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View from the Secretary of State’s Office:

Issues, Traps, Developments

Lorna Wassdorf Office of the Secretary of State Business & Public Filings Division P. O. Box 13697 Austin, Texas 78711-3697 [email protected]

Carmen Flores Office of the Secretary of State Business & Public Filings Division P. O. Box 13697 Austin, Texas 78711-3697 [email protected]

State Bar of Texas Essentials of Business Law 2011 April 14-15, 2011 Houston, Texas

Chapter 17 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17

Lorna Wassdorf Office of the Secretary of State 1019 Brazos Street P. O. Box 13697 Austin, Texas 78711-3697 512 463-5591 FAX: 512 475-2781 [email protected]

BIOGRAPHICAL INFORMATION

EDUCATION

B. A. in Political Science, Rice University J. D. with Honors, The University of Texas

PROFESSIONAL ACTIVITIES

Director, Business and Public Filings Division, Office of the Secretary of State Member, State Committee on the Business Organizations Code Member, State Bar Corporation Law Committee Member, State Bar Partnership/LLC Committee Past President, International Association of Commercial Administrators (IACA)

LAW RELATED PUBLICATIONS, ACADEMIC APPOINTMENTS AND HONORS

Author/Speaker for the University of Texas Continuing Legal Education Program on Current Issues on Partnerships, Limited Partnerships and Limited Liability Companies, 1999-2001, 2006 to present Author/Speaker for the Texas Bar CLE Program on Texas Business Organizations: Choice of Entity and Formation 2005 Author/Speaker for the Texas Bar CLE Program on Advanced Business Law, 2005 Speaker for the Texas Bar CLE Webcast on Changes to the Business Code, 2006 Author/Speaker for the University of Texas Continuing Legal Education Program on Understanding and Working with the New Business Organizations Code, 2006 Author/Speaker for the State Bar Annual Meeting Business Law and Corporate Counsel CLE, 2006 Co-Author of The Texas Business Organizations Code: Doing Business with the Secretary of State On and After January 1, 2010-A Guide for Texas Nonprofit Corporations, 2009 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17

Carmen I. Flores Business and Public Filings Division Office of the Secretary of State 1019 Brazos, P.O. Box 13697 Austin, TX 78711-3697 phone: (512) 463-5588 [email protected]

BIOGRAPHICAL INFORMATION EDUCATION

B.A. in English/History with Honors, Maryville College, St. Louis, Missouri J.D., The University of Texas

PROFESSIONAL ACTIVITIES

Legal Counsel, Business and Public Filings Division, Office of the Secretary of State Member, State Bar Committee on the Business Organizations Code Member, State Bar Committee for Corporation Law Member, State Bar Partnership/LLC Committee

LAW RELATED PUBLICATIONS, ACADEMIC APPOINTMENTS AND HONORS

Author/Speaker for the University of Texas Continuing Legal Education Program on Current Issues on Partnerships, Limited Partnerships and Limited Liability Companies, 2006-2010 Author/Speaker for the University of Texas Continuing Legal Education Program on Understanding and Working with the New Business Organizations Code, 2006 Author/Speaker for the State Bar Annual Meeting Business Law and Corporate Counsel CLE, 2006 Co-Author of The Texas Business Organizations Code: Doing Business with the Secretary of State On and After January 1, 2010-A Guide for Texas Nonprofit Corporations, 2009 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17

Table of Contents I. CONFORM TO COMPLY?...... 1 A. Synonymous Terms...... 1 B. References to Prior Law...... 1 C. Designation of Entity Type...... 1 D. Appointment of Secretary of State as Agent for a Registered Foreign Entity...... 1 E. To Amend or Not to Amend...... 1 II. NAMES, NAMES, NAMES...... 2 A. Name Availability Standards...... 2 B. Name Clearance—A Trap for the Unwary...... 3 C. Troublesome Words...... 3 D. Limited Partnership Name Issues...... 4 E. Name Reservations...... 4 F. Assumed Names...... 5 III. SERIES LLCS...... 5 A. What is a Series LLC?...... 5 B. Notice of Limitations...... 6 IV. REGISTERED AGENTS—CONSENT AND REJECTIONS...... 6 A. Consent Required...... 6 B. Filing Not Required But Permitted...... 7 C. Rejection of Appointment...... 7 V. FOREIGN ENTITIES—REGISTRATION ISSUES...... 7 A. Entities Required to Register...... 7 B. Failure to Register...... 7 C. Late Filing Penalty...... 8 D. Late Filing Penalty Caps...... 8 E. Transfer/Succession of a Foreign Registration...... 9 F. Required Amendments to a Foreign Registration...... 9 VI. FOREIGN PARTNERSHIPS AND LLCS...... 9 A. Foreign LLPs...... 9 B. Registration of Foreign Series LLCs and LPs...... 10 C. Registration of Foreign Professional Entities...... 11 VII. FILINGS FOR A TROUBLED ECONOMY...... 11 A. Transactions Authorized Pursuant to a Plan of Reorganization...... 11 B. Persons Authorized to Submit and Execute Filings...... 12 C. Requirements for Filing Instruments...... 12 VIII.MERGERS AND CONVERSIONS...... 12 A. Certificate of Merger Required...... 12 B. Alternative Certified Statement in Lieu of a Plan of Merger...... 12 C. Special Merger Provisions under the BOC...... 13 D. Nonprofit Mergers...... 13 E. Common Errors to Avoid...... 14 F. Conversions...... 14 G. Common Errors to Avoid...... 15 H. Conversion and Continuance...... 15 I. How to Avoid Last Minute Problems with Tax Clearance...... 15 J. Abandonment of Mergers and Conversions...... 16 K. Merger and Conversion Forms...... 16 L. Merger and Conversion Fees...... 17 IX. PROFESSIONAL ENTITIES...... 17 A. What is a Professional Service?...... 17 B. What Type of Entity Should Be Formed?...... 17 C. Joint Ownership and Practice...... 18 D. Certificates of Formation...... 18 E. Name Issues for Professional Entities...... 19 X. EFFECTS OF FRANCHISE TAX ON FILINGS WITH THE SOS...... 19 i View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 A. When Are You Required to Provide a Certificate of Good Standing?...... 19 B. When Is Tax Clearance Required for Filings?...... 20 C. Forfeiture of Taxable Entities...... 20 D. Information Reports...... 20 E. Reinstatement of Taxable Entities...... 21 XI. SPECIAL LLP ISSUES...... 21 A. LLP Registration—Strict Compliance...... 21 B. LPs Registered as LLPs—Addressing the Missing Link...... 21 C. Facilitating Linkage...... 22 D. Common Reasons for Rejection...... 22 E. Failure to Renew—Franchise Tax Consequences...... 22 XII. CERTIFICATES OF CORRECTION...... 23 A. Corrections 101...... 23 B. Corrections to Mergers or Conversions...... 23 XIII.PRIVACY ISSUES...... 23 A. Social Security Numbers...... 24 B. Public Information Reports...... 24 C. Home Addresses and Other Expectations of Privacy...... 24 XIV. SUNDRY ISSUES FROM THE SOS...... 24 A. Execution of Filings...... 24 B. Nonprofit LLCs...... 25 C. Unincorporated Nonprofit Associations as Taxable Entities...... 25 XV. DOING BUSINESS WITH THE SECRETARY OF STATE...... 25 A. Ministerial Duties...... 25 B. Accessing Information...... 25 ENDNOTES...... 27

ii View from the Secretary of State Office-Issues, Traps, Developments Chapter 17

2. The “hub and spoke” format of the BOC led to a standardization of terminology and filing requirements for the various entity types. As a result of this approach, the BOC requires certain filing instruments, including the certificate of formation and application for registration, to include a description of the entity type. The addition of this information assists the filing I. CONFORM TO COMPLY? officer in identifying the entity and in determining the On January 1, 2010, the Texas Business applicable filing requirements and provisions. Organizations Code (BOC) applied to all entities. Many entities and practitioners are now asking 3. Consequently, the secretary of state does not feel whether the governing documents of an entity must be that the failure to include an identification of the entity amended to comply with the BOC. type in the formation document of a pre-BOC entity requires the pre-BOC entity to submit a certificate of Section 402.005(a)(2) states that a domestic or foreign amendment to its formation document to include a filing entity is not considered to have failed to comply description of the entity type that was being formed. with the BOC if the entity’s certificate of formation or application for registration does not comply with the D. Appointment of Secretary of State as Agent for code. However, section 402.005(a)(3) and (4) state a Registered Foreign Entity that the entity should file an amendment to conform its certificate of formation or application for 1. Section 9.004(b)(11) of the BOC requires an registration to the BOC when it next files an application for registration of a foreign filing entity to amendment to its certificate or application. What does include a statement appointing the secretary of state as “conform” mean? To “conform” means “to be the agent of the foreign entity for service of process similar” or “to be in accord or agreement.”1 under the circumstances provided by section 5.251 of the BOC.2 A. Synonymous Terms Use of historically accurate terminology in a 2. Section 5.251 designates the secretary of state as governing document does not require an amendment the agent for service of process under the to make the document comply with the BOC. Section circumstances described without regard to whether the 1.006 of the BOC contains a list of synonymous entity has affirmed the appointment or included such a terms. Consequently, a reference in an entity’s statement in its registration. Consequently, the governing documents to “articles of organization” is secretary of state does not feel that it is necessary for a legally synonymous to a “certificate of formation.” foreign entity to amend its registration to include such a statement. B. References to Prior Law Pursuant to section 311.031 of the Government E. To Amend or Not to Amend Code, the repeal of a statute does not affect the prior There has been no significant increase in the operation of the statute or any action taken under that number of amendments or restatements filed on behalf statute. The use of a term or phrase applicable under of domestic entities. prior law does not mean that an instrument or governing document is non-conforming simply 1. The entity should consider amending when the because the term differs from the term or phrase used governing documents do not conform with respect to a by the BOC for the same concept (e.g., dissolved vs substantive matter rather than simply amending to terminated). make non-substantive changes to terminology or statutory references. C. Designation of Entity Type 2. Consider filing a restated certificate of formation 1. Before the effective date of the BOC, the with amendments to make the substantive changes as secretary of state determined the type of entity being well as the changes to statutory references and formed by references made to the law governing the terminology. The restated certificate of formation will filing or the entity or by other provisions contained in supersede the original formation document as the formation document. On acceptance of the filing, amended and becomes the effective certificate of the secretary of state classified and indexed the entity formation. accordingly.

