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The New Texas Business Organizations Code: What is It and How Does It
Apply to You?
On January 1, 2006, the Texas Business Organizations Code (the "TBOC")
became effective. The TBOC codifies various Texas entity governing laws,
including:
- Texas Business Corporation Act
- Texas Non-Profit Corporation Act
- Texas Limited Liability Company Act
- Texas Revised Partnership Act
- Texas Revised Limited Partnership Act
- Texas Professional Corporation Act
- Texas Professional Association Act
- Texas Miscellaneous Corporation Laws Act
- Texas Real Estate Investment Trust Act
- Texas Cooperative Association Act
- Texas Uniform Unincorporated Nonprofit Association Act
Did the Underlying Laws Change? Generally speaking, the
provisions of the TBOC are consistent with existing Texas law. However, a
few substantive changes in the law have been made.
Does the TBOC Apply To My Entity? All new Texas entities
formed on or after January 1, 2006 are subject to and governed by the
TBOC. All entities formed before January 1, 2006 may elect early adoption
of the TBOC by filing an early adoption statement with the Texas Secretary
of State, but all entities will automatically become subject to the TBOC
on January 1, 2010. All entities should consider using the new TBOC
terminology in their contracts and governing documents.
How Is the TBOC Organized? The TBOC is organized in a
"hub" (Title 1) and "spoke" (Titles 2-8) format. Title 1 (the hub)
contains standardized definitions and procedures relating to formation,
meetings, voting and indemnification that apply to all Texas entities.
Titles 2 through 7 (the spokes) contain supplemental provisions that are
targeted to specific types of entities such as corporations, limited
liability companies and partnerships. Title 8 contains the miscellaneous
and transition provisions of the TBOC. The TBOC is intended to be more
user-friendly than the previous "patchwork" of various entity statutes.
What Are the New Terms? Title 1 of the TBOC contains many
new defined terms that apply to all types of entities. A few examples of
these terms are:
- "Entity" – either a Domestic Entity or a Foreign Entity.
- "Filing Entity" – a domestic corporation (for profit or non-profit),
a limited partnership, a limited liability company, a professional
association, a cooperative or a REIT. A Filing Entity is formed by
filing a Certificate of Formation with the Texas Secretary of State.
- "Certificate of Formation" – replaces current formation documents
such as Articles of Incorporation for a corporation, Articles of
Organization for a limited liability company, and a Certificate of
Limited Partnership for a limited partnership. It is used for all forms
of Filing Entities.
- "Governing Documents" – includes the Certificate of Formation and
all other documents or agreements that govern the internal affairs of a
Domestic Entity or Foreign Entity.
- "Company Agreement" – replaces Regulations for limited liability
companies. A Company Agreement is one of the Governing Documents (along
with the Certificate of Formation) of a limited liability company.
- "Governing Authority" – those persons authorized by the TBOC and the
Governing Documents to manage the affairs of the Entity. This includes a
board of directors of a corporation, the general partners of a general
partnership, the general partners of a limited partnership, the managers
of a manager-managed limited liability company, the members of a
member-managed liability company, and the trust managers of a REIT. The
term does not include an Officer acting as an officer.
- "Owners" and "Members" – correspond to ownership interests or
membership interests in an Entity. For-profit corporations, real estate
investment trusts and partnerships have Owners. Non-profit corporations,
unincorporated non-profit associations have Members. Limited liability
companies and professional associations have both Members and Owners and
these terms are used interchangeably in these kinds of entities.
- "Officer" – an individual elected, appointed or designated as an
officer of an Entity by the Governing Authority under the Governing
Documents.
- "Fundamental Business Transaction" – means a merger, an exchange of
membership or ownership interests, a conversion, or a sale of all or
substantially all of an Entity's assets.
- "Fundamental Action" – means for for-profit corporations, nonprofit
corporations and real estate investment trusts, respectively, an
amendment to the Certificate of Formation, voluntary Winding Up,
revocation of a voluntary decision to Wind Up or cancellation of an
event requiring Winding Up, or the reinstatement of a Terminated entity.
- "Winding Up" – the process of liquidating the Entity's assets,
paying its debts and distributing its remaining assets after discharge
of its debts.
- "Termination" – the cessation of existence of a Filing Entity by the
filing of a Certificate of Termination upon the completion of the
Winding Up process.
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