Texas Senate Bill SB2411 Analysis / Analysis

                    BILL ANALYSIS        Senate Research Center   S.B. 2411     89R9470 SRA-F   By: Schwertner         Business & Commerce         3/29/2025         As Filed          AUTHOR'S / SPONSOR'S STATEMENT OF INTENT   The Business Organizations Code (BOC) was initially passed by the legislature in 2003 to outline Texas' myriad of business organizations laws. Keeping it current, however, requires ongoing technical and substantive updates and modifications.   S.B. 2411 updates various BOC provisions and aligns the statute with corresponding changes made from recent legislation relating to all domestic entities, with a primary focus on corporations, partnerships, and LLCs. Primary changes include:   1. updating BOC references to the new Texas Business Court;   2. expanding the use of electronic resources for notices and consents;   3. expanding use of certificate of formation provisions to address the liability of managerial officials;    4. specifying that a properly adopted plan of conversion may authorize additional entity action by the converted entity;   5. clarifying procedures and safeguards for corporations to retroactively ratify acts or transactions that might be ineffective because of filing failures;   6. simplifying the information required for a certificate of validation and limiting the circumstances under which a certificate must be filed under corporation ratification provisions;   7. providing for irrevocable subscriptions for interests in limited liability companies and limited partnerships at formation;   8. eliminating redundant annual reporting requirements for cooperative associations;   9. expanding authority for boards of directors of for-profit corporations, without shareholder approval, to effect limited amendments to a corporation's certificate of formation subject to specified conditions and safeguards;   10. authorizing a governing authority of an entity to approve a plan, agreement, instrument, or other document in substantially final form and subsequently to ratify the final form before the effective filing date with the secretary of state;   11. recognizing that owners or members in a domestic entity that is party to a merger or interest exchange can appoint a representative to represent them in enforcing the plan of merger or exchange;   12. specifying that a shareholder's demand to examine and copy records of the corporation is not for a proper purpose if the demand is made in connection with litigation between the corporation and shareholder;    13. clarifying that disclosure-only settlements or judgments do not alone support an award of expenses in a shareholder judicial action; and   14. authorizing corporations to obtain binding advance determinations from a court as to whether appointed director committees are independent and disinterested with respect to corporate transactions or to shareholder allegations made in judicial proceedings.   As proposed, S.B. 2411 amends current law relating to business organizations.   RULEMAKING AUTHORITY   This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.   SECTION BY SECTION ANALYSIS   SECTION 1. Amends Subchapter B, Chapter 1, Business Organizations Code, by adding Sections 1.056 and 1.057, as follows:   Sec. 1.056. REFERENCES IN CODE TO CERTAIN DISTRICT COURTS INCLUDES BUSINESS COURTS. Provides that, notwithstanding any other law, a reference or grant of jurisdiction in the Business Organizations Code, including a grant of exclusive jurisdiction, to a district court constitutes a reference or grant of concurrent jurisdiction to a business court established under Chapter 25A (Business Court), Government Code, if the business court has authority and jurisdiction under Chapter 25A, Government Code, to adjudicate the action or claim. Provides that this section does not expand the authority of the business court under Chapter 25A, Government Code.   Sec. 1.057. LAWS GOVERNING FORMATION, INTERNAL AFFAIRS, AND GOVERNANCE OF DOMESTIC ENTITY. (a) Prohibits the plain meaning of the laws enacted by the legislature in Business Organization Code from being supplanted, contravened, or modified by the laws or judicial decisions of any other state.   (b) Authorizes the managerial officials of a domestic entity, in exercising their powers with respect to the domestic entity, to consider the laws and judicial decisions of other states and the practices observed by entities formed in those other states. Provides that the failure or refusal of a managerial official to consider, or to conform the exercise of the managerial official's powers to, the laws, judicial decisions, or practices of another state does not constitute or imply a breach of this code or of any duty existing under the laws of this state.   SECTION 2. Amends Section 2.115(b), Business Organizations Code, to authorize the governing documents of a domestic entity, consistent with applicable state and federal jurisdictional requirements, to require that one or more courts in this state having jurisdiction be required to serve as the exclusive forum and venue for any or all internal entity claims and to make nonsubstantive changes.    SECTION 3. Amends Section 3.007(a), Business Organizations Code, as follows:   (a) Requires that the certificate of formation of a for-profit or professional corporation, in addition to the information required by Section 3.005 (Certificate of Formation), state, if the corporation is to be managed by a board of directors, the number of directors constituting the initial board of directors and the name and address of each individual, rather than each person, who will serve as director until the first annual meeting of shareholders and until a successor is elected and qualified.   SECTION 4. Amends Section 3.015(a) Business Organizations Code, to make conforming changes.    SECTION 5. Amends Section 3.060, Business Organizations Code, by amending Subsection (a) and adding Subsection (c), as follows:   (a) Authorizes a restated certificate of formation for a for-profit corporation or professional corporation, in addition to the provisions authorized or required by Section 3.059 (Restated Certificate of Formation), to omit:   (1) makes conforming and nonsubstantive changes to this subdivision; and   (2) any provisions that were necessary to effect a change, exchange, reclassification, subdivision, combination, or cancellation of shares, if the change, exchange, reclassification, subdivision, combination, or cancellation has become effective.    (c) Provides that any omission or insertion under Subsection (a) or omission under Section 3.059(b) (relating to authorizing a restated certificate of formation to omit certain information) is not considered an amendment that requires shareholder approval.   SECTION 6. Amends Section 3.061, Business Organizations Code, by amending Subsection (a) and adding Subsection (c), as follows:   (a) Makes conforming changes to this subsection.    (c) Provides that any omission or insertion under Subsection (a) or omission under Section 3.059(b) is not considered an amendment that requires member approval.    SECTION 7. Amends Section 3.0611, Business Organizations Code, as follows:   Sec. 3.0611. SUPPLEMENTAL PROVISIONS FOR RESTATED CERTIFICATE OF FORMATION FOR LIMITED LIABILITY COMPANY. (a) Creates this subsection from existing text and makes no further changes.    (b) Provides that any omission or insertion under Subsection (a) (relating to authorizing a restated certificate of formation for a limited liability company to omit any prior statement regarding certain circumstances) or omission under Section 3.059(b) is not considered an amendment that requires member approval.    SECTION 8. Amends Section 3.062, Business Organizations Code, as follow:   Sec. 3.062. SUPPLEMENTAL PROVISIONS FOR RESTATED CERTIFICATE PF FORMATION FOR REAL ESTATE INVESTMENT TRUST. (a) Creates this subsection from existing text and makes a conforming change.   (b) Provides that any update under Subsection (a) or Section 3.059(b) is not considered an amendment that requires shareholder approval.   SECTION 9. Amends Subchapter C, Chapter 3, Business Organizations Code, by adding Section 3.106, as follows:   Sec. 3.106. AUTHORIZATION OF PLANS, AGREEMENTS, INSTRUMENTS, AND OTHER DOCUMENTS. (a) Provides that if this code expressly requires the governing authority to approve or take other action with respect to any plan, agreement, instrument, or other document, the plan, agreement, instrument, or other document is authorized to be approved by the governing authority in final form or in substantially final form.   (b) Authorizes the governing authority, if the governing authority has acted to approve or take other action with respect to a plan, agreement, instrument, or other document that is required by this code to be filed with the secretary of state (SOS) or referenced in any certificate to be filed with SOS, at any time after acting to approve or taking that other action and before the effectiveness of the filing with SOS, to act to ratify the plan, agreement, instrument, or other document. Provides that that ratification is considered:   (1) to be effective as of the time of the original act to approve or the original taking of other action by the governing authority; and   (2) to satisfy any requirement under this code that the governing authority approve or take other action with respect to the plan, agreement, instrument, or other document in a specific manner or sequence.   SECTION 10. Amends Section 4.152, Business Organizations Code, to make a nonsubstantive change.    SECTION 11. Amends Section 4.153, Business Organizations Code, to make a nonsubstantive change.   SECTION 12. Amends Section 4.162(b), Business Organizations Code, to require SOS, for a filing by or for a registered series of a domestic limited liability company when no other fee has been provided, to impose the same fee as the filing fee for a similar instrument under Section 4.151 (Filing Fees: All Entities) or 4.154 (Filing Fees: Limited Liability Companies).   SECTION 13. Amends Section 6.051, Business Organizations Code, by amending Subsection (c), as follows:   (c) Provides that, when a notice is required or permitted by this code or the governing documents of a domestic entity to be given to an owner, member, or governing person of the domestic entity, a document enclosed with, or annexed or appended to, the notice is considered part of the notice for the purpose of determining whether notice was given under this code and the governing documents.   SECTION 14. Amends Section 6.202(d), Business Organizations Code, as follows:   (d) Requires an entity taking action without holding a meeting to promptly provide written notice to each person who is an owner or member as of the record date for the action, as determined by Section 6.102 (Record Date For Written Consent to Action), who did not sign a consent described by Subsection (b) (relating to authorizing the certificate of formation of a filing entity to authorize the owners or members of the entity to take action without performing certain actions) of the action that is the subject of the consent. Provides that the notice required by this subsection:   (1) in addition to other information required by applicable law, is required to contain a reasonable description of the action that is the subject of the consent; and   (2) is authorized to, instead of containing the complete notice in writing, include information directing the owner or member to a publicly available electronic resource at which a reasonable description of the action that is the subject of the consent and any other information required by applicable law is authorized to be accessed by the owner or member without subscription or cost.   SECTION 15. Amends Section 7.001, Business Organizations Code, as follows:   Sec. 7.001. New heading: LIMITATION OF LIABILITY OF MANAGERIAL OFFICIAL. (a) Makes no changes to this subsection.    (b) Changes references to a governing person to a managerial official.    (c)-(d) Makes conforming changes to these subsections.    SECTION 16. Amends Section 10.002, Business Organizations Code, by adding Subsection (e), as follows:   (e) Provides that, unless otherwise expressly provided by the plan of merger, a disclosure letter, disclosure schedules, or similar documents or instruments delivered in connection with the plan of merger is not considered part of the plan of merger for purposes of Chapter 10 (Mergers, Interest Exchanges, Conversions, and Sales of Assets), but those documents or instructions have the effects provided in the plan of merger.   SECTION 17. Amends Section 10.004, Business Organizations Code, as follows:   Sec. 10.004. PLAN OF MERGER: PERMISSIVE PROVISIONS. (a) Creates this subsection from existing text. Authorizes a plan of merger to include:   (1) makes no changes to this subdivision;   (2) makes nonsubstantive changes to this subdivision;    (3) provisions for the appointment, at or after the time at which the plan of merger is adopted by the owners or members of a party to the merger, of one or more persons, which is authorized to include an entity surviving or resulting from the merger or any managerial official, representative, or agent of a party to the merger or of a surviving or resulting organization, as representative of the owners or members of a party to the merger, including those whose ownership interests or membership interests are cancelled, converted, or exchanged in the merger; and   (4) creates this subdivision from existing text and makes no further changes.    (b) Authorizes provisions for the appointment of a representative in a plan of merger under Subsection (a)(3) to:   (1) delegate to the representative the sole and exclusive authority to take action on behalf of the owners or members under the plan of merger, including the authority to take any action the representative determines is necessary or appropriate to enforce or settle the rights of the owners or members under the plan of merger, subject to the terms and conditions prescribed by the plan of merger;   (2) prescribe the irrevocable nature and binding effect of the appointment as to all owners or members to be bound by the appointment from and after the approval of the plan of merger by those owners or members in accordance with Subchapter A (Mergers); and   (3) provide that any of the provisions are prohibited from being amended after the merger has become effective or are authorized to be amended only with the consent or approval of persons specified in the plan of merger.   SECTION 18. Amends Section 10.006(e), Business Organizations Code, as follows:   (e) Provides that certain provisions, including Section 10.004 apply to a merger approved under Subsection (d) (relating to providing that if the parent organization will survive the merger, the merger is required to be approved only by a resolution adopted by the governing authority of the parent organization), except that the resolution approving the merger should be considered the plan of merger for purposes of those sections.   SECTION 19. Amends Section 10.052, Business Organizations Code, by adding Subsection (d), as follows:   (d) Provides that, unless otherwise expressly provided by the plan of exchange, a disclosure letter, disclosure schedules, or similar documents or instruments delivered in connection with the plan of exchange is not considered part of the plan of exchange for purposes of this chapter, but the documents or instruments have the effect provided in the plan of exchange.   SECTION 20. Amends Section 10.053, Business Organizations Code, as follows:   Sec. 10.053. PLAN OF EXCHANGE: PERMISSIVE PROVISIONS. (a) Creates this subsection from existing text. Authorizes a plan of exchange to include:   (1) provisions for the appointment, at or after the time at which the plan of exchange is adopted by the owners or members whose ownership or membership interests are being acquired in the interest exchange, of one or more persons, which is authorized to include an entity that is a party to the interest exchange or any managerial official, representative, or agent of a party to the interest exchange, as representative of those owners or members; and   (2) creates this subdivision from existing text and makes no further changes.    (b) Authorizes provisions for the appointment of a representative in a plan of exchange under Subsection (a)(1) to:   (1) delegate to the representative the sole and exclusive authority to take action on behalf of the owners or members under the plan of exchange, including the authority to take actions the representative determines necessary or appropriate to enforce or settle the rights of the owners or members under the plan of exchange, subject to the terms and conditions as prescribed by the plan of exchange;   (2) prescribe the irrevocable nature and binding effect of the appointment as to all owners or members to be bound by the appointment from and after the approval of the plan of exchange by those owners or members in accordance with this subchapter; and   (3) provide that any of the provisions are prohibited from being amended after the interest exchange has become effective or are authorized to be amended only with the consent or approval of persons specified in the plan of exchange.   SECTION 21. Amends Section 10.104, Business Organizations Code, as follows:   Sec. 10.104. PLAN OF CONVERSION: PERMISSIVE PROVISIONS. (a) Creates this subsection from existing text and makes no further changes.    (b) Provides that an action to be taken by the converted entity in connection with the conversion of the converting entity that is provided by the plan of conversion adopted in the manner required by Section 10.101 (Conversion of Domestic Entities) or 10.102 (Conversion of Non-Code Organizations), as applicable, and that is within the power of the converted entity under the law of its jurisdiction of formation is:   (1) considered authorized, adopted, and approved, as applicable, by the converted entity and the governing authority and owners or members of the converted entity, as applicable; and   (2) prohibited from requiring any further action of the governing authority, owners, or members of the converted entity for purposes of this code.   SECTION 22. Amends Section 21.053, Business Organizations Code, by amending Subsection (c) and adding Subsections (d), (e), (f), and (g), as follows:   (c) Provides that, notwithstanding Section 21.054 (Adoption of Amendment by Shareholders) and except as otherwise provided by the certificate of formation, the board of directors of a corporation that has outstanding shares:   (1) is authorized, without shareholder approval, to adopt an amendment to the corporation's certificate of formation to:   (A) creates this paragraph from existing text and makes no further changes;    (B) omit any provision that specifies the name and address of each organizer or director; or    (C) omit any provisions that were necessary to effect a change, exchange, reclassification, subdivision, combination, or cancellation of shares, if the change, exchange, reclassification, subdivision, combination, or cancellation has become effective; and   (2) if the corporation has only one class of outstanding stock that is not divided into series and in which no change is made in any par value of shares of that class, is authorized, without shareholder approval, to adopt an amendment to the corporation's certificate of formation to:   (A) reclassify by subdividing the issued shares of the class into a greater number of issued shares of the class; and    (B) if the reclassification is primarily for the purpose of maintaining the listing eligibility of the class on any applicable national securities exchange, reclassify by combining the issued shares of the class into a lesser number of issued shares of the class.   (d) Authorizes an amendment described by Subsection (c)(2)(a) to also increase the number of authorized shares of the class up to an amount determined by multiplying the existing number of authorized shares of the class by the same multiple by which the issued shares of the class are subdivided in the reclassification and rounding up any resulting fractional number of shares to a whole number of shares.    (e) Authorizes an amendment described by Subsection (c)(2)(B) to also decrease the number of authorized shares of the class to an amount determined by dividing the existing number of authorized shares of the class by the same multiple by which the issued shares of the class are combined in the reclassification and rounding up any resulting fractional number of shares to a whole number of shares.   (f) Provides that, when a reclassification of issued shares with par value is made by a corporation under:   (1) Subsection (c)(2)(A), an amount of surplus designated by the corporation's board of directors that is not less than the aggregate par value of the shares issued as a result of the reclassification is required to be transferred to stated capital; or   (2) Subsection (c)(2)(B), an amount of surplus equal to an aggregate value with respect to the shares issued as a result of the reclassification, as set by the board of directors when the reclassification is authorized, is required to be transferred to stated capital.   (g) Prohibits a corporation from effecting a reclassification under Subsection (c)(2)(A) if the surplus of the corporation is less than the amount required by Subsection (f)(1) or (f)(2), as applicable, to be transferred to stated capital at the time the reclassification becomes effective.   SECTION 23. Amends Section 21.160(c), Business Organizations Code, as follows:   (c) Authorizes consideration received for treasury shares to have a value greater or less than, or equal to, the par value, if any, of the shares; and consist of the types of consideration described by Section 21.159 (Types of Consideration for Shares).   SECTION 24. Amends Section 21.68(e), Business Organizations Code, as follows:   (e) Provides that, for a transaction entered into by a person or persons to whom authority was delegated under this subsection, the rights or options are authorized to be issued in the number, at the time, and for the consideration, and under the other terms on which shares are authorized to be issued on the exercise of those rights and options, as the person or persons may determine if that authorization of the board of directors:   (1) states:   (A) the maximum number of rights or options, and the maximum number of shares issuable on exercise of those rights or options, rather than the maximum number of rights or options, and the maximum number of shares issuable on exercise of those rights or options, that is authorized to be issued under the authorization;   (B) the period of time during which the rights or options and the period of time during which the shares issuable on exercise of those rights or options, may be issued; and   (C) makes no changes to this paragraph.    SECTION 25. Amends Section 21.218, Business Organizations Code, by amending Subsection (b) and adding Subsection (b-2), as follows:   (b) Makes a nonsubstantive change to this subsection.   (b-2) Provides that, if the corporation reasonably determines that the written demand is in connection with a pending derivative proceeding in the right of the corporation under Subchapter L (Derivative Proceedings) that is instituted or maintained by the holder or the holder's affiliate, or a pending civil lawsuit to which the corporation, or its affiliate, and the holder, or the holder's affiliate, are adversarial named parties, the demand is not a proper purpose under Subsection (b) (relating to providing that certain holders of shares of a corporation are entitled to examine and copy the corporation's certain books and records). Provides that this subsection does not impair any rights of:   (1) the holder or the holder's affiliate to obtain discovery of records from the corporation in the civil lawsuit or subject to Section 21.556 (Discovery), in the derivative proceedings; and    (2) the holder to obtain a court order to compel production of records of the corporation for examination by the holder under Subsection (c) (relating to providing that Section 21.218 (Examination of Records) does not impair the power of a court, on the presentation of certain proof, to compel the production for examination of certain records of a corporation).    SECTION 26. Amends Section 21.402, Business Organizations Code, to provide that, unless the certificate of formation or bylaws of a corporation provide otherwise, a director, and to make a nonsubstantive change.    SECTION 27. Amends Section 21.404, Business Organizations Code, as follows:   Sec. 21.404. DESIGNATION OF INITIAL BOARD OF DIRECTORS. Requires that the certificate of formation of a corporation, if the corporation is to be managed by a board of directors, state the name and address, rather than the names and addresses, of each individual who will serve as director until the first annual meeting of shareholders and until a successor is elected and qualified, rather than the persons constituting the initial board of directors of the corporation.    SECTION 28. Amends Section 21.416, Business Organizations Code, by adding Subsections (g), (h), (i), (j), and (k), as follows:   (g) Authorizes the board of directors, subject to Subsection (c) (relating to prohibiting a committee of the board of directors of a corporation from taking certain actions), to adopt resolutions that authorize formation of a committee of independent and disinterested directors to review and approve transactions, whether or not contemplated at the time of the committee's formation or the filing of a petition under Subsection (h) that involves the corporation or any of its subsidiaries and the persons described in the resolutions, including a controlling shareholder, director, or officer.   (h) Authorizes the corporation to petition a court having jurisdiction to hold an evidentiary hearing to determine whether the directors appointed to a committee under Subsection (g) are independent and disinterested with respect to any transactions involving the corporation or any of its subsidiaries and the persons described in the resolution. Requires the corporation, in the petition, to designate legal counsel to act on behalf of the corporation and its shareholders, other than the persons described in the resolution, and to give notice to the shareholders of the designated counsel and the petition. Authorizes the required notice, if the corporation has a class of shares listed on a national securities exchange, to be provided through the filing of a current report with the Securities and Exchange Commission in accordance with the requirements of the Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), including related regulations.   (i) Requires the court, promptly after receiving the petition, and not later than the 10th day after the date of the notice described by Subsection (h) has been given, to hold a preliminary hearing to determine the appropriate legal counsel to represent the corporation and its shareholders, other than the persons described in the resolution, whether or not the same as the legal counsel identified in the petition. Authorizes any other legal counsel representing a shareholder, other than the persons described in the resolution, to participate in the hearing to request designation by the court as the appropriate legal counsel.   (j) Requires the court, promptly after the determination of the appropriate legal counsel by the court, to hold an evidentiary hearing as to whether the directors on the committee are independent and disinterested with respect to transactions involving the corporation or any of its subsidiaries and the persons described in the resolution. Authorizes the appropriate legal counsel determined by Subsection (i) and legal counsel for the corporation to participate in the hearing. Provides that, after hearing and reviewing the evidence presented, the court will make its determination as to whether the directors are independent and disinterested.   (k) Provides that the court's determination that the directors are independent and disinterested under Subsection (j) is presumptively dispositive and binding in any subsequent lawsuit or other legal proceeding involving the issue of whether those directors are independent and disinterested with respect to a particular transaction involving the corporation or any of its subsidiaries and any of the persons described in the resolution. Provides that, to overcome that presumption, any person asserting in the subsequent lawsuit or other legal proceeding that the directors are not independent and disinterested:   (1) is required to provide evidence of material facts not presented in the proceedings in which the court made that determination; and   (2) has the burden to establish that one or more of those directors is not independent and disinterested with respect to the particular transaction involving the corporation or any of its subsidiaries and any of the persons described in the resolution.   SECTION 29. Amends Section 21.551(2), Business Organizations Code, to redefine "shareholder."   SECTION 30. Amends Section 21.554, Business Organizations, as follows:    Sec. 21.554. DETERMINATION BY DIRECTORS OR INDEPENDENT PERSONS. (a) Requires that a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding be made by an affirmative vote of the majority of:   (1)-(2) makes no changes to these subdivisions; or   (3) a panel of one or more independent and disinterested individuals appointed by the court on a motion by the corporation listing the names of the individuals, who may be directors, to be appointed and stating that, to the best of the corporation's knowledge, the individuals to be appointed are disinterested and qualified to make the determinations contemplated by Section 21.558 (Dismissal of Derivative Proceedding).    (b) Requires the court to appoint a panel under Subsection (a)(3) if the court determines, rather than if the court finds, that the individuals recommended by the corporation are independent and disinterested and are otherwise qualified with respect to expertise, experience, independent judgment, and other factors considered appropriate by the court under the circumstances to make the determinations. Prohibits an individual appointed by the court to a panel under this section from being held liable to the corporation or the corporation's shareholders for an action taken or omission made by the individual in that capacity, except for an act or omission constituting fraud or wilful misconduct.   (c) Authorizes the corporation, before the corporation's determination of how to proceed on the allegations under Subsection (a), to petition the court in which the derivative proceeding has been instituted, or a court having jurisdiction if no derivative proceeding has been instituted, to request a determination as to whether the directors identified or appointed under Subsection (a)(1) (relating to a derivative proceeding made by an affirmative vote of the majority of all independent and disinterested directors of the corporation) or (2) (relating to a derivative proceeding made by an affirmative vote of the majority of a committee consisting of one or more independent and disinterested directors appointed by an affirmative vote of the majority) are independent and disinterested with respect to the allegations made in the demand.   (d) Requires the corporation, for purposes of Subsection (c), if a derivative proceeding has been instituted, to promptly deliver a copy of the petition to the shareholder making the demand who will have the right, if promptly exercised, to challenge the petition before the court makes its determination.   (e) Provides that, after hearing and reviewing the evidence presented, the court will make its determination as to whether the directors are independent and disinterested.   (f) Provides that the court's determination that the directors or individuals are independent and disinterested under this section is presumptively dispositive and binding in the derivative proceeding, if it has been instituted, or in any subsequent lawsuit or other legal proceeding involving the issue of whether those directors or individuals were independent and disinterested when they made the determination on how to proceed with respect to the allegations made.   (g) Provides that, to overcome the presumption under Subsection (f), any person asserting in the derivative proceeding or the subsequent lawsuit or other legal proceeding that the directors or individuals are not independent and disinterested:   (1) is required to provide evidence of material facts not presented in the proceedings in which the court made that determination; and   (2) has the burden to establish that one or more of those directors or individuals was not independent and disinterested when the director or individuals made the determination on how to proceed with respect to the allegations made in the demand.   SECTION 31. Amends Section 21.561, Business Organizations Code, by adding Subsection (c), to provide that, for the purposes of Subsection (b)(1) (relating to authorizing the court to order the corporation to pay expenses the plaintiff incurred in the proceeding if the court makes certain findings), substantial benefit to the corporation does not include additional or amended disclosures made to the shareholders, regardless of materiality.   SECTION 32. Amends Section 21.562(a), Business Organizations Code, as follows:   (a) Provides that, in a derivative proceeding brought in the right of a foreign corporation, the matters covered by this subchapter are governed by the laws of the jurisdiction of formation of the foreign corporation, except for certain sections, which with respect to foreign corporations are procedural provisions and do not relate to the internal affairs of the foreign corporation, unless applying the laws of the jurisdiction of formation of the foreign corporation requires otherwise with respect to Section 21.555 (Stay of Proceeding).   SECTION 33. Amends Section 21.563(b), Business Organizations Code, as follows:   (b) Provides that Sections 21.552 (Standing to Bring Proceeding)21.560 (Discontinuance or Settlement) do not apply to a derivative proceeding, rather than to a claim or a derivative proceeding, by a shareholder of a closely held corporation against a present or former director, officer, or shareholder of the corporation. Provides that, in the event the shareholder also asserts a claim in the derivative proceeding against a person who is not a present or former director, officer, or shareholder, this subsection applies only to a claim in the derivative proceeding against a present or former director, officer, or shareholder. Makes nonsubstantive changes.   SECTION 34. Amends Sections 21.901(2) and (4), Business Organizations Code, to redefine "defective corporate act" and "failure of authorization."   SECTION 35. Amends Section 21.902, Business Organizations Code, as follows:   Sec. 21.902. RATIFICATION OF DEFECTIVE CORPORATE ACT AND PUTATIVE SHARES. (a) Provides that, except as provided by Subsection (b) and subject to Section 21.909 (Adoption of Resolutions; Effect on Defective Corporate Act) or 21.910 (Adoption of Resolutions; Effect on Putative Shares), a defective corporate act or putative shares are not ineffective, void, or voidable solely as a result of a failure of authorization if the act or shares are ratified or validated in certain manners.   (b) Prohibits a corporation from ratifying with retroactive effect in accordance with Subchapter R (Ratification of Defective Corporate Acts or Shares; Proceedings) a defective corporate act resulting from a failure of authorization that is attributable to the failure to file with the filing officer certain filing instruments.   SECTION 36. Amends Sections 21.908(a), (b), and (c), Business Organizations Code, as follows:   (a) Requires the corporation to file a certificate of validation with respect to the defective corporate act in accordance with Chapter 4 (Filings), if:   (1) 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; and    (2) the filing instrument or other document:   (A) previously filed with the filing officer requires any change to give effect to the defective corporate act in accordance with this subchapter, including a change to the date and time of the effectiveness of the filed filing instrument or other document; or   (B) was not previously filed with the filing officer under any other provision of the corporate statute, rather than regardless of whether a filing instrument or other document was previously filed with respect to the defective corporate act.    Makes nonsubstantive changes to this subsection.   (b) Requires that the certificate of validation include:   (1) a statement that the corporation has ratified one or more defective corporate acts that would have required the filing of a filing instrument or other document with the filing officer under any provision of the corporate statute, rather than each defective corporate act that is a subject of the certificate of validation, including certain defective corporate acts;   (2) a statement that each defective corporate act has been ratified in accordance with this subchapter, rather than a statement that each defective corporate act was ratified in accordance with this subchapter, including certain dates; and   (3) as appropriate:   (A) deletes existing text requiring that the certification of validation include, if a filing instrument was meets certain requirements, certain information; and   (B) redesignates existing Paragraph (C) as Paragraph (B) and makes no further changes.   Makes nonsubstantive changes to this subsection.   (c) Provides that a filing instrument attached to a certificate of validation under this section, rather than under Subsection (b)(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.   SECTION 37. Amends Section 21.909, Business Organizations Code, as follows:   Sec. 21.909. ADOPTION OF RESOLUTIONS; EFFECT ON DEFECTIVE CORPORATE ACT. Provides that, on or after the validation effective time, unless determined otherwise in an action brought under Section 21.914 (Proceeding Regarding Validity of Defective Corporate Acts and Shares) and subject to Sections 21.902(b) and 21.907(e) (relating to providing that putative shares on the record date for determining shareholders entitled to vote on certain matters are not entitled to be counted for voting or quorum purposes), each defective corporate act ratified in accordance with this subchapter is prohibited from being considered ineffective, void, or voidable as a result of the failure of authorization described by the resolutions adopted under Sections 21.903 (Ratification of Defective Corporate Act; Adoption of Resolutions) and 21.904 (Quorum and Voting Requirements for Adoption of Resolutions), and the effect is required to be retroactive to the time of the defective corporate act. Makes a nonsubstantive change.   SECTION 38. Amends Section 21.910, Business Organizations Code, as follows:   Sec. 21.910. ADOPTION OF RESOLUTIONS; EFFECT ON PUTATIVE SHARES. Provides that, on or after the validation effective time, unless determined otherwise in an action brought under Section 21.914 and subject to Sections 21.902(b) and 21.907(e), each putative share or fraction of a putative share issued or purportedly issued pursuant to a defective corporate act ratified in accordance with this subchapter and described by the resolutions adopted under Sections 21.903 and 21.904 is prohibited from being considered ineffective, void, or voidable and is considered to be an identical share or fraction of a share outstanding as of the time it was purportedly issued. Makes a nonsubstantive change.    