1. Michael Powell Office of the Secretary of State 18th Annual Texas Crime Stoppers Conference San Antonio, Texas May 19, 2006 Business and Public Filings Division The New Business Organizations Code And How it Applies to Nonprofit Corporations

2. Statutory Revision Program Business and Public Filings Division Section 323.007 of the Texas Government Code directs that the Texas Legislative Council execute a permanent statutory revision program for the revision of the statutes on a topical or code basis. Purpose of the program is to clarify and simplify the statutes and to make the statutes more accessible, understandable and usable.

3. Statutory Revision Program Business and Public Filings Division TLC may not alter the sense, meaning or effect of the statute. Statutory revision process is nearing completion with enacted codes covering almost all areas of the Texas statutes. The BOC was not a TLC statutory revision. The BOC was a product of a State Bar Ad Hoc Committee and does include changes.

4. Texas Business Organizations Code codifies the following statutes: Business and Public Filings Division Texas Business Corporation Act Texas Non-Profit Corporation Act Texas Professional Corporation Act Texas Professional Association Act Texas Miscellaneous Corporation Laws Act Texas Revised Partnership Act Texas Revised Limited Partnership Act

5. Texas Business Organizations Code codifies the following statutes: Business and Public Filings Division Texas Limited Liability Company Act Texas Real Estate Investment Trust Act Texas Cooperative Association Act Texas Uniform Unincorporated Nonprofit Association Act

6. Code Structure Business and Public Filings Division Provisions common to most forms of entities are placed in a single title with provisions specific to entity type being placed in separate titles. Title 1. General Provisions Title 2. Corporations Title 3. Limited Liability Companies Title 4. Partnerships Title 5. Real Estate Investment Trusts Title 6. Associations Title 7. Professional Entities Title 8. Miscellaneous and Transition Provisions

7. The Wheel Business and Public Filings Division

8. General Provisions Business and Public Filings Division Provisions applicable to most entities Contains 12 Chapters pulling together similar or overlapping provisions found in prior law Intent--to standardize, organize, and simplify Title 1 The Hub

9. Hub Chapters Title 1 Business and Public Filings Division Chapter 1: Definitions (key chapter) Chapter 2: Purposes and Powers of Texas entities (Prohibited Purposes)

10. More Hub Provisions Business and Public Filings Division Chapter 3: Formation and Governance Subchapter A--Requirements for certificates of formation for all entities Subchapter B--Amendments and restatements

11. Chapter 4 Business and Public Filings Division Filings Subchapter A--General provisions applicable to signatures, liability for false filing instruments, facsimile copies Subchapter B--When Filings Take Effect General rule: On Filing Delayed effective dates and conditions Abandonments before effectiveness

12. Chapter 4 Continued Business and Public Filings Division Subchapter C: Certificates of correction Subchapter D: FILING FEES! All Entities4.151 For-Profit4.152 Nonprofit4.153 etc.

13. Filing Fees Nonprofit Corporations Business and Public Filings Division Fees for nonprofit corporation filings remain the same.

14. Chapter 5 Business and Public Filings Division Names of Entities; Registered Agents and Registered Offices Subchapter B: Names May use assumed name Unauthorized purpose in name prohibited May not be same as or deceptively similar

15. More on Names in Chapter 5 Business and Public Filings Division Organizational identifiers for all names Professional entity names must not be contrary to regulatory statute. Cannot use Lotto or Lottery Unauthorized use of certain words in veterans organizations

16. Chapter 5 Business and Public Filings Division Name reservations in Subchapter C Name registrations in Subchapter D

17. Registered Agents and Offices Subchapter E Business and Public Filings Division Designation of agent and office Changes to registered agent/office Change by a registered agent to name or address Resignation of registered agent

18. Other Chapters Business and Public Filings Division Chapter 6: Meetings and Voting Chapter 7: Liability Chapter 8: Indemnification and Insurance

19. Chapter 9: Foreign Entities Business and Public Filings Division Foreign entities required to register Permissive registration Registration procedures Name changes Withdrawal of registration

20. Chapter 9 Again Business and Public Filings Division Failure to register--late filing fee Revocation of registration by SOS Reinstatement after revocation Activities not constituting the transaction of business

