1. Presented by: Robert Sumners Office of the Secretary of State Presented to: The Dallas Area Paralegal Association Corporate Section October 19, 2007 Dallas, Texas Business and Public Filings Division 80 TH LEGISLATIVE SESSION UPDATE

2. Business and Public Filings Division This presentation focuses on changes relevant to provisions governing filings made with the Corporations Section, Office of the Secretary of State. All bills referenced can be viewed at www.capitol.state.tx.uswww.capitol.state.tx.us

3. Business and Public Filings Division HB 1737—relating to business entities and associations Effective Date: September 1, 2007  Amends: Business Organizations Code (BOC) Texas Business Corporation Act (TBCA) Texas Limited Liability Company Act (TLLCA) Texas Revised Limited Partnership Act (TRLPA)  Includes technical corrections, further clarifications and fills procedural gaps. Some substantive changes.

4. Business and Public Filings Division Certificates of Formation Section 301.003(3) BOC was amended to specifically prohibit a professional corporation from being formed for the practice of medicine. Deleted provision in section 2.003 BOC restricting formation of a domestic entity to pursue an activity or purpose that requires the obtaining a license. Added the specific restriction to sections 2.007 and 2.010 applicable only to for-profit and nonprofit corporations.

5. Business and Public Filings Division Certificates of Formation Section 3.005(a)(4) BOC amended to clarify that a certificate of formation for a domestic entity that is not formed to exist perpetually must provide a specific period of duration (term of years or date certain). Does not apply to limited partnerships.

6. Business and Public Filings Division Certificates of Formation Section 3.007 BOC amended to clarify that the certificate of formation for a professional corporation must also include the same supplemental provisions as a for-profit corporation, namely:  names and addresses of initial board of directors; and  number of shares and statement regarding the par value of those shares. Section 3.008 BOC amended to clarify that a professional corporation may be formed as a close corporation. SOS filing requirements for professional corporations did not change as a result of these amendments.

7. Business and Public Filings Division Certificates of Formation Section 3.015(a)(2) amended to correct omission of information that was required for formation of professional association under prior law. Now the certificate of formation must also include:  The name and address of each member;  Whether the association is to be governed by a board of directors or executive committee; and  The name and address of each member of the board of directors or executive committee. This information is in addition to the information required to be included in the certificate of formation under sections 3.005 and 3.014 of the BOC.

8. Business and Public Filings Division Certificates of Formation—Professional Association Section 3.015 amended to:  Add a new subsection (c) clarifying that if a certificate of formation of a professional association contains provisions relating to shares, the certificate must comply with section 3.007 regarding information relative to those shares. Does not require a professional association to base its equity ownership on shares.  Deletes obsolete requirement that certificate include a statement that a member of the association may not dissolve the association independently of other members of the association. Inclusion of the statement is not grounds for rejection.

9. Business and Public Filings Division BOC Definitions & Synonymous Terms Section 1.002 (43) amended to clarify definition of “jurisdiction of formation” as applied to foreign entities and domestic non-filing entities. Section 1.002(69-a) added to define “period of duration” as a specified term or period of time or until a date certain. Does not include a period that expires or whose expiration is made contingent on the occurrence of a future event or fact, other than the passage of time or the occurrence of a specified time or date.

10. Business and Public Filings Division BOC Definitions & Synonymous Terms Section 1.002 (69-b) was added to define “person.” “Person” is defined by cross-reference to the definition of “person” included in section 311.005 of the Texas Government Code. Section 1.006 BOC added new synonymous terms:  certificate of cancellation = certificate of termination  incorporator = organizer  certificate of authority to transact business = registration to transact business  regulations = company agreement  business corporation = for-profit corporation

11. Business and Public Filings Division Restated Certificate of Formation Section 3.0611 added to provide that the restated certificate of formation for a limited liability company may:  Update the names and addresses of the persons serving as managers if the LLC is managed by managers; or  Update the names and addresses of the persons serving as members if the LLC will not have managers.

