Daryl B. Robertson 2015-08-25 14:14:03
All bills are effective on September 1, 2015, unless otherwise indicated. Many of the changes are based on provisions in the Model Business Corporation Act or the Delaware General Corporation Law. CORPORATIONS AND FUNDAMENTAL BUSINESS TRANSACTIONS BILL SB 860 amends various provisions of the Texas Business Organizations Code relating to corporations and to fundamental business transactions, which include mergers, conversions, or interest exchanges. The more significant amendments are summarized below. Fundamental Business Transactions Combined tender offer and short-form merger. SB 860 authorizes the acquisition of a Texas public for-profit corporation through a “two-step” tender offer and merger process. The process consists of a “front-end” tender offer for the public corporation’s shares by the acquirer followed by a “back-end” merger between the acquirer and the public corporation. If the specified conditions are met, the back-end merger may be effected without shareholder approval but remains subject to dissenters’ rights. The provisions are derived from the DGCL. Owner liability. An owner or a member of a domestic entity cannot become subject to owner liability as a result of a merger, conversion, or interest exchange transaction without the consent of that owner or member. A new definition of “owner liability,” which is based on the MBCA, generally refers only to personal liabilities imposed on owners or members pursuant to statute or the governing documents and not pursuant to independent contracts with the owner or member, such as a guaranty or promissory note. Use of formula. A formula can be used (1) to determine the manner and basis of converting or exchanging ownership or membership interests (a) in a plan of merger, (b) in a plan of exchange, or (c) in a plan of conversion; and (2) by the board of directors of a for-profit corporation to determine the amount of consideration to be received for the issuance of shares in the corporation. Interests can remain outstanding. The ownership or membership interests of an organization that is a party to the merger can remain outstanding rather than being converted or exchanged as part of the merger if the organization survives the merger. Plans can be dependent on outside facts. Based on the DGCL, SB 860 clarifies that the terms of a plan of merger, plan of exchange, or plan of conversion may be made dependent on facts ascertainable outside of the plan if the plan clearly and expressly states the manner in which those facts will operate on the terms of such transaction. Amended and restated certificate of formation in plan or certificate of merger. Substantive amendments authorize (1) a plan of merger to include restatements, or amendments and restatements, of governing documents and (2) a certificate of merger to have as an attachment a restated certificate of formation containing amendments or a certificate of amendment. Certificated and Uncertificated Ownership Interests A for-profit corporation, real estate investment trust, or professional corporation may issue and have outstanding both certificated and uncertificated ownership interests of the same class or series at the same time. Ratification of Void or Voidable Corporate Acts or Share Issuances SB 860 adds new Subchapter R to Chapter 21 containing provisions that specify procedures for ratification of void or voidable corporate acts or share issuances by for-profit corporations. These provisions are modeled on relatively new provisions added to the DGCL. A defective corporate act or putative shares are not void or voidable solely as a result of a failure of authorization if the act or shares are ratified in accordance with Subchapter R or validated by the district court in a proceeding brought under Subchapter R. Ratification procedures. Ratification of the defective corporate act or putative shares requires that the board of directors first adopt a resolution containing specified information. The board’s resolution must be approved by shareholders if shareholder approval of the defective corporate act to be ratified was required either at the time of the defective corporate act or at the time when the board adopts the required resolution. The procedures for submission of the resolution to shareholders and the notice, quorum, and voting requirements are specified in detail. The filing of a certificate of validation with the filing officer containing specified information is required if the defective corporate act being ratified would have required the filing of a filing instrument with the filing officer. Validation procedures for a district court. A corporation or any of various other interested parties may apply to a district court to determine the validity of various matters relating to any defective corporate act or to modify or waive any of the foregoing ratification procedures. The court may take any of several specified actions, including declaring effective any defective corporate act or putative shares. An action challenging a ratification by the board of directors must generally be filed within 120 days after the ratification becomes effective. Term of Shareholders’ Agreements SB 860 removes the antiquated 10-year time limit on the valid duration of shareholders’ agreements under Subchapter C of Chapter 21, subject to grandfathering of pre-existing agreements. Authorizing Shareholder Access to Proxy Statements SB 860 authorizes bylaws of for-profit corporations to allow shareholder access to proxy statements. The bylaws of a for-profit corporation may contain a provision requiring the corporation to include in its proxy statement, when soliciting proxies for the election of directors, the nominees of a shareholder. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES BILL SB 859 amends various provisions of the TBOC relating to partnerships and limited liability companies. The more significant amendments are summarized below. Replacement of Annual Registration Requirement for LLPs In substantive amendments effective January 1, 2016, SB 859 eliminates the antiquated requirements for a limited liability partnership to file an annual renewal of registration. An LLP will be required to file an annual report, and the fees for this are the same as for the annual renewal of registration. The due date for filing of the annual report is June 1 of each year. The failure to file the annual report and pay the fee by May 31 of the year following the year in which the annual report was due will result in automatic termination of the LLP’s registration. To mitigate potential liability problems arising from minor compliance errors, SB 859 clarifies that the acceptance by the secretary of state of an application for registration is conclusive evidence of the satisfaction of all conditions precedent to an effective registration and that the registration remains effective so long as there is substantial compliance with the registration and annual reporting requirements. Enforceability of Powers of Attorney in Governing Documents Powers of attorney are frequently included in limited liability company agreements, partnership agreements, and related documents. SB 859 clarifies the enforceability of these irrevocable power-of-attorney provisions for a limited liability company, general partnership, or limited partnership. A power of attorney is irrevocable for all purposes under the new provisions if the power of attorney is coupled with an interest sufficient in law to support an irrevocable power and states that it is irrevocable. Series of Entity Treated as Person Under Texas UCC Effective May 23, 2015, SB 1077 amended the Texas Business and Commerce Code to clarify that the term “person” includes a particular series of a for-profit entity. This change confirms that a series of a Texas limited liability company or a series of a foreign for-profit entity can independently engage in the sale and lease of goods and other transactions that are subject to the Texas Uniform Commercial Code as contained in the TBCC. NOTARIZED CONSENT TO USE OF SIMILAR NAME SB 1313 amended the code, effective June 19, 2015, to specify that the prohibitions against reservation or registration of a name with the secretary of state when a similar name is already reserved or registered by another entity or person do not apply if that other person or entity provides to the Texas secretary of state a notarized written consent of such entity or person to the use of the similar name. PUBLIC INFORMATION REPORTS FOR PROFESSIONAL ASSOCIATIONS AND LIMITED PARTNERSHIPS HB 2891 amends the TBOC and the Tax Code, effective January 1, 2016, to require professional associations and limited partnerships to file the same annual public information report that corporations and limited liability companies are required to file with the Texas comptroller.
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