S.B. No. 1969
AN ACT
relating to ratification of defective corporate acts of nonprofit
corporations; authorizing a fee.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 22, Business Organizations Code, is
amended by adding Subchapter J to read as follows:
SUBCHAPTER J. RATIFICATION OF DEFECTIVE CORPORATE ACTS;
PROCEEDINGS
Sec. 22.501. DEFINITIONS. In this subchapter:
(1) "Corporate statute," with respect to an action or
filing, means this code, the former Texas Non-Profit Corporation
Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes), or
any predecessor statute of this state that governed the action or
the filing.
(2) "Defective corporate act" means:
(A) an election or appointment of directors that
is void or voidable due to a failure of authorization; or
(B) any act or transaction purportedly taken by
or on behalf of the corporation that is, and at the time the act or
transaction was purportedly taken would have been, within the power
of a corporation to take under the corporate statute, but is void or
voidable due to a failure of authorization.
(3) "District court" means a district court in:
(A) the county in which the corporation's
principal office in this state is located; or
(B) the county in which the corporation's
registered office in this state is located, if the corporation does
not have a principal office in this state.
(4) "Failure of authorization" means:
(A) the failure to authorize or effect an act or
transaction in compliance with the provisions of the corporate
statute, the governing documents of the corporation, a corporate
resolution, or any plan or agreement to which the corporation is a
party, if and to the extent the failure would render the act or
transaction void or voidable; or
(B) the failure of the board of directors or an
officer of the corporation to authorize or approve an act or
transaction taken by or on behalf of the corporation that required
the prior authorization or approval of the board of directors or the
officer.
(5) "Time of the defective corporate act" means the
date and time the defective corporate act was purported to have been
taken or the approximate date and time, if the exact date is
unknown.
(6) "Validation effective time" or "effective time of
the validation," with respect to any defective corporate act
ratified under this subchapter, means the latest of:
(A) the time at which the defective corporate act
submitted to the members for approval under Section 22.505 is
approved by the members or, if the corporation has no members or has
no members with voting rights or if no member approval is required,
the time at which the board of directors adopts the resolutions
required by Section 22.503;
(B) if a certificate of validation is not
required to be filed under Section 22.508, the time, if any,
specified by the board of directors or the members in the
resolutions adopted under Section 22.503, which may not precede the
time at which the resolutions are adopted; or
(C) the time at which any certificate of
validation filed under Section 22.508 takes effect in accordance
with Chapter 4.
Sec. 22.502. RATIFICATION OF DEFECTIVE CORPORATE ACT.
Subject to Section 22.509, a defective corporate act is not void or
voidable solely as a result of a failure of authorization if the act
is:
(1) ratified in accordance with this subchapter; or
(2) validated by the district court in a proceeding
brought under Section 22.512.
Sec. 22.503. RATIFICATION OF DEFECTIVE CORPORATE ACT;
ADOPTION OF RESOLUTIONS. (a) To ratify one or more defective
corporate acts, the board of directors of the corporation shall
adopt resolutions stating:
(1) the defective corporate act or acts to be
ratified;
(2) the date of each defective corporate act;
(3) the nature of the failure of authorization with
respect to each defective corporate act to be ratified; and
(4) that the board of directors approves the
ratification of the defective corporate act or acts.
(b) If the corporation has members with voting rights, a
resolution may also state that, notwithstanding member approval of
the ratification of a defective corporate act that is a subject of
the resolution, the board of directors may, with respect to the
defective corporate act, abandon the ratification of the defective
corporate act at any time before the validation effective time
without further member action.
(c) If the management of the affairs of the corporation is
vested in its members under Section 22.202, the members of the
corporation shall adopt resolutions stating:
(1) the defective corporate act or acts to be
ratified;
(2) the date of each defective corporate act;
(3) the nature of the failure of authorization with
respect to each corporate act to be ratified; and
(4) that the members approve the ratification of the
defective corporate act or acts.