21. Chapter 10: Mergers, Interest Exchanges, Conversions and Sales of Assets Business and Public Filings Division Subchapter A--Mergers Subchapter B--Exchanges of Interests Subchapter C--Conversions Subchapter D--Certificates filed with the SOS Subchapter E--Abandonment of Merger, Exchange, or Conversion

22. Chapter 11: Winding up and Termination Business and Public Filings Division The new dissolution provisions Includes voluntary and involuntary terminations Also reinstatement procedures

23. Chapter 12 Administrative Powers of SOS and OAG Business and Public Filings Division Adoption of procedural rules Interrogatories Appeal from SOS decisions

24. The Spokes Business and Public Filings Division Title 2 through Title 8

25. Title 2 Business and Public Filings Division Corporations For-Profit Nonprofit Special-Purpose Corporations Lodges

26. Title 6 Business and Public Filings Division Associations Cooperative Associations Unincorporated Nonprofit Associations

27. Structure and Organization Texas Business Organizations Code Title 3 Limited Liability Companies Title 5 REITS Chapters 1, 4, & 5 Chap. 21 For-profit Corporation Chap. 22 Nonprofit Corporation Chap. 152 General Partnership (LLPs) Chap. 153 Limited Partnership Chap. 251 Cooperative Association Chap. 252 Unincorporated Nonprofit Associations Chap. 20 General Provisions Title 1 Common Provisions Apply to all entities Chap. 151 General Provisions Chap. 304 Professional Limited Liability Co. Chap. 302 Professional Association Chap. 303 Professional Corporation Chap. 301 General Provisions Definitions Title 7 Professional Entities Title 6 Associations Title 4 Partnerships Title 2 Corporations

28. Navigating the BOC Business and Public Filings Division Look to Title 1 for the general provision. Then look to the specific title governing the entity- -The spoke E.g., corporations--Title 2. If the provision of Title 1 conflicts with a provision in the specific title governing the entity, the provision in the specific title supercedes the provision in Title 1.

29. Short Titles for Spoke Provisions Business and Public Filings Division Texas Corporation Law Title 2 and Title 1 to the extent applicable to corporations Texas Nonprofit Corporation Law Chapters 20 and 22 and Title 1 to the extent applicable to nonprofit corporations

30. The Business Organizations Code Effective Dates and Transition Issues Business and Public Filings Division

31. Effective Dates of Code Business and Public Filings Division Applies to all new Texas entities created on or after January 1, 2006. Applies to all foreign filing entities registering with the SOS after January 1, 2006.

32. Effective Date for Existing Entities Business and Public Filings Division On January 1, 2010,the mandatory application date, BOC applies to domestic entities existing and foreign filing entities registered with SOS before January 1, 2006. Existing entities may opt in earlier by filing a statement of early adoption with the SOS.

33. Non-Code Entities Business and Public Filings Division Source law, such as the Texas Non-Profit Corporation Act will continue to govern entities formed prior to January 1, 2006 until January 1, 2010, UNLESS such entities opt into the Code, which they may do at any time on or after January 1, 2006, by making a filing with the SOS.

34. Transition Issues Business and Public Filings Division Early Adoption of the Code Does the Secretary of State have opt in or early adoption forms? YES Use Form 808 for early election by Texas nonprofits; use form 809 for early election by foreign or out-of-state entities.

35. Transition Issues Business and Public Filings Division Early Adoption of the Code What is the filing fee for an early adoption statement? The filing fee for a nonprofit corporation or cooperative association is $5.

36. Opt-in and Comply? Business and Public Filings Division Art. 402.003 of the Code states that a domestic filing entity may adopt the Code by following amendment procedures to opt-in and by causing its governing documents to comply with this Code. SOS will not require amendments to governing documents as a precondition to filing the opt-in statement.

37. Transition Issues Business and Public Filings Division Application of BOC Section 402.006 of the Code states that existing statutes will continue to govern the acts, contracts and transactions of non-Code entities until January 1, 2010 (unless they adopt the Code).

