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VII. Title 1. Chapter 9: Foreign Entities

A. Registration under Prior Law

  1. Under the provisions of the Texas Business Corporation Act, the Texas Non-Profit Corporation Act, and the Texas Revised Limited Partnership Act, entities formed as for-profit and nonprofit corporations, and limited partnerships under the laws of a jurisdiction other than Texas were required to register with the secretary of state before transacting business in Texas.  However, certain types of foreign entities were unable to register under prior law due to the lack of specific statutory authority or due to specific exclusionary language found in prior law.
  2. With the enactment of the Texas Limited Liability Company Act, those foreign entities that were not able to obtain authorization to transact business under other business organization statutes were provided a means of registering with the secretary of state.  The broad definition of a foreign LLC in the Texas Limited Liability Company Act permitted qualification of other legal entities with limited liability as “foreign LLCs” even though the entities were not characterized as LLCs in their jurisdiction of formation.
  3. As defined by article 1.02(9) of the Texas Limited Liability Company Act, a foreign limited liability company not only included limited liability companies formed under the laws of a jurisdiction other than Texas, but also included any other entity that:
    1. elects to procure a certificate of authority pursuant to the act;
    2. is formed under laws that provide that persons entitled to receive a distribution of assets, or to exercise voting rights shall not be liable for the debts, obligations or liabilities of the entity; and
    3. for which there is no other statute under which the entity could be authorized to do business in Texas.
  4. This definition was so worded to avoid the problems caused by the court decision in Means v. Limpia Royalties, which did not afford limited liability to a foreign business trust that was doing business in Texas, and for which there was no statutory provision regarding qualification.

B. Required Registration of Foreign Entities under the BOC

Chapter 9 of the BOC governs the registration of foreign entities.  The term used to describe the filing instrument filed with the secretary of state is “certificate of registration.”
  1. The BOC registration requirements apply to a foreign corporation, foreign limited partnership, foreign limited liability company, foreign business trust, foreign real estate investment trust, foreign cooperative, foreign public or private limited company, or another foreign entity, the formation of which, if formed in Texas, would require the filing of a certificate of formation with the secretary of state.
  2. A foreign entity that affords limited liability for any owner or member under the laws of its jurisdiction of formation is also required to register under the BOC.
  3. A foreign entity that fails to register when required to do so is subject to the following penalties:
    1. the entity may be enjoined from transacting business in Texas on application by the attorney general;
    2. the entity may not maintain an action, suit, or proceeding in a court of this state until registered; and
    3. the entity is subject to a civil penalty in an amount equal to all fees and taxes that would have been imposed if the entity had registered when first required.
  4. A foreign entity that has transacted business in the state for more than ninety (90) days is subject to a late filing penalty for each year the entity transacted business in this state without having registered.  The BOC authorizes the secretary of state to condition the filing of the registration on the payment of this late filing fee.  The late filing fee is equal to the registration fee for each year of delinquency.  The late filing fee is similar to the late fee assessed on foreign limited partnerships registrations under the Texas Revised Limited Partnership Act.
    1. The late filing fee is a penalty for noncompliance with state law registration requirements.  The late filing fee applies as soon as the 90-day period expires and it relates back to the date of first transaction of business stated in the application.
    2. A client’s misstatement regarding a foreign entity’s beginning date of business may come back to haunt you.  Foreign LP could not maintain a suit challenging a tax appraisal because it had failed to comply with the TRLPA when it did not correctly state the first date of transaction of business and did not pay the late filing fee.
    3. With respect to entities that were not previously required to register with the secretary of state in order to transact business in the state, the late filing penalty will relate back no earlier than January 1, 2006, the date the entity was required to register under chapter 9 of the BOC.  For example, a foreign business trust that has been doing business in the state since January 1, 2003 and that registers on February 14, 2006 will be subject to a late filing penalty of $750.  A late filing penalty will not be imposed for the years the foreign entity transacted business in Texas before it was required to register (January 1, 2003 to January 1, 2006).
  5. A foreign entity that is authorized under other state law to transact business in Texas is not required to register under chapter 9 of the BOC.  For example, a foreign financial institution registered to do business under the Finance Code is not required to submit an application for registration under the BOC.

C. Permissive Registration of Foreign Entities Under the BOC

In accordance with section 9.003 of the BOC, a foreign entity that is eligible under other law of Texas to register to transact business in this state, but that is not registered under that law, may file an application for registration under chapter 9 of the BOC unless that registration is prohibited by the other law.