Sec. 22.504. QUORUM AND VOTING REQUIREMENTS FOR ADOPTION OF
RESOLUTIONS. (a) The quorum and voting requirements applicable to
the adoption of the resolutions to ratify a defective corporate act
under Section 22.503 are the same as the quorum and voting
requirements applicable at the time of the adoption of the
resolutions for the type of defective corporate act proposed to be
ratified.
(b) Notwithstanding Subsection (a) and except as provided
by Subsection (c), if in order for a quorum to be present or to
approve the defective corporate act, the presence or approval of a
larger number or portion of the governing authority would have been
required by the governing documents of the corporation, any plan or
agreement to which the corporation was a party, or any provision of
the corporate statute, each as in effect at the time of the
defective corporate act, then the presence or approval of the
larger number or portion of such governing authority must be
required for a quorum to be present or to adopt the resolutions to
ratify the defective corporate act, as applicable.
(c) If the corporation has members with voting rights or if
the corporation had members with voting rights at the time of the
taking of the defective corporate act, the presence or approval of
any director elected, appointed, or nominated by a class of members
that no longer exists, or by any person that is no longer a member,
shall not be required for a quorum to be present or to adopt the
resolutions.
Sec. 22.505. APPROVAL OF RATIFIED DEFECTIVE CORPORATE ACT
BY MEMBERS WITH VOTING RIGHTS REQUIRED; EXCEPTION. If the
corporation has members with voting rights, each defective
corporate act ratified under Section 22.503(a) must be submitted to
such members of the corporation for approval as provided by
Sections 22.506 and 22.507, unless no other provision of the
corporate statute, no provision of the corporation's governing
documents, and no provision of any plan or agreement to which the
corporation is a party would have required approval by such members
of:
(1) the defective corporate act to be ratified at the
time of that defective corporate act; or
(2) the type of defective corporate act to be ratified
at the time the board of directors adopts the resolutions ratifying
that defective corporate act under Section 22.503.
Sec. 22.506. NOTICE REQUIREMENTS FOR RATIFIED DEFECTIVE
CORPORATE ACT SUBMITTED FOR APPROVAL OF MEMBERS WITH VOTING RIGHTS.
(a) If a corporation has members with voting rights and if the
ratification of a defective corporate act is required to be
submitted to such members for approval under Section 22.505, notice
of the time, place, if any, and purpose of the meeting shall be
given at least 20 days before the date of the meeting to:
(1) each member with voting rights as of the record
date of the meeting, at the address of the member as it appears or
most recently appeared, as appropriate, on the corporation's
records; and
(2) each member with voting rights as of the time of
the defective corporate act, except that notice is not required to
be given to a member whose identity or address cannot be ascertained
from the corporation's records.
(b) The notice must contain:
(1) copies of the resolutions adopted by the board of
directors under Section 22.503 or the information required by
Sections 22.503(a)(1)-(4); and
(2) a statement that, on member approval of the
ratification of the defective corporate act made in accordance with
this subchapter, the member's right to challenge the defective
corporate act is limited to an action claiming that a court of
appropriate jurisdiction, in its discretion, should declare:
(A) that the ratification not take effect or that
it take effect only on certain conditions, if that action is filed
with the court not later than the 120th day after the applicable
validation effective time; or
(B) that the ratification was not accomplished in
accordance with this subchapter.
Sec. 22.507. QUORUM AND VOTING FOR APPROVAL OF RATIFIED
DEFECTIVE CORPORATE ACT AT MEETING OF MEMBERS WITH VOTING RIGHTS.
(a) If the corporation has members with voting rights, at the
meeting of such members, the quorum and voting requirements
applicable to the approval of the ratification of a defective
corporate act under Section 22.505 are the same as the quorum and
voting requirements applicable at the time of the approval by the
members of the ratification for the type of ratified defective
corporate act proposed to be approved, except as provided by this
section.
