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Business Organizations Code: A View from the Trenches

House Bill 1156 codified the provisions of the following statutes: the Texas Business Corporation Act [TBCA]; the Texas Miscellaneous Corporation Laws Act [TMCLA] (article 1302-1.01 et. seq. Vernon’s Ann. Civ. St. (V.A.C.S.)); the Texas Non-Profit Corporation Act [TNPCA] (article 1396 V.A.C.S.); the Cooperative Association Act (article 1396-50.01, V.A.C.S.); the Texas Professional Corporation Act [TPCA] (article 1528f, V.A.C.S.); the Texas Professional Association Act [TPAA] (article 1528f, V.A.C.S.); the Texas Limited Liability Company Act [TLLCA] (article 1528n, V.A.C.S.); the Texas Revised Limited Partnership Act [TRLPA] (article 6132a-1, V.A.C.S.); the Texas Revised Partnership Act [TRPA] (article 6132b-1.01 et. seq., V.A.C.S.); and the Texas Real Estate Investment Trust Act [TREITA] (article 6138A, V.A.C.S.)

Sec. 1.106 BOC

See Sec. 1.002(60) and Sec. 2.002 BOC

Sec. 2A(2) TPAA, Art. 11.01A(3) TLLCA, and Sec. 301.012 BOC

Sec. 2A(3) TPAA, Sec. 4(b) TPCA, Art. 11.01A(3) TLLCA, and Sec. 301.012 BOC

Sections 162.051 and 351.366 of the Texas Occupations Code [Tex. Occ. 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.

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.

Sec. 302.001 BOC

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.

Sec. 405.031(e) Texas Government Code

Art. 10.02 of the TBCA, art. 1396-9.03A of the TNPCA, art. 9.02 of the TLLCA, and sec. 13.08(b)(13) of the TRPA provide that if a person signs a document that the person knows is false in any material respect with the intent that the document be delivered to the secretary of state to be filed on behalf of a corporation, limited liability company, or limited liability partnership, the person has committed an offense.  The offense is a Class A misdemeanor.  The TBCA provision further provides that the offense is a state jail felony if the intent of the person is to harm or defraud another.  In addition, section 2.04(c) of the TRLPA provides that the execution of a certificate or written statement constitutes an oath or affirmation, under penalties of perjury, that, to the best of the executing party’s knowledge and belief, the facts stated in the certificate or statement are true.  Further, a person may be liable for damages under section 2.08 of the TRLPA if a certificate of limited partnership, or a certificate of amendment, merger, or cancellation contains a false statement or material omission, or is forged or is signed by a person not authorized by the partnership to execute the document.

See 1 TAC §79.73

In order to effect the abandonment of the filed instrument, article 9.03 TLLCA and section 2.12F TRLPA require that a certificate of abandonment be filed with the secretary of state.  The filing fee is $15.

Art. 5.03L TBCA requires the filing of a statement of abandonment with the secretary of state.

Art. 5.17L TBCA requires the filing of a statement of abandonment with the secretary of state.

1 TAC Sec. 79.82

Art. 10.03A(3) TBCA; Art. 1396-10.07A(3) TNPCA; Sec. 2.12A(3) TRLPA; Art. 9.03A(4) TLLCA, Sections 4.052 to 4.056 BOC

Art. 1302-7.01 through 7.05 TMCLA, which are applicable to corporations and LLCs; Sec. 2.13 TRLPA; Sections 4.101 to 4.105 BOC

Art. 1302-7.04C TMCLA; Sec. 2.13(c)(3) TRLPA

Art. 2.05 and 8.03 TBCA; Sec. 1.03 TRLPA; Art. 2.03 and 7.03 TLLCA; and sections 5.052, 5.053, and 9.004(b)(1) of the BOC.

See 1 TAC § 79.35 and Steakley v. Braden, 322 S.W. 2d 363 (Tex. Civ. App.—Austin 1959, no writ).

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.”

See Art. 2.05C TBCA

Sec. 5.052 BOC

Sec. 31.005 Texas Finance Code

Persons may obtain further information by calling (512) 475-1300 or by visiting the Department of Banking’s web site.

Sec. 5.057 BOC and Sec. 251.452 BOC

Art. 711.021(h) Tex. Health & Safety Code

Sec. 61.313 Texas Education Code

Sec. 5.062 BOC

Sec. 5.061 BOC

Sec. 16.30 Texas Business & Commerce Code (hereinafter “ TB&CC”); Amateur Sports Act, 36 U.S.C. §380 (1978)

Sec. 9.004 BOC.  The name that the corporation elects for use in Texas with the appropriate word of incorporation or abbreviation denoting incorporation should be set forth in the application for registration.  Because the name of the corporation as stated in its articles of incorporation from its jurisdiction of incorporation will differ from the name on its registration, the corporation should consider whether an assumed name certificate should be filed under Chapter 36 of the TB&CC.