D. Registration Requirements

A foreign filing entity makes an application for registration rather than an application for certificate of authority.
  1. The application for registration forms promulgated by the secretary of state are entity specific. Use of the promulgated forms is not mandated; however, if drafting an application for registration, please note the following new requirements:
    1. The application must clearly identify the filing type of the foreign entity. As the term “corporation” may describe a for-profit, nonprofit, or professional corporation, it is not sufficient to merely identify the foreign entity as a “corporation.”
    2. The application must include the federal employer identification number (FEIN) of the foreign filing entity.  If the foreign filing entity has not been issued an FEIN number at the time of making the application, a statement to that effect should appear in the application for registration.
    3. The application must provide the date the entity began or will begin to transact business in the state.
    4. The application must include an appointment of the secretary of state as agent for service of process under the circumstances described in section 5.251.  Pursuant to section 5.251 of the BOC, the secretary of state is an agent for purposes of service of process if:

      (1)   the entity fails to appoint or maintain a registered agent in the state;
      (2)   the registered agent cannot with reasonable diligence be found at the registered office address;
      (3)   the entity’s registration to do business is revoked; or
      (4)   the entity transacts business in Texas without being registered under chapter 9.

    5. While a certificate of existence or status from the home jurisdiction is no longer required, the application for registration must contain a statement certifying that the entity exists as a valid foreign filing entity of the stated type under the laws of the entity’s jurisdiction of formation.
  2. When drafting an application for registration, please note that section 9.006 of the BOC contains supplemental requirements for the registration of nonprofit corporations.  In addition, section 301.005 contains supplemental requirements for the application for registration for professional entities.
  3. When drafting an application for registration for a foreign limited liability partnership, refer to sections 9.007 and 152.905 of the BOC rather than section 9.004 for filing requirements.

E. Foreign LLPs

Since September 1997, foreign LLPs transacting business in Texas have been required to qualify with the secretary of state.  Although not defined as a “foreign filing entity,” the BOC applies many of the provisions of chapter 9 to foreign LLPs and requires a foreign LLP to register with the secretary of state before transacting business in Texas.
  1. The registration of a foreign limited liability partnership is valid for a period of one year.  Renew the registration annually prior to the expiration of the term to maintain an effective registration.
  2. The fee for filing an application for registration for a foreign limited liability partnership is $200 per partner in Texas, but not less than $200 and not more than $750.  For purposes of determining the number of partners in Texas and calculating the filing fee, the secretary of state has adopted administrative rules that provide that a partner is considered to be in Texas if:
    1. the partner is a resident of the state;
    2. the partner is domiciled or located in the state;
    3. the partner is licensed or otherwise legally authorized to perform the services of the partnership in this state; or
    4. the partner, or a representative of the partnership working under the direct supervision or control of the partner, will be providing services or otherwise transacting the business of the partnership within the state for a period of more than 30 days.
  3. Unlike a Texas limited liability partnership, a foreign LLP that files an application for registration is required to have and maintain a registered office and agent in Texas for the purpose of service of process.  Under the BOC, the failure to maintain a registered office or registered agent is grounds for the revocation of the foreign LLP’s registration.
  4. A foreign LLP that is transacting business in Texas and that fails to file an application for registration with the secretary of state is subject to subchapter B of chapter 9 of the BOC to the same extent as a foreign filing entity.  This means that the foreign LLP may not maintain an action, suit, or proceeding in Texas until it has registered with the secretary of state.  Failure of the foreign LLP to register does not impair the validity of a contract or act of the partnership and does not impose personal liability on any partner for the partnership’s debts and obligations solely because the foreign LLP failed to register.
  5. Pursuant to section 152.910 of the BOC, a  foreign LLP doing business in Texas on and after the effective date of the BOC is subject to the same late filing penalty assessed on foreign filing entities.  A late filing fee will not be charged if: 1) the foreign LLP held a prior registration for the time stated as its beginning date of doing business; and 2) the new application for registration is submitted to this office within ninety (90) days of the date of expiration of its lapsed registration.
  6. Out-of-state limited partnerships that are also LLPs (i.e., limited liability limited partnerships or LLLPs) are required to file a registration as a foreign limited partnership under the provisions of chapter 9 of the BOC, as well as the annual application for registration under section 152.905 of the BOC as a foreign LLP.  Please note that effective January 1, 2006, the failure to qualify a foreign LLLP within 90 days of doing business will result in the imposition of late filing fees for each registration document.
  7. It is unclear whether the BOC intended to exclude LLPs formed under the laws of another country from registration.  Confusion is caused by the use of the term “state” rather than “jurisdiction” in section 152.901(b) of the BOC.  While the LLP is predominantly a business entity that exists under the laws of the states of the United States, at least one Canadian jurisdiction has recently adopted LLP provisions.  Consequently, the secretary of state is taking the position that the definitions of “foreign nonfiling entity” and “foreign entity” authorize the filing of an LLP formed under the laws of another country.

