committee J To further identify opportunities for clarification or correction J To monitor legislation to existing law to determine whether BOC should be amended J To prepare a commentary for the BOC by the mandatory application date Send suggestions for clarification, corrections or enhancement to corphelp@sos. state. tx. us Business and Public Filings Division
The Business Organizations Code Effective Dates and Transition Issues Business and Public Filings Division
The Business Organizations Code Effective Dates and Transition Issues • Current law (such as the TBCA, the LLC Act, etc) will govern formation filings received and accepted for filing on or before December 31, 2005. • BOC will govern formation filings and foreign registrations received on or after January 1, 2006. Business and Public Filings Division
Non-Code Entities Current law will continue to govern entities formed prior to January 1, 2006 (which we will call Non-Code Entities) until January 1, 2010, UNLESS such entities “opt into” the Code, which they may do at any time on or after January 1, 2006, by making a filing with the SOS. Business and Public Filings Division
Filing Fees Effective January 1, 2006 • All filing fees will be subject to the BOC. New BOC fee schedule has been posted on our website. • Common fee provisions for certificates of correction, name reservations, name registrations, merger, conversion, interest exchange, and pre-clearance of a filing instrument. • BOC extends $50 limited partnership pre-clearance fee to any filing instrument for any filing entity. Business and Public Filings Division
Filing Fees Effective January 1, 2006 • Generally, fees under the BOC will be standardized to be consistent with TBCA fees. • LLC fees increased. Formation of LLC will cost $300. • LP fees--some fees increased, but many fees decreased. Formation filing fee still $750. Business and Public Filings Division
Filing Fees Effective January 1, 2006 • Formation fee for filing a professional association will be $750. PA’s and LP’s do not pay Franchise Tax. • Generally, fees for nonprofit corporations will not change. Business and Public Filings Division
Transition Issues Early Adoption of the Code Can I file an election to adopt the BOC before January 1, 2006? No, UNLESS it is filed with a delayed effective date of January 1, 2006 or later. Business and Public Filings Division
Transition Issues Early Adoption of the Code Will adding a statement to my articles of organization that the LLC elects to adopt the BOC on its effective date be sufficient to adopt the BOC before Jan. 2010? No. Although such language may express the intent of the parties, you will still need to file the early adoption statement with the SOS on or after 01/01/2006 if you wish to adopt the BOC before 01/01/2010. Business and Public Filings Division
Transition Issues Early Adoption of the Code Does the Secretary of State have “opt in” or “early adoption” forms? YES When will they be made available? Today, on the CD in your packet. Forms will be posted on our web site in mid-December 2005. Business and Public Filings Division
Transition Issues Early Adoption of the Code What is the filing fee for an early adoption statement? The filing fee will be $15, unless the entity is a nonprofit corporation or cooperative association. The filing fee for a nonprofit corporation or cooperative association will be $5. Business and Public Filings Division
WHY WOULD A NONBOC ENTITY OPT-IN? 1. Fact driven decision 2. Reinstatement Issues 3. Amend registration to identify true entity type of foreign entity qualified as foreign LLC 4. Cross-entity mergers Business and Public Filings Division 5. Amend registration to reflect change relating to merger or conversion
Opt-in and Comply? • Art. 402. 003 of the Code states that a domestic filing entity may adopt the Code by following amendment procedures to opt-in and by causing “its governing documents to comply with this Code”. • Similar to 9. 14 of the TBCA • Most likely scenario is LP formed prior to 1987 with no organizational ending in its name. File early adoption to opt -in & file amendment. Business and Public Filings Division
Transition Issues Application of BOC Section 402. 006 of the Code states that existing statutes will continue to govern the acts, contracts and transactions of non-Code entities until 1/1/2010 (unless they adopt the Code). Business and Public Filings Division
Transition Issues Application of BOC to LLPs Partnership formed and registered as LLP before 1/1/2006: ü Effective registration under prior law continues to be governed by prior law until expiration of its current term of registration. Renewal governed by BOC. Prior law continues to govern other matters until 1/1/2010, unless BOC earlier adopted. Business and Public Filings Division
Transition Issues Application of BOC to LLPs Partnership formed before 1/1/2006, but making its initial registration as an LLP on or after 1/1/2006: ü Registration as LLP, renewal of that registration and liability of partners governed by BOC. Prior law would continue to govern other partnership matters until 1/1/2010 unless BOC earlier adopted. Business and Public Filings Division
