Transcript Slide 1
The New Business Organizations Code And How it Applies to Nonprofit Corporations Michael Powell Office of the Secretary of State 18th Annual Texas Crime Stoppers Conference San Antonio, Texas May 19, 2006
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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.
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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.
The BOC was not a TLC statutory revision. The BOC was a product of a State Bar Ad Hoc Committee and does include changes.
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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
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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 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 3. Limited Liability Companies Title 4. Partnerships Title 5. Real Estate Investment Trusts Title 6. Associations Title 7. Professional Entities Title 8. Miscellaneous and Transition Provisions
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The Wheel
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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
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Hub Chapters
Title 1 Chapter 1: Definitions (key chapter) Chapter 2: Purposes and Powers of Texas entities (Prohibited Purposes)
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More Hub Provisions
Chapter 3: Formation and Governance Subchapter A--Requirements for certificates of formation for all entities Subchapter B--Amendments and restatements
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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
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Chapter 4 Continued
Subchapter C: Certificates of correction Subchapter D:
FILING FEES!
All Entities 4.151
For-Profit Nonprofit 4.152
4.153 etc.
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Filing Fees
Nonprofit Corporations Fees for nonprofit corporation filings remain the same.
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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
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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
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Chapter 5
Name reservations in Subchapter C Name registrations in Subchapter D
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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
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Other Chapters
Chapter 6: Meetings and Voting Chapter 7: Liability Chapter 8: Indemnification and Insurance
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Chapter 9: Foreign Entities
Foreign entities required to register Permissive registration Registration procedures Name changes Withdrawal of registration
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Chapter 9 Again
Failure to register--
late filing fee
Revocation of registration by SOS Reinstatement after revocation Activities not constituting the transaction of business
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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
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Chapter 11: Winding up and Termination
The new dissolution provisions Includes voluntary and involuntary terminations Also reinstatement procedures
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Chapter 12 Administrative Powers of SOS and OAG
Adoption of procedural rules Interrogatories Appeal from SOS decisions
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The Spokes
Title 2 through Title 8
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Title 2
Corporations For-Profit
Nonprofit
Special-Purpose Corporations Lodges
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Title 6
Associations Cooperative Associations
Unincorporated Nonprofit Associations Business and Public Filings Division
Structure and Organization Texas Business Organizations Code
Title 1 Common Provisions Apply to all entities Chapters 1, 4, & 5 Title 2 Corporations Title 3 Limited Liability Companies Title 4 Partnerships Chap. 20 General Provisions Chap. 21 For-profit Corporation Chap. 22 Nonprofit Corporation Chap. 151 General Provisions Title 5 REITS Title 6 Associations Title 7 Professional Entities Chap. 251 Cooperative Association Chap. 252 Unincorporated Nonprofit Associations Chap. 301 General Provisions Definitions Chap. 152 General Partnership (LLPs) Chap. 153 Limited Partnership Chap. 304 Professional Limited Liability Co.
Chap. 302 Professional Association Chap. 303 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.
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Short Titles for Spoke Provisions
Texas Corporation Law Title 2 and Title 1 to the extent applicable to corporations Texas Nonprofit Corporation Law Chapters 20 and 22 and Title 1 to the extent applicable to nonprofit corporations
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The Business Organizations Code Effective Dates and Transition Issues
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Effective Dates of Code
Applies to all new Texas entities created on or after January 1, 2006.
Applies to all foreign filing entities registering with the SOS after January 1, 2006.
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Effective Date for Existing Entities
On January 1, 2010,the “mandatory” application date, BOC applies to domestic entities existing and foreign filing entities registered with SOS before January 1, 2006.
Existing entities may opt in earlier by filing a statement of early adoption with the SOS.
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Non-Code Entities
Source law, such as the Texas Non-Profit Corporation Act will continue to govern entities formed prior to January 1, 2006 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.
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Transition Issues
Early Adoption of the Code Does the Secretary of State have “opt in” or “early adoption” forms?
YES Use Form 808 for early election by Texas nonprofits; use form 809 for early election by foreign or out-of-state entities.
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Transition Issues
Early Adoption of the Code What is the filing fee for an early adoption statement?
The filing fee for a nonprofit corporation or cooperative association is $5.
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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”.
• SOS will not require amendments to governing documents as a precondition to filing the opt-in statement.
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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 January 1, 2010 (unless they adopt the Code).
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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.
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Transition Issues
What does a nonprofit corporation need to do on January 1, 2010?