Sec. 5.055 of the BOC may be read to require a limited partnership that is registering as a limited liability partnership to comply with both section 5.055(a) and (b) and to thus duplicate the words or abbreviations of organization in its name.  The secretary of state will however accept for filing a name that complies with either subsection (a) or (b).

The comments in Part VI, section E, apply to professional limited liability companies, professional corporations, and professional associations.

The secretary of state does not have experts on the rules and regulations that may apply to different professions.  Consequently, we suggest that the licensing board be consulted if questions arise about the appropriateness of the name of a PLLC, PC or PA.  If a name is determined to be in violation of the statutes or ethics of the profession, articles/certificate of amendment must be filed to change the name.

John Smith, Certified Public Accountant, PLLC is a correct usage of the credential; John Smith and Associates, PLLC, CPA is incorrect.

Professional Ethics Opinion No. 393 (1978)

The Attorney General of Texas has opined that engineers form for-profit corporations rather than professional corporations.  See Op. Tex. Att’y Gen. No. M-551 (1970).  The definition of “professional service” in the Texas Professional Corporation Act differs from that in the TLLCA in that the first definition requires that in order to be considered a professional service the service could not by reason of law be performed by a corporation prior to the passage of the TPCA.  Since the definition in the TLLCA does not contain this restriction, the secretary of state has filed articles of organization providing for the creation of a PLLC to engage in the practice of engineering.  This same reasoning applies to filings submitted under the BOC.

Texas Engineering Practice Act, Sec. 1001.004 Texas Occupations Code.  At the request of the Texas Board of Professional Engineers, after filing a certificate of formation that contains the word “engineer” or “engineering” in the name, the secretary of state sends a copy of the instrument in order that the Board may investigate and determine compliance with Section 1001.004 of the Occupations Code.

Based on the definition of “professional service” contained in the Texas Professional Corporation Act, the Attorney General of Texas has opined that architects form for-profit corporations rather than professional corporations.  See Op. Tex. Att’y Gen. No. 539 (1970).  The definition of “professional service” contained in the Texas Professional Corporation Act differs from the definition of a “professional service” in the TLLCA in that the first definition requires that in order to be considered a professional service the service could not by reason of law be performed by a corporation before the passage of the Act.  Since the definition of “professional service” contained in the TLLCA does not contain a similar restriction, the secretary of state has filed articles of organization for the creation of a PLLC to engage in the practice of architecture.  This same reasoning applies to filings under the BOC.

After filing, the secretary of state sends a copy to the Texas Board of Architectural Examiners of all certificates of formation that contain certain words in the name in order that the Board may investigate and determine compliance with their rules and regulations.

After filing, the secretary of state sends copies of documents utilizing the words “registered public surveyor” to the Texas Board of Professional Land Surveying for the Board to determine compliance with the Professional Land Surveying Practices Act, Sec. 1071.251 Texas Occupations Code.

Sec. 1.03 TRLPA

Sec. 1.03(4) TRLPA

Sec. 36.11(a) TB&CC

See Art. 2.09A(2) TBCA

If the registered office address is in a city with a population of less than 5,000, the secretary of state will accept an address other than a street address for the registered office.  See 1 TAC §79.28

Only professional legal corporations were authorized to obtain a certificate of authority under Section 19A of the TPCA.  Before the enactment of the TLLCA, a foreign professional corporation formed for the rendition of a professional service other than the practice of law had to form a domestic professional corporation in order to provide the professional service as a corporation in Texas.  See Tex. Att’y Gen. Op. JM-7 (1983).  The TPAA does not provide for the qualification of a foreign professional association.

See Art. 2.01B(4) TBCA

115 S.W.2d 468 (Tex. Civ. App. 1938)

Sec. 9.051 to Sec. 9.052 BOC

Coastal Liquids Transportation, L.P. v. Harris County Appraisal District, 46 S.W.3d 880 (Tex.2001)

Sec. 10.02 TRPA and Sec. 152.905 BOC.  As of September 1, 2006, approximately 961 statements of foreign registration have been filed since the enactment of the qualification requirements in 1997.  As of September 1, 2006, approximately 447 foreign limited liability partnerships are currently registered.

