Daryl B. Robertson 2013-08-27 03:03:19
THIS ARTICLE SUMMARIZES SEVERAL BILLS PASSED BY THE 83RD TEXAS LEGISLATURE IN ITS 2013 REGULAR SESSION THAT AFFECT BUSINESS LAW. These bills amend the Texas Business Organizations Code (TBOC) or the Texas Business and Commerce Code (TBCC). This discussion should not be considered exclusive of other bills that may affect business law. These summaries should not be relied upon for legal advice to clients. Interested parties should review the actual bills. All bills are effective on Sept. 1, 2013, unless otherwise indicated. TBOC AMENDMENTS BILL (S.B. 847) Senate Bill 847 makes several clarifying and substantive amendments to the TBOC. The following discussion summarizes most of these amendments. Simplification of Amended and Restated Certificates of Formation S.B. 847 deletes the requirement that a restated certificate of formation with new amendments must identify by reference or description each added, altered, or deleted provision. In practice, this requirement has posed an issue regarding the scope of the reference or description that must be included, and some legal practitioners have interpreted it to require lengthy descriptions of the amendments. Removing this requirement simplifies the form of amended and restated certificate of formation and eliminates a common reason cited by the Texas secretary of state for rejections of filings of restated certificates of formation. Winding-up Notices for Limited Partnerships S.B. 847 amends the winding-up provisions in Chapter 11 to require a limited partnership to send a written notice of the partnership’s winding up to each known claimant. An exception for this requirement remains for general partnerships. Claimants should be provided written notice of the winding up because, as with other filing entities, claims against a limited partnership are subject to extinguishment after the third anniversary of the date of entity termination. Limitation or Elimination of Liability for Governing Persons of LLCs and Partnerships S.B. 847 clarifies the TBOC’s liability provisions by making more explicit the contractual freedom of the owners of partnerships and limited liability companies, in their respective governing documents, to limit or eliminate the liability of their governing persons. The revised language recognizes that owners of these kinds of entities have at least the same freedom as owners of corporations to agree to the limitation or elimination of liabilities of their governing persons. For a limited liability company, the revised language of Subsection 7.001(d) states that the liability of a governing person may be “limited or eliminated” by its certificate of formation or company agreement to the same extent Subsections 7.001(b) and (c) permit the limitation or elimination of liability of a governing person of a for-profit corporation. In addition, the liability of the governing person of an LLC may be limited or eliminated “to the additional extent permitted under Section 101.401.” The revised language of Subsection 7.001(d) for general partnerships and limited partnerships is similar to the LLC language but references the partnership agreement as the appropriate governing document for a partnership to contain such a provision. The general partnership provision refers to Chapter 152 as permitting additional limitation or elimination of liability, while the limited partnership provision refers to Chapter 153 and, to the extent applicable to limited partnerships, Chapter 152 as permitting additional limitation or elimination of liability of governing persons. Rights of Third Persons in Company Agreements and Partnership Agreements S.B. 847 clarifies that third parties may have rights under the governing documents of limited liability companies and partnerships. A new provision explicitly recognizes that a company agreement of an LLC may provide rights to any person, including a person who is not a party to the company agreement, to the extent set forth in the agreement. For partnerships, new Section 154.104 clarifies that a partnership agreement of a partnership (whether general or limited) may provide rights to any person, including a person who is not a party to the partnership agreement, to the extent set forth in the agreement. Series of Limited Liability Company S.B. 847 clarifies the powers of a series of a limited liability company by expanding the language to state that a series has the ability to acquire and sell assets and to “exercise any power or privilege as necessary or appropriate to the conduct, promotion or attainment of the business, purposes, or activities of the series.” The existing language of Section 101.605, which will remain, specifies that a series has the power and capacity, in its name, to (1) sue and be sued, (2) contract, (3) hold title to assets of the series, and (4) grant liens and security interests in its assets. This language was susceptible to narrow interpretation of the power and authority of a series. A series and its associated governing persons and officers will also now clearly have the powers and rights set forth in specified provisions of Title 1. These specified provisions relate to the authority of governing persons and officers of domestic entities, record-keeping requirements of filing entities, and transfers and dispositions of property by domestic entities. S.B. 847 also clarifies that the series is not a separate domestic entity or organization for purposes of Chapter 101 and Title 1 of the TBOC. Treating a series as a separate entity would be a significant departure from the prevailing theory and rationale for the existence of series and would be inconsistent with the various kinds of distinct entities specifically authorized by the TBOC. SOCIAL PURPOSES FOR FOR-PROFIT CORPORATIONS (S.B. 849) S.B. 849 authorizes a for-profit corporation to include in its certificate of formation a “social purpose” as one of its purposes and authorizes the directors and officers of the corporation to consider such social purpose in making decisions relating to the corporation’s business and activities. “Social purposes” is defined to refer to one or more purposes specified in the certificate of formation of a forprofit corporation, other than the creation of pecuniary benefits for its shareholders, that consist of promoting one or more material positive impacts on society