GEC H.B. 1104 75(R) BILL ANALYSIS BUSINESS & INDUSTRY H.B. 1104 By: Solomons 3-28-97 Committee Report (Amended) BACKGROUND Over the past three years, the Corporation Law, Partnership and Limited Liability Committees of the Business Law Section of the State Bar of Texas have drafted proposed amendments to the Texas Business Corporation Act (the "TBCA"), the Texas Miscellaneous Corporation Laws Act (the "TMCLA"), the Texas Limited Liability Company Act (the "TLLCA"), the Texas Revised Limited Partnership Act (the "TRLPA") and the Texas Revised Partnership Act (the "TRPA"). The proposed amendments were also drafted with the assistance of the Office of the Secretary of State of the State of Texas and incorporate various proposed changes desired by that office to simplify filing requirements and to address commonly asked questions. This bill reflects the combined efforts of the Business Law Section and the Secretary of State's Office on these matters. This bill is substantially the same bill as House Bill No. 1425, which was presented for consideration at the 1995 Legislative Session and which was passed by the House and reported out of the Committee for Economic Development in the Senate with a do pass recommendation. Changes made to the bill primarily reflect amendments proposed by the Secretary of State and other amendments that were considered to be desirable to modernize and add flexibility to the Texas business organizations laws. A number of the proposed amendments are technical in nature (i.e., the proposed amendment to Article 4.03 of the TBCA (which contains an incorrect cross reference)), or provide conforming changes to include definitions contained elsewhere in the TBCA. Other proposed amendments address questions not previously addressed in the statutes or reported by Texas cases (e.g., the proposed amendment to Article 2.28, which clarifies the treatment of broker nonvotes and the effect on a vote of shares that do not vote expressly for, against or abstain on a particular matter). In addition, other proposed amendments change existing statutes or add new statutes to adopt concepts found in the Revised Model Business Corporation Act (the "RMBCA") or in the corporation laws of other states that are viewed desirable in which to incorporate (e.g., the proposed amendment adding Part Thirteen to the TBCA relating to certain business combinations with affiliated shareholders is based on similar statutes in Delaware and New York that have been found to be beneficial to shareholders and the amendments to the limited liability partnership statutes are based on similar statutes in New York and other jurisdictions and a proposed uniform limited liability partnership act). The bill also includes various proposed amendments relating to the introduction of a new corporate transaction known as a conversion, which will permit corporations, limited liability companies and partnerships an additional option in which to effect a change in their organizational form. Finally, the bill contains various conforming and clean-up changes to the TRLPA and TRPA. PURPOSE The proposed amendments represent a continuing effort by the Business Law Section and the Secretary of State's Office to provide Texas with modern and flexible business laws which should make Texas a more attractive jurisdiction in which to incorporate or organize and to facilitate economic transactions by Texas entities. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS 1 . Article 1.02 of the TBCA is proposed to be amended to amend the definitions of "other entity", "share dividend" and "treasury shares", to add the definitions "associate", "converted entity", "converting entity", "conversion", "disinterested" and "independent" and to renumber the remaining definitions. 2 The amendment to the definition of "other entity" is intended to provide a single definition that can be used throughout the TBCA to refer to entities other than domestic or foreign corporations. The prior qualifications contained in the definition of "other entity" relating to mergers and share exchanges are either included or proposed to be added to the applicable articles in the TBCA governing those transactions. The amendment to the definition "share dividend" is intended to clarify that a stock split or reclassification is not a share dividend. The amendment to the definition of "treasury shares" is intended to make clear that shares held by a corporation through a trust or similar arrangement or in a fiduciary capacity will not be considered treasury shares and may be voted. A conforming change to Article 2.29B of the TBCA is also proposed. The addition of the terms "associate", "converted entity", "converting entity", "conversion", "disinterested" and "independent" relate to other proposed amendments to the TBCA set forth in the bill. The term "associate" is based on the definition of that term contained in the Securities Exchange Act of 1934, and the definitions of "disinterested" and "independent" are based on concepts contained in the RMBCA, the principles of the ALI Corporate Governance Project and existing Texas law interpreting these terms. The definitions of "converted entity", "converting entity" and "conversion" are definitions used in proposed Articles 5.17 through 5.20 relating to conversions. S1. . The proposed amendments to Article 2.02-1A, P and R are conforming in nature and reflect the addition of the term "other entity" in lieu of other enterprise. A typographical error in Article 2.02-T is also proposed to be corrected. S2. . Article 2.05 of the TBCA is proposed to be amended to expand the types of entities to which the deceptively similarly named provisions of that article will apply. S3. . Article 2.06 of the TBCA is proposed to be amended by adding a new Section D that would allow a person to terminate the reservation of a corporate name prior to the expiration of the period for which the name is reserved. S4. . Article 2.15A and B of the TBCA is proposed to be amended to eliminate the requirement that consideration be expressed in dollars. This amendment is intended to provide flexibility to corporations in establishing the consideration for shares following the 1994 amendment to the Texas Constitution removing the restrictions on the types of consideration that may be received for shares. The proposed amendment also provides that the consideration for shares issued by a new corporation pursuant to a plan of merger or conversion may be contained in the plan of merger or conversion. 