Transcript Slide 1

Background and Structure
of the
Texas Business Organizations Code
Business and Public Filings Division
Statutory Revision Program
 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.
 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
 TLC may not alter the sense, meaning or
effect of the statute.
 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
 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.
 Texas Legislative Council provided drafting
assistance.
Business and Public Filings Division
Composition of Committee
 Attorneys from large law firms as well as solo
practitioners.
 Business law professors from the University
of Texas, Baylor University and Southern
Methodist University law schools.
 Representatives from the Secretary of State.
Business and Public Filings Division
Substantive Changes
 Numbering and organization of business law
statutes was changing.
 BOC Committee used opportunity to
harmonize the statutes and provide more
uniformity among entity types.
 Uses common provisions when possible.
Business and Public Filings Division
History of Code
 Originally introduced in 1999 legislative
session.
 Code enacted in 2003 to be effective on
January 1, 2006.
 Supplemented by HB 1319 by the 2005 Texas
Legislature.
Business and Public Filings Division
Purpose of HB 1319
 Incorporates changes to the source law made
during the 2003 legislative session.
 Fills gaps
 Clarifies
 Corrects minor errors
Business and Public Filings Division
What Does the Code Change?
 New organization of statutes
 Standardization of provisions
 New terminology
 Simplification of filing provisions
 More uniformity of filing fees
Business and Public Filings Division
Texas Business Organizations Code
Codifies the Following Statutes:
 Texas Business Corporation Act
 Texas Non-Profit Corporation Act
 Texas Professional Corporation Act
 Texas Professional Association Act
 Texas Miscellaneous Corporation Laws Act
 Texas Revised Partnership Act
 Texas Revised Limited Partnership Act
Business and Public Filings Division
Texas Business Organizations Code
Codifies the Following Statutes:
 Texas Limited Liability Company Act
 Texas Real Estate Investment Trust Act
 Texas Cooperative Association Act
 Texas Uniform Unincorporated Nonprofit
Association Act
…and other stuff
Business and Public Filings Division
Does Not Include
 Texas Business & Commerce Code
Assumed Names
Trademarks
 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”
 Provisions applicable to most entities
 Contains 12 chapters pulling together similar
or overlapping provisions found in prior law
 Intent--to standardize, organize, and simplify
Business and Public Filings Division
Hub Chapters
Title 1
 Chapter 1: Definitions (key chapter)
 Chapter 2: Purposes and Powers of Texas
entities (Prohibited Purposes)
Business and Public Filings Division
More Hub Provisions
 Chapter 3: Formation and Governance
 Subchapter A--Requirements for
certificates of formation for all entities
 Subchapter B--Amendments and
restatements
Business and Public Filings Division
Chapter 4
 Filings
 Subchapter A--General provisions
applicable to signatures, liability for false
filing instruments, facsimile copies
 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
 Subchapter C: Certificates of
correction
 Subchapter D: FILING FEES!
All Entities 4.151
For-Profit 4.152
Nonprofit 4.153 etc.
Business and Public Filings Division
Chapter 5
 Names of Entities; Registered Agents and
Registered Offices
 Subchapter B: Names
May use assumed name
Unauthorized purpose in name
prohibited
May not be same as or deceptively
similar
Business and Public Filings Division
More on Names in Chapter 5
 Organizational identifiers for all names
 Professional entity names must not be
contrary to regulatory statute
 Cannot use “Lotto” or “Lottery”
 Unauthorized use of certain words in
veterans organizations
Business and Public Filings Division
Chapter 5
 Name reservations in Subchapter C
 Name registrations in Subchapter D
Business and Public Filings Division
Registered Agents and Offices
Subchapter E
 Designation of agent and office
 Changes to registered agent/office
 Change by a registered agent to name or
address
 Resignation of registered agent
Business and Public Filings Division
Other Chapters
 Chapter 6: Meetings and Voting
 Chapter 7: Liability
 Chapter 8: Indemnification and Insurance
Business and Public Filings Division
Chapter 9: Foreign Entities





Foreign entities required to register
Permissive registration
Registration procedures
Name changes
Withdrawal of registration
Business and Public Filings Division
Chapter 9 Again
 Failure to register--late filing fee
 Revocation of registration by SOS
 Reinstatement after revocation
 Activities not constituting the transaction
of business
Business and Public Filings Division
Chapter 10: Mergers, Interest Exchanges,
Conversions and Sales of Assets
 Subchapter A--Mergers
 Subchapter B--Exchanges of Interests
 Subchapter C--Conversions
 Subchapter D--Certificates filed with the
SOS
 Subchapter E--Abandonment of Merger,
Exchange, or Conversion
Business and Public Filings Division
Chapter 11: Winding up
and Termination
 The new dissolution provisions
 Includes voluntary and involuntary
terminations
 Also reinstatement procedures
Business and Public Filings Division
Chapter 12
Administrative Powers of SOS and OAG
 Adoption of procedural rules
 Interrogatories
 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. 251
Chap. 252
General
Provisions
General
Provisions
Chap. 301
Cooperative
Association
Unincorporated
Nonprofit
Associations
General Provisions
Definitions
Chap. 21
Chap. 22
For-profit
Corporation
Nonprofit
Corporation
Chap. 152
Chap. 153
General
Partnership
(LLPs)
Limited
Partnership
Chap. 304
Chap. 302
Chap. 303
Professional
Limited Liability Co.