No action is necessary. The BOC is automatically applicable to the nonprofit corporation on January 1, 2010. If necessary, the corporation shall conform its governing documents to the BOC when it next files an amendment to its certificate of formation.
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What Does the Code Change?
New organization of statutes Standardization of provisions New terminology Simplification of filing provisions
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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.
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Code Does
Not
Change the management structure Change the liability of the entity or its principals Change the operation of the entity Change the way external parties do business with the entity Change state agencies enforcement activities against those entities
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New Vocabulary & Synonymous Terms
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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 for profit,
nonprofit
, domestic, or foreign.
Entity
— domestic entity
or
foreign entity .
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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.)
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Filing Entity
—a
domestic entity
that is a corporation (
including a nonprofit corporation
), LP, LLC, PA, cooperative, or REIT. (Does
not
include LLPs.)
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
is required to register as a foreign entity under Chapter 9 of the BOC (
Includes out-of-state nonprofit corporations
).
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Governing Authority
—a person or group of persons who are entitled to manage and direct the affairs of an entity under the BOC and the entity’s
governing documents
. Includes: board of directors or trustees of a
nonprofit corporation
members of a nonprofit corporation if the certificate of formation vests the management of the affairs solely in its members
Does
not
an include
officer
.
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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
.
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Governing Documents
For
domestic entities
: its
certificate of formation
(or any other document or agreement under which it was formed); PLUS other documents (
bylaws
) or agreements adopted by the entity under the BOC to govern the formation or the internal affairs of the entity.
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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.
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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 BOC.
– Nonprofit purposes include: Providing professional, commercial, or trade associations; and – Serving charitable, benevolent, religious, fraternal, social, educational, athletic, patriotic, and civic purposes.
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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 apply to LLCs that have a nonprofit purpose.
not
– Periodic reports required to be filed by nonprofit corporations are not required of other nonprofit entities.
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Synonymous Terms
Section 1.006 of the BOC sets forth terms that have the same meaning or significance.
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Articles of Incorporation, Articles of Organization, Articles of Association, & Certificate of Limited Partnership Certificate of Formation
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Application for Certificate of Authority, App’n for Registration of Foreign LP, Statement of Qual. of Foreign LLP Application for Registration
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Articles of Dissolution Certificate of Cancellation
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Certificate of Termination
Art. of Amendment = Art. of Merger = Art. of Exchange = Art. of Conversion =
Cert. of Amendment Cert. of Merger Cert. of Exchange Cert. of Conversion
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Formation Filings
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Certificates of Formation
Domestic filing entities are formed by filing a
certificate of formation
with the filing officer.
Any certificate of formation filed with an effective date on or after January 1, 2006: creates a BOC entity must comply with BOC filing requirements is subject to the new BOC fee schedule
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Certificates of formation are governed by § 3.001 et seq.
Every certificate of formation must contain: The name of the filing entity to be formed The type of filing entity to be formed (e.g.,
nonprofit corp
) Purpose Duration, if not perpetual Registered office street address; registered agent’s name Name and address of organizers
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• Supplemental requirements for certificates of formations are set out for: – – – – – For-profit corporations Close corporations
Nonprofit corporations
§ 3.007
§ 3.008
§ 3.009
Limited Liability Companies § 3.010
Limited Partnerships § 3.011
– – – – Real Estate Investment Trusts § 3.012
Cooperative Associations § 3.013
Professional Entities Professional Associations § 3.014
§ 3.015
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Supplemental Provisions
for a Nonprofit Corporation
If the nonprofit is to have no members, a statement to that effect.
If management of the nonprofit corporation’s affairs is to be vested solely in the nonprofit corporation’s members, a statement to that effect.
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Supplemental Provisions
for a Nonprofit Corporation
The number of directors and the names and addresses of those directors. OR, if the management is vested solely in the members, a statement to that effect.
If the corporation is authorized on its winding up to distribute its assets in a manner other than provided in Sec. 22.304, a statement describing the distribution.
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Names
Name availability standards and rules remain the same. § 5.001 et seq.
Nonprofit corporations
are not required to use an organizational designation. § 5.054(b)
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Duration
• A domestic entity’s duration is assumed to be perpetual unless stated otherwise in its governing documents. § 3.003
• If a domestic entity’s duration is
not
perpetual, its certificate of formation must state the period of duration. § 3.005(4) • SOS forms for certificates of formation do
not
include a duration clause. Limited durations can be set out in the “Supplemental Text” area of the forms.
