By Bosse H.B. No. 2681 76R5748 CLG-F A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to adoption of the Texas Business Organizations Code; 1-3 providing penalties. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. ADOPTION OF CODE. The Texas Business 1-6 Organizations Code is adopted to read as follows: 1-7 TEXAS BUSINESS ORGANIZATIONS CODE 1-8 TITLE 1. GENERAL PROVISIONS 1-9 CHAPTER 1. DEFINITIONS AND OTHER GENERAL PROVISIONS 1-10 SUBCHAPTER A. DEFINITIONS AND PURPOSE 1-11 Sec. 1.001. PURPOSE. The purpose of this code is to make 1-12 the law encompassed by this code more accessible and understandable 1-13 by: 1-14 (1) rearranging the statutes into a more logical 1-15 order; 1-16 (2) employing a format and numbering system designed 1-17 to facilitate citation of the law and to accommodate future 1-18 expansion of the law; 1-19 (3) eliminating repealed, duplicative, expired, 1-20 executed, and other ineffective provisions; and 1-21 (4) restating the law in modern American English to 1-22 the greatest extent possible. 1-23 Sec. 1.002. DEFINITIONS. In this code: 1-24 (1) "Affiliate" means a person who controls, is 2-1 controlled by, or is under common control with another person. 2-2 (2) "Associate," when used to indicate a relationship 2-3 with a person, means: 2-4 (A) a domestic or foreign entity or organization 2-5 for which the person is: 2-6 (i) an officer or governing person; or 2-7 (ii) a beneficial owner of 10 percent or 2-8 more of a class of voting ownership interests or similar securities 2-9 of the entity or organization; 2-10 (B) a trust or estate in which the person has a 2-11 substantial beneficial interest or for which the person serves as 2-12 trustee or in a similar fiduciary capacity; 2-13 (C) the person's spouse or a relative of the 2-14 person related by consanguinity or affinity who resides with the 2-15 person; or 2-16 (D) a governing person or an affiliate or 2-17 officer of the person. 2-18 (3) "Association" means an entity governed as an 2-19 association under Title 6. The term includes a cooperative 2-20 association, nonprofit association, and professional association. 2-21 (4) "Assumed name" means a name adopted for use by a 2-22 person. The term includes an assumed name filed under Chapter 36, 2-23 Business & Commerce Code. 2-24 (5) "Business" means a trade, occupation, profession, 2-25 or other commercial activity. 2-26 (6) "Certificate of formation" means: 2-27 (A) the document required to be filed with the 3-1 secretary of state under Chapter 3 to form a filing entity; and 3-2 (B) if appropriate, a restated certificate of 3-3 formation and all amendments of an original or restated certificate 3-4 of formation. 3-5 (7) "Certificate of ownership" means an instrument 3-6 evidencing an ownership interest or membership interest in an 3-7 entity. 3-8 (8) "Certificated ownership interest" means an 3-9 ownership interest of a domestic entity represented by a 3-10 certificate issued in bearer or registered form. 3-11 (9) "Contribution" means a tangible or intangible 3-12 benefit that a person transfers to an entity in consideration for 3-13 an ownership interest in the entity or otherwise in the person's 3-14 capacity as an owner or a member. The benefit includes cash, 3-15 services rendered, a contract for services to be performed, a 3-16 promissory note or other obligation of a person to pay cash or 3-17 transfer property to the entity, or securities or other interests 3-18 in or obligations of an entity, but does not include cash or 3-19 property received by the entity: 3-20 (A) with respect to a promissory note or other 3-21 obligation to the extent that the agreed value of the note or 3-22 obligation has previously been included as a contribution; or 3-23 (B) that the person intends to be a loan to the 3-24 entity. 3-25 (10) "Conversion" means: 3-26 (A) the continuance of a domestic entity as a 3-27 foreign entity of any type; 4-1 (B) the continuance of a foreign entity as a 4-2 domestic entity of any type; or 4-3 (C) the continuance of a domestic entity of one 4-4 type as a domestic entity of another type. 4-5 (11) "Converted entity" means an entity resulting from 4-6 a conversion. 4-7 (12) "Converting entity" means an entity as the entity 4-8 existed before the entity's conversion. 4-9 (13) "Cooperative" or "cooperative association" means 4-10 an association governed as a cooperative association under Title 6. 4-11 (14) "Corporation" means an entity governed as a 4-12 corporation under Title 2. The term includes a for-profit 4-13 corporation, nonprofit corporation, and professional corporation. 4-14 (15) "Debtor in bankruptcy" means a person who is the 4-15 subject of: 4-16 (A) an order for relief under the United States 4-17 bankruptcy laws (Title 11, United States Code); or 4-18 (B) a comparable order under a: 4-19 (i) successor statute of general 4-20 applicability; or 4-21 (ii) federal or state law governing 4-22 insolvency. 4-23 (16) "Digital signature" means an electronic 4-24 identifier intended by the person using it to have the same force 4-25 and effect as the use of a manual signature. 4-26 (17) "Director" means an individual who serves on the 4-27 board of directors of a foreign or domestic corporation. 5-1 (18) "Distribution" means a transfer of property, 5-2 including cash, from an entity to an owner of the entity in the 5-3 owner's capacity as an owner. The term includes a dividend, a 5-4 redemption or purchase of an ownership interest, or a liquidating 5-5 distribution. 