SECTION 39. Amends Section 21.913(b), Business Organizations Code, as follows:   (b) Provides that 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 21.914 through 21.917 (Statute of Limitations) does not, of itself, affect the validity or effectiveness of any act or transaction or the issuance of any shares 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 or that those shares are ineffective, void, or voidable.   SECTION 40. Amends Section 21.915, Business Organizations Code, to provide that, subject to Section 1.056, the district court has exclusive jurisdiction to hear and determine any action brought under Section 21.914, and to make nonsubstantive changes.    SECTION 41. Amends Section 21.917(b), Business Organizations Code, as follows:   (b) Provides that, notwithstanding any other provision of this subchapter, an action claiming that a defective corporate act or putative shares are ineffective, void, or voidable due to a failure of authorization identified in the resolutions adopted in accordance with Section 21.903 is prohibited from being filed in or is required to be dismissed by any court after the applicable validation effective time.   SECTION 42. Amends Sections 22.001(1) and (3-a), Business Organizations Code, to redefine "board of directors" and "director."   SECTION 43. Amends Section 22.218(a), Business Organizations Code, as follows:   (a) Provides that the certificate of formation or bylaws of the corporation is:   (1) authorized to designate one or more committees to have and exercise all, or a specified portion, of the authority of the board of directors of the corporation in the management of the corporation; or   (2) authorized to authorize the board of directors, by resolution adopted by the majority of the directors in office, to designate one or more committees to have and exercise all, or a specified portion, of the authority of the board in the management of the corporation to the extent permitted in the authorization in the certificate of formation or bylaws, rather than to the extent provided by the resolution, the certificate of formation, or the bylaws.    Deletes existing text authorizing the board of directors if a corporation, by resolution adopted by the majority of the directors in office, if authorized by the certificate of formation or bylaws of the corporation, to designate one or more committees to serve certain functions.   SECTION 44. Amends Section 22.231(a), Business Organizations Code, to authorize any two or more offices, other than the offices of president and secretary, to be held by the same individual, rather than the same person.    SECTION 45. Amends Sections 22.501(2) and (4), Business Organizations Code, to redefine "defective corporate act" and "failure of authorization."   SECTION 46. Amends Section 22.502, Business Organizations Code, as follows:   Sec. 22.502. RATIFICATION OF DEFECTIVE CORPORATE ACT. (a) Creates this subsection from existing text. Creates an exception under Subsection (b). Makes a conforming change    (b) Prohibits a corporation from ratifying with retroactive effect in accordance with Subchapter J (Ratification of Defective Corporate Acts; Proceedings) a defective corporate act resulting from a failure of authorization that is attributable to the failure to file with the filing officer the certain filing instruments.   SECTION 47. Amends Sections 22.508(a), (c), and (d), Business Organizations Code, as follows:   (a) Requires the corporation to file a certificate of validation with respect to the defective corporate act in accordance with Chapter 4, if:   (1) 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; and   (2) the filing instrument or other document:   (A) previously filed with the filing officer requires any change to give effect to the defective corporate act in accordance with this subchapter, including a change to the date and time of the effectiveness of the filed filing instrument or other document; or   (B) was not previously filed with the filing officer under any other provision of the corporate statute with respect to the defective corporate act, rather than regardless of whether a filing instrument or other document was previously filed with respect to the defective corporate act.    Makes a nonsubstantive change to this subsection.   (c) Requires that the certification of validation include:   (1) a statement that the corporation has ratified one or more defective corporate acts that would have required the filing of a filing instrument or other document with the filing officer under any provision of the corporate statute, rather than each defective corporate act that is a subject of the certificate of validation, including the certain information.   (2) a statement that each defective corporate act has been ratified in accordance with this subchapter, rather than a statement that each defective corporate act was ratified in accordance with this subchapter including certain dates; and    (3) as appropriate, if certain criteria are met, certain information.   Deletes existing text requiring that the certificate include, if a filing instrument meets certain requirements, certain information.   (d) Provides that a filing instrument attached to a certificate of validation under this section, rather than Subsection (e)(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.   SECTION 48. Amends Section 22.509, Business Organizations Code, as follows:   Sec. 22.509. ADOPTION OF RESOLUTIONS; EFFECT ON DEFECTIVE CORPORATE ACT. Prohibits each defective corporate act ratified in accordance with this subchapter, on or after the validation effective time, unless determined otherwise in an action brought under Section 22.512 (Proceeding Regarding Validity of Defective Corporate Acts) and subject to Section 22.502(b), from being considered ineffective, void, or voidable as a result of the failure of authorization described by the resolutions adopted under Sections 22.503 (Ratification of Defective Corporate Acts; Adoption of Resolutions) and 22.504 (Quorum and Voting Requirements For Adoption of Resolutions), and the effect is required to be retroactive to the time of the defective corporate act.   SECTION 49. Amends Section 22.513, Business Organizations Code, to provide that, subject to Section 1.056, the district court has exclusive jurisdiction to hear and determine any action brought under Section 22.512 and to make a nonsubstantive change.    SECTION 50. Amends Section 22.515(b), Business Organizations Code, to make a conforming change.   SECTION 51. Amends Subchapter C, Chapter 101, Business Organizations Code, by adding Section 101.1055, as follows:   Sec. 101.1055. SUBSCRIPTIONS. (a) Provides that a subscription to purchase a membership interest in a limited liability company in the process of being formed is irrevocable to the extent provided by the terms of the subscription if the subscription is in writing and signed by the subscriber and the subscription states that it is irrevocable.   (b) Provides that a written subscription entered into after the limited liability company is formed is a contract between the subscriber and the company.   SECTION 52. Amends Section 101.109(a), Business Organizations Code, as follows:   (a) Provides that a person who is assigned a membership interest in a limited liability company is entitled to:   (1) makes no changes to this subdivision;    (2) makes a nonsubstantive change to this subdivision; and    (3) the rights described by Section 101.502 (Right to Examine Records), rather than require, for any proper purpose, reasonable information or a reasonable account of the transactions of the company.   Deletes text of existing of Subdivision (4) providing that a person who is assigned a membership interest in a limited liability company is entitled to make, for any proper purpose, reasonable inspections of the books and records of the company.    SECTION 53. Amends Section 101.463(b), Business Organizations Code, as follows:   (b) Provides that certain sections do not apply to a derivative proceeding, rather than a claim or a derivative proceeding, by a member of a closely held limited liability company against a present or former governing person, member, or officer of the limited liability company. Provides that in the event the member also asserts a claim in the derivative proceeding, rather in the extent the claim or derivative proceeding is also made, against a person who is not a present or former governing person, member, or officer, this subsection applies only to a claim in the derivative proceeding against a present or former governing person, member, or officer. Makes conforming and nonsubstantive changes.    SECTION 54. Amends Subchapter F, Chapter 153, Business Organizations Code, by adding Section 153.258, as follows:   Sec. 153.258. SUBSCRIPTIONS. (a) Provides that a subscription to purchase a partnership interest in a limited partnership in the process of being formed is irrevocable to the extent provided by the terms of the subscription if the subscription is in writing and signed by the subscriber and the subscription states that it is irrevocable.   (b) Provides that a written subscription entered into after the limited partnership is formed is a contract between the subscriber and the partnership.   SECTION 55. Amends Section 153.413(b), Business Organizations Code, as follows:   (b) Provides that certain sections do not apply to a derivative proceeding, rather than a claim or a derivative proceeding by a limited partner of a closely held limited partnership against a present or former general partner, limited partner, or officer of the limited partnership. Requires that this subsection, in the event the limited partner also asserts a claim in the derivative proceeding, rather than in the event a claim or derivative proceeding is also made, against a person who is not a present or former general partner, limited partner, or officer, apply only to a claim in the derivative proceeding against a present or former general partner, limited partner, or officer. Makes conforming and nonsubstantive changes.    SECTION 56. Amends Section 153.533(a-1), Business Organizations Code, as follows:   (a-1) Requires that the following certificates be executed as follows:   (1) makes no changes to this subdivision;   (2) a certificate of amendment or restated certificate of formation containing amendments is required to be signed by at least one general partner and by each other general partner designated in the certificate of amendment or the restated certificate of formation as a new general partner, unless signed and filed by a person under certain provisions, but the certificate of amendment or the restated certificate of formation need not be signed by a withdrawing general partner;   (3) makes no changes to this subdivision;    (4) a certificate of merger, rather than a certificate of merger, conversion, or exchange, filed on behalf of a domestic limited partnership is required to be signed by at least one general partner and by each other general partner designated as a new general partner by any amendment to the certificate of formation of the limited partnership being made by the certificate of merger, but the certificate of merger need not be signed by a withdrawing general partner, rather than as provided by Chapter 10;   (5) a certificate of conversion or exchange filed on behalf of a domestic limited partnership is required to be signed by at least one general partner; and   (6) a certificate filed under Subchapter G (Bankruptcy Reorganization), Chapter 10, is required to be signed by the person designated by the court.   Makes nonsubstantive changes to this subsection.   SECTION 57. Amends Section 251.352(a), Business Organizations Code, to require that the annual report submitted by a cooperative association to its members contain certain information including the name, address, occupation, and date of expiration of the term of office of each officer and director and any compensation paid by the association to each officer or director of the association, and to make nonsubstantive changes.    SECTION 58. Amends Section 252.017(b), Business Organizations Code, to provide that certain chapters, including Chapters 2 (Purposes and Power of Domestic Entity), and 11 and, if a nonprofit association designates an agent for service of process, Subchapter E (Registered Agents and Registered Offices), Chapter 5 (Names of Entities; Registered Agents and Registered Offices), apply to a nonprofit association.   SECTION 59. Repealer: Section 153.502(c) (relating to prohibiting the requirement that a domestic entity that is not a general partnership to send a written notice of the winding up to certain claimants from being applicable to a limited partnership), Business Organizations Code.   Repealers: Sections 251.353 (Annual Report of Financial Condition) and 251.354 (Failure to File Report), Business Organizations Code.   SECTION 60. Makes application of Sections 21.551, 21.554, 21.561, and 21.562, Business Organizations Code, as amended by this Act, prospective.    SECTION 61. Effective date: September 1, 2025.                    