F. “Foreign” Foreign Limited Partnerships

Whether deemed a foreign entity that provides limited liability to its owners or a limited partnership, the entity must register to transact business in Texas.
  1. Under the Texas Revised Limited Partnership Act, a foreign limited partnership is defined as a limited partnership formed under the laws of another state or another jurisdiction of the United States.  Thus, under prior law, a limited partnership formed outside of the United States was not required to file with the secretary of state in order to transact business in Texas as the statutory definition precluded its qualification.
  2. The BOC defines “foreign” to mean, with respect to an entity, that the entity is formed under and governed by the laws of a jurisdiction other than Texas.  In contrast, section 151.001(3) of the BOC specifically defines a “foreign limited partnership” to mean “a partnership formed under the laws of another state that has one or more general partners and one or more limited partners.”  It is unclear whether the BOC intended to exclude LPs formed under the laws of another country from registration as foreign limited partnerships.
  3. Chapter 9 of the BOC however requires registration of a foreign entity the formation of which, if formed in this state, would require the filing of a certificate of formation, or that affords limited liability under the law of its jurisdiction of formation to any owner or member.  Accordingly, a limited partnership formed in a jurisdiction outside of the United States, such as Canada, will be required to register with the secretary of state when transacting business in Texas.

G. BOC Qualification of Out-of-State Professional Entities

  1. The provisions of the Texas Professional Corporation Act only permit a professional legal corporation to obtain a certificate of authority to transact business in the state.  In addition, the provisions of the Texas Professional Association Act do not provide for the qualification of an out-of-state professional association.  Consequently, prior to the BOC, an out-of-state professional corporation or professional association seeking to transact business in Texas qualified as a “foreign professional limited liability company” under the Texas Limited Liability Company Act.
  2. The provisions of the BOC however permit a foreign professional corporation to register as a foreign professional corporation and a foreign professional association to register as a foreign professional association.  A foreign professional corporation or professional association currently registered as a “foreign professional limited liability company” may wish to consider filing an election to adopt the BOC for purposes of filing an application for amended registration to correctly identify its organizational form.

H. Transaction of Business

There is no definition of transacting business under prior law or under the BOC.
  1. Rather than defining what is meant by “the transaction of business,” prior law and the BOC provide a laundry list of activities that are not considered transacting business in Texas.  Section 9.251 of the BOC carries forward the nonexclusive list of activities found under prior law.  Activities that do not constitute the transaction of business for purposes of registration under chapter 9 include:
    1. maintaining a bank account in the state;
    2. holding a meeting of the shareholders, owners, or members or carrying on another activity concerning the entity’s internal affairs;
    3. creating, as a borrower or a lender, or acquiring indebtedness or other security interest in real or personal property;
    4. transacting business in interstate commerce; or
    5. conducting an isolated business transaction that is completed within a period of thirty (30) days, and that is not in the course of a number of repeated, similar transactions.
  2. Whether certain activities constitute “transacting business” in Texas is often difficult to answer.  There are numerous cases, and a few Attorney General Opinions, interpreting the provisions of article 8.01 of the Texas Business Corporation Act that might be useful in determining whether a foreign entity’s activities in the state require registration under the BOC.  For example, the Texas Attorney General has stated that a foreign corporation acting as a general partner in a Texas partnership is transacting business in the state for purposes of qualification with the secretary of state.  See Op. Tex. Att’y Gen. No. JM-7 (1983).
  3. Although the secretary of state does not have the authority to issue formal or binding opinions, the legal staff of the Corporations Section does handle inquiries relating to the transaction of business.
  4. Although a foreign entity may engage in certain limited activities without being deemed to be “transacting business” for purposes of registration, the nexus required for taxation is less than that required for qualification purposes.  Therefore, an entity may be doing business in Texas for purposes of taxation, but not considered to be transacting business for purposes of qualification under the BOC.  If the entity is a taxable entity, the comptroller of public accounts has a questionnaire regarding an entity’s activities in Texas that may provide some assistance in making a determination.  Based on the answers to the questionnaire, the comptroller will issue an opinion about whether the taxable entity (currently a corporation or an LLC) is doing business in Texas for franchise tax purposes.  This determination also is an effective indication for purposes of filing an application for registration.  To obtain a Texas nexus questionnaire (Form AP-114), visit the web site of the comptroller of public accounts or contact the Texas Comptroller of Public Accounts, Business Activity Research Team, P.O. Box 13003, Austin, Texas 78711 or call toll-free (1-800-252-1381).