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Purpose
•
Nonprofit corporations
can state a general nonprofit purpose. Specifying the nonprofit purpose is no longer required for formation. § 22.051
May be required for IRS tax exemption!
• BOC provisions specifically applicable to nonprofit corporations do not apply to other nonprofit entities.
– Power to act as trustee in § 2.106
– Default tax provisions of § 2.107
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Registered Agent Requirements
Registered Agent may be: an individual resident of Texas, or a domestic or foreign entity that is registered to do business in Texas.
Registered agent’s business office address must be the same address as the registered office.
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Registered Office Requirements
Registered Office: Must be located at a street address where process may be personally served on the registered agent; Is not required to be the business office address of the represented entity; and May not be solely a mailbox service or telephone answering service.
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Foreign Entities
Transacting Business in Texas After January 1, 2006
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Foreign Entities
Title 1, Chapter 9 of the BOC New terminology is used, such as “registration” and “foreign filing entity.”
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Foreign Entities Required to Register
A foreign entity must register to transact business in Texas if: The entity affords limited liability under the laws of its jurisdiction of formation for any member or owner, unless the foreign entity is authorized to transact business under other state law.
Business and Public Filings Division
What is “Transacting Business” ?
Transacting business is not defined. List of “not-transacting business” activities same as those provided under prior law.
We do not have authority to issue formal binding legal opinions. Look to judicial opinions for guidance.
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What is Considered Foreign in Texas?
A. Anything organized outside of Austin.
B. Anything organized outside of Texas.
C. Anything organized outside of the United States.
D. Both B & C.
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What is Considered Transacting Business in Texas?
Entity has an employee who resides in Texas.
Entity is pursuing its purpose in Texas.
Entity owns & receives income from property in Texas. Entity maintains a business office in Texas.
Activities that are purely interstate commerce- Business conducted by fax, mail, email & telephone.
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Foreign Corporation Changes
Application for Registration
not Certificate of Authority.
State date entity began transacting business in Texas.
Late filing fee of $25 per year if foreign nonprofit corporation transacts business in Texas for more than 90 days without registering.
Statement of existence included in application; no certificate of existence from home state required.
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Foreign Entities--Failure to Register
Attorney General may enjoin entity from transacting business.
Entity cannot maintain an action or proceeding in court until registered.
Civil penalty in an amount equal to all fees and taxes that would have been imposed.
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Foreign Entities--Failure to Register
Late filing penalty equal to registration fee for each year of delinquency.
Application for registration must be filed within 90 days of the beginning date of transacting business in the state.
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SOS Forms Name Reservations Registrations and Change Filings
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Forms
Section 4.006 of the BOC authorizes the SOS to promulgate forms for any filing instrument or report required or permitted to be filed with the SOS.
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Forms
Available on the SOS web site at:
http://www.sos.state.tx.us/corp/forms_option.shtml
Split into BOC Forms and Pre-BOC When possible, SOS promulgated forms that complied with BOC as well as prior law Use of SOS forms permissive not mandatory
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Name Reservations
Any person may reserve the use of a name under chapter 5 of the BOC.
The filing fee is $40.
The name is reserved for a period of 120 days.
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Renewal of Name Reservations
Under the BOC, all name reservations can be renewed for additional 120-day periods
.
File a new application within 30 days prior to expiration ( $
40
). If not using SOS form, please identify the reservation as a renewal.
Renewal must be made by applicant of record. If not, transfer of name reservation required (
$15
).
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Signing False Documents
BOC Chapter 4. Filings General Provisions
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False or Fraudulent Filings
Under prior law,
it was a Class A misdemeanor to knowingly sign a document that was materially false with the intent that it be filed with the SOS.
House Bill 1507, effective Sept. 1, 2005,
amended the TBCA to increase the offense to a state jail felony if the person signing a document intended to defraud or harm another.
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False or Fraudulent Filings
BOC penalties for false or fraudulent filing apply to all entities
, including nonprofit corporations .
As of Jan. 1, 2006,
it is a
Class A misdemeanor
to knowingly sign a filing instrument that is materially false with the intent that it be filed with the SOS. §4.008
– Class A misdemeanor is punishable by a sentence of up to 180 days, a fine of up to $4,000, or both.
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False or Fraudulent Filings
BOC increases offense to a State jail felony if there is intent to defraud or harm another.
State jail felonies are generally punishable by a sentence of 180 days to 2 years plus a fine of up to $10,000.
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Enforcement
The SOS does
not
have the power to prosecute anyone for criminal violations associated with fraudulent filings.