0289150.04 -- S5. . Article 2.16 of the TBCA is proposed to be amended to eliminate the reference to restrictions in the Constitution of the State of Texas on valid consideration in light of the repeal of that provision. A new Section B to Article 2.16 is also proposed to be added permitting shares of a corporation to be authorized pursuant to a plan of merger or conversion and to confirm that such shares when issued will be fully paid and nonassessable. S6. . Article 2.21 is proposed to be amended to eliminate the failure to comply with corporate formalities as being a basis for piercing the corporate veil for any obligation of a corporation. Currently, the failure to follow corporate formalities is not a basis for imposing liability on shareholders of close corporations under the TBCA for contractual obligations or for any other obligations of the corporation. This amendment would extend this principle to all corporations. The amendment also reflects the flexibility that is now available to Texas corporations in establishing their internal corporate formalities and the fact there is no causal connection between the failure to follow formalities and the existence of a liability of a corporation to another party. The amendment also provides that affiliates of a shareholder or subscriber will be provided with the same protection as the shareholder or subscriber. S7. . Article 2.28 is proposed to be amended to provide that once a quorum of shareholders is met at a meeting, any action may be taken at that meeting subject to the receipt of the required vote. This change conforms the Texas statute to that of other jurisdictions, such as Delaware. Article 2.28B is also proposed to be amended to change the basic vote requirement for approval of matters that are not otherwise provided by statute or in the articles of incorporation of a corporation to a majority of the shares that vote for, against or expressly abstain on the matter. The purpose of this amendment is to clarify the effect of those shares which may be present at a meeting but do not vote for, against or expressly abstain on the matter. In this regard, the amendment clarifies that broker nonvotes, i.e., shares of stock held by a shareholder through his broker or dealer that may not be voted by the broker or dealer on a matter without instructions from the shareholder, will not be counted as a vote for or against the matter. A 1994 change in the proxy rules under the federal securities laws requires disclosure as to the effect of such broker nonvotes. A new Section E is proposed to allow corporations to establish procedures in their bylaws that are consistent with the TBCA for determining when proxies are valid and the effect of broker nonvotes. S8. . Article 2.29B of the TBCA is proposed to be amended to permit a corporation that may hold or control shares of its own stock through a trust or otherwise to vote those shares. This amendment conforms the TBCA's treatment of this issue to that of other jurisdictions, including Delaware. S9. . A new Article 2.30-1 of the TBCA relating to shareholder agreements is proposed to be added. This amendment, which is based on a similar article in the RMBCA, essentially allows corporations by agreement among all shareholders to modify the discretion and powers of their board of directors, the means for authorizing and making distributions, the terms of election of officers and directors, the use of property of the corporation, the allowance of arbitration provisions and the granting of management authority to shareholders. Currently, such agreements may only be entered into by corporations electing to be "close" corporations under Part Twelve of the TBCA. The amendment will allow corporations to enter into such agreements without having to elect close corporation status as long as all shareholders at the time of the execution of the agreement so agree. Various procedural and notice provisions are also proposed to be added. Such agreements will not be available to corporations that are publicly traded. The proposed amendment will provide Texas corporations greater flexibility in structuring their internal affairs. S10. . Article 2.31 of the TBCA is proposed to be amended to add a reference to the provisions of the TBCA that permit a corporation to modify the general rule that a corporation will be managed under the direction of its board of directors. S11. . Article 2.32 of the TBCA is proposed to be amended to provide that directors who have been elected as a class may not be removed except for cause. This amendment is based on a similar statute in Delaware. S12. . Article 2.35-1A of the TBCA is proposed to be amended to clarify that contracts between a corporation and its directors and officers or in which its directors and officers have a financial interest will be valid notwithstanding that interest if (i) the disinterested directors of the corporation after disclosure of the interest approve the transaction, (ii) the shareholders of the corporation after disclosure of the interest approve the transaction or (iii) the transaction is otherwise fair. If any one of these conditions is met, the