1 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 II. NAMES, NAMES, NAMES same term (e.g., DFW Rentals, LLC vs Dallas-Ft. The entity name standards imposed under the Worth Rentals, Ltd.); BOC are the most frequently deliberated, and heavily (5) The names are spelled differently or contested, reasons for rejection of a filing instrument. use alternative symbols, but are phonetically similar or equivalent (L8R G8R Ltd. vs Later Gator LLC); or A. Name Availability Standards (6) The difference in the name consists in the presence or absence of letters that do not alter the 1. Section 5.053 sets forth the general standards for names sufficiently to make them readily name availability, namely, that a filing entity may not distinguishable. This may include the use of singular, have a name that is the same as, or that the secretary plural or possessive terms. (e.g., Cole Cabinets LLC of state determines to be deceptively similar or similar vs Cole’s Cabinets Co.) to a name of another existing filing entity or an entity name that is reserved or registered with the secretary c. Names that are similar and require a letter of state. The administrative rules used to determine of consent; that is, a comparison of the names reveals the availability of entity names are contained in similarities that may tend to mislead as to the identity §§79.30-79.54 of Title 1, Part Four of the Texas or affiliation of the entity. (1 TAC §79.40) In Administrative Code (TAC) and may be viewed at accordance with 1 TAC §79.43, if any of the www.sos.state.tx.us/tac/index.html. following conditions exists, a name is similar and a written consent is required: 2. Chapter 79 rules apply to all name availability determinations made for foreign and domestic (1) The proposed name is the same as or corporations (for-profit, professional, and nonprofit), deceptively similar to another name except for a limited liability companies, limited partnerships, as geographical designation at the end of the name (e.g., well as professional associations. See 1 TAC §§79.30 Acme LLC vs Acme Southwest Ltd.); and 79.50 to 79.52.3 These sections do not apply to (2) The first two words of the proposed limited liability partnerships. Section 5.063 of the name are the same as or deceptively similar to another BOC does not require the secretary of state to name and those words are not frequently used in determine the availability of a limited liability combination (e.g., Summit Energy Co. vs Summit partnership’s name. Energy Resources LP); (3) The proposed name is the same as or 3. There are three categories of name similarity:4 deceptively similar to another name except for a numerical expression that implies that the proposed a. Names that are the same; that is, a name is an affiliate or in a series with another entity comparison of the names reveals no differences. (1 (e.g., United Co. vs United II LLC); TAC §79.36) (4) The proposed name uses the same b. Names that are deceptively similar; that is, a words as another name but the words are in a different comparison of the names reveals apparent differences order in the names (e.g., Ballet Austin vs Austin but the difference is such that the names are likely to Ballet); be confused. (1 TAC §79.37) In accordance with 1 (5) The proposed name is the same as or TAC §79.39, if any of the following conditions exist a deceptively similar to another name except for an proposed name is deceptively similar to that of an Internet locator designation at the end or at the existing entity: beginning of the name (e.g., www.Business Solutions LLC vs Business Solutions Co.); or (1) The difference in the names consists (6) The difference in names consists of in the use of different words or abbreviations of words or contractions of words that are derived from incorporation or organization5 (e.g., China Silk Ltd., the same root word and there is no other LLC vs China Silk, LP); distinguishing word in the name (e.g., ABC Electric (2) The difference in the names consists Co vs ABC Electrical LLC). in the use of different articles, prepositions, or conjunctions (e.g., El Matador Inc. vs Matador Ltd.); 4. A written consent to use of a similar name is only (3) The difference in the names consists an option when the proposed name and the entity in the appearance of periods, spaces, or other spacing name on file are considered similar. The secretary of symbols that do not alter the names sufficiently to state will not file a proposed name that is the same as make them readily distinguishable (e.g., ABC Co. vs or deceptively similar to an existing entity even if the A/BC LLC); existing entity is a related entity or an entity willing to (4) The difference in names consists of provide a letter of consent.6 the use of common abbreviations or acronyms for the 2 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 5. An oral consent is not acceptable; however, an e- in a business entity name.8 These troublesome words mail consenting to the use of a similar name will be include: accepted in the same manner as a letter or attachment containing an original signature. An acceptable e- a. Insurance must be accompanied by other mail consent must identify in some way that it is from words, such as agency, that remove the implication the consenting entity (URL, e-mail address, name and that the purpose of the entity is to be an insurer. address beneath the signature block, etc.) and include b. Bail bonds and surety imply that the entity the typed signature of an officer or authorized agent of has insurance powers and should be formed under the the consenting entity. Texas Insurance Code. c. Bank and derivatives of that term may not 6. Consent can be given in any written format; be used in a context that implies the purpose to however, the secretary of state has developed a form exercise the powers of a bank.9 The Department of (Form 509) that may be used by the holder of an Banking can advise you on the use of the words bank, existing name to consent to the use of a similar name. banc and the like and will issue you a letter of no Use of this form is permissive. objection for use when filing documents with the secretary of state.10 B. Name Clearance—A Trap for the Unwary (1) Persons seeking a letter of no 1. Formation under a given name does not give the objection are to contact the Corporate Activities newly organized entity the right to use the name in Division of the Texas Department of Banking. violation of another person’s rights. In fact, the (2) Submission of a written request and certificate issued by the secretary of state to a provision of certain information, together with a $100 domestic filing entity under the BOC specifically filing fee, is required for consideration of the proposed includes a statement that the issuance of the certificate name regardless of whether approval is granted. of filing for the formation of an entity or the Please note that submission of the materials and fee is reservation of an entity name does not authorize the not a guarantee that the name will be approved. You use of the entity name in this State in violation of the may wish to contact the Corporate Activities Division rights of another under the federal Trademark Act of of the Department of Banking for current processing 1946 (15 U.S.C. Section 1501 et. seq.), the Texas time for a letter of no objection. trademark law (Chapter 16, Texas Business & Commerce Code), or the common law. This d. Trust generally implies that the entity has restatement of the common law7 is codified in section trust powers and accordingly, prior approval of the 5.001 of the BOC. Department of Banking is required. A foreign business trust or foreign real estate investment trust 2. When the secretary of state is requested to give registering under the provisions of the BOC that advice about the availability of an entity name, the utilizes the term trust in its name is not required to secretary of state is reviewing only the names of obtain a letter of no objection for purposes of filing active domestic and foreign filing entities, as well as the application for registration. name reservations and name registrations on file with e. Cooperative and Co-op should be used only the secretary of state. The secretary of state does not by an entity operating on a cooperative basis.11 A firm consider state or federal trademark registrations, or business that uses such terms in its business name assumed names filed with the county or the secretary or that represents itself as conducting business on a of state under chapter 71 of the Texas Business & cooperative basis when not authorized by law to do so Commerce Code, names of limited liability commits an offense. The offense is classified as a partnerships registered with the secretary of state, or misdemeanor that is punishable by the imposition of other sources that might indicate common law usage fines or by confinement in the county jail or both. or reveal possible trade name or trademark f. Perpetual care or endowment care, or any infringement. other terms that suggest “perpetual care” or “endowment care” standards, should only be used in C. Troublesome Words the name of a cemetery that operates as a perpetual Not all entity name issues involve an existing care cemetery in accordance with chapter 712 of the conflicting entity name. Other statutory provisions Health & Safety Code.12 may prohibit or place restrictions on the use of terms within a business name. 2. Use of some words in an entity name may require that a licensed professional be associated with the 1. Words that might imply a purpose for which the entity. entity could not be organized should not be included

3 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 a. Entities using engineer, engineering, or An entity name is deemed deceptively similar if the engineered in the entity name should be engaged in only difference between the names is a difference in the practice of engineering and its engineering organizational designations. (For example, ABC LP services performed by an individual licensed by the is deceptively similar to ABC LLC.) A deceptively Texas Board of Professional Engineers.13 similar name cannot be filed even if a letter of consent b. Entities using architect, architecture, can be provided. landscape architect, or landscape architecture should determine from the Texas Board of Architectural 3. If a limited partnership registers as a limited Examiners whether such use is in violation of the liability partnership, the name of the partnership must statues applicable to architects.14 comply with the requirements of section 5.055 of the c. Entities using public surveying in their BOC rather than section 5.063. This means that the name should determine from the Texas Board of partnership name must contain the word “limited” or Professional Land Surveying whether such use the phrase “limited partnership,” or an abbreviation of complies with the statutes applicable to surveyors.15 that word or phrase, in addition to the phrase “limited liability partnership” or an abbreviation of that phrase. 3. Some words require prior approval. However, under section 5.055(c), the name of a limited partnership that registers as a limited liability a. Entities desiring to use the terms college, partnership complies with the naming requirements of university, school of medicine, medical school, health section 5.055(a) and (b) if the name of the limited science center, school of law, law school, law center, partnership contains the phrase “limited liability and words of similar meaning must obtain prior limited partnership” or an abbreviation of that phrase. approval of the Texas Higher Education Coordinating The names “ABC, Ltd., LLP and “ABC, LLLP” Board.16 comply with the requirements of Section 5.055. b. Entities desiring to use the terms veteran, legion, foreign, Spanish, disabled, war or world war E. Name Reservations in a manner that might imply that the entity is a If you anticipate a delay between the client’s Veteran’s organization should obtain written approval name selection and your submission of the filing from a Congressionally recognized Veteran’s instrument, file an application to reserve the name. organization.17 1. The BOC provisions relating to name reservations 4. The use of some words is prohibited. apply to all filing entity types; consequently, a name reservation may be used in connection with a a. A domestic or foreign filing entity may not document filed by any foreign or domestic filing use the term lotto or lottery in its entity name.18 entity. b. State and federal law generally precludes the use of the words olympic, olympiad, olympian, and a. Although a name reservation is not olympus unless authorized by the United States limited to a specific entity type, the selection of a Olympic Committee.19 specific entity type when submitting a name reservation application in person or by mail will D. Limited Partnership Name Issues facilitate review of the entity name. A proposed entity name for one entity type may imply or indicate an 1. The BOC does not prohibit the name of a limited unlawful purpose for another entity type. For partnership from containing a word or phrase example, the entity name Derma Medical Services indicating or implying that it is a corporation.20 While implies an unlawful purpose for a for-profit the secretary of state will not reject a limited corporation, but does not imply an unlawful purpose partnership name on the grounds that it contains a for a professional limited liability company. word or abbreviation indicating or implying corporate b. The filing fee for a name reservation is a status (i.e., “Incorporated,” “Corporation,” “Inc.,” and standard fee of $40. “Corp.”), be aware that section 17.46(b)(25) of the Texas Business & Commerce Code (commonly 2. Section 5.105 of the BOC permits the renewal of a referred to as the Texas Deceptive Trade Practices- current name reservation. The reservation may be Consumer Protection Act) prohibits such use by an renewed for an additional 120-day period by filing a unincorporated entity. new application for name reservation during the 30- day period preceding the expiration of the current 2. A common reason for rejection of a limited reservation. The BOC filing fee for a renewal of name partnership name is the similarity between the name reservation is $40. of the partnership and the name of its general partner.

4 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 3. The applicant of record must submit the name certificate is filed with the secretary of state and with reservation renewal. If the renewal of reservation lists the county clerk. an applicant other than the applicant of record with the secretary of state, a transfer of the name reservation 5. An entity that maintains a registered office in this will be required. The fee for a transfer of name state is required to file its assumed name certificate reservation is $15. with the secretary of state and with the county clerk of the county in which the entity’s: 4. An applicant seeking to terminate a name reservation before the expiration of its 120-day term a. registered office is located, if the entity’s would file a withdrawal of the name reservation principal office is not located in Texas; or pursuant to section 5.104(2) of the BOC. There is no b. principal office is located, if the entity’s fee for filing a withdrawal of a name reservation. (Sec. principal office is located in Texas. 5.1041 BOC) 6. An entity that is not required to or that does not F. Assumed Names maintain a registered office address, such as a Section 5.051 of the BOC authorizes the use of an domestic general partnership registered as a limited assumed name by a domestic or foreign entity having liability partnership, would file its county level authority to transact business in Texas. assumed name certificate in the county in which the entity maintains its office address. 1. Pursuant to section 71.002(2) of the Business & Commerce Code, an assumed name is defined as: 7. Due to differences in filing requirements, the assumed name certificate form promulgated by the a. for a corporation, any name other than the secretary of state (SOS form 503) should not be used name stated in its certificate of formation or to file an assumed name certificate on the county comparable document; level. b. for a limited partnership, any name other than the name stated in its certificate of 8. Chapter 71 authorizes the secretary of state to formation; accept and file an assumed name certificate for a c. for a limited liability company, any name foreign REIT, foreign business or statutory trust, or other than the name stated in its certificate for a foreign entity that is not characterized as a of formation or comparable document; and corporation, limited partnership, limited liability d. for a limited liability partnership, any name company, or limited liability partnership. A domestic other than the name on its application for REIT is not authorized to file its assumed name registration or comparable document. certificate with the secretary of state. A domestic REIT doing business under an assumed name would 2. The filing requirements for assumed name follow county filing requirements established under certificates for limited partnerships, limited liability sections 71.051-71.054 of the Business & Commerce companies, limited liability partnerships, and foreign Code. filing entities are similar to filing requirements for assumed name certificates filed by an incorporated 9. Chapter 71 does not provide for the filing of a business or profession. correction to an assumed name certificate. If the assumed name certificate filed contains incorrect 3. The execution requirements for assumed name information or a typographical error, the assumed certificates filed with the secretary of state differ from name certificate may be abandoned and a new county level filing requirements. The execution assumed name certificate filed. requirements are similar to the execution requirements for other documents filed with the secretary of state. III. SERIES LLCS Chapter 71, Business & Commerce Code, authorizes In September 2009, Texas joined Delaware, Iowa, the secretary of state to accept photocopies of Nevada, Oklahoma, Illinois, Tennessee, and Utah in originally signed assumed name documents and authorizing the formation of a series LLC by adopting eliminates the notarization requirement for assumed provisions similar to the Delaware model. name documents filed with the secretary of state. A. What is a Series LLC? 4. Dual filing of the assumed name certificate is required when the entity is a corporation, limited 1. A series LLC is an LLC that provides in its liability company, limited partnership, limited liability governing documents for the establishment of a series partnership or foreign filing entity. An assumed name of members, managers, membership interests, or

5 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 assets that have separate rights, obligations, and 4. No further notice is required when the LLC liabilities and business purposes from the general actually establishes a series; consequently, the (“master”) LLC. Each individual series has the ability secretary of state records do not reflect how many to sue and be sued, enter into contracts, hold title to series have been established by a series LLC or assets, and grant liens or security interests in its assets. whether the LLC has actually established a series. The provisions governing a domestic series LLC may be found in subchapter M of Title 3 of the BOC. 5. If any series established by the LLC conducts business in Texas under a name other than the legal 2. In order to receive the benefits of a series LLC, name of the LLC, the LLC must file an assumed name separate records for the assets of each series must be certificate with the secretary of state and with the maintained, the company agreement must contain a appropriate county clerk in compliance with chapter statement to the effect of the limitations provided by 71 of the Business & Commerce Code. section 101.602(a), and the LLC’s certificate of formation must include a notice of the limitations 6. Only a small minority of states authorize a series provided by section 101.602(a). LLC; consequently, a person forming a series LLC should contact the filing office and tax office in the 3. The only means of determining whether a state in which the LLC contemplates transacting particular LLC is authorized to establish a series is to business to determine how the jurisdiction treats series review its certificate of formation or any amendment LLCs for purposes of registration and taxation. to its certificate of formation for the notice of limitations required. IV. REGISTERED AGENTS—CONSENT AND REJECTIONS B. Notice of Limitations A. Consent Required 1. Notice of the limitations does not need to make reference to a specific series. The notice contained in 1. Pursuant to 5.201(b), a person designated as a the certificate of formation of a series LLC must state registered agent on and after January 1, 2010 must that: have consented, in a written or electronic form, to act as registered agent. a. The debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise 2. Section 5.201(b) of the BOC requires the existing with respect to a particular series shall be secretary of state to develop the form of the written or enforceable against the assets of that series only and electronic consent. Pursuant to 1 TAC §79.29, an shall not be enforceable against the assets of the LLC electronic or written consent should contain the generally or any other series; and following elements: b. None of the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise a. The name of the represented entity; existing with respect to the LLC generally, or any b. An express statement of consent to serve as other series shall be enforceable against the assets of a the entity’s registered agent; particular series. c. The name of the registered agent; d. The signature of the registered agent; and 2. The authorization to establish a series is an e. The date of execution. optional provision that would be included in the certificate of formation. Because it is not a statement 3. The appointment of a person as registered agent required for formation of the limited liability by an organizer or managerial official of an entity is company, the secretary of state does not review the an affirmation by that organizer or managerial official notice of limitations to determine whether the notice that the person has consented to serve in the capacity complies with section 101.602(a) of the BOC. of registered agent.