5-6 (19) "Domestic" means, with respect to an entity, that 5-7 the entity is formed under this code or the entity's internal 5-8 affairs are governed by this code. 5-9 (20) "Domestic entity" means an organization formed 5-10 under or the internal affairs of which are governed by this code. 5-11 (21) "Domestic entity subject to dissenters' rights" 5-12 means a domestic entity the owners of which have rights of dissent 5-13 and appraisal under this code or the governing documents of the 5-14 entity. 5-15 (22) "Effective date of this code" means January 1, 5-16 2001. 5-17 (23) "Entity" means a domestic entity or foreign 5-18 entity. 5-19 (24) "Filing entity" means a domestic entity that is a 5-20 corporation, limited partnership, limited liability company, 5-21 professional association, cooperative, or real estate investment 5-22 trust. 5-23 (25) "Filing instrument" means an instrument, 5-24 document, or statement that is required or authorized by this code 5-25 to be filed by or for an entity with the filing officer in 5-26 accordance with Chapter 4. 5-27 (26) "Filing officer" means: 6-1 (A) with respect to an entity other than a real 6-2 estate investment trust, the secretary of state; or 6-3 (B) with respect to a real estate investment 6-4 trust, the county clerk of the county in which the real estate 6-5 investment trust's principal office is located in this state. 6-6 (27) "For-profit association" means an association 6-7 other than a nonprofit association. 6-8 (28) "For-profit corporation" means a corporation 6-9 other than a nonprofit corporation or professional corporation. 6-10 (29) "For-profit entity" means an entity other than a 6-11 nonprofit entity. 6-12 (30) "Foreign" means, with respect to an entity, that 6-13 the entity is formed under, and the entity's internal affairs are 6-14 governed by, the laws of a jurisdiction other than this state. 6-15 (31) "Foreign entity" means an organization formed 6-16 under, and the internal affairs of which are governed by, the laws 6-17 of a jurisdiction other than this state. 6-18 (32) "Foreign filing entity" means a foreign entity 6-19 that registers or is required to register as a foreign entity under 6-20 Chapter 9. 6-21 (33) "Foreign governmental authority" means a 6-22 governmental official, agency, or instrumentality of a jurisdiction 6-23 other than this state. 6-24 (34) "Foreign nonfiling entity" means a foreign entity 6-25 that is not a foreign filing entity. 6-26 (35) "Fundamental business transaction" means a 6-27 merger, interest exchange, conversion, or sale of all or 7-1 substantially all of an entity's assets. 7-2 (36) "General partner" means: 7-3 (A) each partner in a general partnership; or 7-4 (B) a person who is admitted to a limited 7-5 partnership as a general partner in accordance with the governing 7-6 documents of the limited partnership. 7-7 (37) "General partnership" means a partnership 7-8 governed as a general partnership under Title 4. The term includes 7-9 a registered limited liability partnership. 7-10 (38) "Governing authority" means a person or group of 7-11 persons who are entitled to manage and direct the affairs of an 7-12 entity under this code and the governing documents of the entity, 7-13 except that if the governing documents of the entity or this code 7-14 divide the authority to manage and direct the affairs of the entity 7-15 among different persons or groups of persons according to different 7-16 matters, "governing authority" means the person or group of persons 7-17 entitled to manage and direct the affairs of the entity with 7-18 respect to a matter under the governing documents of the entity or 7-19 this code. The term includes the board of directors of a 7-20 corporation or other persons authorized to perform the functions of 7-21 the board of directors, the general partners of a limited 7-22 partnership, the managers of a limited liability company that is 7-23 managed by managers, the members of a limited liability company 7-24 that is managed by members who are entitled to manage the company, 7-25 and the trustees of a real estate investment trust. The term does 7-26 not include an officer who is acting in the capacity of an officer. 7-27 (39) "Governing documents" means: 8-1 (A) in the case of a domestic entity: 8-2 (i) the certificate of formation for a 8-3 domestic filing entity or the document or agreement under which a 8-4 domestic nonfiling entity is formed; and 8-5 (ii) the other documents or agreements 8-6 adopted by the entity under this code to govern the formation or 8-7 the internal affairs of the entity; or 8-8 (B) in the case of a foreign entity, the 8-9 instruments, documents, or agreements adopted under the law of its 8-10 jurisdiction of formation to govern the formation or the internal 8-11 affairs of the entity. 8-12 (40) "Governing person" means a person serving as part 8-13 of the governing authority of an entity. 8-14 (41) "Individual" means a natural person. 8-15 (42) "Insolvency" means the inability of a person to 8-16 pay the person's debts as they become due in the usual course of 8-17 business or affairs. 8-18 (43) "Insolvent" means a person who is unable to pay 8-19 the person's debts as they become due in the usual course of 8-20 business or affairs. 8-21 (44) "Interest exchange" means the acquisition of an 8-22 ownership or membership interest in a domestic entity as provided 8-23 by Subchapter B, Chapter 10. The term does not include a merger or 8-24 conversion. 