contract will be considered valid notwithstanding the director or officer has an interest in the transaction. Some uncertainty as to the scope of Article 2.35-1 has existed over the years because case law interpretations of a similar statute in Delaware has held that approval by disinterested directors or by shareholders does not necessarily result in a valid contract. The proposed amendment is intended to eliminate this uncertainty. In addition, Article 2.35-1A of the TBCA did not previously contain a definition of what constitutes a disinterested director for the statute. To provide greater certainty on this issue, a new definition of "disinterested" is proposed to be added to Article 1.02. See Section 1. Under this definition, a director will be considered "disinterested" if the director is not a party to the contract or transaction or does not otherwise have a material financial interest in the outcome of the contract. S13. . Article 2.36B of the TBCA is proposed to be amended to add the approval of a plan of conversion as an item which a whole board of directors must approve. S14. . Article 2.38-4B of the TBCA is proposed to be amended to allow for the determination of surplus in the case of an obligation by a corporation to redeem, exchange, purchase or otherwise acquire its own shares to be either on the date on which the obligation to redeem, exchange, purchase or otherwise acquire is made or on the date the shares are to be redeemed, exchanged, purchased or acquired. This amendment conforms the manner in which the availability of surplus is determined for contractual redemptions, exchanges, purchases or acquisitions of shares to that used for purchases of shares in which a debt obligation is incurred. S15. . Article 3.01 of the TBCA is proposed to be amended to incorporate the definition of "other entity". S16. . Article 3.02A of the TBCA is proposed to be amended to delete the requirement that the articles of incorporation state that the $1,000 minimum subscription for shares prior to commencing business consists of money, labor done and property received in order to conform the broader forms of consideration that may be received for shares as a result of the recent Constitutional amendment removing the restrictions on the types of legal consideration for shares. Article 3.02A is also proposed to be amended to require a corporation that is being incorporated through a plan of conversion or a plan of merger to make a statement in its articles of incorporation stating that fact. S17. . Section 3.03 of the TBCA is proposed to be amended to establish procedures for incorporating a corporation created by a plan of merger or plan of conversion. S18. . Article 3.04 of the TBCA is proposed to be amended to provide that a corporation that is incorporated pursuant to a plan of conversion or a plan of merger will be incorporated upon the effectiveness of the conversion. S19. . Article 3.05 of the TBCA is proposed to be amended to delete the requirement that the $1,000 in consideration required prior to a corporation being authorized to transact business be in the form of money, labor done or property actually received. The deletion is the result of the elimination of the prior constitutional restriction on the types of consideration that may be received for shares. This change also conforms the restrictions in Article 3.05 to the provisions of Article 2.15 of the TBCA. S20. . Article 3.06 of the TBCA is proposed to be amended to eliminate the requirement of an organizational meeting of the board of directors of a corporation that is created pursuant to a plan of conversion or merger if the plan of conversion or merger sets forth the bylaws and initial officers of the corporation. Where a corporation is created by conversion or merger, the actions to be taken at the organizational meeting of the board are capable of being included in the plan of merger or conversion. Therefore, an organizational meeting is not considered necessary. Article 3.06 is also proposed to be amended to clarify the action required for a close corporation to organize the corporation. S21. . Article 4.03A of the TBCA is proposed to be amended to correct an incorrect cross reference in Article 2.13. S22. . Article 4.14 of the TBCA is proposed to be amended to add a conversion as an additional type of transaction that may be effected pursuant to a bankruptcy reorganization. S23. . Article 5.01B is proposed to be amended to clarify that articles of incorporation of a corporation created by a plan of merger are to be attached as an exhibit or attachment to a plan of merger. Article 5.01B is also proposed to be amended to clarify that different forms of consideration may be provided to shareholders in a merger. S24. . Article 5.02A of the TBCA is proposed to be amended to add the restriction previously contained in the definition "other entity" on the ability of "other entities" to participate in share exchanges and Article 5.02B is proposed to be amended to make clear that different forms of consideration may be provided to different holders in a share exchange. S25. . Article 5.03 of the TBCA is proposed to be amended to clarify the procedures for abandoning a plan of merger after shareholder approval. Article 5.03 is also proposed to be amended to make clear that no shareholder vote is required by any corporation that is a party to a plan of merger but is not one of the merging corporations. In addition, Article 5.03 is proposed to be amended to add a new Section H that would eliminate the need for a shareholder vote when a corporation is merging in connection with the creation of a holding company if certain conditions are met. In the context of a holding company merger, the new corporation must be identical to the old corporation and protections with respect to shareholder votes must