38. Transition Issues Business and Public Filings Division Expiration of Prior Law All prior law continues in effect (except fees). Provisions have been added to all of the Acts being codified to indicate that they will expire on January 1, 2010.

39. Transition Issues Business and Public Filings Division What does a nonprofit corporation need to do on January 1, 2010? No action is necessary. The BOC is automatically applicable to the nonprofit corporation on January 1, 2010. If necessary, the corporation shall conform its governing documents to the BOC when it next files an amendment to its certificate of formation.

40. What Does the Code Change? Business and Public Filings Division New organization of statutes Standardization of provisions New terminology Simplification of filing provisions

41. Substantive Changes Business and Public Filings Division Numbering and organization of business law statutes was changing. BOC Committee used opportunity to harmonize the statutes and provide more uniformity among entity types. Uses common provisions when possible.

42. Code Does Not Business and Public Filings Division Change the management structure Change the liability of the entity or its principals Change the operation of the entity Change the way external parties do business with the entity Change state agencies enforcement activities against those entities

43. New Vocabulary & Synonymous Terms Business and Public Filings Division

44. Organization a corporation, LP, general partnership, LLC, business trust, REIT, joint venture, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association, or any other organization, regardless of whether it is for- profit, nonprofit, domestic, or foreign. Entity domestic entity or foreign entity.

45. Business and Public Filings Division Domestic Entityan organization formed under or the internal affairs of which are governed by the BOC. (Does not include banks, insurance companies, telephone cooperatives, or other corporations formed under a Texas law other than the BOC.) Nonfiling Entitya domestic entity that is not a filing entity. (Includes unincorporated nonprofit associations and domestic general partnerships.)

46. Business and Public Filings Division Filing Entitya domestic entity that is a corporation (including a nonprofit corporation), LP, LLC, PA, cooperative, or REIT. (Does not include LLPs.) Foreign Entityan organization formed under, and the internal affairs of which are governed by, the laws of a jurisdiction other than Texas. Foreign Filing Entitya foreign entity is required to register as a foreign entity under Chapter 9 of the BOC (Includes out-of-state nonprofit corporations).

47. Business and Public Filings Division Governing Authoritya person or group of persons who are entitled to manage and direct the affairs of an entity under the BOC and the entitys governing documents. Includes: board of directors or trustees of a nonprofit corporation members of a nonprofit corporation if the certificate of formation vests the management of the affairs solely in its members Does not include an officer.

48. Business and Public Filings Division Governing Persona person serving as part of a governing authority. Officeran individual elected, appointed, or designated as an officer of an entity by the entitys governing authority or under the entitys governing documents. Managerial Officialofficer or governing person. Individuala natural person. BOC clarifies that officers and directors must be individuals.

49. Business and Public Filings Division Governing Documents For domestic entities: its certificate of formation (or any other document or agreement under which it was formed); PLUS other documents (bylaws) or agreements adopted by the entity under the BOC to govern the formation or the internal affairs of the entity.

50. Business and Public Filings Division Filing Instrument instrument, document, or statement that is required or authorized by the BOC to be filed by or for an entity with the filing officer Filing Officer For all entities other than domestic REIT: Secretary of State.

51. A Note About BOC Nonprofits A nonprofit entity includes nonprofit corporations, nonprofit associations, as well as LLCs or other entities that are organized solely for one or more of the nonprofit purposes specified by Sec. 2.002 BOC. Nonprofit purposes include: –Providing professional, commercial, or trade associations; and –Serving charitable, benevolent, religious, fraternal, social, educational, athletic, patriotic, and civic purposes. Business and Public Filings Division

52. A Note About BOC Nonprofits If the BOC refers to a nonprofit corporation, it does not include other nonprofit entities. –For example, fees for nonprofit corporations do not apply to LLCs that have a nonprofit purpose. –Periodic reports required to be filed by nonprofit corporations are not required of other nonprofit entities. Business and Public Filings Division

53. Synonymous Terms Business and Public Filings Division Section 1.006 of the BOC sets forth terms that have the same meaning or significance.