8-25 (45) "Internal Revenue Code" means the Internal 8-26 Revenue Code of 1986, as amended. The term includes corresponding 8-27 provisions of subsequent federal tax laws. 9-1 (46) "Jurisdiction of formation" means: 9-2 (A) in the case of a domestic filing entity, 9-3 this state; 9-4 (B) in the case of a foreign filing entity, the 9-5 jurisdiction in which the entity's certificate of formation or 9-6 similar organizational instrument is filed; or 9-7 (C) in the case of a foreign or domestic 9-8 nonfiling entity: 9-9 (i) the jurisdiction the laws of which are 9-10 chosen in the entity's governing documents to govern its internal 9-11 affairs if that jurisdiction bears a reasonable relation to the 9-12 owners or members or to the domestic or foreign nonfiling entity's 9-13 business and affairs under the principles of this state that 9-14 otherwise would apply to a contract among the owners or members; or 9-15 (ii) if Subparagraph (i) does not apply, 9-16 the jurisdiction in which the entity has its chief executive 9-17 office. 9-18 (47) "Law" means, unless the context requires 9-19 otherwise, both statutory and common law. 9-20 (48) "License" means a license, certificate of 9-21 registration, or other legal authorization. 9-22 (49) "Limited liability company" means an entity 9-23 governed as a limited liability company under Title 3. 9-24 (50) "Limited partner" means a person who has been 9-25 admitted to a limited partnership as a limited partner as provided 9-26 by: 9-27 (A) in the case of a domestic limited 10-1 partnership, Chapter 153; or 10-2 (B) in the case of a foreign limited 10-3 partnership, the laws of its jurisdiction of formation. 10-4 (51) "Limited partnership" means a partnership 10-5 governed as a limited partnership under Title 4. The term includes 10-6 a registered limited liability limited partnership. 10-7 (52) "Manager" means a person designated as a manager 10-8 of a limited liability company that is not managed by members of 10-9 the company. 10-10 (53) "Managerial official" means an officer or a 10-11 governing person. 10-12 (54) "Member" means: 10-13 (A) in the case of a limited liability company, 10-14 a person who has membership rights in the limited liability 10-15 company under its governing documents; 10-16 (B) in the case of a nonprofit corporation, a 10-17 person who has membership rights in the nonprofit corporation under 10-18 its governing documents; 10-19 (C) in the case of a cooperative association, a 10-20 member of a nonshare or share association; 10-21 (D) in the case of a nonprofit association, a 10-22 person who has membership rights in the nonprofit association under 10-23 its governing documents; or 10-24 (E) in the case of a professional association, a 10-25 person who has membership rights in the professional association 10-26 under its governing documents. 10-27 (55) "Membership interest" means a member's interest 11-1 in an entity. 11-2 (56) "Merger" means: 11-3 (A) the division of a domestic entity into two 11-4 or more new domestic entities or other organizations or into a 11-5 surviving domestic entity and one or more new domestic or foreign 11-6 entities or non-code organizations; or 11-7 (B) the combination of one or more domestic 11-8 entities with one or more domestic entities or non-code 11-9 organizations resulting in: 11-10 (i) one or more surviving domestic 11-11 entities or non-code organizations; 11-12 (ii) the creation of one or more new 11-13 domestic entities or non-code organizations; or 11-14 (iii) one or more surviving domestic 11-15 entities or non-code organizations and the creation of one or more 11-16 new domestic entities or non-code organizations. 11-17 (57) "Non-code organization" means an organization 11-18 other than a domestic entity. 11-19 (58) "Nonfiling entity" means a domestic entity that 11-20 is not a filing entity. The term includes a domestic general 11-21 partnership, nonprofit association, and joint stock company. 11-22 (59) "Nonprofit association" means an association 11-23 governed as a nonprofit association under Title 6. 11-24 (60) "Nonprofit corporation" means a corporation 11-25 governed as a nonprofit corporation under Title 2. 11-26 (61) "Nonprofit entity" means an entity that is a 11-27 nonprofit corporation, nonprofit association, or other entity that 12-1 is organized solely for one or more of the purposes specified by 12-2 Section 2.002. 12-3 (62) "Officer" means an individual elected, appointed, 12-4 or designated as an officer of an entity by the entity's governing 12-5 authority or under the entity's governing documents. 12-6 (63) "Organization" means a corporation, limited or 12-7 general partnership, limited liability company, business trust, 12-8 real estate investment trust, joint venture, joint stock company, 12-9 cooperative, association, bank, insurance company, or other similar 12-10 organization, regardless of whether the organization is for-profit, 12-11 domestic or foreign. 12-12 (64) "Owner" means: 12-13 (A) with respect to a foreign or domestic 12-14 for-profit corporation or real estate investment trust, a 12-15 shareholder; 12-16 (B) with respect to a foreign or domestic 12-17 partnership, a partner; 12-18 (C) with respect to a foreign or domestic 12-19 limited liability company or association, a member; or 12-20 (D) with respect to another foreign or domestic 12-21 entity, an owner of an equity interest in that entity. 