be contained in the holding company's articles of incorporation. S26. . Article 5.04 of the TBCA is proposed to be amended to eliminate the requirement that a plan or merger or exchange be filed with the Secretary of State if the corporation certifies that the plan of merger has been executed and approved and that an executed copy of the plan of merger is on file at the principal location of each surviving, acquiring or new corporation or other entity and that a copy of the plan of merger or exchange will be furnished without cost to any shareholder, creditor or obligee of the corporation. This provision is based on a similar provision under Delaware law and is intended to simplify the filing process. Article 5.04C of the TBCA is also proposed to be amended to address a procedural difficulty encountered in connection with the requirement that franchise taxes be paid prior to effectiveness even if not then due. The amendment will permit a merger to be effected without the payment of accrued franchise taxes, if the surviving entities are obligated to pay those taxes under the plan of merger. S1. . Article 5.10B of the TBCA is proposed to be amended to state that a sale of substantially all of the assets of a corporation will not be considered a merger or conversion. S2. . Article 5.11 of the TBCA is proposed to conform the dissenters' rights provisions relating to sales of substantially all assets of a corporation that require shareholder approval to the provisions relating to mergers. Article 5.11 of the TBCA is also proposed to be amended to add securities quoted on the national market system of the National Association of Securities Dealers as securities that may be received in a merger without appraisal rights being granted to the holders of similar traded public securities. The amendment results in such securities being treated in the same manner as securities listed on The New York Stock Exchange or American Stock Exchange and makes the TBCA consistent with others jurisdictions that have added this same exception in light of the general acceptance of the NASDAQ national market system as an efficient market for securities. Article 5.11 is also proposed to be amended to provide that dissenters rights will be available in a transaction if a shareholder is required by the terms of a plan of merger or plan of exchange to accept any consideration that is different than the consideration (other than cash in lieu of fractional shares) to be provided to any other holder of shares of the same class or series of shares held by that shareholder. S1. . Article 5.14 of the TBCA is proposed to be amended to update the procedures governing the consideration and disposition of derivative proceedings, including a codification of procedures under which a disinterested and independent group of directors or persons appointed by a court may determine the appropriate action that should be taken with respect to a derivative proceeding. The provisions of the amended Article 5.14 are based on similar provisions contained in the RMBCA and incorporates concepts from the ALI Corporate Governance Project. S2. . Article 5.16 of the TBCA is proposed to be amended to allow short form mergers with entities other than corporations. This amendment is a conforming change to Article 5.01, which allows such mergers. S3. . Part Five of the TBCA is proposed to be amended to add new Articles 5.17, 5.18, 5.19 and 5.20 that will provide for a new form of corporate transaction defined as a conversion. A conversion will be similar to a merger in form but will differ from a merger in that the underlying transaction will not involve any combination or division of the corporation, but rather involve only a change in organizational form with the organization continuing in existence without interruption. Similar statutes are found in Wyoming, Louisiana and Pennsylvania. Delaware also has an analogous statute for domestications. Under the new provisions, a Texas corporation may convert into another corporation or entity if such conversion is permitted or not inconsistent with the laws governing the other corporation or other entity and other corporations and entities may convert into a Texas corporation if the laws governing the entities so permit. The procedures for a conversion, including the vote requirement, rights to dissent and filings, will be substantially the same as those for a merger. Because a conversion represents a mere continuation of an organization in a different organizational form, a conversion may only be effected where the new entity has no other business and may not be used in lieu of a merger between two pre-existing operating entities. However to the extent another jurisdiction does not expressly provide for a conversion, a Texas corporation may convert into such an entity by organizing that entity in connection with the conversion. In this circumstance, the entity could be a pre-existing entity as long as it was organized solely for the conversion. S1. . Article 6.03A(3) of the TBCA is proposed to be amended to conform the voting requirement for dissolutions with the voting requirements for mergers and sales of substantially all assets outside of the ordinary course of business. S2. . Article 6.05 of the TBCA is proposed to be amended to conform the voting requirement for the revocation of a dissolution to the voting requirements for mergers and sales of substantially all assets outside of the ordinary course of business. Article 6.05 is also proposed to be amended to eliminate the requirement that a copy of a resolution approving a voluntary dissolution be filed with the articles of revocation of dissolution. S3. . Article 6.06A of the TBCA is proposed to be amended to conform the requirements for Articles of Dissolution to the new vote requirement under Article 6.03. Article 