Professional
Association
Professional
Corporation
Navigating the BOC
 Look to Title 1 for the general provision
 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
 Look to Title 1 for the general provision
 Then look to the specific title governing the
professional entity--The “spoke” E.g., Title 7
 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
 Texas Corporation Law
Title 2 and Title 1 to the extent applicable to
corporations
 Texas For-Profit Corporation Law
Chapters 20 and 21 and Title 1...
Business and Public Filings Division
Short Titles for Spoke Provisions
 Texas Nonprofit Corporation Law
Chapters 20 and 22 and Title 1….
 Texas Limited Liability Company Law
Title 3 and Title 1….
Business and Public Filings Division
Short Titles for Spoke Provisions
 Texas General Partnership Law
Chapters 151, 152 and 154 and Title 1…
 Texas Limited Partnership Law
Chapters 151, 153 and 154 and Title 1...
Business and Public Filings Division
Short Titles for Spoke Provisions
 Texas Real Estate Investment Trust Law
Title 5 and the provisions of Title 1…
 Texas Cooperative Association Act
Chapter 251 and the provisions of Title 1...
Business and Public Filings Division
Short Titles for Spoke Provisions
 Texas Professional Entities Law
Title 7 and the provisions of Titles 1, 2 & 3…
 Uniform Unincorporated Nonprofit
Association Act
Chapter 252
Business and Public Filings Division
Short Title for Spoke Provisions
 Texas Professional Association Law
Chapters 301 and 302, and Chapters 20 and 21
and Title 1…
 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
 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
 To further identify opportunities for
clarification or correction
 To monitor legislation to existing law to
determine whether BOC should be amended
 To prepare a commentary for the BOC by the
mandatory application date
Send suggestions for clarification, corrections or
enhancement to [email protected]
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:
 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:
 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
Conversions 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
Mergers submitted with a delayed effective date of
January 1, 2006 or later:
Non-Code entities will be governed by prior law.
BOC will apply to any new domestic entity created by
the plan of merger.
 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
One 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.
However, 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
board of directors of a corporation;
general partners of a general partnership or LP;
managers or managing-members of LLC.
Does not include
 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:
 its certificate of formation (or any other document
or agreement under which it was formed); PLUS
 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:
 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
In a domestic corporation, foreign corporation,
domestic REIT, or foreign REIT: a shareholder.
In a foreign or domestic partnership: a partner.
In a foreign or domestic LLC or PA: a member.
In 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
owner’s right to receive distributions
owner’s share of profits and losses
Does not include
owner’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.
 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
=
Cert. of Merger
Art. of Exchange = Cert. of Exchange
Art. of Conversion = Cert. of Conversion
Business and Public Filings Division
LLLPs
a/k/a “TripleLPs”
•
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
 Fundamental business
transaction
 Individual
 Cooperative
 Cooperative association
 Insolvent
 Law
 License
Business and Public Filings Division
 Company agreement
 Certificated
ownership interest
 Uncertificated
ownership interest
 Domestic entity
subject to dissenters’
rights
 Short titles
Filing Fees
Business and Public Filings Division
Filing Fees
 BOC filing fees are effective January 1,
2006, for all filings whether made by a BOC
or non-BOC entity.
 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
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