The 2021 session of the Texas Legislature has been somewhat surreal, with access to the Texas State Capitol limited to those people who are vaccinated or able to pass a rapid Covid-19 test. House and Senate sessions and committee hearings are occurring with masks, social distancing, Plexiglas partitions and other healthcare precautions.
Notwithstanding these pandemic-related challenges, with extraordinary efforts by everyone involved, the Legislature is pressing forward with a tremendous number of bills under consideration, approaching 90% of the number of bills filed in the 2019 Texas Legislature.
For those interested in changes to the Texas Business Organizations Code and several of the other important business law bills, there will be several presentations on those topics at the “19th Annual Choice, Governance & Acquisition of Entities” course to be presented May 21 through a virtual webcast format. The course is co-sponsored by Texas Bar CLE and the Business Law Section of the State Bar of Texas. The webcast will replay June 25 and July 23.
Committees of the State Bar of Texas Business Law Section drafted three bills that were introduced in this session. These bills have been passed by the Texas Legislature and are awaiting signing by Governor Abbott. One omnibus bill (S.B. 1203 – by Sen. Kelly Hancock and Rep. Chris Turner)) amends the TBOC in numerous ways:
- The bill updates and expands provisions authorizing emergency actions by governing persons of Texas entities and the adoption of special provisions that apply during emergency periods. The definition of emergency is expanded to include pandemics and governmental emergency declarations, among other things. Governing persons can take emergency actions, in good faith in the entity’s best interest, during an emergency period without following certain procedural requirements for a meeting and be protected from liability claims.
- Choice of forum provisions in governing documents of Texas entities are specifically authorized in connection with internal entity claims relating to the internal affairs of Texas entities.
- The ability of Texas corporations to hold all-virtual shareholders’ meetings is enhanced.
- Another change eliminates the longtime uncertainty on whether a foreign entity is deemed to be transacting business in Texas merely because it serves as a governing person of a Texas entity or a foreign entity that is registered to transact business in Texas.
- The flexibility of management of Texas limited liability companies is enhanced by providing that the governing authority of LLCs can be specified in their company agreements.
- The required contents of restated certificates of formation for LLCs and corporations are simplified by allowing outdated lists of the names and addresses of initial governing persons to be omitted.
- Governing persons of an LLC or limited partnership are authorized to rely on financial information and financial statements in making a determination of whether the entity is solvent for purposes of distributions to its owners, in a manner similar to the existing provisions for corporations.
- An amendment clarifies that the so-called “express negligence” doctrine does not apply to a provision in the governing documents of a Texas entity that provides for indemnification or exculpation.
- A revised provision clarifies that any governing document of a Texas entity can restrict the circumstances in which the entity can indemnify or advance expenses.
- Various provisions governing entities that have been terminated or whose certificates of formations have been forfeited are clarified as to the effects of the reinstatement or revocation of the termination of those entities. The definition of the “existing claims” that survive any termination is also clarified.
Another bill (S.B. 1523 – by Sen. Hancock and Rep. Turner) introduces the concept of registered series of Texas limited liability companies into the TBOC. The new provisions enhance the transparency of LLC series to third parties and their ability to obtain financing and to contract with third parties.
Because the filing of a “certificate of registered series” with the Texas Secretary of State would be required to form a registered series, third parties transacting business with a registered series of a Texas LLC would be able to confirm its existence. For a series that does not want to have a specific public filing, the existing LLC series concept is retained but renamed as a “protected series.”
New provisions (1) specify how the certificate of registered series can be amended or terminated, (2) specify the naming requirements for a registered series, (3) authorize conversion of a protected series into a registered series, and vice versa, of the same LLC, and (4) authorize mergers among protected series and registered series of the same LLC, including divisive mergers of a single series.
Outside the TBOC, the provisions of the Texas Business & Commerce Code are amended to (1) authorize assumed name certificates to be filed with the Texas Secretary State by a registered series or on behalf of a protected series and (2) specify that a registered series is a “registered organization” for the purpose of determining the place of filing of a UCC financing statement against the registered series.
The last of the bills drafted by a Business Law Section Committee (S.B. 1280 — by Sen. Hancock and Rep. Anchia) makes technical amendments to the recodified Texas Securities Act to delete certain cross references that could be misconstrued to link provisions that impose no duties on private actors to private civil remedy provisions of the Act.
Another bill (H.B. 1875 – by Rep. Landgraf) would establish a statewide business court and appellate court system. This legislation would enhance the Texas judicial system, attract businesses to Texas and put the court system on a par with 25 other states that now have business courts or chancery courts to address large and complicated civil disputes.
Some of the presentations at the Choice of Entities course will also focus on likely changes in state tax laws by the Texas Legislature.
The ”Choice, Governance and Acquisition of Entities” course is an excellent way for practicing attorneys and others to obtain in one day information about some of the developments relating to business entities that are expected to occur during the 2021 session of the Texas Legislature. Register today by visiting the event website.
Daryl Robertson’s practice focuses on business and finance transactions, entity formation, M&A and securities law. He is a partner at Hunton Andrews Kurth in Dallas.