3. The secretary of state does not have a “form” for a 4. Before the sale, acquisition, or transfer of a domestic series LLC. If a practitioner decides to use majority-in-interest or majority interest of the the secretary of state’s general LLC form for the outstanding ownership or membership interests of a purpose of forming a series LLC, the notice of represented entity, the governing authority of the limitations required may be included in the entity must verify whether the person designated as “Supplemental Information” section. registered agent prior to the sale, acquisition or transfer has consented to continue to serve the represented entity in that capacity.

6 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 the organizer or managerial official of the entity of the 5. Section 5.207 provides that the liabilities and need to appoint a new registered agent and registered penalties imposed by sections 4.007 and 4.008 of the office. Failure to appoint a new registered agent and BOC will apply with respect to a false statement in a registered office will result in the involuntary filing instrument that designates and appoints a person termination of the domestic filing entity or the as the registered agent of an entity without that revocation of the foreign filing entity’s registration to person’s consent. Section 4.007 provides for transact business in Texas. damages, court costs, and reasonable attorney’s fees if a person incurs a loss caused by the false statement. 3. A person who was appointed without consent An offense under section 4.008 is a Class A before January 1, 2010 would file a statement of misdemeanor unless the person’s intent is to harm or resignation of agent pursuant to section 5.204, which defraud another, in which case, the offense is a state is effective on the 31st day after the date the secretary jail felony. of state receives the notice of resignation. There is no fee for filing a resignation of registered agent. B. Filing Not Required But Permitted V. FOREIGN ENTITIES—REGISTRATION 1. The signed consent of the registered agent should ISSUES be sent to and retained by the represented entity. Unless otherwise required by the provisions of the A. Entities Required to Register BOC or other law applicable to the represented Chapter 9 of the BOC governs the registration of entity,21 the consent of the registered agent is not foreign entities. A foreign entity is required to required to be submitted with or included as part of register with the secretary of state before transacting the filing designating the registered agent (“registered business in Texas. agent filing”). 1. The BOC registration requirements apply to a 2. The secretary of state will not reject a filing that foreign corporation, foreign limited partnership, includes the consent of agent. When a consent of foreign limited liability company, foreign business registered agent is submitted with or included as part trust, foreign real estate investment trust, foreign of the registered agent filing, the consent of agent will cooperative, foreign public or private limited be imaged as part of the original document. company, or another foreign entity, the formation of which, if formed in Texas, would require the filing of 3. A consent of registered agent that is submitted a certificate of formation with the secretary of state. separately for purposes of filing with the secretary of state will be indexed in the filing history of the 2. A foreign entity that affords limited liability for represented entity if the consent is accompanied by a any owner or member under the laws of its fee of $15, unless the consent is submitted on behalf jurisdiction of formation is also required to register of a nonprofit corporation or cooperative association. under the BOC. The fee for a nonprofit corporation or cooperative association is $5. 3. A foreign entity that is authorized under other state law to transact business in Texas is not required C. Rejection of Appointment to register under chapter 9 of the BOC. For example, a foreign financial institution registered to do business 1. Section 5.206 of the BOC permits a person under the Finance Code is not required to submit an designated as a registered agent on and after January application for registration under the BOC. 1, 2010 to reject the appointment as agent if the person was named as registered agent without that B. Failure to Register person’s consent. A person who has been named as A foreign entity that fails to register when the registered agent of an entity without that person’s required to do so is subject to the following penalties: consent is not required to perform the duties of a registered agent. SOS form 428 may be used to file a a. the entity may be enjoined from transacting rejection of appointment of agent. There is no fee for business in Texas on application by the attorney filing a rejection of appointment. general; b. the entity may not maintain an action, suit, 2. The filing of a rejection of appointment by the or proceeding in a court of this state until registered; secretary of state immediately terminates the and appointment of the agent and the registered office c. the entity is subject to a civil penalty in an address. On filing, the secretary of state will notify amount equal to all fees and taxes that would have

7 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 been imposed if the entity had registered when first the stated beginning date of business. There are required.22 consequences for misstating this date.

C. Late Filing Penalty a. Misstating the beginning date of business in Section 9.054 of the BOC permits the secretary of an application for registration may result in a judicial state to condition the filing of a foreign entity’s finding that the foreign entity lacks the capacity to registration on the payment of a late filing fee. bring suit regarding a matter that pre-dates its stated beginning date of business. See e.g., Coastal Liquids 1. A foreign entity that has transacted business in the Transportation, L.P. v. Harris County Appraisal state for more than 90 days is subject to a late filing District, 46 S.W. 3rd 880 (Tex. 2001) wherein the penalty for each year, or part of a year, the entity Court held that a foreign LP could not maintain its suit transacted business in this state without having challenging a tax appraisal because the entity failed to registered. For late fee purposes, a partial calendar comply with the Revised Limited Partnership Act year is counted as a full year. The late filing fee is a when it did not correctly state its beginning date of penalty for noncompliance with state law registration business and did not pay the late filing fee that would requirements. The late filing fee applies as soon as have been imposed. the 90-day grace period expires and it relates back to b. A certificate of correction may be filed to the beginning date of business stated in the correct a misstatement to the beginning date of application. business. However, if the beginning date of business as corrected would have resulted in the imposition of a 2. Under certain circumstances, calculation of the late filing fee, the certificate of correction must be late fee may relate to a date other than the date the accompanied by the payment of the late fee that would entity first began to do business in the state. have been imposed on the foreign filing entity at the time of its registration. a. A late filing penalty will relate back no earlier than January 1, 2006, the effective date of the D. Late Filing Penalty Caps BOC, if the foreign filing entity was not required under prior law to register with the secretary of state 1. While the secretary of state does not waive a late in order to transact business in Texas (e.g., a foreign filing penalty, a foreign entity that has transacted business trust). business without registration for six or more years b. The beginning date of business in Texas is may be eligible to receive a cap on the amount of the the date that the entity established sufficient nexus for late filing penalty (five calendar years) if the foreign purposes of registration with the secretary of state entity: rather than the date the entity began “doing business” for purposes of state franchise tax liability. a. is current on all taxes and fees owed to any c. If the entity had a prior registration that was Texas state agency; revoked by the secretary of state and the entity cannot b. can provide a certificate from the Texas reinstate its prior registration due to expiration of the Comptroller of Public Accounts stating that it is statutory time frame,23 the “beginning date of currently in good standing or an agency letter stating business” for purposes of calculation of the late fee is that the entity is tax-exempt or a passive entity; and the date of revocation by the secretary of state. c. has not been contacted by this agency d. If the entity held a prior registration and regarding its noncompliance with state registration filed an application for withdrawal, the “beginning requirements24 or been referred to the attorney general date of business” for any subsequent registration for further action. should be the date that the entity began to transact business in Texas without an effective registration. 2. A foreign entity seeking a 5-year cap on a late filing fee penalty must have a stated beginning date of 3. An application for registration submitted during business that predates its submission by more than 5 the statutory 90-day grace period that is rejected for years; should highlight its request for the 5-year cap in noncompliance will not be assessed a late fee if the a separate cover letter, and provide the additional corrected document is received within 30 days of the declarations and documentation noted above. date of mailing noted on the rejection notice even when the resubmission occurs after expiration of the 3. A request to reduce or cap the late filing penalty 90-day grace period. under other circumstances should be submitted in writing. The request may be e-mailed to 4. Before execution and submission of the [email protected]; faxed to (512) 475-2781, or application for registration, please review and confirm mailed to P.O. Box 13697, Austin, Texas 78711-3697,

8 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 Attn. Corporations Attorneys. The request will be 2. A foreign entity that converts to change its reviewed by a member of the legal staff who will jurisdiction of formation to a jurisdiction other than notify the entity or its attorney in writing of the Texas, but which does not change its organizational determination. Matters that may be considered by the form should file an amendment to its registration legal staff in connection with a request to cap or (SOS form 406). reduce late fees include: 3. A termination of a registration (SOS form 612) is a. Whether additional time beyond the grace- required under section 9.011(d) of the BOC if: period granted was needed in order to correct or address the reasons for rejection or to obtain the a. The registered foreign filing entity merges execution of an application for registration; with another registered foreign filing entity. b. Whether additional time was needed due to b. The registered foreign filing entity merges the occurrence of a natural disaster affecting the with and into a domestic filing entity. entity’s ability to timely file or re-submit the c. The registered foreign filing entity application for registration; terminates its existence by dissolution or termination c. Whether a filing error was made (e.g., the in its jurisdiction of formation. entity formed a domestic entity rather than registering the foreign filing entity) at the time the entity began to 4. Section 9.012 provides for the automatic transact business in Texas; or withdrawal of the registration of a foreign filing entity d. Whether other extenuating circumstances or a foreign limited liability partnership that converts exist that warrant a reduction to the late fees imposed. to a domestic filing entity. Ignorance of the law is not an extenuating circumstance. F. Required Amendments to a Foreign Registration 4. A foreign entity requesting consideration of a reduction to or cap on late fees imposed should be 1. A foreign filing entity is required to amend its prepared to pay at least one year of late fees, even if registration when the foreign filing entity changes its the entity’s request is granted. name in its jurisdiction of formation.26

E. Transfer/Succession of a Foreign Registration 2. A foreign filing entity is required to amend its registration when it changes the business or activity 1. Section 9.009 of the BOC permits the transfer or stated in its application for registration. succession of a foreign entity’s registration with the secretary of state after a merger or conversion. 3. A foreign filing entity that is a foreign limited partnership is required to amend its registration to a. A foreign entity registered under the BOC reflect: may amend its registration to disclose a change that results from 1) a conversion from one type of foreign a. the admission of a new general partner; filing entity to another type of foreign filing entity b. the withdrawal of a named general partner; with the converted entity succeeding to the or registration of the converting foreign filing entity; or c. a change in the name of a general partner 2) a merger into another foreign filing entity with the stated in its application for registration. foreign filing entity making the amendment succeeding to the registration of the original foreign 4. A foreign entity that is required to amend its filing entity.25 registration must file the amendment on or before the b. For example, a Nevada LLC registered in 91st day following the date of the change. The failure Texas that converts to a Delaware LP need only file of a foreign entity to amend its registration when an application for amended registration to reflect the required by law may result in the revocation of the change in organizational structure and jurisdiction of entity’s registration by the secretary of state. (Sec. organization and need not obtain a new registration 9.101(b)(1)(c) BOC) file number for the converted entity. c. SOS form 422 is specifically designed for VI. FOREIGN PARTNERSHIPS AND LLCS this amendment. When submitting SOS form 422, include a completed application for registration A. Foreign LLPs applicable to the entity type that is succeeding to the Although not defined as a “foreign filing entity,” converting/merged entity’s registration. the BOC applies many of the provisions of chapter 9 to foreign LLPs.

9 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 register if it is to continue to transact business in the 1. The registration of a foreign limited liability state. partnership is valid for a period of one year. Renew the registration annually before the expiration of the 6. A foreign LLP that is transacting business in current term to maintain an effective registration. Texas and that fails to file an application for registration with the secretary of state is subject to 2. The fee for filing an application for registration subchapter B of chapter 9 of the BOC to the same for a foreign limited liability partnership is $200 per extent as a foreign filing entity. This means that the partner in Texas, but not less than $200 and not more foreign LLP may not maintain an action, suit, or than $750. For purposes of determining the number proceeding in Texas until it has registered with the of partners in Texas and calculating the filing fee, the secretary of state. Failure of the foreign LLP to secretary of state has adopted administrative rules27 register does not impair the validity of a contract or that provide that a partner is considered to be in Texas act of the partnership and does not impose personal if: liability on any partner for the partnership’s debts and obligations solely because the foreign LLP failed to a. the partner is a resident of the state; register. b. the partner is domiciled or located in the state; 7. Pursuant to section 152.910 of the BOC, a foreign c. the partner is licensed or otherwise legally LLP doing business in Texas is subject to the same authorized to perform the services of the partnership late filing penalty assessed on foreign filing entities. in this state; or A late filing fee will not be charged if: 1) the foreign d. the partner, or a representative of the LLP held a prior registration for the time stated as its partnership working under the direct supervision or beginning date of doing business; and 2) the new control of the partner, will be providing services or application for registration is submitted to this office otherwise transacting the business of the partnership within 90 days of the date of expiration of its lapsed within the state for a period of more than 30 days. registration.