54. Articles of Incorporation, Articles of Organization, Articles of Association, & Certificate of Limited Partnership Business and Public Filings Division Certificate of Formation

55. Application for Certificate of Authority, Appn for Registration of Foreign LP, Statement of Qual. of Foreign LLP Business and Public Filings Division Application for Registration

56. Certificate of Termination Articles of Dissolution Certificate of Cancellation Business and Public Filings Division

57. Art. of Amendment = Art. of Merger = Art. of Exchange = Art. of Conversion = Cert. of Amendment Cert. of Merger Cert. of Exchange Cert. of Conversion Business and Public Filings Division

58. Formation Filings

59. Business and Public Filings Division Certificates of Formation Domestic filing entities are formed by filing a certificate of formation with the filing officer. Any certificate of formation filed with an effective date on or after January 1, 2006: creates a BOC entity must comply with BOC filing requirements is subject to the new BOC fee schedule

60. Business and Public Filings Division Certificates of formation are governed by § 3.001 et seq. Every certificate of formation must contain: The name of the filing entity to be formed The type of filing entity to be formed (e.g., nonprofit corp) Purpose Duration, if not perpetual Registered office street address; registered agents name Name and address of organizers

61. Business and Public Filings Division Supplemental requirements for certificates of formations are set out for: – For-profit corporations§ 3.007 – Close corporations§ 3.008 – Nonprofit corporations§ 3.009 – Limited Liability Companies§ 3.010 – Limited Partnerships§ 3.011 – Real Estate Investment Trusts§ 3.012 – Cooperative Associations§ 3.013 – Professional Entities § 3.014 – Professional Associations § 3.015

62. Supplemental Provisions for a Nonprofit Corporation Business and Public Filings Division If the nonprofit is to have no members, a statement to that effect. If management of the nonprofit corporations affairs is to be vested solely in the nonprofit corporations members, a statement to that effect.

63. Supplemental Provisions for a Nonprofit Corporation Business and Public Filings Division The number of directors and the names and addresses of those directors. OR, if the management is vested solely in the members, a statement to that effect. If the corporation is authorized on its winding up to distribute its assets in a manner other than provided in Sec. 22.304, a statement describing the distribution.

64. Business and Public Filings Division Name availability standards and rules remain the same. § 5.001 et seq. Nonprofit corporations are not required to use an organizational designation. § 5.054(b) Names

65. Business and Public Filings Division A domestic entitys duration is assumed to be perpetual unless stated otherwise in its governing documents. § 3.003 If a domestic entitys duration is not perpetual, its certificate of formation must state the period of duration. § 3.005(4) SOS forms for certificates of formation do not include a duration clause. Limited durations can be set out in the Supplemental Text area of the forms. Duration

66. Business and Public Filings Division Nonprofit corporations can state a general nonprofit purpose. Specifying the nonprofit purpose is no longer required for formation. § 22.051 May be required for IRS tax exemption! BOC provisions specifically applicable to nonprofit corporations do not apply to other nonprofit entities. – Power to act as trustee in § 2.106 – Default tax provisions of § 2.107 Purpose

67. Business and Public Filings Division Registered Agent may be: an individual resident of Texas, or a domestic or foreign entity that is registered to do business in Texas. Registered agents business office address must be the same address as the registered office. Registered Agent Requirements

68. Business and Public Filings Division Registered Office: Must be located at a street address where process may be personally served on the registered agent; Is not required to be the business office address of the represented entity; and May not be solely a mailbox service or telephone answering service. Registered Office Requirements

69. Business and Public Filings Division Foreign Entities Transacting Business in Texas After January 1, 2006

70. Business and Public Filings Division Foreign Entities Title 1, Chapter 9 of the BOC New terminology is used, such as registration and foreign filing entity.

71. Business and Public Filings Division Foreign Entities Required to Register A foreign entity must register to transact business in Texas if: The entity affords limited liability under the laws of its jurisdiction of formation for any member or owner, unless the foreign entity is authorized to transact business under other state law.

72. Business and Public Filings Division What is Transacting Business ? Transacting business is not defined. List of not-transacting business activities same as those provided under prior law. We do not have authority to issue formal binding legal opinions. Look to judicial opinions for guidance.