12-22 (65) "Ownership interest" means an owner's interest in 12-23 an entity. The term includes the owner's share of profits and 12-24 losses or similar items and the right to receive distributions. 12-25 The term does not include an owner's right to participate in 12-26 management. 12-27 (66) "Parent entity" or "parent organization" means an 13-1 entity or organization that: 13-2 (A) owns at least 50 percent of the ownership or 13-3 membership interest of a subsidiary; or 13-4 (B) possesses at least 50 percent of the voting 13-5 power of the owners or members of a subsidiary. 13-6 (67) "Partner" means a limited partner or general 13-7 partner. 13-8 (68) "Partnership" means an entity governed as a 13-9 partnership under Title 4. 13-10 (69) "Partnership interest" means a partner's interest 13-11 in a partnership. The term includes the partner's share of profits 13-12 and losses or similar items and the right to receive distributions. 13-13 The term does not include a partner's right to participate in 13-14 management. 13-15 (70) "Party to the merger" means a domestic entity or 13-16 non-code organization that under a plan of merger is divided or 13-17 combined by a merger. The term does not include a domestic entity 13-18 or non-code organization that is not to be divided or combined into 13-19 or with one or more domestic entities or non-code organizations, 13-20 regardless of whether ownership interests of the entity are to be 13-21 issued under the plan of merger. 13-22 (71) "President" means the: 13-23 (A) individual designated as president of an 13-24 entity under the entity's governing documents; or 13-25 (B) officer or committee of persons authorized 13-26 to perform the functions of the principal executive officer of an 13-27 entity without regard to the designated name of the officer or 14-1 committee. 14-2 (72) "Professional association" means an association 14-3 that is: 14-4 (A) formed for the purpose of providing the 14-5 professional service of medicine, osteopathy, or podiatry; and 14-6 (B) governed as a professional entity under 14-7 Title 7. 14-8 (73) "Professional corporation" means a corporation 14-9 that is: 14-10 (A) formed for the purpose of providing a 14-11 professional service that by law a corporation governed by Title 2 14-12 is prohibited from rendering; and 14-13 (B) governed as a professional entity under 14-14 Title 7. 14-15 (74) "Professional entity" means a professional 14-16 association, professional corporation, or professional limited 14-17 liability company. 14-18 (75) "Professional individual," with respect to a 14-19 professional entity, means an individual who is licensed to provide 14-20 in this state or another jurisdiction the same professional service 14-21 as rendered by that professional entity. 14-22 (76) "Professional limited liability company" means a 14-23 limited liability company formed for the purpose of providing a 14-24 professional service and governed as a professional entity under 14-25 Title 7. 14-26 (77) "Professional service" means any type of service 14-27 that requires, as a condition precedent to the rendering of the 15-1 service, the obtaining of a license in this state, including the 15-2 personal service rendered by an architect, attorney, certified 15-3 public accountant, dentist, physician, public accountant, or 15-4 veterinarian. 15-5 (78) "Property" includes tangible and intangible 15-6 property and an interest in that property. 15-7 (79) "Real estate investment trust" means an entity 15-8 governed as a real estate investment trust under Title 5. 15-9 (80) "Registered limited liability partnership" means 15-10 a partnership governed as a registered limited liability 15-11 partnership under Title 4. 15-12 (81) "Registered limited liability limited 15-13 partnership" means a partnership governed as a registered limited 15-14 liability partnership and a limited partnership under Title 4. 15-15 (82) "Sale of all or substantially all of the assets" 15-16 means the sale, lease, exchange, or other disposition, other than a 15-17 pledge, mortgage, deed of trust, or trust indenture unless 15-18 otherwise provided by the certificate of formation, of all or 15-19 substantially all of the property and assets of a domestic entity 15-20 that is not made in the usual and regular course of the entity's 15-21 business without regard to whether the disposition is made with 15-22 goodwill. The term does not include a transaction that results in 15-23 the entity directly or indirectly: 15-24 (A) continuing to engage in one or more 15-25 businesses; or 15-26 (B) applying a portion of the consideration 15-27 received in connection with the transaction to the conduct of a 16-1 business that the entity engages in after the transaction. 16-2 (83) "Secretary" means the: 16-3 (A) individual designated as secretary of an 16-4 entity under the entity's governing documents; or 16-5 (B) officer or committee of persons authorized 16-6 to perform the functions of secretary of an entity without regard 16-7 to the designated name of the officer or committee. 16-8 (84) "Share" means a unit into which the ownership 16-9 interest in a corporation is divided, regardless of whether the 16-10 share is certificated or uncertificated. 16-11 (85) "Shareholder" or "holder of shares" means the 16-12 person in whose name shares issued by a corporation are registered 16-13 in the share transfer records maintained by the corporation. 