12. Business and Public Filings Division Entity Names Amends chapter 5 of the BOC to clarify that the entity name requirements established for a domestic entity also apply to a foreign entity. Section 5.055(b) simplified the naming requirements for a limited partnership that is also registering as a limited liability partnership.  Name complies with 5.055(a) and (b) if it includes “limited liability limited partnership” or an abbreviation of that phrase.  ABC, LLLP or ABC, Ltd., LLP are both acceptable. Reflects current practice of Secretary of State.

13. Business and Public Filings Division Registered Agents Section 5.201(b) BOC amended to make clear that any “organization” registered or authorized to do business in Texas may serve as a registered agent. Previous language used was more limiting. Section previously stated that a registered agent, who was not an individual, must be a domestic entity or foreign entity registered or authorized to do business in the state.

14. Business and Public Filings Division Foreign Filing Entities Section 9.054 BOC amended to clearly provide that the late filing fee for a foreign entity is equal to the product of the amount of the registration fee for the entity multiplied by the total number of calendar years, including any partial year, that the entity transacted business in Texas without having registered. Section 9.201 BOC amended to address the powers of a foreign business trust by providing that a foreign business trust can engage in any business or activity permitted for a limited liability company.

15. Business and Public Filings Division Certificates of Merger or Exchange Section 10.151(b) amended to specifically require that an alternative statement (in lieu of a plan of merger or exchange) identify the organizational form of each domestic entity or non- code organization that is a party to the merger or exchange. Also requires, in the case of a merger, that the organizational form of each domestic entity or non-code organization created by the plan of merger be identified in the alternative statement.

16. Business and Public Filings Division Certificates of Conversion Section 10.154(b) BOC amended to specifically require that the alternative statements provided in lieu of a plan of conversion include the following information regarding the converted entity:  Name;  Organizational form; and  Jurisdiction of formation.

17. Business and Public Filings Division Winding Up and Termination Repeals section 153.452 regarding the information required in the certificate of termination of a limited partnership as duplicative of the certificate of termination requirements in section 11.101. Repeals section 153.451 regarding the requirement that a certificate of termination be filed when a limited partnership has no limited partners. However, this circumstance was retained as an event requiring the winding up of the limited partnership. (See new section 11.058(c) of the BOC, which also specifies how this event may be cancelled.)

18. Business and Public Filings Division Winding Up and Termination Section 11.058 BOC also amended to provide that a voluntary decision of a limited partnership to wind up requires the written consent of all of the partners unless otherwise provided in the partnership agreement.

19. Business and Public Filings Division Execution Requirements Limited Liability Companies  New section 101.0515 added to fill a procedural gap in the BOC by providing a default provision regarding who may sign a filing instrument on behalf of an LLC. A filing instrument for an LLC must be signed by an authorized officer, manager or member.

20. Business and Public Filings Division Execution Requirements Limited Partnerships  Section 155.553 BOC as originally enacted included specific execution requirements for certain types of filing instruments. However, not all filing instruments were included.  Section 155.553 amended to provide a general rule for execution of filing instruments with some specific exceptions. The general rule is that a filing instrument must be signed by at least one general partner.

21. Business and Public Filings Division Execution Requirements Certificate of Termination—Professional Corporation Section 303.006 amended to add subsection (a), which specifies that an authorized officer of a professional corporation must sign the certificate of termination except as provided by subsection (b). New subsection (b) provides that:  When the professional corporation has no living officers, the certificate must be signed by a living director.  If the professional corporation has no living officers or directors, the certificate must be signed by the legal representative of the last living director.

22. Business and Public Filings Division Transition Provisions Applicability of BOC to Converted Entity Under the original provisions of the BOC it was not clear whether the law applicable to the converting entity or the BOC was applicable to the converted entity. Since section 3.006 BOC stated that the formation and existence of a domestic filing entity in a conversion takes effect and commences on the effectiveness of the conversion, the SOS took the position that the converted entity was a BOC entity.

23. Business and Public Filings Division Transition Provisions Applicability of BOC to Converted Entity Section 402.001(a)(2) was added to resolve the question of applicability by specifying that a domestic entity that is a converted entity as a result of a conversion that takes effect after the effective date of the BOC is a BOC entity.