BILL ANALYSIS

 

 

Senate Research Center S.B. 2411
89R9470 SRA-F By: Schwertner
 Business & Commerce
 3/29/2025
 As Filed

Senate Research Center

S.B. 2411

89R9470 SRA-F

By: Schwertner

 

Business & Commerce

 

3/29/2025

 

As Filed

 

 

 

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

 

The Business Organizations Code (BOC) was initially passed by the legislature in 2003 to outline Texas' myriad of business organizations laws. Keeping it current, however, requires ongoing technical and substantive updates and modifications.

 

S.B. 2411 updates various BOC provisions and aligns the statute with corresponding changes made from recent legislation relating to all domestic entities, with a primary focus on corporations, partnerships, and LLCs. Primary changes include:

 

1. updating BOC references to the new Texas Business Court;

 

2. expanding the use of electronic resources for notices and consents;

 

3. expanding use of certificate of formation provisions to address the liability of managerial officials; 

 

4. specifying that a properly adopted plan of conversion may authorize additional entity action by the converted entity;

 

5. clarifying procedures and safeguards for corporations to retroactively ratify acts or transactions that might be ineffective because of filing failures;

 

6. simplifying the information required for a certificate of validation and limiting the circumstances under which a certificate must be filed under corporation ratification provisions;

 

7. providing for irrevocable subscriptions for interests in limited liability companies and limited partnerships at formation;

 

8. eliminating redundant annual reporting requirements for cooperative associations;

 

9. expanding authority for boards of directors of for-profit corporations, without shareholder approval, to effect limited amendments to a corporation's certificate of formation subject to specified conditions and safeguards;

 

10. authorizing a governing authority of an entity to approve a plan, agreement, instrument, or other document in substantially final form and subsequently to ratify the final form before the effective filing date with the secretary of state;

 

11. recognizing that owners or members in a domestic entity that is party to a merger or interest exchange can appoint a representative to represent them in enforcing the plan of merger or exchange;

 

12. specifying that a shareholder's demand to examine and copy records of the corporation is not for a proper purpose if the demand is made in connection with litigation between the corporation and shareholder; 

 

13. clarifying that disclosure-only settlements or judgments do not alone support an award of expenses in a shareholder judicial action; and

 

14. authorizing corporations to obtain binding advance determinations from a court as to whether appointed director committees are independent and disinterested with respect to corporate transactions or to shareholder allegations made in judicial proceedings.

 

As proposed, S.B. 2411 amends current law relating to business organizations.

 

RULEMAKING AUTHORITY

 

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

 

SECTION BY SECTION ANALYSIS

 

SECTION 1. Amends Subchapter B, Chapter 1, Business Organizations Code, by adding Sections 1.056 and 1.057, as follows:

 

Sec. 1.056. REFERENCES IN CODE TO CERTAIN DISTRICT COURTS INCLUDES BUSINESS COURTS. Provides that, notwithstanding any other law, a reference or grant of jurisdiction in the Business Organizations Code, including a grant of exclusive jurisdiction, to a district court constitutes a reference or grant of concurrent jurisdiction to a business court established under Chapter 25A (Business Court), Government Code, if the business court has authority and jurisdiction under Chapter 25A, Government Code, to adjudicate the action or claim. Provides that this section does not expand the authority of the business court under Chapter 25A, Government Code.

 

Sec. 1.057. LAWS GOVERNING FORMATION, INTERNAL AFFAIRS, AND GOVERNANCE OF DOMESTIC ENTITY. (a) Prohibits the plain meaning of the laws enacted by the legislature in Business Organization Code from being supplanted, contravened, or modified by the laws or judicial decisions of any other state.

 

(b) Authorizes the managerial officials of a domestic entity, in exercising their powers with respect to the domestic entity, to consider the laws and judicial decisions of other states and the practices observed by entities formed in those other states. Provides that the failure or refusal of a managerial official to consider, or to conform the exercise of the managerial official's powers to, the laws, judicial decisions, or practices of another state does not constitute or imply a breach of this code or of any duty existing under the laws of this state.

 

SECTION 2. Amends Section 2.115(b), Business Organizations Code, to authorize the governing documents of a domestic entity, consistent with applicable state and federal jurisdictional requirements, to require that one or more courts in this state having jurisdiction be required to serve as the exclusive forum and venue for any or all internal entity claims and to make nonsubstantive changes. 

 

SECTION 3. Amends Section 3.007(a), Business Organizations Code, as follows:

 

(a) Requires that the certificate of formation of a for-profit or professional corporation, in addition to the information required by Section 3.005 (Certificate of Formation), state, if the corporation is to be managed by a board of directors, the number of directors constituting the initial board of directors and the name and address of each individual, rather than each person, who will serve as director until the first annual meeting of shareholders and until a successor is elected and qualified.

 

SECTION 4. Amends Section 3.015(a) Business Organizations Code, to make conforming changes. 

 

SECTION 5. Amends Section 3.060, Business Organizations Code, by amending Subsection (a) and adding Subsection (c), as follows:

 

(a) Authorizes a restated certificate of formation for a for-profit corporation or professional corporation, in addition to the provisions authorized or required by Section 3.059 (Restated Certificate of Formation), to omit:

 

(1) makes conforming and nonsubstantive changes to this subdivision; and

 

(2) any provisions that were necessary to effect a change, exchange, reclassification, subdivision, combination, or cancellation of shares, if the change, exchange, reclassification, subdivision, combination, or cancellation has become effective. 

 

(c) Provides that any omission or insertion under Subsection (a) or omission under Section 3.059(b) (relating to authorizing a restated certificate of formation to omit certain information) is not considered an amendment that requires shareholder approval.

 

SECTION 6. Amends Section 3.061, Business Organizations Code, by amending Subsection (a) and adding Subsection (c), as follows:

 

(a) Makes conforming changes to this subsection. 

 

(c) Provides that any omission or insertion under Subsection (a) or omission under Section 3.059(b) is not considered an amendment that requires member approval. 

 

SECTION 7. Amends Section 3.0611, Business Organizations Code, as follows:

 

Sec. 3.0611. SUPPLEMENTAL PROVISIONS FOR RESTATED CERTIFICATE OF FORMATION FOR LIMITED LIABILITY COMPANY. (a) Creates this subsection from existing text and makes no further changes. 

 

(b) Provides that any omission or insertion under Subsection (a) (relating to authorizing a restated certificate of formation for a limited liability company to omit any prior statement regarding certain circumstances) or omission under Section 3.059(b) is not considered an amendment that requires member approval. 

 

SECTION 8. Amends Section 3.062, Business Organizations Code, as follow:

 

Sec. 3.062. SUPPLEMENTAL PROVISIONS FOR RESTATED CERTIFICATE PF FORMATION FOR REAL ESTATE INVESTMENT TRUST. (a) Creates this subsection from existing text and makes a conforming change.

 

(b) Provides that any update under Subsection (a) or Section 3.059(b) is not considered an amendment that requires shareholder approval.

 

SECTION 9. Amends Subchapter C, Chapter 3, Business Organizations Code, by adding Section 3.106, as follows:

 

Sec. 3.106. AUTHORIZATION OF PLANS, AGREEMENTS, INSTRUMENTS, AND OTHER DOCUMENTS. (a) Provides that if this code expressly requires the governing authority to approve or take other action with respect to any plan, agreement, instrument, or other document, the plan, agreement, instrument, or other document is authorized to be approved by the governing authority in final form or in substantially final form.

 

(b) Authorizes the governing authority, if the governing authority has acted to approve or take other action with respect to a plan, agreement, instrument, or other document that is required by this code to be filed with the secretary of state (SOS) or referenced in any certificate to be filed with SOS, at any time after acting to approve or taking that other action and before the effectiveness of the filing with SOS, to act to ratify the plan, agreement, instrument, or other document. Provides that that ratification is considered:

 

(1) to be effective as of the time of the original act to approve or the original taking of other action by the governing authority; and

 

(2) to satisfy any requirement under this code that the governing authority approve or take other action with respect to the plan, agreement, instrument, or other document in a specific manner or sequence.

 

SECTION 10. Amends Section 4.152, Business Organizations Code, to make a nonsubstantive change. 

 

SECTION 11. Amends Section 4.153, Business Organizations Code, to make a nonsubstantive change. 



SECTION 12. Amends Section 4.162(b), Business Organizations Code, to require SOS, for a filing by or for a registered series of a domestic limited liability company when no other fee has been provided, to impose the same fee as the filing fee for a similar instrument under Section 4.151 (Filing Fees: All Entities) or 4.154 (Filing Fees: Limited Liability Companies).

 

SECTION 13. Amends Section 6.051, Business Organizations Code, by amending Subsection (c), as follows:

 

(c) Provides that, when a notice is required or permitted by this code or the governing documents of a domestic entity to be given to an owner, member, or governing person of the domestic entity, a document enclosed with, or annexed or appended to, the notice is considered part of the notice for the purpose of determining whether notice was given under this code and the governing documents.

 

SECTION 14. Amends Section 6.202(d), Business Organizations Code, as follows:

 

(d) Requires an entity taking action without holding a meeting to promptly provide written notice to each person who is an owner or member as of the record date for the action, as determined by Section 6.102 (Record Date For Written Consent to Action), who did not sign a consent described by Subsection (b) (relating to authorizing the certificate of formation of a filing entity to authorize the owners or members of the entity to take action without performing certain actions) of the action that is the subject of the consent. Provides that the notice required by this subsection:

 

(1) in addition to other information required by applicable law, is required to contain a reasonable description of the action that is the subject of the consent; and

 

(2) is authorized to, instead of containing the complete notice in writing, include information directing the owner or member to a publicly available electronic resource at which a reasonable description of the action that is the subject of the consent and any other information required by applicable law is authorized to be accessed by the owner or member without subscription or cost.

 

SECTION 15. Amends Section 7.001, Business Organizations Code, as follows:

 

Sec. 7.001. New heading: LIMITATION OF LIABILITY OF MANAGERIAL OFFICIAL. (a) Makes no changes to this subsection. 

 

(b) Changes references to a governing person to a managerial official. 

 

(c)-(d) Makes conforming changes to these subsections. 

 

SECTION 16. Amends Section 10.002, Business Organizations Code, by adding Subsection (e), as follows:

 

(e) Provides that, unless otherwise expressly provided by the plan of merger, a disclosure letter, disclosure schedules, or similar documents or instruments delivered in connection with the plan of merger is not considered part of the plan of merger for purposes of Chapter 10 (Mergers, Interest Exchanges, Conversions, and Sales of Assets), but those documents or instructions have the effects provided in the plan of merger.

 

SECTION 17. Amends Section 10.004, Business Organizations Code, as follows:

 

Sec. 10.004. PLAN OF MERGER: PERMISSIVE PROVISIONS. (a) Creates this subsection from existing text. Authorizes a plan of merger to include:

 

(1) makes no changes to this subdivision;

 

(2) makes nonsubstantive changes to this subdivision; 

 

(3) provisions for the appointment, at or after the time at which the plan of merger is adopted by the owners or members of a party to the merger, of one or more persons, which is authorized to include an entity surviving or resulting from the merger or any managerial official, representative, or agent of a party to the merger or of a surviving or resulting organization, as representative of the owners or members of a party to the merger, including those whose ownership interests or membership interests are cancelled, converted, or exchanged in the merger; and

 

(4) creates this subdivision from existing text and makes no further changes. 