16-14 (86) "Signature" means any symbol executed or adopted 16-15 by a person with present intention to authenticate a writing. 16-16 Unless the context requires otherwise, the term includes a digital 16-17 signature and a facsimile of a signature. 16-18 (87) "Subscriber" means a person who agrees with or 16-19 makes an offer to an entity to purchase by subscription an 16-20 ownership interest in the entity. 16-21 (88) "Subscription" means an agreement between a 16-22 subscriber and an entity, or a written offer made by a subscriber 16-23 to an entity before or after the entity's formation, in which the 16-24 subscriber agrees or offers to purchase a specified ownership 16-25 interest in the entity. 16-26 (89) "Subsidiary" means an entity or organization at 16-27 least 50 percent of: 17-1 (A) the ownership or membership interest of 17-2 which is owned by a parent entity or parent organization; or 17-3 (B) the voting power of which is possessed by a 17-4 parent entity or parent organization. 17-5 (90) "Treasurer" means the: 17-6 (A) individual designated as treasurer of an 17-7 entity under the entity's governing documents; or 17-8 (B) officer or committee of persons authorized 17-9 to perform the functions of treasurer of an entity without regard 17-10 to the designated name of the officer or committee. 17-11 (91) "Trustee" means a person who serves as a trustee 17-12 of a trust, including a real estate investment trust. 17-13 (92) "Uncertificated ownership interest" means an 17-14 ownership interest in a domestic entity that is not represented by 17-15 an instrument and is transferred by: 17-16 (A) amendment of the governing documents of the 17-17 entity; or 17-18 (B) registration on books maintained by or on 17-19 behalf of the entity for the purpose of registering transfers of 17-20 ownership interests. 17-21 (93) "Vice president" means the: 17-22 (A) individual designated as vice president of 17-23 an entity under the governing documents of the entity; or 17-24 (B) officer or committee of persons authorized 17-25 to perform the functions of the president of the entity on the 17-26 death, absence, or resignation of the president or on the inability 17-27 of the president to perform the functions of office without regard 18-1 to the designated name of the officer or committee. 18-2 (94) "Writing" or "written" means an embodiment in a 18-3 tangible medium of expression, now known or later developed, of 18-4 words, letters, characters, numbers, symbols, figures, or other 18-5 textual information sufficiently permanent or stable to permit it 18-6 to be perceived, reproduced, or otherwise communicated, directly or 18-7 with the aid of a machine or device, for a period of more than 18-8 transitory duration. Unless the context requires otherwise, the 18-9 term: 18-10 (A) includes stored or transmitted electronic 18-11 data and transmissions and reproductions of writings; and 18-12 (B) does not include sound or video recordings 18-13 of speech other than transcriptions that are otherwise writings. 18-14 Sec. 1.003. DISINTERESTED PERSON. (a) For purposes of this 18-15 code, a person is disinterested with respect to the approval of a 18-16 contract, transaction, or other matter or to the consideration of 18-17 the disposition of a claim or challenge relating to a contract, 18-18 transaction, or particular conduct, if the person or the person's 18-19 associate: 18-20 (1) is not a party to the contract or transaction or 18-21 materially involved in the conduct that is the subject of the claim 18-22 or challenge; and 18-23 (2) does not have a material financial interest in the 18-24 outcome of the contract or transaction or the disposition of the 18-25 claim or challenge. 18-26 (b) For purposes of Subsection (a), a person is not 18-27 materially involved in a contract or transaction that is the 19-1 subject of a claim or challenge and does not have a material 19-2 financial interest in the outcome of a contract or transaction or 19-3 the disposition of a claim or challenge solely because: 19-4 (1) the person was nominated or elected as a governing 19-5 person by a person who is: 19-6 (A) interested in the contract or transaction; 19-7 or 19-8 (B) alleged to have engaged in the conduct that 19-9 is the subject of the claim or challenge; 19-10 (2) the person receives normal fees or customary 19-11 compensation, reimbursement for expenses, or benefits as a 19-12 governing person of the entity; 19-13 (3) the person has a direct or indirect equity 19-14 interest in the entity; 19-15 (4) the entity has, or its subsidiaries have, an 19-16 interest in the contract or transaction or was affected by the 19-17 alleged conduct; 19-18 (5) the person or an associate of the person receives 19-19 ordinary and reasonable compensation for reviewing, making 19-20 recommendations regarding, or deciding on the disposition of the 19-21 claim or challenge; or 19-22 (6) in the case of a review by the person of the 19-23 alleged conduct that is the subject of the claim or challenge: 19-24 (A) the person is named as a defendant in the 19-25 derivative proceeding regarding the matter or as a person who 19-26 engaged in the alleged conduct; or 19-27 (B) the person, acting as a governing person, 20-1 approved, voted for, or acquiesced in the act being challenged if 20-2 the act did not result in a material personal or financial benefit 20-3 to the person and the challenging party fails to allege particular 20-4 facts that, if true, raise a significant prospect that the 20-5 governing person would be held liable to the entity or its owners 20-6 or members as a result of the conduct. 