73. A. Anything organized outside of Austin. B. Anything organized outside of Texas. C. Anything organized outside of the United States. Business and Public Filings Division What is Considered Foreign in Texas? D. Both B & C.

74. Business and Public Filings Division What is Considered Transacting Business in Texas? Entity has an employee who resides in Texas. Entity is pursuing its purpose in Texas. Entity owns & receives income from property in Texas. Entity maintains a business office in Texas. Activities that are purely interstate commerce-- Business conducted by fax, mail, email & telephone.

75. Foreign Corporation Changes Business and Public Filings Division Application for Registration not Certificate of Authority. State date entity began transacting business in Texas. Late filing fee of $25 per year if foreign nonprofit corporation transacts business in Texas for more than 90 days without registering. Statement of existence included in application; no certificate of existence from home state required.

76. Business and Public Filings Division Foreign Entities--Failure to Register Attorney General may enjoin entity from transacting business. Entity cannot maintain an action or proceeding in court until registered. Civil penalty in an amount equal to all fees and taxes that would have been imposed.

77. Business and Public Filings Division Foreign Entities--Failure to Register Late filing penalty equal to registration fee for each year of delinquency. Application for registration must be filed within 90 days of the beginning date of transacting business in the state.

78. SOS Forms Name Reservations Registrations and Change Filings Business and Public Filings Division

79. Forms Business and Public Filings Division Section 4.006 of the BOC authorizes the SOS to promulgate forms for any filing instrument or report required or permitted to be filed with the SOS.

80. Forms Business and Public Filings Division Available on the SOS web site at: http://www.sos.state.tx.us/corp/forms_option.shtml Split into BOC Forms and Pre-BOC When possible, SOS promulgated forms that complied with BOC as well as prior law Use of SOS forms permissive not mandatory

81. Name Reservations Business and Public Filings Division Any person may reserve the use of a name under chapter 5 of the BOC. The filing fee is $40. The name is reserved for a period of 120 days.

82. Renewal of Name Reservations Business and Public Filings Division Under the BOC, all name reservations can be renewed for additional 120-day periods. File a new application within 30 days prior to expiration ($40). If not using SOS form, please identify the reservation as a renewal. Renewal must be made by applicant of record. If not, transfer of name reservation required ($15).

83. Signing False Documents Business and Public Filings Division BOC Chapter 4. Filings General Provisions

84. False or Fraudulent Filings Business and Public Filings Division Under prior law, it was a Class A misdemeanor to knowingly sign a document that was materially false with the intent that it be filed with the SOS. House Bill 1507, effective Sept. 1, 2005, amended the TBCA to increase the offense to a state jail felony if the person signing a document intended to defraud or harm another.

85. False or Fraudulent Filings Business and Public Filings Division BOC penalties for false or fraudulent filing apply to all entities, including nonprofit corporations. As of Jan. 1, 2006, it is a Class A misdemeanor to knowingly sign a filing instrument that is materially false with the intent that it be filed with the SOS. §4.008 – Class A misdemeanor is punishable by a sentence of up to 180 days, a fine of up to $4,000, or both.

86. False or Fraudulent Filings Business and Public Filings Division BOC increases offense to a State jail felony if there is intent to defraud or harm another. State jail felonies are generally punishable by a sentence of 180 days to 2 years plus a fine of up to $10,000.

87. Enforcement Business and Public Filings Division The SOS does not have the power to prosecute anyone for criminal violations associated with fraudulent filings. If there is a basis for criminal action, victims can file a complaint with the District or County Attorney.

88. Civil Liabilities Business and Public Filings Division A person may recover civil damages if the person incurs a loss caused by: a forged filing instrument; a filing instrument that constitutes an offense under § 4.008; reasonable reliance upon a false statement of material fact in a filed filing instrument; or the omission of a material fact that is required to be in a filing instrument. § 4.007(a)

89. Civil Liabilities Business and Public Filings Division An injured person may recover from: each person who forged or knowingly signed a false instrument; any managerial official who directed the signing and filing of the filing instrument who knew or should have known of the false statement or omission; or the entity that authorizes the filing of the filing instrument. § 4.007(b)

90. Enforcement Business and Public Filings Division The SOS does not have authority to bring suit on behalf of parties harmed by a fraudulent filing. Injured parties can initiate their own civil lawsuits.