24. Business and Public Filings Division Transition Provisions—Early Election to Adopt Section 402.003 BOC was amended to clarify the procedures for early election to adopt.  A domestic filing entity may elect early adoption by following the procedures established by its governing documents and the source law governing the entity for approval of an amendment to: its articles of incorporation, if a corporation or cooperative; its regulations, if an LLC; its articles of association, if a professional association; its partnership agreement, if a partnership; or its declaration of trust, if a REIT.

25. Business and Public Filings Division Early Election to Adopt Section 402.003 BOC was amended to clarify that if the entity’s governing documents do not comply with the BOC, the entity must also comply with the procedures for amending the nonconforming document, including the filing of a certificate of amendment if necessary. The domestic filing entity must file an early adoption statement with the filing officer. REITs file with the county clerk. All other domestic entities with the SOS. SOS does not require the filing of an amendment as a precondition to filing the statement of early election.

26. Business and Public Filings Division Franchise Tax (or Margin Tax) In 2006, the 79 th Legislature, in its 3 rd Called Session, enacted HB 3, which expanded the tax base to include domestic and foreign business entities not previously subject to franchise tax:  Professional associations;  Partnerships (other than general partnerships comprised solely of natural persons); and  Foreign business trusts. The revamped tax is commonly referred to as the Margin Tax.

27. Business and Public Filings Division Technical Corrections—HB 3928 The Margin Tax was amended by the 80th Legislature with the enactment of HB 3928—relating to technical corrections to the revised franchise tax (HB 3). HB 3928 clarified that LLPs were included as taxable entities. HB 3928 specifically authorizes the SOS to forfeit the charter, certificate or registration of a domestic or foreign taxable entity in the same manner in which the secretary of state forfeits the charter, certificate or registration of a domestic or foreign corporation.

28. Business and Public Filings Division Technical Corrections—HB 3928 HB 3928 also gives the SOS authority to reinstate the certificate or registration of a taxable entity when the tax delinquency causing the forfeiture has been cured. Additionally, HB 3928 gives the SOS rule-making authority with respect to the reinstatement of taxable entities.

29. Business and Public Filings Division Forfeiture of LLP registrations? HB 3928 appears to allow the forfeiture and reinstatement of a registration of a foreign or domestic limited liability partnership. This is somewhat problematic due to the limited duration of the registration (one year). How do you forfeit and reinstate after the registration has expired?

30. Business and Public Filings Division Forfeiture of LLP registrations? The SOS has been advised that the Comptroller will not certify the LLP registration for forfeiture. Instead, the Comptroller will certify the registrant (the underlying partnership) for forfeiture when the registrant has filed a certificate of formation or application for registration as a foreign entity with the SOS. This will mean that forfeiture will only be applicable to limited partnerships since general partnerships do not file organizational documents with the SOS.

31. Business and Public Filings Division Public Information Reports (PIR) Under HB 3928 corporations and LLCs will continue to file PIRs with the Comptroller as part of the annual franchise tax report. Comptroller will send the public information report to the SOS and SOS will use the PIR to update management information on SOS database. Note that this is an annual filing—no requirement to supplement nor a procedure for supplementing when officers, directors, managers or managing-members change.

32. Business and Public Filings Division Ownership Information Reports No requirement that LPs, PAs and LLPs file PIRs. However, Comptroller is requiring these taxable entities to file an ownership information report in accordance with section 171.201 of the Tax Code. Report will include the name and address of:  each officer, director, and manager of the taxable entity;  for a limited partnership, each general partner;  for a general partnership or limited liability partnership, each managing partner or, if there is not a managing partner, each partner; or  for a trust, each trustee; and  the name and address of the agent of the taxable entity designated under Section 171.354 of the Tax Code.

33. Business and Public Filings Division Ownership Information Reports Ownership information reports will not be provided to the SOS and will not be public record. Failure to file the ownership report will be grounds for the Comptroller to forfeit the business privileges of the taxable entity under the Tax Code. Comptroller has proposed new administrative rules relating to the margin tax, including the filing of reports and the consequences of noncompliance. These proposed rules were published in the Texas Register on September 14, 2007, and can be viewed at www.sos.state.tx.us/texreg/archive/September142007/index.html.