20-7 Sec. 1.004. INDEPENDENT PERSON. (a) For purposes of this 20-8 code, a person is independent with respect to considering the 20-9 disposition of a claim or challenge regarding a contract or 20-10 transaction, or particular or alleged conduct, if the person: 20-11 (1) is disinterested; 20-12 (2) either: 20-13 (A) is not an associate, or member of the 20-14 immediate family, of a party to the contract or transaction or of a 20-15 person who is alleged to have engaged in the conduct that is the 20-16 subject of the claim or challenge; or 20-17 (B) is an associate to a party or person 20-18 described by Paragraph (A) that is an entity if the person is an 20-19 associate solely because the person is a governing person of the 20-20 entity or of the entity's subsidiaries or associates; 20-21 (3) does not have a business, financial, or familial 20-22 relationship with a party to the contract or transaction, or with 20-23 another person who is alleged to have engaged in the conduct, that 20-24 is the subject of the claim or challenge that could reasonably be 20-25 expected to materially and adversely affect the judgment of the 20-26 person in favor of the party or other person with respect to the 20-27 consideration of the matter; and 21-1 (4) is not shown, by a preponderance of the evidence, 21-2 to be under the controlling influence of a party to the contract or 21-3 transaction that is the subject of the claim or challenge or of a 21-4 person who is alleged to have engaged in the conduct that is the 21-5 subject of the claim or challenge. 21-6 (b) For purposes of Subsection (a), a person does not have a 21-7 relationship that could reasonably be expected to materially and 21-8 adversely affect the judgment of the person regarding the 21-9 disposition of a matter that is the subject of a claim or challenge 21-10 and is not otherwise under the controlling influence of a party to 21-11 a contract or transaction that is the subject of a claim or 21-12 challenge or that is alleged to have engaged in the conduct that is 21-13 the subject of a claim or challenge solely because: 21-14 (1) the person has been nominated or elected as a 21-15 governing person by a person who is interested in the contract or 21-16 transaction or alleged to be engaged in the conduct that is the 21-17 subject of the claim or challenge; 21-18 (2) the person receives normal fees or similar 21-19 customary compensation, reimbursement for expenses, or benefits as 21-20 a governing person of the entity; 21-21 (3) the person has a direct or indirect equity 21-22 interest in the entity; 21-23 (4) the entity has, or its subsidiaries have, an 21-24 interest in the contract or transaction or was affected by the 21-25 alleged conduct; 21-26 (5) the person or an associate of the person receives 21-27 ordinary and reasonable compensation for reviewing, making 22-1 recommendations regarding, or deciding on the disposition of the 22-2 claim or challenge; or 22-3 (6) the person, an associate of the person, other than 22-4 the entity or its associates, or an immediate family member has a 22-5 continuing business relationship with the entity that is not 22-6 material to the person, associate, or family member. 22-7 Sec. 1.005. CONSPICUOUS INFORMATION. In this code, required 22-8 information is conspicuous if the information is placed in a manner 22-9 or displayed using a font that provides or is intended to provide 22-10 notice to a reasonable person affected by the information. 22-11 Required information in a document is conspicuous if the font used 22-12 for the information is capitalized, boldfaced, italicized, or 22-13 underlined or larger or of a different color than the remainder of 22-14 the document. 22-15 Sec. 1.006. SYNONYMOUS TERMS. To the extent not 22-16 inconsistent with the provisions of the constitution and other 22-17 statutes or codes wherein such terms may be found, and as the 22-18 context requires in this code or any other statute or code of this 22-19 state: 22-20 (1) a reference to "articles of incorporation," 22-21 "articles of organization," "certificate of limited partnership," 22-22 and "charter" includes a "certificate of formation"; 22-23 (2) a reference to "authorized capital stock" includes 22-24 "authorized shares"; 22-25 (3) a reference to "capital stock" includes 22-26 "authorized and issued shares," "issued share," and "stated 22-27 capital"; 23-1 (4) a reference to a "certificate of registration," 23-2 "certificate of authority," and "permit to do business" includes 23-3 "registration"; 23-4 (5) a reference to "stock" and "shares of stock" 23-5 includes "shares"; 23-6 (6) a reference to "stockholder" includes 23-7 "shareholder"; and 23-8 (7) a reference to "no par stock" includes "shares 23-9 without par value." 23-10 Sec. 1.007. SIGNING OF DOCUMENT OR OTHER WRITING. For 23-11 purposes of this code, a writing has been signed by a person when 23-12 the writing includes the person's signature. A transmission or 23-13 reproduction of a writing signed by a person is considered signed 23-14 by that person for purposes of this code. 23-15 Sec. 1.008. SHORT TITLES. (a) The provisions of this code 23-16 as described by this section may be cited as provided by this 23-17 section. 