The Texas Legislature, during its 87th Regular Session, passed several bills with direct implications for Texas partnerships, corporations, and limited liability companies. Below are some of the key changes for Texas entities, including amendments made to the Texas Business Organization Code (the “TBOC”), passed in the 87th Regular Session.
S.B. 1203/H.B. 3364 – Business Organization Code Omnibus Amendment Package
Sponsored by Senator Kelly Hancock and Representative Chris Turner, Senate Bill 1203 (“S.B. 1203”) provides for several amendments to the TBOC and now effective as of September 1, 2021. S.B. 1203 provides numerous updates to the TBOC, both substantive and technical, which are derived from interim working sessions of the Business Law Section Code Committee in coordination with the Secretary of State Business Filings Division.
One of the most substantive changes, S.B. 1203 provides for flexibility in the event of emergencies to ensure that businesses can move forward during that time. These changes include a temporary suspension of certain procedural requirements relating to meetings in the event of an emergency. The definition of “emergency” was expanded within this session to include pandemics as well as governmental emergency declarations.
Further, the flexibility of management of a Texas LLC is enhanced in that the entity’s governing authority can now be specified in its company agreement rather than controlled by the entity’s certificate of formation. This change applies regardless of whether the entity is member-managed or manager-managed. Historically, Texas LLCs had to file an amendment to their Certificate of Formation in order to change from manager-managed to member-managed or vice-versa. This change eliminates the need to file an amendment any time there is a change in management structure.
S.B. 1523/H.B. 3506 – LLC Registered Series
Also sponsored by Senator Kelly Hancock and Representative Chris Turner, Senate Bill 1523 introduced the requirements associated with the use of registered series by limited liability companies. Currently, the certificate of formation of a series LLC specifically allows for the segregation of interests, assets, and operations into separate series. Each series within an LLC can operate as a separate entity with a unique name, assets, bank account, and separate books and records. A series may enter into contracts, sue or be sued, and hold title to real and personal property. The most important characteristic of a series is the liability protection that can be afforded to each separate series. Assets owned by one series are shielded from the risk of liability for the debts or obligations of any other series in the LLC or of the LLC generally. To form a new series, the series LLC follows the process set forth in its company agreement, but no filing is made with the Texas Secretary of State.
S.B. 1523 updates the TBOC, effective June 1, 2022, to allow for registered series, consistent with the Delaware model. Series LLCs will now be able create a more formal type of series by filing a certificate of registered series with the Texas Secretary of State. Third parties will now be able to verify the existence of a registered series by checking the public records. The establishment of registered series will improve the functionality, attractiveness, and transparency of series use by Texas LLCs. The type of series currently available (under existing law) continues as is, but is renamed a “protected series” like under the Delaware model.
H.B. 3131 – Addresses in Certificates of Formation
House Bill 3131 imposes an additional requirement for the certificate of formation of a new entity. Effective January 1, 2022, each filing entity will be required to include the initial mailing address of said entity while filing its certificate of formation with the Secretary of State. Currently, certificates of formation include addresses for the entity’s registered agent and that address is used by the Texas Comptroller for tax notices. Going forward, the entity’s address now required will be the address used by the Texas Comptroller for tax notices.
S.B. 873/H.B. 3060 – Comptroller Disclosures to Purchasers of Businesses
Purchasers of Texas business are able request a certificate from the Texas Comptroller stating that no taxes are due by the business being purchased. If taxes are due, the Texas Comptroller is statutorily required to issue a statement to the purchaser of the amount required to be paid before a certificate can be issued. However, a conflict has been identified between this requirement and
the statutory provision for confidentiality of taxpayer information which prohibits the comptroller from sharing specific information. Effective September 1, 2021, S.B. 873 revised the Texas Tax Code to allow for this tax information to be shared with purchasers.