Conversions üConversions submitted by Non-Code Entities (entities formed prior to January 1, 2006) with a delayed effective date of January 1, 2006 or later must be filed in accordance with current law but with the BOC filing fee. The converted entity will be a BOC entity. Business and Public Filings Division
Mergers üMergers submitted with a delayed effective date of January 1, 2006 or later: üNon-Code entities will be governed by prior law. üBOC will apply to any new domestic entity created by the plan of merger. 4 BOC formation fee for each domestic filing entity created by the plan of merger must be included in filing fee. Business and Public Filings Division
Conversions üOne change made by the BOC, on or after January 1, 2006, Conversions to Nonprofit Corporations are like other conversions, i. e. they can be done in one step instead of two. The certificate of formation for the nonprofit must have the extra language concerning the prior (converting) entity. üHowever, we will still not be able to convert a Texas nonprofit corporation to any other entity. Business and Public Filings Division
Special Transition Issues Indemnification - Section 402. 007 Meetings, Consents and Voting - Section 402. 008 Sales of Assets - Section 402. 009 Winding up and Termination - Section 402. 011 Unregistered Foreign Entities - Section 402. 012 Business and Public Filings Division
Transition Issues Expiration of Prior Law All prior law continues in effect (except fees). Provisions have been added to all of the Acts being codified to indicate that they will expire on January 1, 2010. Business and Public Filings Division
New Vocabulary & Synonymous Terms Business and Public Filings Division
Organization— a corporation, LP, general partnership, LLC, business trust, REIT, joint venture, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association, or any other organization, regardless of whether it is forprofit, nonprofit, domestic, or foreign. Entity— domestic entity or foreign entity. Business and Public Filings Division
Domestic Entity—an organization formed under or the internal affairs of which are governed by the BOC. (Does not include banks, insurance companies, telephone cooperatives, or other corporations formed under a Texas law other than the BOC. ) Nonfiling Entity—a domestic entity that is not a filing entity. (Includes unincorporated nonprofit associations and domestic general partnerships. ) Filing Entity—a domestic entity that is a corporation, LP, LLC, PA, cooperative, or REIT. (Does not include LLPs. ) Business and Public Filings Division
Foreign Entity—an organization formed under, and the internal affairs of which are governed by, the laws of a jurisdiction other than Texas. Foreign Filing Entity—a foreign entity that registers or is required to register as a foreign entity under Chapter 9 of the BOC. (Includes out-of-state business trusts/REITs. ) Foreign Nonfiling Entity—a foreign entity that is not a foreign filing entity. (Includes foreign LLP. ) Business and Public Filings Division
Governing Authority—a person or group of persons who is entitled to manage and direct the affairs of an entity under the BOC and the entity’s governing documents. Includes üboard of directors of a corporation; ügeneral partners of a general partnership or LP; ümanagers or managing-members of LLC. Does not include û an officer. Business and Public Filings Division
Governing Person—a person serving as part of a governing authority. Officer—an individual elected, appointed, or designated as an officer of an entity by the entity’s governing authority or under the entity’s governing documents. Managerial Official—officer or governing person. Individual—a natural person. BOC clarifies that officers and directors must be individuals. Business and Public Filings Division
Governing Documents For domestic entities: ü its certificate of formation (or any other document or agreement under which it was formed); PLUS ü other documents or agreements adopted by the entity under the BOC to govern the formation or the internal affairs of the entity. Business and Public Filings Division
Governing Documents For foreign entities: ü the instruments, documents, or agreements adopted under the law of its jurisdiction of formation to govern its formation or internal affairs. Business and Public Filings Division
Owner üIn a domestic corporation, foreign corporation, domestic REIT, or foreign REIT: a shareholder. üIn a foreign or domestic partnership: a partner. üIn a foreign or domestic LLC or PA: a member. üIn any other foreign or domestic entity: an owner of an equity interest in the entity. Business and Public Filings Division
Ownership Interest An owner’s interest in an entity. Includes üowner’s right to receive distributions üowner’s share of profits and losses Does not include ûowner’s right to participate in management Business and Public Filings Division
Filing Instrument —instrument, document, or statement that is required or authorized by the BOC to be filed by or for an entity with the filing officer Filing Officer —For all entities other than domestic REIT: Secretary of State. For domestic REIT: county clerk. Business and Public Filings Division