 

(b) Authorizes provisions for the appointment of a representative in a plan of merger under Subsection (a)(3) to:

 

(1) delegate to the representative the sole and exclusive authority to take action on behalf of the owners or members under the plan of merger, including the authority to take any action the representative determines is necessary or appropriate to enforce or settle the rights of the owners or members under the plan of merger, subject to the terms and conditions prescribed by the plan of merger;

 

(2) prescribe the irrevocable nature and binding effect of the appointment as to all owners or members to be bound by the appointment from and after the approval of the plan of merger by those owners or members in accordance with Subchapter A (Mergers); and

 

(3) provide that any of the provisions are prohibited from being amended after the merger has become effective or are authorized to be amended only with the consent or approval of persons specified in the plan of merger.

 

SECTION 18. Amends Section 10.006(e), Business Organizations Code, as follows:

 

(e) Provides that certain provisions, including Section 10.004 apply to a merger approved under Subsection (d) (relating to providing that if the parent organization will survive the merger, the merger is required to be approved only by a resolution adopted by the governing authority of the parent organization), except that the resolution approving the merger should be considered the plan of merger for purposes of those sections.

 

SECTION 19. Amends Section 10.052, Business Organizations Code, by adding Subsection (d), as follows:

 

(d) Provides that, unless otherwise expressly provided by the plan of exchange, a disclosure letter, disclosure schedules, or similar documents or instruments delivered in connection with the plan of exchange is not considered part of the plan of exchange for purposes of this chapter, but the documents or instruments have the effect provided in the plan of exchange.

 

SECTION 20. Amends Section 10.053, Business Organizations Code, as follows:

 

Sec. 10.053. PLAN OF EXCHANGE: PERMISSIVE PROVISIONS. (a) Creates this subsection from existing text. Authorizes a plan of exchange to include:

 

(1) provisions for the appointment, at or after the time at which the plan of exchange is adopted by the owners or members whose ownership or membership interests are being acquired in the interest exchange, of one or more persons, which is authorized to include an entity that is a party to the interest exchange or any managerial official, representative, or agent of a party to the interest exchange, as representative of those owners or members; and

 

(2) creates this subdivision from existing text and makes no further changes. 

 

(b) Authorizes provisions for the appointment of a representative in a plan of exchange under Subsection (a)(1) to:

 

(1) delegate to the representative the sole and exclusive authority to take action on behalf of the owners or members under the plan of exchange, including the authority to take actions the representative determines necessary or appropriate to enforce or settle the rights of the owners or members under the plan of exchange, subject to the terms and conditions as prescribed by the plan of exchange;

 

(2) prescribe the irrevocable nature and binding effect of the appointment as to all owners or members to be bound by the appointment from and after the approval of the plan of exchange by those owners or members in accordance with this subchapter; and

 

(3) provide that any of the provisions are prohibited from being amended after the interest exchange has become effective or are authorized to be amended only with the consent or approval of persons specified in the plan of exchange.

 

SECTION 21. Amends Section 10.104, Business Organizations Code, as follows:

 

Sec. 10.104. PLAN OF CONVERSION: PERMISSIVE PROVISIONS. (a) Creates this subsection from existing text and makes no further changes. 

 

(b) Provides that an action to be taken by the converted entity in connection with the conversion of the converting entity that is provided by the plan of conversion adopted in the manner required by Section 10.101 (Conversion of Domestic Entities) or 10.102 (Conversion of Non-Code Organizations), as applicable, and that is within the power of the converted entity under the law of its jurisdiction of formation is:

 

(1) considered authorized, adopted, and approved, as applicable, by the converted entity and the governing authority and owners or members of the converted entity, as applicable; and

 

(2) prohibited from requiring any further action of the governing authority, owners, or members of the converted entity for purposes of this code.

 

SECTION 22. Amends Section 21.053, Business Organizations Code, by amending Subsection (c) and adding Subsections (d), (e), (f), and (g), as follows:

 

(c) Provides that, notwithstanding Section 21.054 (Adoption of Amendment by Shareholders) and except as otherwise provided by the certificate of formation, the board of directors of a corporation that has outstanding shares:

 

(1) is authorized, without shareholder approval, to adopt an amendment to the corporation's certificate of formation to:

 

(A) creates this paragraph from existing text and makes no further changes; 

 

(B) omit any provision that specifies the name and address of each organizer or director; or 

 

(C) omit any provisions that were necessary to effect a change, exchange, reclassification, subdivision, combination, or cancellation of shares, if the change, exchange, reclassification, subdivision, combination, or cancellation has become effective; and

 

(2) if the corporation has only one class of outstanding stock that is not divided into series and in which no change is made in any par value of shares of that class, is authorized, without shareholder approval, to adopt an amendment to the corporation's certificate of formation to:

 

(A) reclassify by subdividing the issued shares of the class into a greater number of issued shares of the class; and 

 

(B) if the reclassification is primarily for the purpose of maintaining the listing eligibility of the class on any applicable national securities exchange, reclassify by combining the issued shares of the class into a lesser number of issued shares of the class.

 

(d) Authorizes an amendment described by Subsection (c)(2)(a) to also increase the number of authorized shares of the class up to an amount determined by multiplying the existing number of authorized shares of the class by the same multiple by which the issued shares of the class are subdivided in the reclassification and rounding up any resulting fractional number of shares to a whole number of shares. 

 

(e) Authorizes an amendment described by Subsection (c)(2)(B) to also decrease the number of authorized shares of the class to an amount determined by dividing the existing number of authorized shares of the class by the same multiple by which the issued shares of the class are combined in the reclassification and rounding up any resulting fractional number of shares to a whole number of shares.

 

(f) Provides that, when a reclassification of issued shares with par value is made by a corporation under:

 

(1) Subsection (c)(2)(A), an amount of surplus designated by the corporation's board of directors that is not less than the aggregate par value of the shares issued as a result of the reclassification is required to be transferred to stated capital; or

 

(2) Subsection (c)(2)(B), an amount of surplus equal to an aggregate value with respect to the shares issued as a result of the reclassification, as set by the board of directors when the reclassification is authorized, is required to be transferred to stated capital.

 

(g) Prohibits a corporation from effecting a reclassification under Subsection (c)(2)(A) if the surplus of the corporation is less than the amount required by Subsection (f)(1) or (f)(2), as applicable, to be transferred to stated capital at the time the reclassification becomes effective.

 

SECTION 23. Amends Section 21.160(c), Business Organizations Code, as follows:

 

(c) Authorizes consideration received for treasury shares to have a value greater or less than, or equal to, the par value, if any, of the shares; and consist of the types of consideration described by Section 21.159 (Types of Consideration for Shares).

 

SECTION 24. Amends Section 21.68(e), Business Organizations Code, as follows:

 

(e) Provides that, for a transaction entered into by a person or persons to whom authority was delegated under this subsection, the rights or options are authorized to be issued in the number, at the time, and for the consideration, and under the other terms on which shares are authorized to be issued on the exercise of those rights and options, as the person or persons may determine if that authorization of the board of directors:

 

(1) states:

 

(A) the maximum number of rights or options, and the maximum number of shares issuable on exercise of those rights or options, rather than the maximum number of rights or options, and the maximum number of shares issuable on exercise of those rights or options, that is authorized to be issued under the authorization;

 

(B) the period of time during which the rights or options and the period of time during which the shares issuable on exercise of those rights or options, may be issued; and

 

(C) makes no changes to this paragraph. 

 

SECTION 25. Amends Section 21.218, Business Organizations Code, by amending Subsection (b) and adding Subsection (b-2), as follows:

 

(b) Makes a nonsubstantive change to this subsection.

 

(b-2) Provides that, if the corporation reasonably determines that the written demand is in connection with a pending derivative proceeding in the right of the corporation under Subchapter L (Derivative Proceedings) that is instituted or maintained by the holder or the holder's affiliate, or a pending civil lawsuit to which the corporation, or its affiliate, and the holder, or the holder's affiliate, are adversarial named parties, the demand is not a proper purpose under Subsection (b) (relating to providing that certain holders of shares of a corporation are entitled to examine and copy the corporation's certain books and records). Provides that this subsection does not impair any rights of:

 

(1) the holder or the holder's affiliate to obtain discovery of records from the corporation in the civil lawsuit or subject to Section 21.556 (Discovery), in the derivative proceedings; and 

 

(2) the holder to obtain a court order to compel production of records of the corporation for examination by the holder under Subsection (c) (relating to providing that Section 21.218 (Examination of Records) does not impair the power of a court, on the presentation of certain proof, to compel the production for examination of certain records of a corporation). 

 

SECTION 26. Amends Section 21.402, Business Organizations Code, to provide that, unless the certificate of formation or bylaws of a corporation provide otherwise, a director, and to make a nonsubstantive change. 

 

SECTION 27. Amends Section 21.404, Business Organizations Code, as follows:

 

Sec. 21.404. DESIGNATION OF INITIAL BOARD OF DIRECTORS. Requires that the certificate of formation of a corporation, if the corporation is to be managed by a board of directors, state the name and address, rather than the names and addresses, of each individual who will serve as director until the first annual meeting of shareholders and until a successor is elected and qualified, rather than the persons constituting the initial board of directors of the corporation. 

 

SECTION 28. Amends Section 21.416, Business Organizations Code, by adding Subsections (g), (h), (i), (j), and (k), as follows:

 

(g) Authorizes the board of directors, subject to Subsection (c) (relating to prohibiting a committee of the board of directors of a corporation from taking certain actions), to adopt resolutions that authorize formation of a committee of independent and disinterested directors to review and approve transactions, whether or not contemplated at the time of the committee's formation or the filing of a petition under Subsection (h) that involves the corporation or any of its subsidiaries and the persons described in the resolutions, including a controlling shareholder, director, or officer.

 

(h) Authorizes the corporation to petition a court having jurisdiction to hold an evidentiary hearing to determine whether the directors appointed to a committee under Subsection (g) are independent and disinterested with respect to any transactions involving the corporation or any of its subsidiaries and the persons described in the resolution. Requires the corporation, in the petition, to designate legal counsel to act on behalf of the corporation and its shareholders, other than the persons described in the resolution, and to give notice to the shareholders of the designated counsel and the petition. Authorizes the required notice, if the corporation has a class of shares listed on a national securities exchange, to be provided through the filing of a current report with the Securities and Exchange Commission in accordance with the requirements of the Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), including related regulations.