6.06A is also proposed to be amended to eliminate the requirement that the articles of dissolution include a copy of the resolution authorizing the dissolution. S4. . Article 7.01E of the TBCA is proposed to be amended to expand the types of entities to which a corporation's name may not be deceptively similar. S5. . Article 8.03A of the TBCA is proposed to be amended to expand the types of entities to which a foreign corporation's name may not be deceptively similar. S6. . Article 8.14 of the TBCA is proposed to be amended to delete the requirement that all creditors and claimants be paid prior to a foreign corporation being entitled to withdraw from its qualification to do business in the State of Texas. This amendment will not affect the criteria for when a corporation is required to qualify to do business in the State of Texas or limit the liability of a foreign corporation for obligations in the State. S7. . Article 8.15 of the TBCA is proposed to be amended to require that a certificate of the Comptroller of Public Accounts be filed in connection with an application to withdraw. S8. . Article 8.16E of the TBCA is proposed to be amended to extend the period of time during which a corporation may have its certificate of authority reinstated from 12 months to 36 months and to make certain conforming changes relating to the use of deceptively similar names. S9. . Article 9.04A of the TBCA is proposed to be amended to make conforming changes utilizing the definitions of a share exchange, conversion and other entity. S10. . Article 9.10 of the TBCA is proposed to be amended to add a new Section D to clarify that if action is taken by shareholders by written consent, any notice requirement otherwise mandated under the TBCA will not apply. S11. . Article 10.01A is proposed to be amended to clarify the filing fee requirements for Articles of Exchange and to require a filing fee of $300.00 for the filing of Articles of Conversion. S12. . Article 10.03A is proposed to be amended to add conversions to the list of "Permitted Acts" for which delayed effectiveness may be permitted under the TBCA. S13. . Article 12.13 of the TBCA is proposed to be amended to allow corporations to elect close corporation status pursuant to a plan of conversion. S14. . Article 12.21 of the TBCA is proposed to be amended to permit the termination of close corporation status through a conversion. S15. . A new Part Thirteen is proposed to be added to the TBCA to impose a special voting requirement for the approval of certain business combinations and related party transactions between public corporations and affiliated shareholders unless the transaction or the acquisition of shares by the affiliated shareholder is approved by the board of directors prior to the affiliated shareholder becoming an affiliated shareholder. This statute is based on 203 of the Delaware General Corporation Law and a similar statute contained in New York. Part Thirteen will prohibit certain self-dealing types of transactions between shareholders beneficially owning 20% or more of the outstanding stock of a Texas public corporation (such shareholder being defined as an affiliated shareholder) for a period of three years following the shareholder acquiring 20% of the corporation unless two-thirds of the unaffiliated shareholders approve the transaction. The provisions requiring such a vote of shareholders will not apply to any transaction with an affiliated shareholder if the transaction or the purchase of shares by the affiliated shareholder is approved by the board of directors before the affiliated shareholder acquires beneficial ownership of 20% of the shares or if the affiliated shareholder was an affiliated shareholder prior to December 31, 1996, and continued as such through the date of the transaction. Corporations may also opt out of the statute by adopting a by-law or charter amendment prior to December 31, 1997. Part Thirteen also expressly allows directors to consider the long term interest of a corporation and its shareholders when considering actions that affect the interest of their corporations. S1. . Article 1302-2.06 of the TMCLA is proposed to be amended to eliminate the restrictions on the type of consideration for the incurrence of indebtedness by corporations in light of the amendments to the Texas Constitution in 1993. Article 2.06 of the TMCLA is proposed to be amended to provide greater flexibility for corporations and other entities in issuing guarantees, in particular, guarantees of obligations of affiliated entities. Section 49. Article 7.07 of the TMCLA is proposed to be amended to authorize the Secretary of State to accept filings in an electronic format and to establish rules and regulations for electronic filings under the TBCA, TNPCA, the TLLCA or any special statute of the State of Texas pertaining to a particular type of corporation or entity to which the general corporate laws of the State of Texas are applicable. Section 50. A new Article 7.08 of the TMCLA is proposed to be added to establish certain procedures for the filing of duplicate instruments. Section 51. Section 9 of the Professional Association Act is proposed to be amended to conform the duties of the Board of Directors to that of the directors of a Texas corporation. Section 52. Article 1.02A of the TLLCA is proposed to be amended to make clear that business trusts, governments and their agencies and subdivisions, and other entities, regardless of the jurisdiction of formation are recognized as "persons" for purposes of the TLLCA. Also, Article 1.02 of the TLLCA is proposed to be amended to add definitions to be used in proposed Articles 10.08 through 10.11 of the TLLCA relating to conversions. Section 53. Article 2.09 of the TLLCA is proposed to be amended to eliminate the potential trap created by the TLLCA by