34. Business and Public Filings Division Reporting Requirements under the BOC Continue Neither HB 3 nor HB 3928 made changes to the reporting requirements under the BOC or the source law.  A limited partnership will continue to be subject to the periodic reporting requirements of the Texas Revised Limited Partnership Act and the BOC and will be required to file a report with the SOS not more often than once every four years.  A professional association will continue to be required to file an annual statement with the SOS during June of each year.

35. Business and Public Filings Division Nonsubstantive Revisions As part of the Texas Legislative Council’s continuing statutory revision project, the Business & Commerce Code and the Local Government Code were reorganized with the passage of HB 2278 to be effective April 1, 2009. The Assumed Business or Professional Name Act currently found in Title 4, chapter 36 will be moved to Title 5, chapter 71.  Recodified act conforms to BOC terminology.  No change made to the entity types that file assumed names with SOS. Foreign business trusts, foreign REITS, and other foreign entities not considered corporations, LLCs, or LPs file an assumed name certificate only with the county.

36. Business and Public Filings Division Nonsubstantive Revisions HB 2278 also repealed and recodified The Development Corporation Act of 1979 in chapter 501 of Title 12 of the Local Government Code. Recodified version uses BOC terminology. Utility Security Instrument filing provisions currently included in chapter 35, Title 4 of the Business & Commerce Code, will be found in new Title 8, chapter 261. These revisions make no substantive changes, only changes to citation.

37. Business and Public Filings Division Nonprofit Corporations Created Under Special Law HB 2090 amended chapter 431 of the Transportation Code, commonly referred to as the Texas Transportation Corporation Act, to redefine local government to include hospital districts and hospital authorities. This provides these entities with the authority to create a local government transportation corporation. HB 2168 amended chapters 262 and 285 of the Health & Safety Code to authorize municipal and county hospitals created under general law to form and sponsor a nonprofit corporation under the provisions of the BOC for the purpose of owning and operating all or part of one or more ancillary health care facilities.

38. Business and Public Filings Division Railroads HB 1447, effective May 4, 2007, amended chapter 1, Title 112 of the Texas Civil Statutes relating to the creation of railroads. The amendments streamlined the filing process by deleting the requirement that the Attorney General approve railroad filings prior to submission to the SOS. In addition, HB 3711, which became effective September 1, 2007, repealed chapter 1, Title 112, with the intent that railroads be created under general law, i.e., the BOC.

39. Business and Public Filings Division Railroads However, the provisions of the BOC were not amended.  Section 2.003(2)(E) specifically prohibits a domestic entity from operating a railroad except as otherwise provided by the Code. (See section 2.006, BOC.) More to come. SOS will suggest an amendment to BOC and may request an opinion from the OAG to reconcile the BOC and the repeal.

40. Business and Public Filings Division Come Visit Us on the Web SOS web site: http://www.sos.state.tx.us BOC forms: http://www.sos.state.tx.us/corp/forms_boc.shtml Pre-BOC forms: http://www.sos.state.tx.us/corp/forms.shtml

41. Online Access and Filing Business and Public Filings Division  Available 24 by 7  Images of filed documents available to view and print  Place orders for certified copies or certificates online and receive email responses  File most filing instruments online

42. SOSDirect Information Business and Public Filings Division  Corporations  Limited Partnerships  Limited Liability Companies  Professional Associations  Limited Liability Partnerships  Assumed names for those entities  State Trademarks  Uniform Commercial Code filings

43. SOSDirect Searches Business and Public Filings Division  By entity name or variation of name  By assumed name  By name of an officer, director, manager, general partner or registered agent listed in SOS records

44. SOSDirect Assistance Business and Public Filings Division SOSDirect Support Team sosdirect@sos.state.tx.us (512) 475-2755

45. Business and Public Filings Division Need Help? Call Nahdiah Hoang (512) 475-0218 Mike Powell (512) 463-9856 Carmen Flores (512) 463-5588 Lorna Wassdorf(512) 463-5591

46. Business and Public Filings Division Need Help? Email Corphelp@sos.state.tx.us--Questions regarding document filings, procedures and applicable law. Corpinfo@sos.state.tx.us--Information on specific entities filed with the Corporations Section, including information legal names, registered agent and office, officer and director, date of formation, and name availability preliminary advice. Corpcert@sos.state.tx.us--Requests for plain and certified copies, certificates of fact (including existence and status).