 

(i) Requires the court, promptly after receiving the petition, and not later than the 10th day after the date of the notice described by Subsection (h) has been given, to hold a preliminary hearing to determine the appropriate legal counsel to represent the corporation and its shareholders, other than the persons described in the resolution, whether or not the same as the legal counsel identified in the petition. Authorizes any other legal counsel representing a shareholder, other than the persons described in the resolution, to participate in the hearing to request designation by the court as the appropriate legal counsel.

 

(j) Requires the court, promptly after the determination of the appropriate legal counsel by the court, to hold an evidentiary hearing as to whether the directors on the committee are independent and disinterested with respect to transactions involving the corporation or any of its subsidiaries and the persons described in the resolution. Authorizes the appropriate legal counsel determined by Subsection (i) and legal counsel for the corporation to participate in the hearing. Provides that, after hearing and reviewing the evidence presented, the court will make its determination as to whether the directors are independent and disinterested.

 

(k) Provides that the court's determination that the directors are independent and disinterested under Subsection (j) is presumptively dispositive and binding in any subsequent lawsuit or other legal proceeding involving the issue of whether those directors are independent and disinterested with respect to a particular transaction involving the corporation or any of its subsidiaries and any of the persons described in the resolution. Provides that, to overcome that presumption, any person asserting in the subsequent lawsuit or other legal proceeding that the directors are not independent and disinterested:

 

(1) is required to provide evidence of material facts not presented in the proceedings in which the court made that determination; and

 

(2) has the burden to establish that one or more of those directors is not independent and disinterested with respect to the particular transaction involving the corporation or any of its subsidiaries and any of the persons described in the resolution.

 

SECTION 29. Amends Section 21.551(2), Business Organizations Code, to redefine "shareholder."

 

SECTION 30. Amends Section 21.554, Business Organizations, as follows: 

 

Sec. 21.554. DETERMINATION BY DIRECTORS OR INDEPENDENT PERSONS. (a) Requires that a determination of how to proceed on allegations made in a demand or petition relating to a derivative proceeding be made by an affirmative vote of the majority of:

 

(1)-(2) makes no changes to these subdivisions; or

 

(3) a panel of one or more independent and disinterested individuals appointed by the court on a motion by the corporation listing the names of the individuals, who may be directors, to be appointed and stating that, to the best of the corporation's knowledge, the individuals to be appointed are disinterested and qualified to make the determinations contemplated by Section 21.558 (Dismissal of Derivative Proceedding). 

 

(b) Requires the court to appoint a panel under Subsection (a)(3) if the court determines, rather than if the court finds, that the individuals recommended by the corporation are independent and disinterested and are otherwise qualified with respect to expertise, experience, independent judgment, and other factors considered appropriate by the court under the circumstances to make the determinations. Prohibits an individual appointed by the court to a panel under this section from being held liable to the corporation or the corporation's shareholders for an action taken or omission made by the individual in that capacity, except for an act or omission constituting fraud or wilful misconduct.

 

(c) Authorizes the corporation, before the corporation's determination of how to proceed on the allegations under Subsection (a), to petition the court in which the derivative proceeding has been instituted, or a court having jurisdiction if no derivative proceeding has been instituted, to request a determination as to whether the directors identified or appointed under Subsection (a)(1) (relating to a derivative proceeding made by an affirmative vote of the majority of all independent and disinterested directors of the corporation) or (2) (relating to a derivative proceeding made by an affirmative vote of the majority of a committee consisting of one or more independent and disinterested directors appointed by an affirmative vote of the majority) are independent and disinterested with respect to the allegations made in the demand.

 

(d) Requires the corporation, for purposes of Subsection (c), if a derivative proceeding has been instituted, to promptly deliver a copy of the petition to the shareholder making the demand who will have the right, if promptly exercised, to challenge the petition before the court makes its determination.

 

(e) Provides that, after hearing and reviewing the evidence presented, the court will make its determination as to whether the directors are independent and disinterested.

 

(f) Provides that the court's determination that the directors or individuals are independent and disinterested under this section is presumptively dispositive and binding in the derivative proceeding, if it has been instituted, or in any subsequent lawsuit or other legal proceeding involving the issue of whether those directors or individuals were independent and disinterested when they made the determination on how to proceed with respect to the allegations made.

 

(g) Provides that, to overcome the presumption under Subsection (f), any person asserting in the derivative proceeding or the subsequent lawsuit or other legal proceeding that the directors or individuals are not independent and disinterested:

 

(1) is required to provide evidence of material facts not presented in the proceedings in which the court made that determination; and

 

(2) has the burden to establish that one or more of those directors or individuals was not independent and disinterested when the director or individuals made the determination on how to proceed with respect to the allegations made in the demand.

 

SECTION 31. Amends Section 21.561, Business Organizations Code, by adding Subsection (c), to provide that, for the purposes of Subsection (b)(1) (relating to authorizing the court to order the corporation to pay expenses the plaintiff incurred in the proceeding if the court makes certain findings), substantial benefit to the corporation does not include additional or amended disclosures made to the shareholders, regardless of materiality.

 

SECTION 32. Amends Section 21.562(a), Business Organizations Code, as follows:

 

(a) Provides that, in a derivative proceeding brought in the right of a foreign corporation, the matters covered by this subchapter are governed by the laws of the jurisdiction of formation of the foreign corporation, except for certain sections, which with respect to foreign corporations are procedural provisions and do not relate to the internal affairs of the foreign corporation, unless applying the laws of the jurisdiction of formation of the foreign corporation requires otherwise with respect to Section 21.555 (Stay of Proceeding).

 

SECTION 33. Amends Section 21.563(b), Business Organizations Code, as follows:

 

(b) Provides that Sections 21.552 (Standing to Bring Proceeding)21.560 (Discontinuance or Settlement) do not apply to a derivative proceeding, rather than to a claim or a derivative proceeding, by a shareholder of a closely held corporation against a present or former director, officer, or shareholder of the corporation. Provides that, in the event the shareholder also asserts a claim in the derivative proceeding against a person who is not a present or former director, officer, or shareholder, this subsection applies only to a claim in the derivative proceeding against a present or former director, officer, or shareholder. Makes nonsubstantive changes.

 

SECTION 34. Amends Sections 21.901(2) and (4), Business Organizations Code, to redefine "defective corporate act" and "failure of authorization."

 

SECTION 35. Amends Section 21.902, Business Organizations Code, as follows:

 

Sec. 21.902. RATIFICATION OF DEFECTIVE CORPORATE ACT AND PUTATIVE SHARES. (a) Provides that, except as provided by Subsection (b) and subject to Section 21.909 (Adoption of Resolutions; Effect on Defective Corporate Act) or 21.910 (Adoption of Resolutions; Effect on Putative Shares), a defective corporate act or putative shares are not ineffective, void, or voidable solely as a result of a failure of authorization if the act or shares are ratified or validated in certain manners.

 

(b) Prohibits a corporation from ratifying with retroactive effect in accordance with Subchapter R (Ratification of Defective Corporate Acts or Shares; Proceedings) a defective corporate act resulting from a failure of authorization that is attributable to the failure to file with the filing officer certain filing instruments.

 

SECTION 36. Amends Sections 21.908(a), (b), and (c), Business Organizations Code, as follows:

 

(a) Requires the corporation to file a certificate of validation with respect to the defective corporate act in accordance with Chapter 4 (Filings), if:

 

(1) 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; and 

 

(2) the filing instrument or other document:

 

(A) previously filed with the filing officer requires any change to give effect to the defective corporate act in accordance with this subchapter, including a change to the date and time of the effectiveness of the filed filing instrument or other document; or

 

(B) was not previously filed with the filing officer under any other provision of the corporate statute, rather than regardless of whether a filing instrument or other document was previously filed with respect to the defective corporate act. 

 

Makes nonsubstantive changes to this subsection.

 

(b) Requires that the certificate of validation include:

 

(1) a statement that the corporation has ratified one or more defective corporate acts that would have required the filing of a filing instrument or other document with the filing officer under any provision of the corporate statute, rather than each defective corporate act that is a subject of the certificate of validation, including certain defective corporate acts;

 

(2) a statement that each defective corporate act has been ratified in accordance with this subchapter, rather than a statement that each defective corporate act was ratified in accordance with this subchapter, including certain dates; and

 

(3) as appropriate:

 

(A) deletes existing text requiring that the certification of validation include, if a filing instrument was meets certain requirements, certain information; and

 

(B) redesignates existing Paragraph (C) as Paragraph (B) and makes no further changes.

 

Makes nonsubstantive changes to this subsection.

 

(c) Provides that a filing instrument attached to a certificate of validation under this section, rather than under Subsection (b)(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.

 

SECTION 37. Amends Section 21.909, Business Organizations Code, as follows:

 

Sec. 21.909. ADOPTION OF RESOLUTIONS; EFFECT ON DEFECTIVE CORPORATE ACT. Provides that, on or after the validation effective time, unless determined otherwise in an action brought under Section 21.914 (Proceeding Regarding Validity of Defective Corporate Acts and Shares) and subject to Sections 21.902(b) and 21.907(e) (relating to providing that putative shares on the record date for determining shareholders entitled to vote on certain matters are not entitled to be counted for voting or quorum purposes), each defective corporate act ratified in accordance with this subchapter is prohibited from being considered ineffective, void, or voidable as a result of the failure of authorization described by the resolutions adopted under Sections 21.903 (Ratification of Defective Corporate Act; Adoption of Resolutions) and 21.904 (Quorum and Voting Requirements for Adoption of Resolutions), and the effect is required to be retroactive to the time of the defective corporate act. Makes a nonsubstantive change.

 

SECTION 38. Amends Section 21.910, Business Organizations Code, as follows:

 

Sec. 21.910. ADOPTION OF RESOLUTIONS; EFFECT ON PUTATIVE SHARES. Provides that, on or after the validation effective time, unless determined otherwise in an action brought under Section 21.914 and subject to Sections 21.902(b) and 21.907(e), each putative share or fraction of a putative share issued or purportedly issued pursuant to a defective corporate act ratified in accordance with this subchapter and described by the resolutions adopted under Sections 21.903 and 21.904 is prohibited from being considered ineffective, void, or voidable and is considered to be an identical share or fraction of a share outstanding as of the time it was purportedly issued. Makes a nonsubstantive change. 