3. Unlike a Texas limited liability partnership, a 8. Out-of-state limited partnerships that are also foreign LLP that files an application for registration is LLPs (i.e., limited liability limited partnerships or required to have and maintain a registered office and LLLPs) are required to file a registration as a foreign agent in Texas for the purpose of service of process. limited partnership under the provisions of chapter 9 of the BOC, as well as the annual application for 4. Section 152.914 of the BOC authorizes the registration under section 152.905 of the BOC as a secretary of state to revoke the registration of a foreign LLP. Although the BOC grants the secretary foreign LLP for the partnership’s failure to: of state the authority to assess and impose a late filing penalty for each registration document, the failure to a. file a report within the period required by law register both the foreign limited partnership and the or pay a fee or penalty prescribed by law when due foreign LLLP within 90 days of doing business will and payable; result in the imposition of a late filing fee for the b. maintain a registered agent or registered registration of the foreign limited partnership.28 office address in the state; or c. pay a fee in connection with a filing, or 9. While the LLP is predominantly a business entity payment of the fee was dishonored when presented by that exists under the laws of the states of the United the state for payment. States, several foreign countries have adopted LLP provisions.29 Although there had been some initial 5. A foreign LLP that has had its registration ambiguity concerning the ability of a non-US LLP to revoked by the secretary of state must make an register to transact business as a foreign LLP30, this application for reinstatement in accordance with uncertainty was remedied when the language of section 152.914 no later than the date the registration section 152.901(b) was amended to substitute the term would have expired had the registration not been “jurisdiction” for the word “state.”31 revoked. The application for reinstatement must be accompanied by a tax clearance letter from the B. Registration of Foreign Series LLCs and LPs Comptroller of Public Accounts stating that the foreign LLP has satisfied all franchise tax liabilities 1. Delaware, Iowa, Nevada, Oklahoma, Illinois, for purposes of reinstatement. A foreign LLP that Tennessee, and Utah provide for the creation of a fails to make an application for reinstatement within series LLC.32 Under Delaware law, a series is the timeframe specified cannot reinstate and must re- established in the operating agreement of the LLC

10 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 although the certificate of formation must provide 7. Registration by the secretary of state of a series notice regarding the potential limitation of liability.33 LP or statutory trust is solely authorization that the legal entity may transact business in Texas. 2. Section 9.005, which specifically addresses the Registration should not give rise to the inference that registration of a foreign series LLC, requires the the secretary of state or the laws of Texas recognize application for registration of a foreign LLC governed the legitimacy of the structure of a series LP or by a company agreement that establishes or provides statutory trust or provide assurance that the limitations for the establishment of a designated series to include of liability provided under the governing documents additional statements that provide notice of the series will be given full faith and credit in Texas. structure. 8. Registration with the secretary of state does not 3. In addition to the information required under control how the Texas courts will treat a foreign series section 9.004, an application for registration of a LLC, LP, or statutory trust, what law will apply to foreign series LLC must state whether: liability (Texas or state of organization) in an action by a third-party creditor or claimant, or whether the a. the series has separate rights, powers, or courts will “pierce the corporate veil” to hold the duties with respect to specified property or obligations entity and its series and the members of the other of the LLC or separate profits and losses associated series liable for the actions of another series or its with specified property or obligations of the LLC; members. Nor does the registration of the foreign b. any debts, liabilities, obligations, and filing entity by the secretary of state determine how expenses incurred, contracted for, or otherwise the series may be treated for purposes of sales tax, existing with respect to a particular series shall be franchise tax or other state taxes. enforceable against the assets of that series only, and not against the assets of the company generally or the C. Registration of Foreign Professional Entities assets of any other series; and A foreign professional entity would register with c. any debts, liabilities, obligations, and the secretary of state as the entity type to which it expenses incurred, contracted for, or otherwise most closely corresponds. If the jurisdiction of existing with respect to the company generally or any formation of the professional entity categorizes the other series shall be enforceable against the assets of professional entity as a professional association, the that series. foreign entity would register in Texas as a professional association even if a domestic entity 4. The application for registration form for a foreign formed for the same purpose would be formed as a series LLC is SOS form 313. different entity type.

5. Delaware law also provides for series limited VII. FILINGS FOR A TROUBLED partnerships and statutory trusts.34 However, Texas ECONOMY business organization law does not specifically address or recognize a series LP or statutory trust. A. Transactions Authorized Pursuant to a Plan of Regardless, it is clear that the secretary of state may Reorganization not refuse to file an application for registration of a foreign entity due to the differences between the laws 1. Subchapter G of chapter 10 of the BOC includes governing its internal affairs and liability.35 A series special provisions applicable to a domestic entity LP or statutory trust that is treated as a single legal being reorganized under a federal statute.36 These entity under the laws of the jurisdiction of its transactions may be taken without action by or notice organization will be treated as a single legal entity for to a domestic entity’s governing authority, owners, or qualification purposes. The LP or statutory trust members in order to carry out a plan of reorganization rather than the individual series should register as the ordered by a court under a federal statute. legal entity that is transacting business in Texas. 2. Pursuant to section 10.301 of the BOC, an 6. If each or any series of a foreign LLC, LP, or individual designated by a court having jurisdiction of statutory trust transacting business in Texas transacts the domestic entity being reorganized under a federal its business under a name other than the name of the statute may: LLC, LP, or statutory trust, the qualifying entity must file an assumed name certificate in compliance with a. amend or restate the domestic entity’s chapter 71 of the Texas Business & Commerce Code. certificate of formation;

11 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 b. merge or engage in an interest exchange domestic entity that is being reorganized under a with one or more domestic entities or non-code federal statute. organizations; c. change the registered agent or registered 2. In general, a filing instrument must include: office; d. alter, amend, or repeal the domestic entity’s a. the date of the court order approving the governing documents other than filing instruments; action; e. change and restructure the entity’s b. the name of the court having jurisdiction, governing authority and managerial officials; the file name, and the case number of the f. sell, lease, exchange or otherwise dispose of reorganization case in which the order was entered; all, or substantially all, of the entity’s property and and assets; c. a statement that the court had jurisdiction g. change the terms and conditions of the under a federal statute. issuance of bonds, debentures and other obligations of the entity; 3. Certain statements or information statutorily h. wind up and terminate the entity’s required for the filing instrument submitted may be existence; or modified or excluded by section 10.302. For example, i. convert the entity. a statement of change of registered agent or registered office filed pursuant to a bankruptcy court’s order 3. The provisions of subchapter G of chapter 10 do would include the information required by section not apply after entry of a final decree even though the 5.202(b), as applicable, but would exclude the court that rendered the decree may retain jurisdiction information found in the statement required by section of the case for limited purposes. 5.202(b)(6).37 For this reason, use of an SOS promulgated form is not recommended as the pre- B. Persons Authorized to Submit and Execute printed statements contained on the form will not be Filings applicable or conform to the specific requirements of section 10.302. 1. A trustee in bankruptcy, a designated officer of the domestic entity, or any other individual designated 4. A filing instrument submitted pursuant to section by a court having jurisdiction of a domestic entity 10.302 is assessed the same filing fee as a filing being reorganized under a federal statute may act on instrument submitted by a domestic entity that is not behalf of the entity and execute a filing submitted being reorganized. pursuant to subchapter G of chapter 10 of the BOC. (Sec. 10.302 BOC) VIII. MERGERS AND CONVERSIONS

2. The trustee or other designated person need not A. Certificate of Merger Required provide evidence of the person’s appointment or A certificate of merger is required to be filed in designation when submitting the filing instrument, but accordance with the provisions of chapter 10 of the may wish to include the person’s capacity in the BOC when any party to the merger is a domestic signature block. filing entity or when any entity created pursuant to a plan of merger is a domestic filing entity. 3. In the case of a merger or exchange with a domestic entity or non-code organization that is not 1. A merger transaction controlled by another statute being reorganized under a federal statute, the is governed by the other statute. For example, chapter certificate of merger or exchange would be signed on 162 of the Utilities Code will govern the consolidation behalf of each domestic entity or non-code or merger of telephone cooperatives. organization that is a party to the merger or exchange that is not being reorganized in the manner specified 2. A general partnership is not a domestic filing by section 10.151, and on behalf of the domestic entity. Consequently, the merger of a foreign entity entity being reorganized by a person specified in with a domestic general partnership would not require section 10.302. the filing of a certificate of merger with this office.

C. Requirements for Filing Instruments B. Alternative Certified Statement in Lieu of a Plan of Merger 1. Section 10.302 sets forth specific filing requirements for instruments submitted on behalf of a 1. The requirements for a plan of merger are set forth in sections 10.002 to 10.004 of the BOC.

12 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17

2. The plan of merger must be set forth as part of the (1) one or more subsidiary entities into a certificate of merger unless the certificate of merger parent; includes a statement certifying:38 (2) the merger of a parent into a subsidiary; or (3) the merger of one or more subsidiaries and a. the name, organizational form and the parent into another subsidiary.42 jurisdiction of formation of each domestic or foreign entity that is a party to the plan of merger or that will 2. The parent organization must own at least 90 be created as a result of the merger; percent of the outstanding ownership or membership b. that the plan of merger has been approved interests of each class and series of each of one or by each organization; more subsidiary organizations. At least one of the c. any amendments to the articles of parties to the merger must be a domestic entity. No incorporation, certificate of limited partnership action by any domestic subsidiary organization is articles of organization, or certificate of formation or a required to approve a short form merger. If the parent statement that no amendments are to be effected by organization survives the merger, the merger is the merger; required to be approved only by a resolution adopted d. that the certificate of formation of each new by the governing authority of the parent. Texas corporation, limited partnership, or limited liability company to be created as a result of the 3. The short form merger provisions do not apply if merger are being filed with the secretary of state as a subsidiary organization is a partnership. part of the certificate of merger; e. that an executed plan of merger is on file at 4. Merger of a General Partnership: the principal place of business of each surviving or newly created domestic or foreign corporation, limited a. A Texas partnership may adopt a plan of partnership or limited liability company; and merger and merge with one or more partnerships or f. that a copy of the plan will be on written other entities.43 request furnished without cost by each surviving, b. A certificate of merger on behalf of a acquiring, or new domestic entity or non-code general partnership is filed with the secretary of state organization to any owner or member of any domestic only when a party to the merger is a domestic filing entity that is a party to the merger and, for a merger entity or a domestic filing entity is to be created under with multiple surviving domestic entities or non-code the plan of merger. Consequently, a partnership organizations, to any creditor or obligee of the parties merger is filed with the secretary of state when the to the merger if a liability or obligation is then general partnership merges with or into a domestic outstanding. corporation, limited partnership, limited liability company, professional association, or cooperative 3. If the complete plan of merger adopted by the association or provides for the creation of one of these constituent entities is lengthy or contains numerous entities.44 exhibits, schedules, or attachments, the total cost of a c. A general partnership merger with or certified copy of the merger may be more than resulting in the creation of a real estate investment expected.39 Providing the alternative certified trust is not filed with the secretary of state. The statements in lieu of the plan of merger may be more merger should be filed with the county clerk in the cost-efficient and convenient. county in which the domestic real estate investment trust’s principal place of business in Texas is 4. The certificate of merger also must contain a located.45 statement that the plan of merger was approved as required by the laws of the jurisdiction of formation of D. Nonprofit Mergers each organization that is a party to the merger and by Certain restrictions and limitations apply to the governing documents of those organizations.40 mergers involving Texas nonprofit corporations. Procedures for the approval of fundamental business transactions are found in the spoke applicable to the 1. Pursuant to section 10.010(a) of the BOC, a domestic entity type.41 nonprofit corporation may not merge into another entity if, the nonprofit corporation would, because of C. Special Merger Provisions under the BOC the merger, lose or impair its charitable status. The secretary of state does not determine whether a 1. Sections 10.006 and 10.152 of the BOC apply to proposed merger will affect a nonprofit corporation’s mergers between parent and subsidiary entities and charitable status. permit a short form merger of:

13 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 2. One or more domestic or foreign for-profit entities F. Conversions or non-code organizations may merge into one or more domestic nonprofit corporations if the nonprofit 1. Under the BOC the converting entity is the entity corporations continue as the surviving entity or before conversion and the converted entity is the entities. A nonprofit corporation may merge with a resulting entity after conversion. The organizational foreign for-profit entity, but only if the nonprofit documents for the converted entity will appear in the corporation continues as the surviving entity. One or plan of conversion. more nonprofit corporations and non-code a. Like a plan of merger, the plan of organizations may merge into one or more foreign conversion can be, but is not required to be filed with nonprofit entities that continue as the surviving entity the certificate of conversion. In lieu of filing the plan, or entities. the converted entity may include a statement in the certificate of conversion certifying: 3. The fee for filing a merger transaction of a nonprofit corporation with a for-profit entity is $300. (1) the name, organizational form and The fee for filing a merger transaction where the only jurisdiction of formation of the converting entity; parties to the merger are nonprofit corporations is $50. (2) the name, organizational form and jurisdiction of formation of the converted entity;47 E. Common Errors to Avoid (3) that the plan has been approved; Generally, the most frequent reason for rejection (4) that the plan is on file at the principal of a merger document is the failure to set forth all place of business of the converting entity and the necessary recitations in the certificate of merger or address thereof, and that the plan will be on file from alternative statements. and after conversion at the principal place of business of the converted entity and the address thereof; and 1. The most frequent omission in a certificate of (5) that a copy of the plan will be merger is the authorization statement.46 Although a furnished by the converted entity on written request merger document drafted to contain the alternative and without cost to any shareholder or comparable statements certifies that the plan of merger has been interest holder of the converting or converted entity. approved, the certificate of merger also must include the following statement: b. The certificate of conversion also must contain a statement that the approval of the plan of “ The plan of merger has been approved conversion was duly authorized by all action required as required by the laws of the jurisdiction by the laws under which the converting entity was of formation of each organization that is a incorporated, formed, or organized and by its party to the merger and by the governing constituent/governing documents. documents of those organizations.” c. While the organizational documents of the converted entity are included as part of the plan of 2. Persons using an SOS certificate of formation conversion and are not required to be filed form for a domestic filing entity created pursuant to a independently, the statutes anticipate that separate plan of merger often fail to include the additional organizational documents for any domestic entity statement regarding the entity’s formation pursuant to formed by conversion (other than general a plan of merger, which is required under section partnerships) will be submitted with the certificate of 3.005(a)(7) of the BOC. If using an SOS form the conversion. additional required statement may be set forth as d. Pursuant to section 10.156 of the BOC, additional text in the “Supplemental the secretary of state cannot accept a certificate of Provisions/Information” section of the promulgated conversion if the required franchises taxes of the form. converting entity have not been paid. If a converting entity is a taxable entity under the franchise tax 3. Pursuant to section 3.006, the formation and statutes and the converting entity is not in good existence of a domestic filing entity created pursuant standing for purposes of the conversion, the secretary to a plan of merger takes effect and commences on the of state must refuse to file the conversion. A effectiveness of the merger. Consequently, the certificate of account status obtained from the certificate of formation of a domestic filing entity Comptroller’s web site will be accepted as evidence of created pursuant to the plan of merger cannot have an good standing only when the converted entity is effective date that differs from the effective date of the subject to franchise tax under Texas law. In the certificate of merger. alternative, a statement may be included in the certificate of conversion that the converted entity will be liable for the payment of all franchise taxes.

14 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 2. Submitting a certificate of formation to form the 2. The conversion provisions apply to domestic as domestic “converted” entity before submission of the well as foreign entities. The foreign entities must certificate of conversion. This error may require the have the ability to convert under the laws of their practitioner to re-draft and restructure the transaction home jurisdiction. as a merger with the newly created entity as the surviving entity. a. Section 9.012 provides for the automatic withdrawal of the registration of a foreign filing entity 3. Failure to include additional statements relating to or a foreign limited liability partnership that converts the conversion in the formation document of the to a domestic filing entity. converted entity is a frequent error. The formation b. If a domestic entity converts to a foreign document of a converted entity must include: filing entity and the foreign entity will be transacting business in Texas, the converted entity will be a. a statement that the entity is being formed required to file an application for registration under pursuant to a plan of conversion; and the statutes applicable to the converted entity. b. the name, address, date of formation, and c. Under the BOC, a foreign filing entity that prior form of organization and jurisdiction of converts to another foreign entity may file an organization of the converting entity. (Sec. 3.005(a)(7) amendment to its application for registration in order BOC) to succeed to the registration of the original foreign filing entity (SOS form 422).48 H. Conversion and Continuance

3. A conversion transaction includes the continuance 1. Chapter 10 of the BOC also permits a converting of a domestic entity of one type as a foreign entity of entity to elect to continue its existence in its current the same type or the continuance of a foreign entity of organizational form and jurisdiction of formation one type as a domestic entity of the same type and when permitted by, or not inconsistent with, the laws which may be treated as a domestication, continuance, applicable to the converting entity. or transfer transaction in the jurisdiction of the foreign converting or converted entity. 2. The transaction, known as a “conversion and continuance,” is applicable only when: 4. The conversion provisions in chapter 10 of the BOC are applicable to all entities. Section 4.151 a. a domestic entity of one organizational form provides for one filing fee for the certificate of is converting to a non-United States foreign entity of conversion, plus the fee for filing the certificate of the same organizational form; or formation for the converted domestic entity. b. a non-United States foreign entity of one organizational form is converting to a domestic entity 5. The conversion provisions do not apply when a of the same organizational form. domestic limited liability company is changing its purpose to come under the provisions relating to 3. A registered non-United States foreign filing professional limited liability companies and vice entity that files a Certificate of Conversion and versa. A certificate of amendment is sufficient to Continuance will have its registration automatically effectuate this change as a limited liability company withdrawn on filing the certificate. (Sec. 9.012, BOC) includes a professional limited liability company and there is not a change to the type of entity. I. How to Avoid Last Minute Problems with Tax Clearance 6. The provisions of the BOC specifically prohibit the conversion of a nonprofit corporation to a for- 1. Failure to obtain tax clearance for the transaction profit entity. (Sec. 10.108, BOC) is a common reason for rejection. Texas law requires the secretary of state to determine that a merging or G. Common Errors to Avoid converting entity subject to franchise tax has paid all The common errors encountered are similar to taxes due before the merger or conversion can be those found in certificates of merger. accepted and filed.49 The requirement for tax clearance is not limited to specific entity types; 1. Failure to ensure tax clearance for the converting consequently, this requirement applies to any taxable entity by either including the appropriate tax entity that is a non-surviving party to the merger or certificate or by including a statement relating to the the converting entity in a conversion. payment of such taxes by the converted entity.

15 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 2. The secretary of state suggests two alternatives to permitted by law, the secretary must determine avoid last minute refusal to file the merger or whether the former name of any entity is available or conversion for tax reasons: whether the organizational documents need to be amended to change the name.51 If the likelihood exists a. Submit the merger or conversion with a that the parties might abandon a merger transaction, certificate of account status from the Comptroller of consider filing a name reservation for the prior or Public Accounts for each merging or converting filing former name of a merged entity that may need to be entity that is a taxable entity. If the merging or reactivated. converting entity is a passive entity, provide a statement or certification from the Comptroller of 4. When the effectiveness of a document is Public Accounts that the entity is not a taxable entity. conditioned on the occurrence of a future event other A certificate of account status provided for a merging than the passage of time (delayed effective condition), or converting entity must specifically indicate that it is the entity is required to file a statement with the for the purpose of merger or conversion; or secretary of state within ninety (90) days from the date b. Include in the plan of merger or conversion, of execution of the instrument in order to effect the or in the alternative statement provided in lieu of a transaction evidenced by the filing.52 Failure to file plan of merger or conversion, a statement that one or the statement regarding the satisfaction or waiver of more of the surviving, new or acquiring entities will the delayed effective condition does not effect an be responsible for the payment of all fees and abandonment of the filed document. In order to franchise taxes and that all of such surviving, new or abandon the document, a certificate of abandonment acquiring domestic or foreign entities will be must be filed with the secretary of state. obligated to pay any fees and franchise taxes if not timely filed.50 K. Merger and Conversion Forms

J. Abandonment of Mergers and Conversions 1. The secretary of state has promulgated certain merger and conversion forms designed to comply with 1. Subchapter E of chapter 10 of the BOC governs BOC filing requirements. If you do not find the form the abandonment of a merger, conversion or exchange for your specific transaction, it is because the that has been approved, but has not become effective. secretary of state did not develop a form for the The abandonment of the transaction is subject to any transaction (e.g., holding company merger or merger contractual rights, and would be abandoned in the of parent into one or more subsidiaries). Please do not manner set forth in the plan of merger, conversion or alter a numbered SOS form or “re-number” a exchange. If the plan does not contain a provision promulgated SOS form for the purpose of tailoring the regarding the procedures for abandoning the plan, the form to meet your specific merger or conversion plan of merger, conversion, or exchange would be transaction. abandoned in the manner determined by the governing authority of the domestic entity. 2. There are several SOS forms that relate to merger transactions of BOC entities. SOS form 621 may be 2. An abandonment of a merger, conversion or used to effect a divisional merger of a Texas BOC exchange need not have the approval of the domestic filing entity. SOS form 622 may be used to effect a entity’s owners or members. If the merger, merger of one or more Texas BOC filing entities with conversion or exchange has been filed with the one or more organizations. SOS form 623 may be secretary of state, the domestic entity must file a used to effect a merger of a subsidiary entity into a statement of abandonment in accordance with section parent organization. SOS form 624 may be used to 4.057 of the BOC, the general provision applicable to effect a merger when each party to the merger is a any filing instrument filed with a delayed BOC nonprofit corporation. Please take care in effectiveness. The abandonment must be signed on selecting the correct form for submission. behalf of each entity that signed the certificate of merger, conversion or exchange. 3. SOS merger forms do not include a plan of merger form. The plan of merger may be attached to 3. On filing, the secretary of state records the filing the certificate of merger form or the alternative of an merger or conversion instrument with a delayed statements contained within the form may be checked effective date or condition and takes necessary action and completed. at that time to create new entities, change the status of merged or converting entities, and change names 4. SOS merger forms also do not include a form for when amended by the filed document. Consequently, the creation of any domestic filing entity to be created when a statement of abandonment is submitted as pursuant to a plan of merger. If the plan of merger

16 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 results in the creation of a domestic filing entity, formation of the converted entity when the converted please remember that the certificate of formation of a entity is a domestic filing entity. For example, the domestic filing entity created pursuant to the plan of total fee for filing the conversion of a foreign LLC to merger must contain a statement that the entity is a Texas for-profit corporation is $600 ($300 for the being formed under a plan of merger.53 conversion and $300 for the formation fee).

5. SOS conversion forms comply with the provisions IX. PROFESSIONAL ENTITIES of the BOC and are not designed for cross-statutory A professional entity is governed by title 7 of the transactions. The forms are entity specific: SOS BOC and is formed for the purpose of providing a forms 631 to 634 are used when the converting entity professional service. A professional entity is a is a for-profit or professional corporation; SOS forms professional corporation, professional association, and 635 to 638 are used when the converting entity is a a professional limited liability company. The term limited liability company, and SOS forms 641 to 644 does not include a partnership, including a limited are used when the converting entity is a limited liability partnership. partnership. A. What is a Professional Service? 6. The secretary of state has two new conversion forms for domestic filing entities; namely, a form to 1. Section 301.003(8) of the BOC defines a convert a professional association to a professional professional service as “any type of service that limited liability company (SOS form 645), and a form requires, as a condition precedent to the rendering of to convert a domestic general partnership to a the service, the obtaining of a license in this state, domestic filing entity (SOS form 646). The secretary including the personal service rendered by an of state does not have a form for the specific purpose architect, attorney, certified public accountant, dentist, of “re-domesticating” or converting a foreign entity to physician, public accountant, or veterinarian.” The a Texas entity of the same entity type or vice versa. term “includes” is a term of expansion and not a term However, the secretary of state is currently developing of limitation or exclusive enumeration. a summary that includes general information and a checklist for a conversion of this nature. 2. When determining whether a professional entity must be formed to render a particular service a 7. SOS conversion forms do not include a plan of practitioner must first determine whether the activity conversion or a certificate of formation for a in which the entity is to be engaged is a “professional converted entity that is to be a domestic filing entity. service” within the meaning of section 301.003 of the When drafting the certificate of formation of a BOC. This determination requires a review of the converted entity that is a domestic filing entity, laws governing or regulating the activity or service remember to include the additional statements being provided. If the law governing the activity required under section 3.005(a)(7) of the BOC. requires a person to obtain a license from the state before engaging in the activity and prohibits rendition L. Merger and Conversion Fees of the activity by a non-licensed person, the activity or service is a professional service within the meaning of 1. The BOC simplified the filing fees for merger and section 301.003 of the BOC. If the law governing the conversion transactions by imposing a standard fee. activity does not require a person to obtain a license The fee for filing a merger transaction is a common from the state before engaging in the activity, the fee of $300 for all entities, other than nonprofit activity or service is not a professional service. Some corporations or cooperative associations. examples of personal services that are not “professional services” include the provision of 2. A certificate of merger that creates a new mediation services,54 enrolled agent and patent agent domestic filing entity also must include the filing fee services.55 for the formation of the newly created domestic filing entity. Consequently, the filing fee for a certificate of B. What Type of Entity Should Be Formed? merger merging a domestic limited liability company and a foreign for-profit corporation that creates a 1. Although an activity may be deemed to be a domestic limited partnership is $1050 ($300 for the “professional service” within the meaning of section certificate of merger and $750 for the certificate of 301.003 of the BOC, a professional entity may not be formation of the domestic limited partnership). the only entity type through which the activity or service may be rendered. To determine whether one 3. The fee for filing a conversion is a common fee of must form a professional entity for this purpose, $300, plus the fee imposed for the certificate of review the statute regulating the activity or profession.