(b) If the presence or approval of a larger number of
members or of any class of members would have been required for a
quorum to be present or to approve the defective corporate act, as
applicable, by the corporation's governing documents, any plan or
agreement to which the corporation was a party, or any provision of
the corporate statute, each as in effect at the time of the
defective corporate act, then the presence or approval of the
larger number of members or of the class of members shall be
required for a quorum to be present or to approve the ratification
of the defective corporate act, as applicable, except that the
presence or approval of any class that is no longer in existence or
has no members, or of any person that is no longer a member with
voting rights, is not required.
(c) The approval by the members with voting rights of the
ratification of the election of a director requires the affirmative
vote of the majority of members present at the meeting and entitled
to vote on the election of the director at the time of the approval,
unless the governing documents of the corporation then in effect or
in effect at the time of the defective election require or required
a larger number of members with voting rights or of any class of
members with voting rights to elect the director, in which case the
affirmative vote of the larger number of members or of the class of
members is required to ratify the election of the director, except
that the presence or approval of any class that is no longer in
existence or has no members, or of any person that is no longer a
member with voting rights, is not required.
Sec. 22.508. CERTIFICATE OF VALIDATION. (a) If a
defective corporate act ratified under this subchapter would have
required under any other provision of the corporate statute the
filing of a filing instrument or other document with the filing
officer, the corporation shall file a certificate of validation
with respect to the defective corporate act in accordance with
Chapter 4, regardless of whether a filing instrument or other
document was previously filed with respect to the defective
corporate act. The filing of another filing instrument or document
is not required.
(b) A separate certificate of validation is required for
each defective corporate act for which a certificate of validation
is required under this section, except that two or more defective
corporate acts may be included in a single certificate of
validation if the corporation filed, or to comply with the
applicable provisions of this code could have filed, a single
filing instrument or other document under another provision of this
code to effect the acts.
(c) The certificate of validation must include:
(1) each defective corporate act that is a subject of
the certificate of validation, including:
(A) the date of the defective corporate act; and
(B) the nature of the failure of authorization
with respect to the defective corporate act;
(2) a statement that each defective corporate act was
ratified in accordance with this subchapter, including:
(A) the date on which the board of directors
ratified each defective corporate act; and
(B) if the corporation has members with voting
rights, the date, if any, on which the members approved the
ratification of each defective corporate act or, if the management
of the affairs of the corporation is vested in its members under
Section 22.202, the date on which the members ratified each
defective corporate act; and
(3) as appropriate:
(A) if a filing instrument was previously filed
with a filing officer under the corporate statute with respect to
the defective corporate act and no change to the filing instrument
is required to give effect to the defective corporate act as
ratified in accordance with this subchapter:
(i) the name, title, and filing date of the
previously filed filing instrument and of any certificate of
correction to the filing instrument; and
(ii) a statement that a copy of the
previously filed filing instrument, together with any certificate
of correction to the filing instrument, is attached as an exhibit to
the certificate of validation;
(B) if a filing instrument was previously filed
with a filing officer under the corporate statute with respect to
the defective corporate act and the filing instrument requires any
change to give effect to the defective corporate act as ratified in
accordance with this subchapter, including a change to the date and
time of the effectiveness of the filing instrument:
(i) the name, title, and filing date of the
previously filed filing instrument and of any certificate of
correction to the filing instrument;
(ii) a statement that a filing instrument
containing all the information required to be included under the
applicable provisions of this code to give effect to the ratified
defective corporate act is attached as an exhibit to the
certificate of validation; and
(iii) the date and time that the attached
filing instrument is considered to have become effective under this
subchapter; or
(C) if a filing instrument was not previously
filed with a filing officer under the corporate statute with
respect to the defective corporate act and the defective corporate
act as ratified under this subchapter would have required under the
other applicable provisions of this code the filing of a filing
instrument in accordance with Chapter 4, if the defective corporate
act had occurred when this code was in effect:
(i) a statement that a filing instrument
containing all the information required to be included under the
applicable provisions of this code to give effect to the defective
corporate act, as if the defective corporate act had occurred when
this code was in effect, is attached as an exhibit to the
certificate of validation; and
(ii) the date and time that the attached
filing instrument is considered to have become effective under this
subchapter.