requiring that the regulations must be adopted by the managers or members named in the articles of organization. The default provisions of the TLLCA are designed to be used in "mom and pop" situations. It is felt that a requirement to take a specific action to adopt regulations creates an unnecessary question as to the validity of the regulations if such action is not taken. Thus, the elimination of this provision will leave the parties to adopt regulations through usage and custom and also allow the later adoption of initial regulations by subsequent members or managers if the initial members or managers fail to do so. Article 2.09 of the TLLCA is also proposed to be amended to add new Sections B and C to clarify the vote required for the adoption, alteration, amendment or repeal of regulations in the absence of a provision relating to the same in the articles of organization or regulations of a limited liability company. Sections 54, 55, and 56. Article 2.13, Article 2.15A, Article 2.15B, Article 2.17A, and Article 2.17B of the TLLCA are proposed to be amended to add a proviso making clear that the provisions of these Articles of the TLLCA may be varied by the articles of organization or the regulations, thus expanding the flexibility of the TLLCA. Section 57. Article 2.19 of the TLLCA is proposed to be amended to make various clarifications in voting, organization, and notice matters relating to limited liability companies. Section 58. Section A of Article 2.20 of the TLLCA is proposed to be amended to allow limited liability companies to indemnify their members, managers, officers and other persons subject to such standards and restrictions as may be set forth in their articles of organization or regulations. A new Section B is also added which will provide that a limited liability company may provide that its members, managers, officers and other persons have such duties and liabilities relating to the limited liability company or another member or manager as may be set forth in its regulations. Section 59. Article 2.22A and B of the TLLCA is proposed to be amended to make clear that the regulations are not required to be in writing. Section 60. Article 2.23A of the TLLCA is proposed to be amended to make clear that voting by members may be by proxy. Article 2.23D of the TLLCA is proposed to be amended to eliminate the right of members to amend articles of organization or regulation by a majority vote. This provision is now proposed to be included in new Sections G and H of Article 2.23, which provide for more detailed procedures for the amendment of articles of organization or regulations. Section 61. Article 3.02A of the TLLCA is proposed to be amended to require a limited liability company that is being organized pursuant to a plan of merger or a plan of conversion to make a statement in its articles of organization to that effect. Section 62. Article 3.03 of the TLLCA is proposed to be amended to establish procedures for organizing a limited liability company created by a plan of merger or a plan of conversion. Section 63. Article 3.04 of the TLLCA is proposed to be amended to provide that a limited liability company that is organized pursuant to a plan of conversion or a plan of merger will be organized upon the effectiveness of the conversion. Section 64. Article 3.06A of the TLLCA is proposed to be amended to add procedures for amendments to articles by initial managers or initial members in accordance with Article 2.23. Section 65. Article 5.01A of the TLLCA is proposed to be amended to expand the types of consideration that may be received for interest in a limited liability company in order to conform this provision to the TBCA. Section 66. Article 5.02D of the TLLCA is proposed to be amended to make clear that a conditional obligation to make a contribution may not be enforced unless the conditions to the obligation have been satisfied or waived. Article 5.02 is also proposed to be amended to make clear that conditional obligations include contributions payable upon a discretionary call of the limited liability company. Section 67. Article 5.08 of the TLLCA is proposed to be amended to make a conforming language change. Section 68. Article 6.01A of the TLLCA is proposed to be amended to eliminate an incorrect reference to "limited company" and to provide a default provision for the vote required for a dissolution of a limited liability company. Section 69. Article 6.04 of the TLLCA is proposed to be amended to fix an incorrect cross reference in the statue. Section 70. Article 6.08 of the TLLCA is proposed to be amended to require the presentation of a certificate from the Comptroller's office that all franchise taxes have been paid as a condition to the acceptance of articles of dissolution of a limited liability company. Section 71. Article 7.10 of the TLLCA is proposed to be amended to require the presentation of a certificate from the Comptroller's office that all franchise taxes have been paid as a condition to the acceptance of an application of withdrawal by a foreign limited liability company. Section 72. Article 7.11 of the TLLCA is proposed to be amended to extend the period of time during which a limited liability company may have its certificate of authority reinstated from 12 months to 36 months and correct an incorrect reference. Section 73. Article 7.13B of the TLLCA is proposed to be amended to make clear that the failure of a foreign limited liability company to qualify to do business in this State does not impair the limitation on liability of members. Section 74. Article 8.12B of the TLLCA is proposed to be amended to eliminate the cross reference to Article 7.06 of the TMCLA relating to limitation of liability of directors in light of the more specific provisions contained in the TLLCA relating to such matters. Article 8.12C