 

SECTION 39. Amends Section 21.913(b), Business Organizations Code, as follows:

 

(b) Provides that 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 21.914 through 21.917 (Statute of Limitations) does not, of itself, affect the validity or effectiveness of any act or transaction or the issuance of any shares 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 or that those shares are ineffective, void, or voidable.

 

SECTION 40. Amends Section 21.915, Business Organizations Code, to provide that, subject to Section 1.056, the district court has exclusive jurisdiction to hear and determine any action brought under Section 21.914, and to make nonsubstantive changes. 

 

SECTION 41. Amends Section 21.917(b), Business Organizations Code, as follows:

 

(b) Provides that, notwithstanding any other provision of this subchapter, an action claiming that a defective corporate act or putative shares are ineffective, void, or voidable due to a failure of authorization identified in the resolutions adopted in accordance with Section 21.903 is prohibited from being filed in or is required to be dismissed by any court after the applicable validation effective time.

 

SECTION 42. Amends Sections 22.001(1) and (3-a), Business Organizations Code, to redefine "board of directors" and "director."

 

SECTION 43. Amends Section 22.218(a), Business Organizations Code, as follows:

 

(a) Provides that the certificate of formation or bylaws of the corporation is:

 

(1) authorized to designate one or more committees to have and exercise all, or a specified portion, of the authority of the board of directors of the corporation in the management of the corporation; or

 

(2) authorized to authorize the board of directors, by resolution adopted by the majority of the directors in office, to designate one or more committees to have and exercise all, or a specified portion, of the authority of the board in the management of the corporation to the extent permitted in the authorization in the certificate of formation or bylaws, rather than to the extent provided by the resolution, the certificate of formation, or the bylaws. 

 

Deletes existing text authorizing the board of directors if a corporation, by resolution adopted by the majority of the directors in office, if authorized by the certificate of formation or bylaws of the corporation, to designate one or more committees to serve certain functions.

 

SECTION 44. Amends Section 22.231(a), Business Organizations Code, to authorize any two or more offices, other than the offices of president and secretary, to be held by the same individual, rather than the same person. 

 

SECTION 45. Amends Sections 22.501(2) and (4), Business Organizations Code, to redefine "defective corporate act" and "failure of authorization."

 

SECTION 46. Amends Section 22.502, Business Organizations Code, as follows:

 

Sec. 22.502. RATIFICATION OF DEFECTIVE CORPORATE ACT. (a) Creates this subsection from existing text. Creates an exception under Subsection (b). Makes a conforming change 

 

(b) Prohibits a corporation from ratifying with retroactive effect in accordance with Subchapter J (Ratification of Defective Corporate Acts; Proceedings) a defective corporate act resulting from a failure of authorization that is attributable to the failure to file with the filing officer the certain filing instruments.

 

SECTION 47. Amends Sections 22.508(a), (c), and (d), Business Organizations Code, as follows:

 

(a) Requires the corporation to file a certificate of validation with respect to the defective corporate act in accordance with Chapter 4, if:

 

(1) 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; and

 

(2) the filing instrument or other document:

 

(A) previously filed with the filing officer requires any change to give effect to the defective corporate act in accordance with this subchapter, including a change to the date and time of the effectiveness of the filed filing instrument or other document; or

 

(B) was not previously filed with the filing officer under any other provision of the corporate statute with respect to the defective corporate act, rather than regardless of whether a filing instrument or other document was previously filed with respect to the defective corporate act. 

 

Makes a nonsubstantive change to this subsection.

 

(c) Requires that the certification of validation include:

 

(1) a statement that the corporation has ratified one or more defective corporate acts that would have required the filing of a filing instrument or other document with the filing officer under any provision of the corporate statute, rather than each defective corporate act that is a subject of the certificate of validation, including the certain information.

 

(2) a statement that each defective corporate act has been ratified in accordance with this subchapter, rather than a statement that each defective corporate act was ratified in accordance with this subchapter including certain dates; and 

 

(3) as appropriate, if certain criteria are met, certain information.

 

Deletes existing text requiring that the certificate include, if a filing instrument meets certain requirements, certain information.

 

(d) Provides that a filing instrument attached to a certificate of validation under this section, rather than Subsection (e)(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.

 

SECTION 48. Amends Section 22.509, Business Organizations Code, as follows:

 

Sec. 22.509. ADOPTION OF RESOLUTIONS; EFFECT ON DEFECTIVE CORPORATE ACT. Prohibits each defective corporate act ratified in accordance with this subchapter, on or after the validation effective time, unless determined otherwise in an action brought under Section 22.512 (Proceeding Regarding Validity of Defective Corporate Acts) and subject to Section 22.502(b), from being considered ineffective, void, or voidable as a result of the failure of authorization described by the resolutions adopted under Sections 22.503 (Ratification of Defective Corporate Acts; Adoption of Resolutions) and 22.504 (Quorum and Voting Requirements For Adoption of Resolutions), and the effect is required to be retroactive to the time of the defective corporate act.

 

SECTION 49. Amends Section 22.513, Business Organizations Code, to provide that, subject to Section 1.056, the district court has exclusive jurisdiction to hear and determine any action brought under Section 22.512 and to make a nonsubstantive change. 

 

SECTION 50. Amends Section 22.515(b), Business Organizations Code, to make a conforming change.

 

SECTION 51. Amends Subchapter C, Chapter 101, Business Organizations Code, by adding Section 101.1055, as follows:

 

Sec. 101.1055. SUBSCRIPTIONS. (a) Provides that a subscription to purchase a membership interest in a limited liability company in the process of being formed is irrevocable to the extent provided by the terms of the subscription if the subscription is in writing and signed by the subscriber and the subscription states that it is irrevocable.

 

(b) Provides that a written subscription entered into after the limited liability company is formed is a contract between the subscriber and the company.

 

SECTION 52. Amends Section 101.109(a), Business Organizations Code, as follows:

 

(a) Provides that a person who is assigned a membership interest in a limited liability company is entitled to:

 

(1) makes no changes to this subdivision; 

 

(2) makes a nonsubstantive change to this subdivision; and 

 

(3) the rights described by Section 101.502 (Right to Examine Records), rather than require, for any proper purpose, reasonable information or a reasonable account of the transactions of the company.

 

Deletes text of existing of Subdivision (4) providing that a person who is assigned a membership interest in a limited liability company is entitled to make, for any proper purpose, reasonable inspections of the books and records of the company. 

 

SECTION 53. Amends Section 101.463(b), Business Organizations Code, as follows:

 

(b) Provides that certain sections do not apply to a derivative proceeding, rather than a claim or a derivative proceeding, by a member of a closely held limited liability company against a present or former governing person, member, or officer of the limited liability company. Provides that in the event the member also asserts a claim in the derivative proceeding, rather in the extent the claim or derivative proceeding is also made, against a person who is not a present or former governing person, member, or officer, this subsection applies only to a claim in the derivative proceeding against a present or former governing person, member, or officer. Makes conforming and nonsubstantive changes. 

 

SECTION 54. Amends Subchapter F, Chapter 153, Business Organizations Code, by adding Section 153.258, as follows:

 

Sec. 153.258. SUBSCRIPTIONS. (a) Provides that a subscription to purchase a partnership interest in a limited partnership in the process of being formed is irrevocable to the extent provided by the terms of the subscription if the subscription is in writing and signed by the subscriber and the subscription states that it is irrevocable.

 

(b) Provides that a written subscription entered into after the limited partnership is formed is a contract between the subscriber and the partnership.

 

SECTION 55. Amends Section 153.413(b), Business Organizations Code, as follows:

 

(b) Provides that certain sections do not apply to a derivative proceeding, rather than a claim or a derivative proceeding by a limited partner of a closely held limited partnership against a present or former general partner, limited partner, or officer of the limited partnership. Requires that this subsection, in the event the limited partner also asserts a claim in the derivative proceeding, rather than in the event a claim or derivative proceeding is also made, against a person who is not a present or former general partner, limited partner, or officer, apply only to a claim in the derivative proceeding against a present or former general partner, limited partner, or officer. Makes conforming and nonsubstantive changes. 

 

SECTION 56. Amends Section 153.533(a-1), Business Organizations Code, as follows:

 

(a-1) Requires that the following certificates be executed as follows:

 

(1) makes no changes to this subdivision;

 

(2) a certificate of amendment or restated certificate of formation containing amendments is required to be signed by at least one general partner and by each other general partner designated in the certificate of amendment or the restated certificate of formation as a new general partner, unless signed and filed by a person under certain provisions, but the certificate of amendment or the restated certificate of formation need not be signed by a withdrawing general partner;

 

(3) makes no changes to this subdivision; 

 

(4) a certificate of merger, rather than a certificate of merger, conversion, or exchange, filed on behalf of a domestic limited partnership is required to be signed by at least one general partner and by each other general partner designated as a new general partner by any amendment to the certificate of formation of the limited partnership being made by the certificate of merger, but the certificate of merger need not be signed by a withdrawing general partner, rather than as provided by Chapter 10;

 

(5) a certificate of conversion or exchange filed on behalf of a domestic limited partnership is required to be signed by at least one general partner; and

 

(6) a certificate filed under Subchapter G (Bankruptcy Reorganization), Chapter 10, is required to be signed by the person designated by the court.

 

Makes nonsubstantive changes to this subsection.

 

SECTION 57. Amends Section 251.352(a), Business Organizations Code, to require that the annual report submitted by a cooperative association to its members contain certain information including the name, address, occupation, and date of expiration of the term of office of each officer and director and any compensation paid by the association to each officer or director of the association, and to make nonsubstantive changes. 

 

SECTION 58. Amends Section 252.017(b), Business Organizations Code, to provide that certain chapters, including Chapters 2 (Purposes and Power of Domestic Entity), and 11 and, if a nonprofit association designates an agent for service of process, Subchapter E (Registered Agents and Registered Offices), Chapter 5 (Names of Entities; Registered Agents and Registered Offices), apply to a nonprofit association.

 

SECTION 59. Repealer: Section 153.502(c) (relating to prohibiting the requirement that a domestic entity that is not a general partnership to send a written notice of the winding up to certain claimants from being applicable to a limited partnership), Business Organizations Code.

 

Repealers: Sections 251.353 (Annual Report of Financial Condition) and 251.354 (Failure to File Report), Business Organizations Code.

 

SECTION 60. Makes application of Sections 21.551, 21.554, 21.561, and 21.562, Business Organizations Code, as amended by this Act, prospective. 

 

SECTION 61. Effective date: September 1, 2025.