or the environment or minimizing adverse impacts of the corporation’s activities on society or the environment. The definition also contains a list of specific social purposes, including, for example, preserving the environment, improving human health, or promoting the arts, sciences, or advancement of knowledge. The list is not intended to be exclusive. S.B. 849 specifically authorizes a for-profit corporation to include one or more social purposes in addition to the purpose or purposes required to be stated in its certificate of formation. This authority supersedes another TBOC provision that provides that a corporation having the purpose of operating a nonprofit institution must be formed as a nonprofit corporation. In addition, the forprofit corporation may include in its certificate of formation a provision that requires its board of directors and officers to consider any social purpose specified in the certificate of formation in discharging their duties under the TBOC or otherwise. Another new provision specifies that a director is entitled to consider any social purposes specified in the certificate of formation of the for-profit corporation in discharging his or her duties as a director under the TBOC or otherwise. The use of “is entitled to” is intended to protect directors by recognizing their right to consider the social purposes of the corporation in making decisions relating to the corporation, as opposed to focusing solely or primarily on the pecuniary benefits to the corporation or its shareholders of any such decisions. A parallel amendment clarified that a director “is entitled to,” instead of “may,” consider the long-term and short-term interests of the corporation and its shareholders, including the possibility that those interests may be best served by the continued independence of the corporation, in discharging his or her duties as a director under the TBOC or otherwise. To provide similar authority for officers, the bill adds that an officer is entitled to consider the long-term and short-term interests of the corporation and its shareholders, as well as to consider any social purposes specified in the corporation’s certificate of formation, in discharging the officer’s duties but is subject to direction by the corporation’s board of directors. To prevent any negative inference for a for-profit corporation without a social purpose specified in its certificate of formation, another new provision specifies that nothing added by S.B. 849 prohibits or limits a director or officer in such a corporation from considering, approving, or taking an action that promotes or has the effect of promoting a social, charitable, or environmental purpose. CALCULATING ASSETS OF PARTNERSHIP FOR FRAUDULENT TRANSFER (S.B. 847) S.B. 847 repeals a provision of the Uniform Fraudulent Transfer Act (Chapter 24 of TBCC) that required the value of each general partner’s non-partnership net assets to be added to all of the partnership’s assets to determine whether a partnership is insolvent for purposes of a fraudulent transfer. Under that provision, if a limited liability partnership makes a fraudulent transfer while insolvent under the normal rules applicable to other entities, a creditor would not be able to recover if the partnership has one or more general partners with substantial individual assets, even if the partnership itself has little or no assets. As a result of the deletion, any partnership will be subject to the same insolvency analysis as other entities without consideration of the non-partnership assets of its general partners. CHANGES FOR ASSUMED NAMES (H.B. 1624 AND S.B. 699) H.B. 1624 amends the assumed name provisions in Chapter 71 of the TBCC. A new provision adds to the definition of “assumed name” the name of any series of a limited liability company established by its company agreement. As a result, an LLC that has a series that operates under a different name than the LLC will be required to file an assumed name certificate. S.B. 699 simplifies, at the request of the Texas Secretary of State’s Office, some of the information required to be included in an assumed name certificate. The requirement to specify the registrant’s registered or similar office address in the state, country, or other jurisdiction in which it was organized is deleted. In addition, the bill deletes the requirement to list, if the registrant is not required to or does not maintain a registered office in Texas, the registrant’s office and place of business in Texas and any office of the registrant outside Texas if the registrant is not organized under Texas law. In lieu of the deleted requirements, the registrant must only list the street or mailing address of the registrant’s principal office in Texas or outside of Texas, as applicable. UCC FINANCING STATEMENTS (S.B. 474) S.B. 474 removes the requirement in financing statements to list the following information for a debtor that is an organization: (1) type of organization, (2) jurisdiction of the organization, and (3) organizational identification number. As a result, financing statement requirements in Texas will match the uniform national form of financing statement approved by the International Association of Commercial Administrators. The bill had an accelerated effective date of July 31, 2013, to be uniform with similar changes made by other states. REMITTANCE TRANSFERS (S.B. 230) S.B. 230 enacts uniform changes to Chapter 4A Funds Transfers of the TBCC. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) added provisions to the federal Electronic Fund Transfer Act (EFTA) relating to “remittance transfers,” which primarily include consumer international wire transfers. Unfortunately, the Dodd-Frank Act failed to specify that remittance transfers are to be governed as “electronic fund transfers” within the regulatory provisions of EFTA. As a result, the remittance transfers were not governed by either Chapter 4A or the EFTA regulatory provisions. S.B. 230 makes remittance transfers subject to Chapter 4A if they are not within the definition of “electronic fund transfers” contained in EFTA. DARYL B. ROBERTSON is a partner in Hunton & Williams, L.L.P., in Dallas. His practice focuses on business and finance transactions, entity formation, private equity, mergers and acquisitions, and securities law.
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