17 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 professional services that fall within the scope of the 2. If the enabling legislation regulating the practice of those practitioners.57 profession only licenses individuals to perform the b. Professionals, other than physicians, professional service, such as the practice of law, a engaged in related mental health fields such as licensed professional seeking to form a limited psychology, clinical social work, licensed professional liability company or a for-profit corporation through counseling, and licensed marriage and family therapy which to render the professional service would form a may form a professional association, PLLC or PC that professional limited liability company or a is jointly owned by those practitioners to perform professional corporation that is subject to title 7 of the professional services that fall within the scope of the BOC. practice of those practitioners.58 c. Persons licensed as doctors of medicine and 3. If the enabling legislation regulating the persons licensed as doctors of osteopathy by the Texas professional service authorizes the issuance of a State Board of Medical Examiners and persons license to provide the service to an individual, licensed as optometrists or therapeutic optometrists by corporation, limited liability company, partnership, or the Texas Optometry Board may, subject to the association, in accordance with the reasoning and provisions regulating those professionals, jointly form analysis of Texas Attorney General Opinion JC-0536 and own a partnership, including a limited liability (2002),56 a professional seeking to form a limited partnership, to perform professional services that fall liability company through which to render the service within the scope of the practice of those may form a limited liability company or a professional practitioners.59 Professional entities formed under the limited liability company. BOC would be permitted to form a professional association or a professional limited liability company 4. Only certain licensed professions can be rendered for the joint practice of medicine, osteopathy, and through a professional association. A professional optometry or therapeutic optometry. association may be formed for the purpose of providing the professional service rendered by a 3. Changes in the laws governing the professions doctor of medicine, doctor of osteopathy, doctor of may permit the joint practice of certain professionals podiatry, dentist, chiropractor, optometrist, therapeutic not reflected in section 301.012, the joint professional optometrist, veterinarian, or licensed mental health practice provision of the BOC. In recognition of this professional. A “licensed mental health professional” fact, section 2.004 of the BOC provides that a means a person, other than a physician, who is professional entity may engage in only one type of licensed by the state to engage in the practice of professional service unless the entity is expressly psychology or psychiatric nursing or to provide authorized to provide more than one type of professional therapy or counseling services. professional service under the state law regulating the professional services. 5. Pursuant to section 301.003(3) of the BOC, the definition of a professional corporation excludes the 4. While section 2.004 provides for an exception to practice of medicine as a professional service that may the general rule, please note that if a formation be rendered through a professional corporation. document contains a joint practice provision not specifically provided for in the BOC, the legal C. Joint Ownership and Practice practitioner should be prepared to provide reference to the specific law permitting the stated joint practice. 1. As a general rule, a domestic or foreign professional entity may render only one type of D. Certificates of Formation professional service (and any ancillary services). (Sec. 2.004 BOC) 1. The provisions of title 2, chapters 20 and 21, and title 7, chapters 301 and 303 govern a domestic 2. Section 301.012 of the BOC however specifically professional corporation. Consequently, when provides for the joint practice of the following drafting the certificate of formation of a professional professionals. corporation, you must provide the supplemental information required for a for-profit corporation under a. Persons licensed as doctors of medicine, section 3.007 (e.g., capital structure and management and persons licensed as doctors of osteopathy by the information), in addition to the supplemental Texas State Board of Medical Examiners and persons information required of professional entities under licensed as podiatrists by the Texas State Board of section 3.014. Podiatric Medical Examiners may jointly form and own a professional association or a PLLC to perform

18 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 a. The BOC effected a change to the corporation must include a word or an abbreviation ownership provisions for professional corporations.60 required for a for-profit corporation, or it may contain Under the BOC, a “professional organization,” as well the phrase professional corporation or an abbreviation as a “professional individual” may hold an ownership of the phrase. (Sec. 5.054(c) BOC) The name of a interest in the professional corporation.61 professional association must contain the word b. A professional corporation’s officers and associated, associates, or association, the phrase directors however must still be licensed individuals. professional association, or an abbreviation of one of c. A professional corporation also may be those words or that phrase. (Sec. 5.058 BOC) formed as a close corporation. 3. The name of a professional entity may not be 2. The provisions of title 2, chapters 20 and 21, and contrary to law or to the ethics of the profession title 7, chapters 301 and 302 govern a domestic involved. (Sec. 5.060 BOC) Check with the professional association.62 Accordingly, if a regulatory or licensing authority to determine whether professional association is to issue shares in the the name chosen violates any law or regulation association, it must provide for its capital structure in governing the profession. its certificate of formation and provide the same information that would be required of a for-profit X. EFFECTS OF FRANCHISE TAX ON corporation and a professional corporation under FILINGS WITH THE SOS section 3.007 of the BOC. A. When Are You Required to Provide a a. The listing of professionals who may form Certificate of Good Standing? professional associations is exclusive and reflects the professionals who were specifically authorized to 1. The following transactions require the form professional associations as of September 2003. presentation of a certificate of account status as a pre- A physician assistant, advance nurse practitioner, condition for filing. nurse anesthetist, or surgical assistant cannot form a professional association.63 a. A certificate of termination submitted on b. Ownership and management in a behalf of a domestic filing entity, other than a professional association are still limited to individuals nonprofit corporation, filed pursuant to section 11.101 who are licensed to perform the professional service of the BOC requires a certificate of account status for which the professional association was formed. from the Comptroller of Public Accounts stating that all taxes administered by the Comptroller under Title 3. Section 3.015 of the BOC requires the certificate 2, Tax Code have been paid. of formation of a professional association to include b. A withdrawal of registration filed pursuant certain supplemental information. The certificate of to section 9.011 of the BOC by a foreign filing entity, formation of a professional association must state other than a nonprofit corporation, or a withdrawal of whether the association is to be governed by a board registration of a foreign limited liability partnership of directors or by an executive committee and must under the provisions of section 152.906 of the BOC provide the name and address of each person serving requires a certificate of account status from the on the initial board or committee. In addition, if the Comptroller of Public Accounts stating that all taxes professional association is authorized to issue shares, administered by the Comptroller under Title 2, Tax the certificate of formation must provide the Code have been paid. information required under section 3.007 of the BOC. c. A withdrawal of registration by a domestic limited liability partnership pursuant to section E. Name Issues for Professional Entities 152.802(f) of the BOC requires a certificate of There are additional hurdles before selecting a account status from the Comptroller of Public name for an entity that will be rendering professional Accounts stating that all taxes administered by the services. Comptroller under Title 2, Tax Code have been paid.

1. The names of professional entities must meet the 2. A general partnership comprised solely of natural same availability standards as the names of general- persons may choose to let its registration as an LLP purpose corporations or limited liability companies. lapse rather than file a withdrawal of registration before the expiration of its term; however, franchise 2. The name of a professional limited liability tax responsibilities may still apply to the partnership, company must contain the words professional limited liability company or the abbreviation P.L.L.C. or including the filing of a franchise tax report, a signed PLLC. (Sec.5.059 BOC) The name of a professional Ownership Information Report and a final franchise

19 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 tax report for the year in which the registration expired. 2. The secretary of state is not required to notify a taxable entity of the forfeiture of its existence or B. When Is Tax Clearance Required for Filings? registration; the entity has already received statutory notification regarding the forfeiture from the 1. Section 10.156 of the BOC authorizes the Comptroller. On forfeiture, the secretary of state secretary of state to condition the acceptance and changes the status of the taxable entity from “in filing of a merger or conversion on a determination existence” to “forfeited existence.” that all franchise taxes owed by each merged or converting entity have been paid as required by law. 3. While a limited partnership that is subject to To satisfy the tax-clearance requirement for a merger franchise tax may forfeit its privileges and be subject or conversion, a practitioner may provide a to forfeiture of its certificate, the LLP registration certification of account status as evidence that this itself will not be subject to forfeiture due to condition has been met or may include a statement in nonpayment of taxes. the merger or conversion that one or more of the surviving or new organizations or the converted entity D. Information Reports is liable for payment of the required franchise tax. 1. Pursuant to section 171.203, Tax Code, each 2. An application for reinstatement following an corporation and limited liability company subject to involuntary revocation submitted on behalf of a the franchise tax must file a public information report foreign filing entity, other than a nonprofit regardless of whether the entity is required to pay any corporation, made pursuant to section 9.104 of the tax. BOC requires a tax clearance letter issued by the Comptroller of Public Accounts stating that the entity 2. The public information report, commonly referred is in good standing for purposes of reinstatement. to as the PIR, contains management information and identifies the names of those corporations or limited 3. An application for reinstatement following a liability companies in which the reporting entity owns voluntary termination submitted on behalf of a a 10 percent or greater interest or that own a 10 domestic filing entity, other than a nonprofit percent or greater interest in the reporting entity. An corporation, made pursuant to section 11.202 of the officer, director or other authorized person is required BOC requires a tax clearance letter issued by the to sign the PIR under a certification that all Comptroller stating that the entity is in good standing information contained in the report is true and correct for purposes of reinstatement. and that a copy of the report has been mailed to each person identified as a management person who is not 4. An application for reinstatement following an currently employed by the entity or related company. involuntary termination submitted on behalf of a domestic filing entity, other than a nonprofit 3. Section 171.203, Tax Code, applies only to corporation, made pursuant to section 11.253 of the corporations and limited liability companies. BOC requires a tax clearance letter issued by the However, similar reporting requirements are imposed Comptroller stating that the entity is in good standing on taxable entities that are not corporations or limited for purposes of reinstatement. liability companies. The information report required for such entities is known as the ownership 5. An application for reinstatement submitted by a information report. taxable entity following a forfeiture of its certificate or registration under the provisions of chapter 171 of the 4. The ownership information report (OIR) contains Tax Code requires a tax clearance letter issued by the information on each general partner in a partnership Comptroller stating that the entity is in good standing and each person or entity that owns a 10 percent or for purposes of reinstatement. greater interest in the reporting entity. In addition, the report requires the reporting entity to identify each C. Forfeiture of Taxable Entities entity in which the reporting entity owns an interest of 10 percent or more. 1. The secretary of state has statutory authority to forfeit the charter, certificate or registration of a 5. The OIR is not public information and is not domestic or foreign professional association, domestic available from the secretary of state. If a reporting or foreign limited partnership, or foreign business limited partnership needs to add, delete or change the trust that the Comptroller of Public Accounts certifies name of a partnership’s general partner, an has not revived its forfeited privileges. amendment must be made to the organizational 20 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 document on file with the secretary of state. An registration itself will not be subject to forfeiture by update made on an OIR does not effect an amendment the secretary of state. to the limited partnership’s certificate of formation or registration. 5. An application for reinstatement under chapter 171 of the Tax Code must be submit on behalf of and 6. Although limited partnerships and professional executed by a person who was a managerial official or associations file OIRs annually with the Comptroller owner of the taxable entity at the time of forfeiture. In of Public Accounts, these entities are still subject to the case of a limited partnership, the application for reporting requirements imposed under the provisions reinstatement would be submitted and executed by a of the BOC. Consequently, a professional person who was a partner in the partnership at the association is still required to file an annual time of forfeiture. statement by June 30. Failure to file the annual statement will subject the association to involuntary XI. SPECIAL LLP ISSUES termination by the secretary of state. A. LLP Registration—Strict Compliance E. Reinstatement of Taxable Entities The LLP provisions of the BOC do not have a substantial compliance standard; strict compliance 1. The secretary of state has authority to revive the with the registration, renewal and financial certificate or registration of a taxable entity after responsibility requirements is required to ensure forfeiture by the secretary of state. An application for liability protection.64 reinstatement following a tax forfeiture is governed by the provisions of chapter 171 of the Tax Code rather 1. Although the secretary of state often provides than the BOC or its source statutes. The revival and notice to an LLP regarding its need to renew its reinstatement of a taxable entity follows the same registration, providing notice of renewal is not a procedures used when reinstating a corporate entity. statutory duty imposed on the secretary of state. The failure of the secretary of state to send a notice of 2. The Tax Code requires the secretary of state to renewal, or the failure of the LLP to receive a notice determine whether a taxable entity has filed each of renewal, does not extend the duration of an LLP delinquent report and paid any delinquent tax before registration. filing an application for reinstatement and setting aside the forfeiture. A tax clearance letter issued by 2. Once the term of registration expires, a new the comptroller of public accounts stating that the registration must be submitted. There is no grace entity is in good standing for purposes of period for renewal of registration, and no means of reinstatement fulfils this requirement and must reinstating an expired registration. The failure to be accompany the application for reinstatement. vigilant regarding renewals of registrations may result in the imposition of personal liability. 3. Before filing an application for reinstatement, the secretary of state must determine whether a taxable 3. It also appears that allowing a registration to lapse entity’s name is still available for purposes of its after the winding up of the partnership may have some reinstatement. If the taxable entity’s name is no unforeseen consequences. See e.g., Evanston longer available for its use at the time of submission Insurance Co. v. Dillard Dept. Stores Inc., 602 F. 3d of the application for reinstatement, the instrument 610 (5th Cir. 2010) wherein the court held that the cannot be filed. In the case of a domestic taxable judgment against the defunct partnership was a debt entity, the application for reinstatement must be that was “incurred” at a time when the partnership was accompanied by a certificate of amendment to change not registered; therefore, the individual partners could the name of the domestic entity. In the case of a be held personally liable. foreign taxable entity, the application for reinstatement must be accompanied by an amendment B. LPs Registered as LLPs—Addressing the to the registration for purposes of adopting an Missing Link assumed name under which the entity may qualify to transact business. 1. A domestic limited partnership that has also elected to register as an LLP has two separate records 4. Registration of a limited partnership as an LLP with the secretary of state—one as an LP and the other does not create a separate entity. While an underlying as an LLP. However, a limited partnership that also domestic limited partnership that is subject to the elects to register as an LLP is a single taxable entity. franchise tax may forfeit its privileges and be subject to forfeiture of its certificate of formation, the LLP

