Michael Powell Office of the Secretary of State 18th Annual Texas Crime Stoppers Conference San Antonio, Texas May 19, 2

1. Michael PowellOffice of the Secretary of State18th Annual Texas Crime Stoppers ConferenceSan Antonio, TexasMay 19, 2006 The New Business Organizations Code And How it Applies to Nonprofit Corporations Business and Public Filings Division

2. Statutory Revision Program • 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. Business and Public Filings Division

3. Statutory Revision Program • 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. Business and Public Filings Division

4. Texas Business Organizations Code codifies the following statutes: • 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 Business and Public Filings Division

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

6. Code Structure 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 Business and Public Filings Division

7. The Wheel Business and Public Filings Division

8. General Provisions Title 1 “The Hub” 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

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

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

11. Chapter 4 • 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 Business and Public Filings Division

12. Chapter 4 Continued • Subchapter C: Certificates of correction • Subchapter D: FILING FEES! Business and Public Filings Division All Entities 4.151 For-Profit 4.152 Nonprofit 4.153 etc.

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

14. Chapter 5 • 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 Business and Public Filings Division

15. More on Names in Chapter 5 • 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 Business and Public Filings Division

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

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

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

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

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

21. Chapter 10: Mergers, Interest Exchanges, Conversions and Sales of Assets • 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 Business and Public Filings Division

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

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

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

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

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

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

28. Navigating the BOC • 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. Business and Public Filings Division

29. Short Titles for Spoke Provisions • 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 Business and Public Filings Division

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

31. Effective Dates of Code • 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. Business and Public Filings Division

32. Effective Date for Existing Entities • 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. Business and Public Filings Division

33. Non-Code Entities 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. Business and Public Filings Division

34. Transition Issues 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. Business and Public Filings Division

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

36. Opt-in and Comply? • 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. Business and Public Filings Division

37. Transition Issues 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). Business and Public Filings Division

38. Transition Issues 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. Business and Public Filings Division

39. Transition Issues 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. Business and Public Filings Division

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

41. Substantive Changes • 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. Business and Public Filings Division

42. Code Does Not • 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 Business and Public Filings Division

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. Business and Public Filings Division

45. Domestic Entity—an 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 Entity—a domestic entity that is not a filing entity. (Includes unincorporated nonprofit associations and domestic general partnerships.) Business and Public Filings Division

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

47. Governing Authority—a person or group of persons who are entitled to manage and direct the affairs of an entity under the BOC and the entity’s 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. Business and Public Filings Division

48. Governing Person—a person serving as part of a governing authority. Officer—an individual elected, appointed, or designated as an officer of an entity by the entity’s governing authority or under the entity’s governing documents. Managerial Official—officer or governing person. Individual—a natural person. BOC clarifies that officers and directors must be individuals. Business and Public Filings Division

49. Governing Documents • For domestic entities: • itscertificate 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. Business and Public Filings Division

50. 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. Business and Public Filings Division