(d) A filing instrument attached to a certificate of
validation under Subsection (c)(3)(B) or (C) does not need to be
executed separately and does not need to include any statement
required by any other provision of this code that the instrument has
been approved and adopted in accordance with that provision.
Sec. 22.509. ADOPTION OF RESOLUTIONS; EFFECT ON DEFECTIVE
CORPORATE ACT. On or after the validation effective time, unless
determined otherwise in an action brought under Section 22.512,
each defective corporate act ratified in accordance with this
subchapter may not be considered void or voidable as a result of the
failure of authorization described by the resolutions adopted under
Sections 22.503 and 22.504, and the effect shall be retroactive to
the time of the defective corporate act.
Sec. 22.510. NOTICE TO MEMBERS FOLLOWING RATIFICATION OF
DEFECTIVE CORPORATE ACT. (a) If the management of the affairs of a
corporation is vested in its members under Section 22.202 or if a
corporation has members with voting rights, for each defective
corporate act ratified by the governing authority under Sections
22.503 and 22.504, notice of the ratification shall be given
promptly to:
(1) each member having voting rights as of the date the
governing authority adopted the resolutions ratifying the
defective corporate act; or
(2) each member having voting rights as of a date not
later than the 60th day after the date of adoption, as established
by the governing authority.
(b) Notice under this section shall be sent to the address
of a member described by Subsection (a)(1) or (a)(2) as the address
appears or most recently appeared, as appropriate, on the records
of the corporation.
(c) Notice under this section shall also be given to each
member having voting rights as of the time of the defective
corporate act, except that notice is not required to be given to a
member whose identity or address cannot be ascertained from the
corporation's records.
(d) The notice must contain:
(1) copies of the resolutions adopted by the governing
authority under Section 22.503 or the information required by
Sections 22.503(a)(1)-(4) or 22.503(c)(1)-(4), as applicable; and
(2) a statement that, on ratification of the defective
corporate act made in accordance with this subchapter, the member's
right to challenge the defective corporate act is limited to an
action claiming that a court of appropriate jurisdiction, in its
discretion, should declare:
(A) that the ratification not take effect or that
it take effect only on certain conditions, if the action is filed
not later than the 120th day after the later of the applicable
validation effective time or the time at which the notice required
by this section is given; or
(B) that the ratification was not accomplished in
accordance with this subchapter.
(e) Notwithstanding Subsections (a)-(d), notice is not
required to be given under this section to a person if notice of the
ratification of the defective corporate act is given to that person
in accordance with Section 22.506.
(f) For purposes of Sections 22.505, 22.506, and 22.507 and
this section, notice to members with voting rights as of the time of
the defective corporate act shall be treated as notice to such
members for purposes of Sections 6.051, 6.052, 6.053, 6.201, 6.202,
6.203, 6.204, 6.205, and 22.156.
(g) If the ratification of a defective corporate act has
been approved by the members acting under Section 6.202, the notice
required by this section may be included in any notice required to
be given under Section 6.202(d) and, if included:
(1) shall be sent to the members entitled to the notice
under Section 6.202(d) and all other members otherwise entitled to
the notice under Subsection (a); and
(2) is not required to be sent to members who signed a
consent described by Section 6.202(b).
Sec. 22.511. RATIFICATION PROCEDURES OR COURT PROCEEDINGS
CONCERNING VALIDATION NOT EXCLUSIVE. (a) Ratification of an act
or transaction under this subchapter or validation of an act or
transaction as provided by Sections 22.512 through 22.515 is not
the exclusive means of ratifying or validating any act or
transaction taken by or on behalf of the corporation, including any
defective corporate act, or of adopting or endorsing any act or
transaction taken by or in the name of the corporation before the
corporation exists.
