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Michael PowellOffice of the Secretary of State
18th Annual Texas Crime Stoppers ConferenceSan Antonio, Texas
May 19, 2006
Business and Public Filings Division
The New Business Organizations Code
And How it Applies to Nonprofit Corporations
Statutory Revision Program
Business and Public Filings Division
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.
Statutory Revision Program
Business and Public Filings Division
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.
Texas Business Organizations Code codifies the following statutes:
Business and Public Filings Division
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
Texas Business Organizations Code codifies the following statutes:
Business and Public Filings Division
Texas Limited Liability Company Act Texas Real Estate Investment Trust Act Texas Cooperative Association Act Texas Uniform Unincorporated
Nonprofit Association Act
Code Structure
Business and Public Filings Division
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
The Wheel
Business and Public Filings Division
General Provisions
Business and Public Filings Division
Provisions applicable to most entities Contains 12 Chapters pulling together
similar or overlapping provisions found in prior law
Intent--to standardize, organize, and
simplify
Title 1
“The Hub”
Hub ChaptersTitle 1
Business and Public Filings Division
Chapter 1: Definitions (key chapter)
Chapter 2: Purposes and Powers of Texas entities (Prohibited Purposes)
More Hub Provisions
Business and Public Filings Division
Chapter 3: Formation and Governance
Subchapter A--Requirements for certificates of formation for all entities
Subchapter B--Amendments and restatements
Chapter 4
Business and Public Filings Division
Filings
Subchapter A--General provisions applicable to signatures, liability for false filing instruments, facsimile copies
Subchapter B--When Filings Take EffectGeneral rule: On FilingDelayed effective dates and conditionsAbandonments before effectiveness
Chapter 4 Continued
Business and Public Filings Division
Subchapter C: Certificates of correction
Subchapter D: FILING FEES!
All Entities 4.151For-Profit 4.152Nonprofit 4.153 etc.
Filing FeesNonprofit Corporations
Business and Public Filings Division
Fees for nonprofit corporation filings remain the same.
Chapter 5
Business and Public Filings Division
Names of Entities; Registered Agents and Registered Offices Subchapter B: Names
May use assumed nameUnauthorized purpose in name prohibitedMay not be same as or deceptively similar
More on Names in Chapter 5
Business and Public Filings Division
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
Chapter 5
Business and Public Filings Division
Name reservations in Subchapter C Name registrations in Subchapter D
Registered Agents and OfficesSubchapter E
Business and Public Filings Division
Designation of agent and office Changes to registered agent/office Change by a registered agent to name or address Resignation of registered agent
Other Chapters
Business and Public Filings Division
Chapter 6: Meetings and Voting Chapter 7: Liability Chapter 8: Indemnification and Insurance
Chapter 9: Foreign Entities
Business and Public Filings Division
Foreign entities required to register Permissive registration Registration procedures Name changes Withdrawal of registration
Chapter 9 Again
Business and Public Filings Division
Failure to register--late filing fee Revocation of registration by SOS Reinstatement after revocation Activities not constituting the transaction of business
Chapter 10: Mergers, Interest Exchanges, Conversions and Sales of
Assets
Business and Public Filings Division
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
Chapter 11: Winding up and Termination
Business and Public Filings Division
The new dissolution provisions Includes voluntary and involuntary terminations Also reinstatement procedures
Chapter 12Administrative Powers of SOS and OAG
Business and Public Filings Division
Adoption of procedural rules Interrogatories Appeal from SOS decisions
The Spokes
Business and Public Filings Division
Title 2 through Title 8
Title 2
Business and Public Filings Division
Corporations
For-ProfitNonprofit
Special-Purpose CorporationsLodges
Title 6
Business and Public Filings Division
Associations
Cooperative AssociationsUnincorporated Nonprofit Associations
Structure and OrganizationTexas Business Organizations Code
Title 3
Limited Liability Companies
Title 5REITS
Chapters1, 4, & 5
Chap. 21For-profit
Corporation
Chap. 22Nonprofit
Corporation
Chap. 152General
Partnership (LLPs)
Chap. 153Limited
Partnership
Chap. 251CooperativeAssociation
Chap. 252Unincorporated
NonprofitAssociations
Chap. 20General
Provisions
Title 1Common ProvisionsApply to all entities
Chap. 151General
Provisions
Chap. 304ProfessionalLimited Liability Co.
Chap. 302ProfessionalAssociation
Chap. 303ProfessionalCorporation
Chap. 301General Provisions
Definitions
Title 7Professional
Entities
Title 6Associations
Title 4Partnerships
Title 2Corporations
Navigating the BOC
Business and Public Filings Division
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.
Short Titles for Spoke Provisions
Business and Public Filings Division
Texas Corporation LawTitle 2 and Title 1 to the extent applicable tocorporations
Texas Nonprofit Corporation LawChapters 20 and 22 and Title 1 to the extent applicable to nonprofit corporations
The Business Organizations Code Effective Dates and Transition Issues
Business and Public Filings Division
Effective Dates of Code
Business and Public Filings Division
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.
Effective Date for Existing Entities
Business and Public Filings Division
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.
Non-Code Entities
Business and Public Filings Division
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.
Transition Issues
Business and Public Filings Division
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.
Transition Issues
Business and Public Filings Division
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.
Opt-in and Comply?
Business and Public Filings Division
•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.
Transition Issues
Business and Public Filings Division
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).