If there is a basis for criminal action, victims can file a complaint with the District or County Attorney.
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Civil Liabilities
A person may recover
civil damages
if the person incurs a loss caused by: a forged filing instrument; a filing instrument that constitutes an offense under § 4.008; reasonable reliance upon a false statement of material fact in a filed filing instrument; or the omission of a material fact that is required to be in a filing instrument. § 4.007(a)
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Civil Liabilities
An injured person may recover from: each person who forged or knowingly signed a false instrument; any managerial official who directed the signing and filing of the filing instrument who knew or should have known of the false statement or omission; or the entity that authorizes the filing of the filing instrument. § 4.007(b)
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Enforcement
The SOS does
not
have authority to bring suit on behalf of parties harmed by a fraudulent filing.
Injured parties can initiate their own civil lawsuits.
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Mergers, Conversions & Exchanges
Chapter 10 of the BOC governs the general requirements for mergers, interest exchanges, and conversions.
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Mergers of Nonprofit Corporations
Under existing law, a nonprofit corporation may merge only with other domestic or foreign nonprofit corporations and only one party to the merger can be the survivor.
BOC has more permissive merger provisions for nonprofit corporations
with limitations .
Business and Public Filings Division
What’s New?
A domestic nonprofit corporation may merge with a for profit entity or non-code organization. The domestic nonprofit
may not merge
with a for-profit entity
if
: The domestic nonprofit corporation does not continue as the surviving entity; or If the nonprofit corporation will lose or impair its tax-exempt status.
Filing fee for this type of transaction:
$300
.
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Nonprofit Merger Limitations
May
not
merge into another entity, if the NP corporation would lose charitable status.
May merge with for-profit or non-code entities if the nonprofit continues as the surviving entity.
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What’s New for nonprofits?
TNPCA did not authorize the creation of a nonprofit corporation by conversion. BOC authorizes creation of a nonprofit corporation by conversion. Certificate of formation of converted entity must contain the additional statements relating to the conversion.
Domestic nonprofit corporation
may not
convert to a for-profit entity.
Business and Public Filings Division
Involuntary Terminations
Circumstances giving rise to an involuntary termination by the SOS.
Failure to file a report within the period required by law ; Failure to pay a fee or penalty prescribed by law when due and payable; Failure to pay a filing fee, or payment of the fee was dishonored when presented by the state for payment; Failure to maintain a registered agent or registered office.
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Reinstatements
“Finality is not the language of politics.” Benjamin Disraeli “It ain’t over til it’s over.” Yogi Berra
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Reinstatements
BOC Sections 11.201 and 11.202
Reinstatements under the BOC have longer time periods during which a reinstatement can be filed.
Change in substantive law Time frames similar for all Code entities
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Reinstatements
PRIOR LAW: Non-profit corporations have an unlimited amount of time to reinstate following an involuntary dissolution for failure to file a report under Art. 1396 9.01 of the Texas Non Profit Corporation Act.
BOC: No change. Same under BOC.
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Reinstatements
PRIOR LAW: Corporations and LLC’s have an unlimited amount of time to reinstate following a forfeiture for failure to comply with provisions of the Texas Tax Code.
BOC: No change. See, BOC §§ 11.201(b) & 11.254.
Business and Public Filings Division
Reinstatements
Tax Code Reinstatements (Revivals of Charter) continue to be governed by the Tax Code. See, §§ 171.312 through 171.315 of the Texas Tax Code.
BOC sets the fee for reinstatements following a tax forfeiture for for-profit corporations and LLCs at $75.
No fee for reinstatement of a nonprofit corporation following a tax forfeiture.
Business and Public Filings Division
Reinstatement
Following a Voluntary Termination Entity terminated inadvertently or by mistake; Termination occurred without the approval of the entity’s governing persons when approval required by BOC; Entity terminated before winding up completed; or The entity’s legal existence is necessary to convey or assign property, to settle or release a claim or liability, to take an action, or sign an instrument or agreement.
Business and Public Filings Division
BOC Reinstatement Requirements
• Reinstatement must be approved in manner provided by the BOC; • Entity name must be available; • Tax clearance for reinstatement; and • If involuntarily terminated, entity must correct circumstances giving rise to involuntary termination.
•
Reinstatement must provide registered agent/office information.
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Need Help?
Contact SOS by Email
first initial last [email protected]
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Need Help?
Call
Mike Powell Nahdiah Hoang Robert Sumners Carmen Flores Lorna Wassdorf 463-9856 475-0218 463-5590 463-5588 463-5591
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