21 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 2. In an attempt to create a tie between the amendment to its registration. Although provision of underlying limited partnership record and the LLP such information is statutorily required, the secretary registration record, the secretary of state will search of state accepts an LLP initial registration or renewal the name of the LLP when processing an application of registration that does not include a taxpayer for registration or renewal of registration to determine identification number if the partnership states that it whether an underlying limited partnership is of record. has not obtained its identification number at the time If an active limited partnership by the same name is of the submission of the filing. It is strongly found, the name and file number of the underlying recommended however that a limited partnership that limited partnership will be shown as an associated is also registered as an LLP file an amendment to its entity in the LLP registration records, and the name registration to provide the federal tax identification and file number of the LLP registration will be number as soon as it is obtained. The fee for filing an reflected in the database as an associated entity of the amendment to a registration that does not add limited partnership. The secretary of state is then able additional partners to the partnership is $10. to pass the file number of the LLP’s associated limited partnership to the Comptroller of Public Accounts. 4. When a domestic limited partnership files an instrument that affects the existence of the entity as a C. Facilitating Linkage limited partnership, the partnership’s registration as a limited liability partnership is not updated to reflect 1. The name of the limited partnership and the name the filing of the instrument. Consequently, while the of the partnership on its registration as an LLP should record of the limited partnership will show the entity match. The secretary of state uses an entity name as as “inactive,” its LLP registration record will remain the primary means of searching the records to verify active until it is either withdrawn or expires. A the existence of the underlying LP record. practitioner may wish to consider filing a withdrawal of the partnership’s registration as an LLP when the 2. If the name of the limited partnership does not existence of the underlying partnership ceases due to a match the entity name shown on the LLP registration, termination, cancellation, merger or conversion. you may need to file another instrument with the secretary of state to clarify the records. 5. When a domestic general partnership converts to domestic limited partnership (or vice versa), the a. If the name of the limited partnership on its secretary of state will accept an amendment to the certificate of formation does not include the LLP partnership’s LLP registration to show the identifier used in its application for registration, the reorganization of the underlying partnership and limited partnership should file an amendment to the change of name, if applicable. certificate of formation to add the LLP identifier used in its registration. D. Common Reasons for Rejection b. The name of a limited partnership must meet the name availability standards imposed under 1. A registration or renewal form that states that chapter 5 of the BOC while the name of a partnership there is only one partner in the partnership will be that registers as an LLP is not subject to the same rejected for clarification if a search of the database standards. (§5.063(b) BOC) If a name availability does not reflect a limited partnership by the same conflict results in the formation of a limited name. A partnership is defined as an association partnership under a name that differs from the name comprised of two or more persons. shown on its registration as an LLP, it is suggested that the limited partnership file an assumed name 2. The duration of the LLP registration is limited— certificate to show that the LP is also conducting one year from the effective date of filing. The business under the name shown in the LLP secretary of state must reject an application for registration and vice versa. renewal of registration when the renewal is received c. When the certificate of formation of the after the term of registration has expired. limited partnership is amended before expiration of the current term of the entity’s LLP registration, file a E. Failure to Renew—Franchise Tax corresponding amendment to the LLP registration to Consequences reflect the new name. The failure to renew the LLP registration before the expiration of the current term of registration will 3. Section 152.802 of the BOC requires a partnership require the partnership to file a new registration with to provide its federal taxpayer identification number at the secretary of state. This may have franchise tax the time of its registration, renewal of registration or consequences for the underlying taxable partnership. withdrawal of registration, and when filing any The lapse in registration may trigger the need to file a

22 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 final franchise tax report for the lapsed registration 7. A certificate of correction may be executed by a and an initial franchise tax report for the subsequent person authorized by the provisions of the BOC to LLP registration. To avoid the possibility of execute the instrument being corrected. This means establishing a new/duplicate tax account, or filing that an entity’s organizer must submit a certificate of additional franchise tax reports, a partnership should correction to a certificate of formation. renew its registration on a timely basis. B. Corrections to Mergers or Conversions XII. CERTIFICATES OF CORRECTION Generally, the filing instrument to be corrected relates to a single entity. In the case of a filing A. Corrections 101 instrument that involves multiple entities as parties to the transaction evidenced by the instrument certain 1. A domestic or foreign filing entity may correct a procedures should be taken to facilitate processing. filing instrument that was filed with the secretary of state when the instrument is an inaccurate record of 1. Only one correction filing is required to correct the action referred to in the instrument, contains an errors in the merger, conversion or exchange filing inaccurate or erroneous statement, or was defectively instrument. If the practitioner is using SOS Form 403 executed. (Sec. 4.101-Sec. 4.105 BOC) to submit the certificate of correction, the best practice is to show the name and file number of any surviving 2. A certificate of correction is not to be used as a entity to a merger, the converted entity in a “less expensive” alternative to a certificate of conversion, and the acquiring entity in an interest amendment. The secretary of state may reject the exchange in the field that asks for the name of the submission of a certificate of correction if it appears entity submitting the correction instrument. that an amendment rather than a correction is being made to a formation instrument. 2. The certificate of correction also should include the name and file number of any merging filing 3. Documents may be corrected to contain only entities, the name and file number of the converting those statements that lawfully could have been entity, or the name of each acquired domestic filing included in the original instrument. The certificate of entity, as applicable. The additional names and file correction may not be used to alter, include, or delete numbers may be included on the form itself or a statement that by its alteration, inclusion, or deletion provided as an attachment to the form. Failure to would have caused the secretary of state to determine include the names and file numbers of the other filing that the document did not conform to law. entities will not be grounds for refusal of the correction instrument; however, providing the 4. The filing of the certificate of correction relates additional information saves the SOS time and ensures back to the original date of the filing except as to that the correction instrument is properly indexed. those persons who are adversely affected by the correction. In the case of a person adversely affected 3. Even though the correction instrument may apply by the correction, the filing instrument is considered to multiple entities, the certificate of correction need to have been corrected on the date the certificate of not be signed by all parties that were required to sign correction is filed. the instrument being corrected. It is sufficient if the correction instrument is signed on behalf of a 5. Corrections do not void or revoke the original surviving party to the merger, the converted entity in a filing; section 4.105(c) provides that any conversion, or an acquiring entity in the interest acknowledgment of filing issued by the secretary of exchange. state with respect to the effect of the filing is considered to apply to the instrument as corrected. 4. The fee for filing the certificate of correction is $15 regardless of the number of entities that may be 6. An assumed name certificate is not a filing affected by the correction instrument. instrument governed by the BOC. Consequently, an assumed name certificate is not an instrument that can XIII. PRIVACY ISSUES be corrected by filing a certificate of correction under All documents, including correspondence, on file chapter 4 of the BOC. If the information is materially with the Corporations Section are public records. misleading or inaccurate, consider filing a new Records, and the information contained in the record, assumed name certificate. (Sec. 71.152, Business & are public information subject to the provisions of Commerce Code) chapter 552 of the Government Code. Unless otherwise exempted by constitutional provision, statutory provision, or judicial decision, the record and

23 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 information are subject to public access and the secretary of state for purposes of updating the disclosure. management information accordingly.

A. Social Security Numbers C. Home Addresses and Other Expectations of Privacy 1. The provisions of the BOC do not require an individual to include a social security number in any 1. The secretary of state provides any information filing instrument required or permitted to be filed with deemed to be public information to both the public the secretary of state. However, while individual SSN and private sectors and cannot limit or restrict the information is not a statutory filing requirement, purposes for which the information may be used by a sometimes persons voluntarily provided such requesting party. information in a document that is accepted, indexed and recorded by the Corporations Section. 2. If your client has an expectation of privacy regarding home address information, do not use this 2. The secretary of state will redact the entire SSN address as the registered office address. Of course, if number on documents displayed on SOSDirect and the registered agent has no other address other than a used for the production of copies in response to public home address, there can be no expectation of privacy. information requests. An un-redacted copy of the document will be retained for access by secretary of 3. When providing management information, state staff in response to requests from law provide a business office address rather than a home enforcement or other authorized requestors. address when you are required to provide management address information in a filing instrument or PIR. B. Public Information Reports While much of the information provided to the XIV. SUNDRY ISSUES FROM THE SOS Comptroller of Public Accounts under the Tax Code is confidential under state law, the Tax Code specifically A. Execution of Filings provides that the information contained in a PIR is not confidential. While the title of the report is self- 1. Section 4.003 provides the general provision explanatory, many people remain unaware of the relating to the execution of a filing instrument; extent of access to such information. namely, that a filing instrument must be signed by a person authorized by the BOC to act on behalf of the 1. The purpose of the PIR is to provide a “snapshot” entity in regard to the filing instrument. Generally, a of the entity as of the date the report is filed. It is only managerial official of the filing entity has the required to be filed annually in May. An entity is not authority to execute a filing instrument. required to file (nor is the Comptroller required to accept) an “updated PIR” whenever an event occurs 2. A “managerial official” means an officer or that changes the information provided in the report. governing person of the entity. The attorney that Consequently, the information contained in the PIR prepared the document, an organizer of the entity, the may no longer be current when the information is entity’s accountant, or the entity’s registered agent is accessed by a third party. not a “managerial official” of the entity.

2. Once a corporation or limited liability company 3. In order to determine who has the authority to act files its PIR with the Comptroller of Public Accounts, on behalf of the entity, you must look to the specific the Comptroller forwards the report to the secretary of title governing the entity or to the specific provision state. The secretary of state indexes the PIR against applicable to the transaction. the entity’s record. The Corporations Section maintains the PIR management information in its a. In the case of a for-profit corporation, database. When changes to management information nonprofit corporation, professional corporation, and a are reflected in a PIR, the information is updated by professional association, an officer must sign a filing the secretary of state. Management information is instrument. (Sec. 20.001 BOC) accessible electronically through SOSDirect. b. In the case of a limited partnership, generally a general partner of the partnership must 3. An individual whose name was included on a PIR, sign a filing instrument. Section 153.553 contains but who was not an officer or director on the date the specific execution requirements for certain report was filed, may file a sworn statement to that instruments. For example, all the general partners of effect with the Comptroller of Public Accounts. The the partnership must sign a certificate of formation. A Comptroller may then forward the sworn statement to certificate of amendment must be signed by at least

24 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 one general partner and also must be signed by each determining and enforcing rights, duties, and new general partner added by the certificate of liabilities in contract and tort.” Section 171.0002 of amendment. A withdrawing general partner need not the Tax Code defines a “taxable entity” to include a sign an amendment that evidences the general “legal entity.” Accordingly, an unincorporated partner’s withdrawal. nonprofit association is a taxable entity and subject to c. In the case of an LLC that is managed by franchise tax unless otherwise exempt. managers, a manager of the LLC would execute the filing instrument. In the case of an LLC that is not XV. DOING BUSINESS WITH THE managed by managers, but is managed by its SECRETARY OF STATE members, an authorized member of the LLC should sign the filing instrument. In addition, in the case of A. Ministerial Duties an LLC that has officers authorized to execute instruments on behalf of the entity, a filing instrument 1. The secretary of state does not determine whether can be executed by an authorized officer of the LLC. the person signing a document has the capacity claimed or that the signature affixed to the document B. Nonprofit LLCs is, in fact, the signature of the named person.67 The Titles 2 and 3 of the BOC do not restrict the filing duties of the secretary of state are ministerial purpose of a limited liability company to the rendition and mandatory, which means that the secretary cannot of a for-profit business, trade, or profession.65 As the be enjoined from filing a document that on its face BOC does not restrict the purpose,66 an LLC may be conforms to statutory filing requirements.68 formed to engage in a nonprofit purpose. 2. Unless otherwise authorized by law, the secretary 1. An LLC may be organized solely for one or more of state has no statutory or administrative authority to nonprofit purposes specified by section 2.002 of the revoke a filing because the document contained false BOC. Nonprofit purposes include: statements.69

a. providing professional, commercial, or trade B. Accessing Information associations; and b. serving charitable, benevolent, religious, 1. The secretary of state’s website is found at fraternal, social, educational, athletic, patriotic, and http://www.sos.state.tx.us. Answers to frequently civic purposes. asked questions and the business organization forms promulgated by the office may be found on our 2. An LLC with a nonprofit purpose is distinct from website and accessed from the side navigation bar on a nonprofit corporation or other nonprofit association. the Corporations Section home page. A BOC provision that applies specifically to a nonprofit corporation does not apply to an LLC 2. SOSDirect provides an electronic self-service formed for a nonprofit purpose. For example, the business center that permits online access to filing default tax-exempt provisions found in section 2.107 functions and certification or copy orders. In general, apply to a nonprofit corporation and do not apply to a SOSDirect is available twenty-four hours a day, nonprofit LLC. Sunday through Saturday. In accordance with section 405.018 of the Government Code, the secretary of 3. There is no statutory basis for distinguishing state collects a fee for searches made through between an LLC formed for a for-profit purpose and SOSDirect. The fee is currently $1 per search. Visit an LLC formed for a nonprofit purpose. Filing fees http://www.sos.state.tx.us/corp/sosda/index.shtml for established under sections 4.151 and 4.154 apply to all information on SOSDirect. LLCs regardless of purpose. 3. The search function, “Registered Agent Activity- 4. Section 171.088 of the Tax Code permits an entity Past 60 Days,” available from the Business that is not a corporation to qualify for a tax-exempt Organizations Menu on SOSDirect, will retrieve a list status if its activities would qualify it for a specific tax of entities that have designated a person by the name exemption were the entity formed as a corporation. searched as the entity’s registered agent within 60 days of the date of the search. The statutorily C. Unincorporated Nonprofit Associations as authorized fee of $1 per name searched is applicable. Taxable Entities Pursuant to section 252.006(a) of the BOC, an 4. The secretary of state has an online certificate unincorporated nonprofit association is a “legal entity validation service that can be used to verify that a separate from its members for the purposes of certificate of filing or a certificate of fact has, in fact,