of the TLLCA is proposed to be amended to make clear that references to "director" in the TMCLA for purposes of the TLLCA include a member who manages a Limited Liability Company. Section 75. Article 9.01A of the TLLCA is proposed to be amended to establish a filing fee for the filing of articles of conversion that would be equivalent to the fee required for the filing of articles of merger. Section 76. Article 9.03A of the TLLCA is proposed to be amended to add conversions as a type of transaction that may be effected on a delayed basis. Section 77. Article 9.03F of the TLLCA is proposed to be amended to add a reference to the term articles of conversion and a certificate of abandonment. Section 78. Article 10.03 of the TLLCA is proposed to be amended to simplify the procedures for payment of franchise taxes in connection with mergers. Section 79. Part Ten of the TLLCA is proposed to be amended to add new Articles 10.08 through 10.11 that will provide limited liability companies the right to effect conversions in the same manner that corporations may effect conversions pursuant to the proposed amendments to the TBCA. Section 80. Article 11.01B of the TLLCA is proposed to be amended to make clear that members of a professional limited liability company may be "professional individuals" or "professional entities". The amendment also adds a definition of a "professional individual" and a "professional entity". The definition of a "professional entity" is new and makes clear that another professional entity, such as a professional association, may be a member of a professional limited liability company. This change was intended to clarify the ability to create "multi-tier" professional entities. Sections 81, 82, 83, and 84. Article 11.03, Article 11.04A, Article 11.05A and Article 11.07A of the TLLCA are proposed to be amended to make reference to "professional individuals" and "professional entities". Section 85. Section 1.03(3) of the TRLPA is proposed to be amended to expand the types of entities to which the deceptively similarly name provisions of that article will apply. Section 86. Section 1.04(b) of the TRLPA is proposed to be amended to delete unnecessary language, and Section 1.04(c) of the TRLPA is proposed to be amended by adding a new subsection (c) that would allow a person to terminate the reservation of a limited partnership name prior to the expiration of the period for which the name is reserved. Section 87. Article 2.01 of the TRLPA is proposed to be amended to require a limited partnership that is being formed pursuant to a plan of merger or a plan of conversion to make a statement in its certificate of limited partnership to that effect. Article 2.01 of the TRLPA is also proposed to be amended to provide that a limited partnership that is formed pursuant to a plan of conversion or a plan of merger will be formed upon the effectiveness of the conversion. Sections 88 and 89. Sections 2.03(a), 2.03(c) and 2.04(a) of the TRLPA are proposed to be amended to make conforming changes to allow for conversions of limited partnerships to other forms of entities or other entities to limited partnerships. Section 90. Section 2.06(a)-(d) of the TRLPA (relating to reorganization by a bankruptcy court) is proposed to be amended to parallel the provisions in the TBCA and add language applying this section to conversions. Section 91. Section 2.07 of the TRLPA is proposed to be amended to add a new subsection (c) clarifying certain filing requirements and procedures. Section 92. Section 2.08(a) of the TRLPA is proposed to be amended to add forged and unauthorized filings to the list of items for which damages may be recovered by persons relying on false filings. Section 93. Section 2.11 of the TRLPA (relating to mergers and interest exchanges) is proposed to be amended to parallel the provisions in the TBCA and make some clarifications regarding partner liability. Section 94. Section 2.12 of the TRLPA is proposed to be amended to add conversions as a type of transaction that may be effected on a delayed basis. Section 95. Article 2 of the TRLPA is proposed to be amended to add a new Section 2.15 that will provide limited partnerships the right to effect conversions in the same manner that corporations may effect conversions pursuant to the proposed amendments to the TBCA. Section 96. Section 3.03(b) of the TRLPA is proposed to be amended to clarify that acting as a member or manager of a limited liability company or in a similar capacity with another person that is a general partner does not constitute taking part in control of the business of a limited partnership. Section 97. Section 5.01 of the TRLPA is proposed to be amended to expand the types of contributions that may be used for interests in a limited partnership and to conform this provision to the TBCA in respect of shares. Section 98. Section 5.02(d) of the TRLPA is proposed to be amended to make clear that a conditional obligation to make a contribution may not be enforced unless the conditions to the obligation have been satisfied or waived. Article 5.02 is also proposed to be amended to make clear that conditional obligations include contributions payable upon a discretionary call of the limited partnership. Section 99. Section 6.02(b) of the TRLPA is proposed to be amended to make certain clarifying changes with respect to the effect of a general partner ceases to be a general partner. Section 100. Section 6.03 of the TRLPA is proposed to be amended to reverse the statutory presumption that a limited partner has a right to withdraw on six months' notice. Partners may still grant a limited partner a right to withdraw in the partnership agreement. The current presumption is contrary to most parties' expectations and can complicate tax planning. Sections 101 and 102. The current version of TRLPA