Transition Issues
Business and Public Filings Division
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.
Transition Issues
Business and Public Filings Division
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.
What Does the Code Change?
Business and Public Filings Division
New organization of statutes
Standardization of provisions
New terminology
Simplification of filing provisions
Substantive Changes
Business and Public Filings Division
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.
Code Does Not
Business and Public Filings Division
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 withthe entity Change state agencies enforcement activities againstthose entities
New Vocabulary &
Synonymous Terms
Business and Public Filings Division
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 for-profit, 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.)
Business and Public Filings Division
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).
Business and Public Filings Division
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 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 DocumentsFor 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.
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.
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.
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
Synonymous Terms
Business and Public Filings Division
Section 1.006 of the BOC sets forth terms that have the same meaning or significance.
Articles of Incorporation, Articles of Organization, Articles of Association, &
Certificate of Limited Partnership
Business and Public Filings Division
Certificate of Formation
Application for Certificate of Authority, App’n for Registration of Foreign LP,
Statement of Qual. of Foreign LLP
Business and Public Filings Division
Application for Registration
Certificate of Termination
Articles of Dissolution
Certificate of Cancellation
Business and Public Filings Division
Art. of Amendment =
Art. of Merger =
Art. of Exchange =
Art. of Conversion =
Cert. of Amendment
Cert. of Merger
Cert. of Exchange
Cert. of Conversion
Business and Public Filings Division
Business and Public Filings Division
Formation Filings
Business and Public Filings Division
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
Business and Public Filings Division
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
Business and Public Filings Division
• Supplemental requirements for certificates of formations are set out for:
– For-profit corporations § 3.007– Close corporations § 3.008– Nonprofit corporations § 3.009– Limited Liability Companies § 3.010– Limited Partnerships § 3.011– Real Estate Investment Trusts § 3.012– Cooperative Associations § 3.013– Professional Entities § 3.014– Professional Associations § 3.015
Supplemental Provisionsfor a Nonprofit Corporation
Business and Public Filings Division
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.
Supplemental Provisionsfor a Nonprofit Corporation
Business and Public Filings Division
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 todistribute its assets in a manner other than provided inSec. 22.304, a statement describing the distribution.
Business and Public Filings Division
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)
Names
Business and Public Filings Division
• 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.
Duration
Business and Public Filings Division
• 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
Purpose
Business and Public Filings Division
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.
Registered Agent Requirements
Business and Public Filings Division
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.
Registered Office Requirements
Business and Public Filings Division
Foreign Entities
Transacting Business in Texas After January 1, 2006
Business and Public Filings Division
Foreign Entities
Title 1, Chapter 9 of the BOC
New terminology is used, such as “registration” and “foreign filing entity.”
Business and Public Filings Division
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.
A. Anything organized outside of Austin.
B. Anything organized outside of Texas.
C. Anything organized outside of the United States.
Business and Public Filings Division
What is Considered Foreign in Texas?
D. Both B & C.
Business and Public Filings Division
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.
Foreign Corporation Changes
Business and Public Filings Division
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.
Business and Public Filings Division
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.
Business and Public Filings Division
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.
SOS FormsName Reservations
Registrations and Change Filings
Business and Public Filings Division
Forms
Business and Public Filings Division
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.
Forms
Business and Public Filings Division
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
Name Reservations
Business and Public Filings Division
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.
Renewal of Name Reservations
Business and Public Filings Division
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).
Signing False Documents
Business and Public Filings Division
BOC Chapter 4. Filings
General Provisions
False or Fraudulent Filings
Business and Public Filings Division
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.
False or Fraudulent Filings
Business and Public Filings Division
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.
False or Fraudulent Filings
Business and Public Filings Division
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.
Enforcement
Business and Public Filings Division
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.
Civil Liabilities
Business and Public Filings Division
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)
Civil Liabilities
Business and Public Filings Division
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)
Enforcement
Business and Public Filings Division
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.
Mergers, Conversions & Exchanges
Business and Public Filings Division
Chapter 10 of the BOC governs the general requirements for mergers, interest exchanges, and conversions.
Mergers of Nonprofit Corporations
Business and Public Filings Division
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.
What’s New?
Business and Public Filings Division
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.
Nonprofit Merger Limitations
Business and Public Filings Division
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.
What’s New for nonprofits?
Business and Public Filings Division
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.
Involuntary Terminations
Business and Public Filings Division
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.
Reinstatements
Business and Public Filings Division
“Finality is not the language of politics.”
Benjamin Disraeli
“It ain’t over til it’s over.”Yogi Berra
Reinstatements
Business and Public Filings Division
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
Reinstatements
Business and Public Filings Division
PRIOR LAW:
No change. Same under BOC.
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:
Reinstatements
Business and Public Filings Division
PRIOR LAW:
No change. See, BOC §§ 11.201(b) & 11.254.
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:
Reinstatements
Business and Public Filings Division
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.
Reinstatement Following a Voluntary Termination
Business and Public Filings Division
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.
BOC Reinstatement Requirements
Business and Public Filings Division
•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.
Need Help? Contact SOSby Email
Business and Public Filings Division
first initial last [email protected]
Need Help? Call
Business and Public Filings Division
Mike Powell 463-9856 Nahdiah Hoang 475-0218 Robert Sumners 463-5590Carmen Flores 463-5588Lorna Wassdorf 463-5591