(b) The absence or failure of ratification of an act or
transaction in accordance with this subchapter or of validation of
an act or transaction as provided by Sections 22.512 through 22.515
does not, of itself, affect the validity or effectiveness of any act
or transaction properly ratified under common law or otherwise, nor
does it create a presumption that any such act or transaction is or
was a defective corporate act.
Sec. 22.512. PROCEEDING REGARDING VALIDITY OF DEFECTIVE
CORPORATE ACTS. (a) The following may bring an action under this
section:
(1) the corporation;
(2) any successor entity to the corporation;
(3) any member of the corporation's board of directors
or other person having fiduciary responsibility in relation to the
actions of the corporation;
(4) any member with voting rights; or
(5) any record member with voting rights as of the time
a defective corporate act was ratified in accordance with this
subchapter.
(b) Subject to Section 22.515, the district court, on
application by a person described by Subsection (a), may:
(1) determine the validity and effectiveness of any
defective corporate act ratified in accordance with this
subchapter;
(2) determine the validity and effectiveness of the
ratification of any defective corporate act in accordance with this
subchapter;
(3) determine the validity and effectiveness of:
(A) any defective corporate act not ratified
under this subchapter; or
(B) any defective corporate act not ratified
effectively under this subchapter;
(4) determine the validity of any corporate act or
transaction; and
(5) modify or waive any of the procedures set forth in
Sections 22.501 through 22.511 to ratify a defective corporate act.
(c) In connection with an action brought under this section,
the district court may:
(1) declare that a ratification in accordance with and
pursuant to this subchapter is not effective or that the
ratification is effective only at a time or on conditions as
specified by the district court;
(2) validate and declare effective any defective
corporate act and impose conditions on such a validation;
(3) require measures to remedy or avoid harm to any
person substantially and adversely affected by a ratification under
this subchapter or from any order of the district court pursuant to
this section, excluding any harm that would have resulted had the
defective corporate act been valid when approved or effectuated;
(4) order the filing officer to accept for filing an
instrument with an effective date and time as specified by the
court, which may be before or subsequent to the time of the order;
(5) if the corporation has members with voting rights,
order that a meeting of such members be held and determine the right
and power of persons to vote at the meeting;
(6) declare that a defective corporate act validated
by the court is effective as of the time of the defective corporate
act or at such other time as determined by the court; and
(7) make any other order regarding such matters as the
court considers appropriate under the circumstances.
(d) In connection with the resolution of matters under
Subsections (b) and (c), the district court may consider:
(1) whether the defective corporate act was originally
approved or effectuated with the belief that the approval or
effectuation was in compliance with the provisions of the corporate
statute or the governing documents of the corporation;
(2) whether the corporation and the corporation's
board of directors have treated the defective corporate act as a
valid act or transaction and whether any person has acted in
reliance on the public record that the defective corporate act was
valid;
(3) whether any person will be or was harmed by the
ratification or validation of the defective corporate act,
excluding any harm that would have resulted had the defective
corporate act been valid when it was approved or took effect;
(4) whether any person will be harmed by the failure to
ratify or validate the defective corporate act; and
(5) any other factors or considerations the district
court considers just and equitable.
Sec. 22.513. EXCLUSIVE JURISDICTION. The district court
has exclusive jurisdiction to hear and determine any action brought
under Section 22.512.
Sec. 22.514. SERVICE. (a) Service of an application filed
under Section 22.512 on the registered agent of a corporation or in
any other manner permitted by applicable law is considered to be
service on the corporation, and no other party need be joined in
order for the district court to adjudicate the matter.
(b) If an action is brought by a corporation under Section
22.512, the district court may require that notice of the action be
provided to other persons identified by the court and permit those
other persons to intervene in the action.
Sec. 22.515. STATUTE OF LIMITATIONS. (a) This section
does not apply to:
(1) an action asserting that a ratification was not
accomplished in accordance with this subchapter; or
(2) any person to whom notice of the ratification was
not given as required by Sections 22.506 and 22.510.