I. Post Registration Filings

An amendment to the application for registration is required when a foreign filing entity changes its name or its purpose.
  1. There are several SOS forms that relate to amending the registration of a foreign entity.  SOS form 406, “Amendment to Registration,” may be used by BOC and non-BOC foreign filing entities to effect an amendment to the registration of a corporation, limited liability company, or limited partnership.  SOS form 407, “Amendment to Registration of a Foreign Limited Liability Partnership,” may be used to effect an amendment to the registration of a foreign LLP.  SOS form 411, “Amendment to the Registration of a Foreign Financial Institution,” should be used to effect an amendment to the registration of an out-of-state financial institution under the Finance Code.   SOS form 422, “Amendment to Registration to Disclose a Change Resulting from a Conversion or Merger,” may only be used by a BOC foreign filing entity to effect a transfer of the registration to a successor foreign filing entity.  Please take care in selecting the correct form for submission.
  2. Under the Texas Business Corporation Act, the Texas Limited Liability Company Act, and the Texas Revised Limited Partnership Act, there is no provision for an amendment to an existing certificate of authority to show the continuation of the certificate under the name of a surviving entity.  In fact, the cessation of the existence of the entity holding the certificate of authority requires a termination of that certificate.  This means that the surviving entity would be required to file a new registration in order to conduct business in Texas.
  3. Section 9.009 of the BOC permits the transfer or succession of a foreign entity’s registration with the secretary of state after a merger or conversion.
    1. A foreign entity that has registered under the BOC or that has elected an early adoption of the BOC may amend its application for registration to disclose a change that results from 1) conversion from one type of foreign filing entity to another type of foreign filing entity with the converted entity succeeding to the registration of the converting foreign filing entity; or 2) a merger into another foreign filing entity with the foreign filing entity making the amendment succeeding to the registration of the original foreign filing entity.
    2. For example, a Nevada LLC registered to transact business under the BOC that subsequently converts to a Delaware LP need only file an application for amended registration to reflect the change in organizational structure and jurisdiction of organization and need not obtain a new registration file number for the converted entity.
    3. The secretary of state has promulgated an amendment to registration form (SOS form 422) specifically designed for this type of amendment.  When submitting SOS form 422, please note that you also must include a completed application for registration applicable to the entity type that is succeeding to the converting/merged entity’s registration.
  4. A termination of a registration (SOS form 612) is required under section 9.011(d) of the BOC, and under the relevant provisions of prior law, if:
    1. The registered foreign filing entity merges with another registered foreign filing entity.
    2. The registered foreign filing entity merges with a domestic filing entity.
    3. The registered foreign filing entity terminates its existence by dissolution or termination in its jurisdiction of formation.
  5. A foreign entity that has a certificate of authority or registration to transact business and that converts to change its jurisdiction of formation to a jurisdiction other than Texas, but which does not change its organizational form, should file an application for amended certificate of authority (SOS form 406).  However, if the foreign filing entity converts to change its organizational form in its jurisdiction of formation or in another jurisdiction, it must file a termination of its certificate of authority or registration, unless the foreign filing entity is a BOC-entity.

J. Transition Issues for Foreign Entities Currently Qualified as Foreign “LLCs”

  1. Prior to September 1, 2003, as a condition to qualification, a foreign business trust or other entity with limited liability that registered as a “foreign LLC” was required to add the words “Limited Liability Company” or “Limited Company” or the abbreviations “L.L.C.,” “LLC,” “LC,” or “L.C.” to its name for purposes of transacting business in Texas.  However, House Bill 1637, which was enacted by the 78th Legislature in its Regular Session, amended article 7.03 of the TLLCA to permit a foreign business entity meeting the definition of a “foreign limited liability company” under the provisions of article 1.02(9) of the TLLCA to obtain an application for certificate of authority without adding the phrase “Limited Liability Company,” “Limited Company,” or an abbreviation of such terms to its legal name or qualifying assumed name.
  2. It may be advantageous for a foreign entity that is not characterized as an LLC in its jurisdiction of formation but that obtained its certificate of authority as a foreign LLC to simply elect early adoption of the BOC.  Doing so will clarify the public record regarding the nature of the entity type that is registered.  The foreign entity may file an early adoption statement and an amended registration to reflect its true entity type, and if registered prior to September 1, 2003, to delete the designation of LLC from its qualifying assumed name.