23-18 (b) The provisions of Title 2 and the provisions of Title 1 23-19 to the extent applicable to corporations may be cited as the "Texas 23-20 Corporation Law." 23-21 (c) The provisions of Chapters 20 and 21 and the provisions 23-22 of Title 1 to the extent applicable to for-profit corporations may 23-23 be cited as the "Texas For-Profit Corporation Law." 23-24 (d) The provisions of Chapters 20 and 22 and the provisions 23-25 of Title 1 to the extent applicable to nonprofit corporations may 23-26 be cited as the "Texas Nonprofit Corporation Law." 23-27 (e) The provisions of Title 3 and the provisions of Title 1 24-1 to the extent applicable to limited liability companies may be 24-2 cited as the "Texas Limited Liability Company Law." 24-3 (f) The provisions of Chapters 151, 152, and 154 and the 24-4 provisions of Title 1 to the extent applicable to general 24-5 partnerships may be cited as the "Texas General Partnership Law." 24-6 (g) The provisions of Chapters 151, 152, and 153 and the 24-7 provisions of Title 1 to the extent applicable to limited 24-8 partnerships may be cited as the "Texas Limited Partnership Law." 24-9 (h) The provisions of Title 5 and the provisions of Title 1 24-10 to the extent applicable to real estate investment trusts may be 24-11 cited as the "Texas Real Estate Investment Trust Law." 24-12 (i) The provisions of Chapter 251 and the provisions of 24-13 Title 1 to the extent applicable to cooperative associations may be 24-14 cited as the "Texas Cooperative Association Law." 24-15 (j) The provisions of Title 7 and the provisions of Titles 24-16 1, 2, and 3 to the extent applicable to professional entities may 24-17 be cited as the "Texas Professional Entities Law." 24-18 (k) The provisions of Chapter 252 may be cited as the 24-19 "Uniform Unincorporated Nonprofit Associations Act." 24-20 (l) The provisions of Chapters 301 and 302 and the 24-21 provisions of Chapters 20 and 21 and Title 1 to the extent 24-22 applicable to professional associations may be cited as the "Texas 24-23 Professional Association Law." 24-24 (m) The provisions of Chapters 301 and 303 and the 24-25 provisions of Chapters 20 and 21 and Title 1 to the extent 24-26 applicable to professional corporations may be cited as the "Texas 24-27 Professional Corporations Law." 25-1 (n) The provisions of Chapters 301 and 304 and the 25-2 provisions of Titles 1 and 3 to the extent applicable to 25-3 professional limited liability companies may be cited as the "Texas 25-4 Professional Limited Liability Company Law." 25-5 Sec. 1.009. DOLLARS AS MONETARY UNITS. Unless the context 25-6 requires otherwise, a value or amount that is required by this code 25-7 to be stated in monetary terms must be stated in United States 25-8 dollars. Currency that is not specified is considered to be in 25-9 United States dollars. 25-10 (Sections 1.010-1.050 reserved for expansion) 25-11 SUBCHAPTER B. CODE CONSTRUCTION 25-12 Sec. 1.051. CONSTRUCTION OF CODE. Chapter 311, Government 25-13 Code (Code Construction Act), applies to the construction of each 25-14 provision in this code except as otherwise expressly provided by 25-15 this code. 25-16 Sec. 1.052. REFERENCE IN LAW TO STATUTE REVISED BY CODE. A 25-17 reference in a law to a statute or a part of a statute revised by 25-18 this code is considered to be a reference to the part of this code 25-19 that revises that statute or part of that statute. 25-20 Sec. 1.053. APPLICABILITY TO FOREIGN AND INTERSTATE AFFAIRS. 25-21 This code applies to the conduct of affairs with foreign countries 25-22 and the other states of the United States only to the extent 25-23 permitted under the United States Constitution. 25-24 Sec. 1.054. RESERVATION OF POWER. The legislature at all 25-25 times has the power to prescribe regulations, provisions, and 25-26 limitations as the legislature considers advisable. The 25-27 regulations, provisions, and limitations are binding on any entity 26-1 subject to this code. 26-2 (Sections 1.055-1.100 reserved for expansion) 26-3 SUBCHAPTER C. DETERMINATION OF APPLICABLE LAW 26-4 Sec. 1.101. DOMESTIC FILING ENTITIES. The law of this state 26-5 governs the formation and internal affairs of an entity if the 26-6 entity's formation occurs when a certificate of formation filed in 26-7 accordance with Chapter 4 takes effect. 26-8 Sec. 1.102. FOREIGN FILING ENTITIES. If the formation of an 26-9 entity occurs when a certificate of formation or similar instrument 26-10 filed with a foreign governmental authority takes effect, the law 26-11 of the state or other jurisdiction in which that foreign 26-12 governmental authority is located governs the formation and 26-13 internal affairs of the entity. 26-14 Sec. 1.103. ENTITIES NOT FORMED BY FILING INSTRUMENT. If 26-15 the formation of an entity does not occur when a certificate of 26-16 formation or similar instrument filed with the secretary of state 26-17 or with a foreign governmental authority takes effect, the law 26-18 governing the entity's formation and internal affairs is the law of 26-19 the entity's jurisdiction of formation. 