(b) Notwithstanding any other provision of this subchapter:
(1) an action claiming that a defective corporate act
is void or voidable due to a failure of authorization identified in
the resolutions adopted in accordance with Section 22.503 may not
be filed in or must be dismissed by any court after the applicable
validation effective time; and
(2) an action claiming that a court of appropriate
jurisdiction, in its discretion, should declare that a ratification
in accordance with this subchapter not take effect or that the
ratification take effect only on certain conditions may not be
filed with the court after the expiration of the 120th day after the
later of the validation effective time or the time that any notice
required to be given under Section 22.510 is given with respect to
the ratification.
(c) Except as otherwise provided by a corporation's
governing documents, for purposes of this section, notice under
Section 22.510 that is:
(1) mailed is considered to be given on the date the
notice is deposited in the United States mail with postage paid in
an envelope addressed to the member at the member's address
appearing or most recently appearing, as appropriate, in the
records of the corporation; and
(2) transmitted by facsimile or electronic message is
considered to be given when the facsimile or electronic message is
transmitted to a facsimile number or an electronic message address
provided by the member, or to which the member consents, for the
purpose of receiving notice.
Sec. 22.516. NOTICE TO ATTORNEY GENERAL. (a) In this
section, "charitable entity" has the meaning assigned by Section
123.001, Property Code.
(b) An action brought under Section 22.512 that involves a
charitable entity is considered a "proceeding involving a
charitable trust" to which Chapter 123, Property Code, applies.
SECTION 2. Section 4.153, Business Organizations Code, is
amended to read as follows:
Sec. 4.153. FILING FEES: NONPROFIT CORPORATIONS. For a
filing by or for a nonprofit corporation, the secretary of state
shall impose the following fees:
(1) for filing a certificate of formation, $25;
(2) for filing a certificate of amendment, $25;
(3) for filing a certificate of merger, conversion, or
consolidation, without regard to whether the surviving or new
corporation is a domestic or foreign corporation, $50;
(4) for filing a statement of change of a registered
office, registered agent, or both, $5;
(5) for filing a certificate of termination, $5;
(6) for filing an application of a foreign corporation
for registration to conduct affairs in this state, $25;
(7) for filing an application of a foreign corporation
for an amended registration to conduct affairs in this state, $25;
(8) for filing a certificate of withdrawal of a
foreign corporation, $5;
(9) for filing a restated certificate of formation and
accompanying statement, $50;
(10) for filing a statement of change of name or
address of a registered agent, $15, except that the maximum fee for
simultaneous filings by a registered agent for more than one
corporation may not exceed $250;
(11) for filing a report under Chapter 22, $5;
(12) for filing a report under Chapter 22 to reinstate
a corporation's right to conduct affairs in this state, $5, plus a
late fee in the amount of $5 or in the amount of $1 for each month or
part of a month that the report remains unfiled, whichever amount is
greater, except that the late fee may not exceed $25;
(13) for filing a report under Chapter 22 to reinstate
a corporation or registration following involuntary termination or
revocation, $25; [and]
(14) for filing a certificate of validation, $5, plus
the filing fee imposed for filing each new filing instrument that is
attached as an exhibit to the certificate of validation under
Section 22.508(c)(3)(C); and
(15) for filing any instrument of a domestic or
foreign corporation as provided by this code for which this section
does not expressly provide a fee, $5.
SECTION 3. This Act takes effect September 1, 2019.
______________________________ ______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 1969 passed the Senate on
May 3, 2019, by the following vote: Yeas 31, Nays 0.
______________________________
Secretary of the Senate
I hereby certify that S.B. No. 1969 passed the House on
May 22, 2019, by the following vote: Yeas 142, Nays 2,
two present not voting.
______________________________
Chief Clerk of the House
Approved:
______________________________
Date
______________________________
Governor