XI. BOC Transition Issues
A. Effective Date and Mandatory Application Date
House Bill 1156, the legislative act that enacted the BOC, became effective on January 1, 2006.
- The BOC applies to all domestic entities created on or after January 1, 2006 and to all foreign entities registering with the secretary of state on and after January 1, 2006, the effective date of the BOC. Please note that the term “domestic entity” does not include such entities as a bank, an insurance company, a telephone cooperative, a water supply corporation, or other corporate entity formed under special statute.
- The phrase “mandatory application date,” as it relates to application of the BOC, means:
- for a domestic entity formed on or after the effective date of the BOC, January 1, 2006;
- for a foreign filing entity or other foreign entity that has not registered with the secretary of state before the effective date of the BOC, January 1, 2006;
- for a domestic entity in existence prior to the effective date of the BOC or for a foreign filing entity registered with the secretary of state prior to the effective date of the BOC, the date of completion of the action required to voluntarily elect to adopt the BOC, but no earlier than January 1, 2006;
- for any other entity, January 1, 2010.
- The provisions of the BOC will not apply to non-code organizations such as banks or insurance companies until January 1, 2010, unless the laws governing such entities or the BOC provide otherwise.
B. Early Adoption of the BOC
Existing domestic and foreign filing entities may elect to adopt the BOC prior to its mandatory application date by filing an early adoption statement with the secretary of state. (SOS forms 808 and 809)
- Section 402.003 of the BOC states that a domestic filing entity may adopt the Code by following amendment procedures to opt-in and by causing “its governing documents to comply with this Code.”
- Generally, the secretary of state does not require amendments to governing documents as a precondition for filing an early adoption statement. However, certain circumstances may require that a certificate of amendment be submitted to cause the entity’s formation or registration document to comply with the BOC. For example, a limited partnership formed under the Texas Uniform Limited Partnership Act may need to provide an amendment to its certificate of limited partnership to include a term of organization in its limited partnership name.
- The filing fee for an early adoption of the BOC is the fee established under chapter 4 for the filing of an instrument for which no express fee is provided. For example, the filing fee for an early adoption filed by a limited partnership, limited liability company, for-profit corporation, professional corporation, or professional association would be $15.
- House Bill 1319, which was passed by the 79th Legislature, amended Section 402.005 of the BOC to permit certain corporations created under a special statute before January 1, 2006 to file an early adoption statement to elect to adopt the BOC prior to the mandatory application date. The provision applies only to a corporation that is formed by filing its articles of incorporation with the secretary of state, such as a telephone cooperative or water supply corporation.
C. Application of BOC to LLPs
A domestic LLP and a foreign LLP are deemed to be “nonfiling” entities although these entities make filings with the secretary of state. The following transition provisions in the BOC are applicable to LLPs to clarify the applicability of the BOC to the registration of domestic and foreign LLPs after the effective date of the BOC.
- Partnerships formed and registered before January 1, 2006: Section 402.001 of the BOC provides that the registration of a domestic or foreign limited liability partnership under prior law that is in effect on the effective date of the BOC will continue to be governed by the prior law until the expiration of its current term of registration, unless earlier revoked or withdrawn. Any renewal is governed by the BOC. The provisions of the Texas Revised Partnership Act or Texas Revised Limited Partnership, as applicable, continue to govern other matters relating to the partnership until 2010, unless the BOC is earlier adopted.
- Partnerships formed before January 1, 2006, making an initial registration after January 1, 2006: Registration as an LLP, renewal, and liability of partners is governed by the BOC. The provisions of the Texas Revised Partnership Act or Texas Revised Limited Partnership, as applicable, continue to govern other matters until 2010, unless the BOC is earlier adopted.
- Foreign partnerships: The provisions of the BOC apply to a foreign partnership regardless of its formation date in its jurisdiction of organization if its initial registration is on or after January 1, 2006.
D. Entities in a Forfeited or Involuntarily Terminated Status
- Pursuant to section 402.013, on or after January 1, 2006 and before January 1, 2010, a domestic filing entity or foreign filing entity whose certificate of formation/authority has been canceled, revoked, involuntarily dissolved, or forfeited under the law in effect prior to January 1, 2006, may reinstate its existence or authority to transact business pursuant to prior law or pursuant to the BOC.
- If the entity elects to reinstate under the provisions of the BOC, the entity must simultaneously file an early election to adopt the BOC.
E. Opt In and Comply?
Whether an entity formed before the effective date of the BOC should opt in and comply with the BOC is generally a fact driven decision.
- Due to the strictures of prior law, an involuntarily terminated domestic entity may only be able to reactivate its existence by opting into the more flexible provisions of the BOC, which do not limit the timeframe within which a reinstatement must be filed.
- Registered foreign entities may seek to opt-in and comply with the BOC in order to effect certain amendments.
- An amendment to reflect a change effected by a merger or conversion resulting in a transfer of the registration to a successor entity may only be accomplished under the provisions of the BOC.
- A foreign entity previously qualified as a foreign limited liability company that is not characterized as a limited liability company in its home jurisdiction may wish to opt-in and comply in order to effect an amendment to its registration to accurately reflect its entity type.
- A professional corporation governed by the Texas Professional Corporation Act that desires a multi-tiered ownership structure may wish to opt-in and comply. Only a professional corporation governed by the BOC may have professional organizations that provide the same professional service as owners of the professional corporation.
- Entities that are parties to a cross-entity merger involving BOC and non-BOC organizations may wish to opt-in and comply in order to facilitate the merger transaction and the drafting of the merger filing instrument.