A Note About BOC “Nonprofits” • • A nonprofit entity includes nonprofit corporations, nonprofit associations, as well as LLCs or other entities that are organized solely for one or more of the nonprofit purposes specified by Sec. 2. 002 of the BOC. Nonprofit purposes include: – – Providing professional, commercial, or trade associations; and Serving charitable, benevolent, religious, fraternal, social, educational, athletic, patriotic, and civic purposes. Business and Public Filings Division
A Note About BOC “Nonprofits” • If the BOC refers to a nonprofit corporation, it does not include other nonprofit entities. – For example, fees for nonprofit corporations do not apply to LLCs that have a nonprofit purpose. – Periodic reports required to be filed by nonprofit corporations are not required of other nonprofit entities. Business and Public Filings Division
Articles of Incorporation, Articles of Organization, Articles of Association, & Certificate of Limited Partnership CERTIFICATE OF FORMATION Business and Public Filings Division
Upon filing a certificate of formation, the SOS will issue an “acknowledgment, ” which is conclusive evidence of the entity’s formation, existence, and authority to transact business in Texas. ü SOS will issue a letter of acknowledgement and a certificate evidencing filing. Business and Public Filings Division
Application for Certificate of Authority App’n for Registration of Foreign LP Statement of Qual. of Foreign LLP Application for Registration Business and Public Filings Division
Articles of Dissolution Certificate of Cancellation Business and Public Filings Division Certificate of Termination
Not To Be Confused With…. Q: What happens when a foreign filing entity that is registered in Texas terminates its existence in its home state? Business and Public Filings Division
• It must file evidence of termination from its home state with the Texas SOS. • Its registration with Texas terminates once the evidence is filed. • A foreign filing entity registered in Texas that has not terminated in its home state but that has ceased to do business in Texas can withdraw its registration by filing a certificate of withdrawal. Business and Public Filings Division
Art. of Amendment = Cert. of Amendment Art. of Merger = Art. of Exchange = Cert. of Merger Cert. of Exchange Art. of Conversion = Cert. of Conversion Business and Public Filings Division
LLLPs a/k/a “Triple. LPs” • The BOC defines a “limited liability limited partnership” as a limited partnership (LP) that is registered as a limited liability partnership (LLP). Business and Public Filings Division
Certificate of Abandonment • Can abandon any filing instrument before it has become effective. BOC 4. 057. • Certificate of Abandonment must state: – the nature of the instrument – the date of the instrument – the parties to the instrument – that the instrument has been abandoned in accordance with the agreement of the parties. Business and Public Filings Division
Certificate of Abandonment • The Certificate must be signed on behalf of each entity that is a party to the instrument. • Parties seeking to abandon a merger, conversion or exchange prior to effectiveness, file a certificate of abandonment. • Filing Fee: $15 ($5 for nonprofit) Business and Public Filings Division
Other New Definitions in the BOC Ø Fundamental business transaction Ø Individual Ø Cooperative association Ø Insolvent Ø Law Ø License Business and Public Filings Division Ø Company agreement Ø Certificated ownership interest Ø Uncertificated ownership interest Ø Domestic entity subject to dissenters’ rights Ø Short titles
Filing Fees Business and Public Filings Division
Filing Fees ü BOC filing fees are effective January 1, 2006, for all filings whether made by a BOC or non-BOC entity. ü For filing instruments with a delayed effective date on or after Jan. 1, 2006, the BOC fees apply. Business and Public Filings Division
Pre-Clearance Fee Currently, the only fee imposed for preclearance is for LP documents. Under the BOC, the fee for preclearing any filing instrument is $50. Business and Public Filings Division
Old Fees Articles of Association for Prof. Association: $200 Articles of Organization for LLC: $200 Registration of foreign Corp, & LP name: $75 Reservation of LP name: $50 Transfer of Reserved LP name: $50 BOC Fees Certificate of Formation: $750 Certificate of Formation: $300 Registration/renewal of any foreign name: $40 Reservation of any name: $40 Transfer of any reserved name: $15
Old Fees Certificate Amendment (to an LP Certificate): $200 Restated Certificate of LP: $200 BOC Fees Certificate of Amendment to any Certificate of Formation: $150 (Nonprofit corps: $25) Restated Certificate of Formation: $300 (Nonprofit corps: $50) Cert. of Cancellation of Certificate of Termination: Cert. of LP: $200 $40 (Nonprofit corps: $5) Revocation of voluntary Cancellation: $25 cancellation: $15
Old Fees Change of RA or RO for LPs: $50; For LLCs: $10 LLC fees Certification of Correction (LPs): $200 BOC Fees Change of RA or RO for all entities: $15 (Nonprofits corps: $5) Fees for domestic and foreign LLCs are the same as domestic and foreign for -profit corporations Certificate of Correction (all entities, including nonprofit corps): $15
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