25 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 been issued by the Corporations Section of the Office of the Texas Secretary of State. By entering the document number associated with the certificate, a person can view and verify the certification that was issued. The certificate validation service applies only to certificates of filing, certificates of fact, and information letters issued in connection to business organizations documents filed by the Corporations Section. Certificates generated in connection with state trademark registrations or UCC filings cannot be verified through this service. The service is free and may be accessed from the Help pages on SOSDirect or from other links provided on our web site.

5. Most employees in the office can be reached by e- mail. The e-mail address is name of the [email protected]. The naming convention for any employee is first initial followed by the last name. For example, the e-mail address for Lorna Wassdorf is [email protected].

6. If you need to pose a question to the legal staff regarding a filing issue, you may send an e-mail to [email protected]. Alternatively, you may call the legal staff line at (512) 463-5586 to leave a message and a member of the legal staff will return your call. You may contact any member of the legal staff directly by telephone at the following numbers.

Leigh Joseph 512 463-5747 Briana Godbey 512 463-5590 Nahdiah Hoang 512 475-0218 Mike Powell 512 463-9856 Carmen Flores 512 463-5588 Lorna Wassdorf 512 463-5591

26 View from the Secretary of State Office-Issues, Traps, Developments Chapter 17 ENDNOTES

27 1 Definitions taken from The American Heritage College Dictionary, 3rd Edition (Houghton Mifflin Co. 1997) 2 The statement of appointment was required of foreign limited partnerships and foreign limited liability partnerships under the Texas Revised Limited Partnership Act and the Texas Revised Partnership Act. Section 9.004 of the BOC made this affirmative appointment of the secretary of state as agent for service of process applicable to other foreign entities. 3 Sections 5.052, 5.053, and 9.004(b)(1) of the BOC. 4 See 1 TAC § 79.35 and Steakley v. Braden, 322 S.W. 2d 363 (Tex. Civ. App.—Austin 1959, writ ref’d n.r.e.). 5 When certain organizational abbreviations (“co,” “corp” and “inc”) are attached to the end of a word to form a new word, such as “Funco,” the organizational identifier will be considered as part of the word and will not be disregarded. Such an entity name would require the addition of a separate organizational identifier to be acceptable. For example, “Funco Ltd.” 6 1 TAC § 79.38. See also Steakley v. Braden, id at 365 wherein the Texas Court of Civil Appeals held that the provision regarding filing of name with a letter of consent did not apply to deceptively similar names. “If the word ‘deceptive’ were read into the proviso then the Legislature would have empowered an individual or a single corporation to authorize, by giving consent, the practice of unfair competition, confusion, and fraud.” 7 This restatement of common law also was found in prior law. 8 Sec. 5.052 BOC 9 Sec. 31.005 Texas Finance Code 10 Persons may obtain further information by calling (512) 475-1300 or by visiting the Department of Banking’s web site at http://www.banking.state.tx.us/corp/noobject.htm. 11 Sec. 5.057 BOC and Sec. 251.452 BOC 12 Art. 711.021(h) Texas Health & Safety Code 13 Sec. 1001.301(b) Texas Occupations Code [Tex. Occ. Code] 14 Sec. 1052.003(b) Tex. Occ. Code 15 Sec. 1071.251(d) Tex. Occ. Code 16 Sec. 61.313 Texas Education Code 17 Sec. 5.062 BOC 18 Sec. 5.061 BOC 19 Sec. 16.30 Texas Business & Commerce Code; Amateur Sports Act, 36 U.S.C. §380 (1978) 20 Sec. 1.03(4) TRLPA 21 The appointment of a statutory agent for an unincorporated nonprofit association pursuant to section 252.011(c) of the BOC requires the signature of the appointed agent to be included with the appointment. 22 Sec. 9.051 to Sec. 9.052 BOC 23 A foreign entity that has had its registration revoked by the secretary of state has only three (3) years within which to make an application for reinstatement. See sec. 9.104(a) BOC 24 A foreign entity may be eligible for consideration of a late fee cap if the entity responds to an initial contact letter within 45 days of its receipt. 25 Sec. 9.009(a-1) BOC 26 Sec. 9.010 of the BOC states that the registration of a foreign entity is suspended if the entity changes its name in its jurisdiction of formation to a name that would cause the entity to be denied a registration under the name. While the secretary of state has authority to revoke a registration under section 9.101 of the BOC, the secretary does not take action under section 9.010 to suspend a registration. 27 1 TAC §80.2(f) 28 This change in policy is in line with the secretary of state’s decision to exercise discretion with respect to the imposition of the late fee. The decision to collect a late fee penalty only on the registration associated with the underlying foreign limited partnership is in recognition of the fact that the foreign entity is not two separate entities. 29 British Columbia and several other Canadian jurisdictions have LLP provisions. Other foreign countries, such as Japan, also have enacted LLP legislation. 30 This ambiguity was due to the fact that section 152.901, which relates to registration of foreign limited liability partnership, used the term “state” rather than “jurisdiction” when describing the laws under which the registering partnership was formed. The secretary of state however took the position that the BOC definitions of “foreign nonfiling entity” and “foreign entity” authorized the filing of an application for registration of an LLP formed under the laws of another country. 31 House Bill 1737, which was passed by the 80th Legislature, became effective on September 1, 2007. 32 The Council of the District of Columbia has pending legislation-B18-500. 33 Section 18-215(a) of the Del Code Ann. Tit. 6. 34 Section 17-218 of the Del Code Ann. Tit. 6; section 3806(b)(2) of the Del Code Ann. Tit. 12. 35 Section 9.004(c) of the Texas Business Organizations Code provides that “A foreign filing entity may register regardless of any differences between the law of the entity’s jurisdiction of formation and of this state applicable to the governing of the internal affairs or to the liability of an owner, member, or managerial official. 36 Similar provisions were found in prior law. Sec. 2.06 TRLPA and art. 4.14 TBCA, which is made applicable to LLCs by art. 8.12 TLLCA. 37 Sec. 5.202(b)(6) of the BOC requires a statement of change of registered agent/registered office to include a statement that the change specified in the statement is authorized by the entity. 38 Sec. 10.151(b)(1) BOC 39 The cost for a certified copy of a filing instrument is $15 for the certification and $1 per page. Keep in mind that if the entity record contains multiple filing instruments, including multiple merger or conversion transactions, the total cost of providing a certified copy of all documents in the entity’s record may be considerable. 40 Sec. 10.151(b)(3) BOC 41 For example, provisions for for-profit and professional corporations are found in Sections 21.451 to 21.462 of the BOC. LLCs should look to Sec. 101.365. 42 The short form merger of one or more subsidiaries into another subsidiary is only permitted if at least 90% of the ownership interests are owned by the parent entity. 43 Sec. 10.001 and Sec. 10.151 BOC 44 Sec. 10.151(a)(1) BOC. Corporations, limited partnerships, limited liability companies, professional associations, cooperatives, and real estate investment trusts are filing entities. General partnerships and joint ventures are not filing entities under the BOC. 45 Sec. 10.153(b) and (c) BOC 46 Sec. 10.151(b)(3) BOC 47 HB 1737, which became effective September 1, 2007, amended sec. 10.154(b), BOC, to provide for further information regarding the converting and converted entity for purposes of clarifying the public record. 48 Sec. 9.009(a-1)(2) BOC 49 Sec. 10.156(2) BOC requires franchise tax clearance as a condition of acceptance. The secretary of state will require tax certification or the alternative statement for merging and converting taxable entities. Tax clearance also is a condition for acceptance under the merger and conversion provisions of prior law. 50 Sec. 10.156(2) BOC 51 Sec. 4.057(e) BOC and 1 TAC §79.82 52 Sections 4.052 to 4.056 BOC 53 Sec. 3.005(a)(7) BOC 54 While an individual can be certified by an organization as having the training required for qualification as an “impartial third party,” chapter 154, Texas Civil Practice & Remedies Code, does not speak to licensing by the state and does not require that a person meet the training requirements in order to be appointed as an “impartial third party” for purposes of facilitating a mediation. 55 Enrolled agents are licensed by the U.S. Department of the Treasury and represent taxpayers before the IRS; patent agents are non-attorneys that are registered with the U.S. Patent & Trademark Office. The personal services rendered by these individuals are not licensed by the state. 56 The enabling legislation governing the practice of accountancy permitted the licensing of a firm comprised of non- CPA owners, permitted a corporation (including a PC) to hold a license and to practice accountancy; and permitted the practice of accountancy by an LLC formed under the TLLCA. Therefore, JC-536 opined that the enabling legislation for the profession of accountancy permitted the formation of an LLC under the general provisions or under the special provisions of Part Eleven of the TLLCA. 57 Sec. 301.012 BOC 58 Sec. 301.012 BOC 59 Sections 162.051 and 351.366 of the Occupations Code authorize physicians, optometrists and therapeutic optometrists to jointly own and manage certain types of business entities. Although sections 162.051(a)(3) and 351.366(a)(3) authorize the joint ownership of a limited liability company by such professionals, the provisions of the TLLCA do not permit a professional limited liability company to be jointly owned or formed to engage in the joint practice of medicine and optometry. Although not permitted under the TLLCA, section 301.012 of the BOC permits a professional limited liability company formed under or governed by the provisions of the BOC to engage in this joint practice. 60 Under prior law, ownership in a professional corporation, other than a professional legal corporation, was limited to individuals who were licensed to render the same professional service for which the professional corporation was formed. 61 Sec. 301.003(7) of the BOC defines a “professional organization” as a person, other than an individual, whether nonprofit, for-profit, domestic, or foreign and including a nonprofit corporation or nonprofit association, that renders the same professional service as the professional corporation only through owners, members, managerial officials, employees, or agents, each of whom is a professional individual or professional organization. 62 Sec. 302.001 BOC 63 The BOC specifically describes the types of professional who may form a professional association. The list of professionals authorized to form professional associations is exclusive. See e.g., Forrest N. Welmaker, Jr. v. The Honorable Henry Cuellar, Secretary of State, 37 SW 3d 550, (Tex. Civ. App.—Austin 2001, pet. denied), which upheld the secretary of state’s refusal of articles of association with a purpose to practice law. 64 See APCAR Investment Partners VI, Ltd v. Gaus, 161 S.W. 3d 137 (Tex. App.-Eastland 2005, no pet.), which held that TRPA did not have a substantial compliance requirement for renewal of registration; an LLP was required to comply with statutory renewal requirements for maintaining its status as a registered LLP. Edward B. Elmer, M.D. P.A. v. Santa Fe Properties, Inc., No. 04-05-00821-CV, 2006 WL 3612359 (Tex. App.-San Antonio, Dec. 13, 2006, no pet. h.) 65 It was the secretary of state’s position that the formation of a nonprofit LLC was inconsistent with the provisions of the TLLCA and the laws made applicable to an LLC; namely, the TBCA and the TRLPA. 66 Other state law regulating a particular activity may contain restrictions that would prohibit an LLC from engaging in the regulated activity. 67 1 TAC §§79.21, 80.3, and 83.3. 68 Beall v. Strake, 609 S.W. 2d 885 (Tex. Civ. App—Austin 1981, writ ref’d n.r.e.) 69 A court may order the revocation of a certificate of termination when the entity was terminated as a result of actual or constructive fraud. The secretary of state is authorized to take any action necessary to reactivate the entity. See Sec. 11.153 BOC.

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