1 TAC §80.2(f)

The LLP is a foreign nonfiling entity, which is defined in the BOC to mean a foreign entity that is not a foreign filing entity.  Foreign entity is “an organization formed under, and the internal affairs of which are governed by, the laws of a jurisdiction other than this state.” Sec. 1.002(28) BOC

See e.g., article 8.14C TBCA

Sec. 9.009(a-1) BOC

House Bill 1637, 78th Legislature, which became effective on September 1, 2003.

A domestic corporation is defined under article 1.02A(11) of the TBCA as a for-profit corporation created under the TBCA.

Art. 5.04A(3) & (4) TBCA

Art. 5.04A(1) TBCA; Sec. 2.11(d)(1) TRLPA; Art. 10.03A(1) TLLCA; Sec. 10.151(b)(1) BOC

The provisions of Sec. 2.11(d)(1) also permit the filing of a summary of the plan of merger and for the partnership agreement to dictate the provisions regarding furnishing partners with copies or summaries of the plan of merger or notices regarding the merger.

Sec. 10.151(b)(3) BOC

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.

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.

When the parent entity is a Texas corporation, the plan of merger must be adopted pursuant to the provisions of article 5.03 of the TBCA.

Art. 6132b-9.02 TRPA; Sec. 10.001 and Sec. 10.151 BOC

Until January 1, 2010, a partnership that was formed before January 1, 2006 and that continues to be governed by the provisions of the TRPA may need to file a certificate of merger with the secretary of state pursuant to article 6132b-9.02(d) and (e).  The filing fee for the merger would be the fee assessed under the BOC ($300).

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.

Sec. 10.153(b) and (c) BOC

Sec. 9.02(d) TRPA

Art. 10.02A(2) TLLCA; Sec. 2.11(d)(2) TRLPA; and Sec. 10.151(b)(3) BOC

Art. 5.17 - Art. 5.20 TBCA

Art. 10.08 - Art. 10.11 TLLCA

Sec. 2.15 TRLPA

Art. 6132b-9.05 TRPA

Sec. 9.009(a-1)(2) BOC

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 for-profit and professional corporations and limited liability companies that are parties to a merger or conversion.  Limited partnerships and professional associations are not subject to franchise taxes at this time.  House Bill 3, which expanded the franchise tax base to include such entities as taxable entities, was enacted by the 79th Legislature in its 3rd Called Session and does not become effective until January 1, 2008.

Art. 5.04C TBCA; Art. 5.18C TBCA; Art. 10.03B TLLCA; Art. 10.09C TLLCA; and Sec. 10.156(2) BOC

Sec. 3.005(a)(7) BOC

Sec. 10.010 BOC

See Op. Tex. Att’y Gen. No. JC-0015 (1999).  Sec. 162.253 of the Texas Utilities Code specifically allows a domestic corporation authorized to furnish communication services to consolidate and convert to a telephone cooperative.

Sec. 11.105 and Sec. 153.452 BOC

Sec. 9.101(b)(3) BOC

Sec. 11.203 BOC

Sec. 11.202(e) BOC.  It is likely that this requirement may be expanded to include other taxable entities after January 1, 2008, given the passage of House Bill 3 by the 79th Legislature.

Art. 7.01E and Art. 8.16 TBCA; Art. 7.01E and Art. 8.15 TNPCA; Art. 7.11E TLLCA

Sec. 11.203 BOC

Sec. 11.202(e) BOC.  It is likely that this requirement may be expanded in a future legislative session to include other taxable entities given the passage of House Bill 3 by the 79th Legislature in its 3rd Called Session.

Sec. 152.914 BOC

Sec. 11.254 BOC

Sec. 402.005(b) BOC. See e.g., Sec. 92.001 of the Finance Code, which addresses the applicability of the BOC to a savings bank.

Beall v. Strake, 609 W.W. 2d 885 (Tex. Civ. App—Austin 1981, writ ref’d n.r.e.)

1 TAC §§79.21, 80.3, and 83.3.

House Bill 1165, which was enacted by the 78th Legislature, amended the TBCA and the TNPCA to provide for the court ordered revocation of articles of dissolution when the corporation was dissolved as a result of actual or constructive fraud and authorizes the secretary of state to take any action necessary to reactivate the corporation.  See article 6.08 of the TBCA and article 1396-6.07 of the TNPCA.

Senate Bill 1377 also creates a separate fee of $10 for the issuance of an apostille in connection with an adoption and limits the total fees that can be charged for apostilles related to an adoption of a single child to $100.