requires a limited partnership to dissolve whenever a general partner ceases to be a general partner, but allows reconstitution in certain cases in which at least one other general partner remains or is appointed. The proposed amendments to Section 8.01 and 8.02 of TRLPA provide that a limited partnership may continue without dissolution if at least one other general partner remains or is appointed. Section 103. Section 8.04(a) of the TRLPA is proposed to be amended to make conforming changes to the statute in light of the proposed amendments to Sections 8.01 and 8.02 of the TRLPA. Section 104. Section 12.01 of the TRLPA is proposed to be amended to establish the filing fee for the filing of a certificate of conversion for a limited partnership to be the same as the fee for the filing of a certificate of merger and to fix the filing fee for the reservation of a limited partnership name. Section 105. Section 13.04 of the TRLPA is proposed to be amended to authorize the Secretary of State to accept filings in electronic format and to establish rules and regulations for electronic filings. Section 106. This section conforms language in TRPA to parallel provisions in the national Uniform Partnership Act (1994). Section 107. This section adds language making explicit that restrictions on liability due to a partnership's being a registered limited liability partnership are permitted, as has been implicit by allowing registered limited liability partnerships. Section 108. This section clarifies that determinations whether a partner has been formed are governed by the same law that would govern the partnership's internal affairs and the liability of partners. Section 109. Section 2.02 of the TRPA is proposed to be amended to provide that a partnership formed pursuant to a plan of conversion or merger will begin existence as a partnership upon the effectiveness of the merger or conversion. Sections 110 and 111. These sections conform language in TRPA to parallel provisions in the national Uniform Partnership Act (1994). Sections 112 and 113. These sections amend Sections 3.05 and 3.08 of the TRPA to make explicit that the specific limitation on liability provided partners in registered limited liability partnerships in certain cases overrides more general provisions of TRPA creating liability for partners and requiring them to share losses. This has been implicit under existing law. In addition, Article 3.08 of the TRPA is proposed to be amended to expand the limitation of liability of partners in a limited liability partnership for the general obligations of the partnership. This amendment is intended to bring the Texas limited liability partnership statute more in line with the limited liability partnership statutes of other jurisdictions and the proposed model limited liability partnership act. Section 114. Section 3.08 of the TRPA is proposed to be amended to authorize the Secretary of State to accept filings in electronic format and to establish rules and regulations for electronic filings. Sections 115, 116, 117, 118, and 119. These sections conform language in TRPA to parallel provisions in the national Uniform Partnership Act (1994). Sections 120 and 121. These sections conform Sections 9.02 and 9.03 of the TRPA (regarding mergers and interest exchanges) to parallel provisions in the Texas Business Corporation Act. Section 122. Article IX of the TRPA is proposed to be amended to add Sections 9.05 and 9.06 that will allow general partnerships to effect conversions in the same manner that corporations may effect conversions pursuant to the proposed amendments to the TBCA. Section 123. The TRPA is proposed to be amended to add a new Article X relating to qualification of foreign limited liability partnerships. The present Article X relating to the application of the act and miscellaneous matters is renumbered Article XI. Section 124. Section 171.252 of the Tax Code is proposed to be amended to limit the liability of a director and officer for the obligations of a corporation that has lost its corporate privileges to taxes, penalties, fees and other amounts owed to the State. Section 125. Section 171.255 of the Tax Code is proposed to be amended to make conforming changes to the proposed amendment to Section 171.252 of the Tax Code. Section 126. Section 8.03 of the TRLPA relating to the continuation of a limited partnership following certain events is proposed to be repealed in light of the proposed amendments to Sections 8.01 and 8.02 of the TRLPA (Sections 101 and 102 of this bill). Section 127. This section of the Bill specifies that the Bill's amendments become effective September 1, 1997, but will not affect any action or proceeding commenced before the effective date. The proposed amendments to Section 6.03 of the TRLPA will not apply to domestic limited partnerships formed before September 1, 1997, unless certain provisions are contained in the partnership agreement of the limited partnership or certain procedures are complied with. In addition, the proposed changes to Article 3.08 of the TRPA will not impair any obligation of any contract existing before the effective date. Section 128. This section of the Bill contains an emergency clause. EXPLANATION OF AMENDMENTS Committee Amendment #1 amends the Texas Business Corporation Act Article 2.05 (3) prohibits deceptively similar corporate names by removing Real Estate Investment Trust and non-profit corporations are removed from the list of entities. Committee Amendment #2 amends the subsidiary intended to be denominated a benefit if the parent owns 50% to the subsidiary. Committee Amendment #3 established a intended ceiling of $750 on the fee charged for registering a foreign L.L.P. Committee Amendment #4 amends the bill by deleting all of Sections 124 & 125 of the bill and renumber the following sections.