91. Mergers, Conversions & Exchanges Business and Public Filings Division Chapter 10 of the BOC governs the general requirements for mergers, interest exchanges, and conversions.

92. Mergers of Nonprofit Corporations Business and Public Filings Division Under existing law, a nonprofit corporation may merge only with other domestic or foreign nonprofit corporations and only one party to the merger can be the survivor. BOC has more permissive merger provisions for nonprofit corporations with limitations.

93. Whats New? Business and Public Filings Division A domestic nonprofit corporation may merge with a for- profit entity or non-code organization. The domestic nonprofit may not merge with a for-profit entity if: The domestic nonprofit corporation does not continue as the surviving entity; or If the nonprofit corporation will lose or impair its tax-exempt status. Filing fee for this type of transaction: $300.

94. Nonprofit Merger Limitations Business and Public Filings Division May not merge into another entity, if the NP corporation would lose charitable status. May merge with for-profit or non-code entities if the nonprofit continues as the surviving entity.

95. Whats New for nonprofits? Business and Public Filings Division TNPCA did not authorize the creation of a nonprofit corporation by conversion. BOC authorizes creation of a nonprofit corporation by conversion. Certificate of formation of converted entity must contain the additional statements relating to the conversion. Domestic nonprofit corporation may not convert to a for-profit entity.

96. Involuntary Terminations Business and Public Filings Division Circumstances giving rise to an involuntary termination by the SOS. Failure to file a report within the period required by law; Failure to pay a fee or penalty prescribed by law when due and payable; Failure to pay a filing fee, or payment of the fee was dishonored when presented by the state for payment; Failure to maintain a registered agent or registered office.

97. Reinstatements Business and Public Filings Division Finality is not the language of politics. Benjamin Disraeli It aint over til its over. Yogi Berra

98. Reinstatements Business and Public Filings Division BOC Sections 11.201 and 11.202 Reinstatements under the BOC have longer time periods during which a reinstatement can be filed. Change in substantive law Time frames similar for all Code entities

99. Reinstatements Business and Public Filings Division PRIOR LAW: No change. Same under BOC. Non-profit corporations have an unlimited amount of time to reinstate following an involuntary dissolution for failure to file a report under Art. 1396- 9.01 of the Texas Non- Profit Corporation Act. BOC:

100. Reinstatements Business and Public Filings Division PRIOR LAW: No change. See, BOC §§ 11.201(b) & 11.254. Corporations and LLCs have an unlimited amount of time to reinstate following a forfeiture for failure to comply with provisions of the Texas Tax Code. BOC:

101. Reinstatements Business and Public Filings Division Tax Code Reinstatements (Revivals of Charter) continue to be governed by the Tax Code. See, §§ 171.312 through 171.315 of the Texas Tax Code. BOC sets the fee for reinstatements following a tax forfeiture for for-profit corporations and LLCs at $75. No fee for reinstatement of a nonprofit corporation following a tax forfeiture.

102. Reinstatement Following a Voluntary Termination Business and Public Filings Division Entity terminated inadvertently or by mistake; Termination occurred without the approval of the entitys governing persons when approval required by BOC; Entity terminated before winding up completed; or The entitys legal existence is necessary to convey or assign property, to settle or release a claim or liability, to take an action, or sign an instrument or agreement.

103. BOC Reinstatement Requirements Business and Public Filings Division Reinstatement must be approved in manner provided by the BOC; Entity name must be available; Tax clearance for reinstatement; and If involuntarily terminated, entity must correct circumstances giving rise to involuntary termination. Reinstatement must provide registered agent/office information.

104. Need Help? Contact SOS by Email Business and Public Filings Division Corphelp@sos.state.tx.us mpowell@sos.state.tx.us first initial last name@sos.state.tx.us

105. Need Help? Call Business and Public Filings Division Mike Powell 463-9856 Nahdiah Hoang 475-0218 Robert Sumners 463-5590 Carmen Flores 463-5588 Lorna Wassdorf463-5591