26-20 Sec. 1.104. LAW APPLICABLE TO LIABILITY. The law of the 26-21 jurisdiction that governs an entity as determined under Sections 26-22 1.101-1.103 applies to the liability of an owner, a member, or a 26-23 managerial official of the entity in the capacity as an owner, a 26-24 member, or a managerial official for an obligation, including a 26-25 debt or other liability, of the entity for which the owner, member, 26-26 or managerial official is not otherwise liable by contract or under 26-27 provisions of law other than this code. 27-1 Sec. 1.105. INTERNAL AFFAIRS. For purposes of this code, 27-2 the internal affairs of an entity include: 27-3 (1) the rights, powers, and duties of its governing 27-4 authority, governing persons, officers, owners, and members; and 27-5 (2) matters relating to its membership or ownership 27-6 interests. 27-7 Sec. 1.106. ORDER OF PRECEDENCE. (a) This title applies to 27-8 all domestic entities and foreign entities to the extent provided 27-9 by this title. 27-10 (b) Each title of this code, other than this title, applies 27-11 to a different type of entity to the extent provided by the 27-12 appropriate title. 27-13 (c) If a provision of this title conflicts with a provision 27-14 in another title of this code, the provision of the other title 27-15 supersedes the provision of this title. 27-16 CHAPTER 2. PURPOSES AND POWERS 27-17 OF DOMESTIC ENTITY 27-18 SUBCHAPTER A. PURPOSES OF DOMESTIC ENTITY 27-19 Sec. 2.001. GENERAL SCOPE OF PERMISSIBLE PURPOSES. A 27-20 domestic entity has any lawful purpose or purposes, unless 27-21 otherwise provided by this code. 27-22 Sec. 2.002. PURPOSES OF NONPROFIT ENTITY. The purpose or 27-23 purposes of a domestic nonprofit entity may include one or more of 27-24 the following purposes: 27-25 (1) serving charitable, benevolent, religious, 27-26 eleemosynary, patriotic, civic, missionary, educational, 27-27 scientific, social, fraternal, athletic, aesthetic, agricultural, 28-1 and horticultural purposes; 28-2 (2) operating or managing a professional, commercial, 28-3 or trade association or labor union; 28-4 (3) providing animal husbandry; or 28-5 (4) operating on a nonprofit cooperative basis for the 28-6 benefit of its members. 28-7 Sec. 2.003. PROHIBITED PURPOSES. A domestic entity may not: 28-8 (1) engage in a business or activity that: 28-9 (A) is expressly unlawful or prohibited by a law 28-10 of this state; 28-11 (B) cannot lawfully be engaged in by that entity 28-12 under state law; or 28-13 (C) may not be engaged in by an entity without 28-14 first obtaining a license under the laws of this state to engage in 28-15 that business or activity and a license cannot lawfully be granted 28-16 to the entity; or 28-17 (2) operate as a: 28-18 (A) bank; 28-19 (B) trust company; 28-20 (C) savings association; 28-21 (D) insurance company regulated by this state; 28-22 (E) railroad company; 28-23 (F) cemetery organization; or 28-24 (G) abstract or title company governed by 28-25 Chapter 9, Insurance Code. 28-26 Sec. 2.004. LIMITATION ON PURPOSES OF PROFESSIONAL ENTITY. 28-27 A professional entity may engage in only: 29-1 (1) one type of professional service, unless the 29-2 entity is expressly authorized to provide more than one type of 29-3 professional service under state law regulating the professional 29-4 services; and 29-5 (2) services ancillary to that type of professional 29-6 service. 29-7 Sec. 2.005. LIMITATION IN GOVERNING DOCUMENTS. The 29-8 governing documents of a domestic entity may contain limitations on 29-9 the entity's purposes. 29-10 (Sections 2.006-2.100 reserved for expansion) 29-11 SUBCHAPTER B. POWERS OF DOMESTIC ENTITY 29-12 Sec. 2.101. GENERAL POWERS. Except as otherwise provided by 29-13 this code, a domestic entity has the same powers as an individual 29-14 to take action necessary or convenient to carry out its business 29-15 and affairs. Except as otherwise provided by this code, the powers 29-16 of a domestic entity include the power to: 29-17 (1) sue, be sued, and defend suit in the entity's 29-18 business name; 29-19 (2) have and alter a seal and use the seal or a 29-20 facsimile of it by impressing, affixing, or reproducing it; 29-21 (3) acquire, receive, own, hold, improve, use, and 29-22 deal in and with property or an interest in property; 29-23 (4) sell, convey, mortgage, pledge, lease, exchange, 29-24 and otherwise dispose of property; 29-25 (5) make contracts and guarantees; 29-26 (6) incur liabilities, borrow money, issue notes, 29-27 bonds, or other obligations, which may be convertible into, or 30-1 include the option to purchase, other securities or ownership 30-2 interests in the entity, and secure its obligations by mortgaging 30-3 or pledging its property, franchises, or income; 30-4 (7) lend money, invest its funds, and receive and hold 30-5 property as security for repayment; 30-6 (8) acquire its own bonds, debentures, or other 30-7 evidences of indebtedness or obligations; 30-8 (9) acquire its own ownership interests, regardless of 30-9 whether redeemable, and hold the ownership interests as treasury 30-10 ownership interests or cancel or dispose of the ownership 30-11 interests; 30-12 (10) be a promoter, organizer, owner, partner, member, 30-13 associate, or manager of an organization; 30-14 (11) acquire, receive, own, hold, vote, use, pledge, 30-15 and dispose of ownership interests in or securities issued by 30-16 another person; 30-17 (12) conduct its business, locate its offices, and 30-18 exercise the powers granted by this code to further its purposes, 30-19 in or out of this state; 30-20 (13) lend money to, and otherwise assist, its 30-21 managerial officials, owners, members, or employees as necessary or 30-22 appropriate; 30-23 (14) elect or appoint officers and agents of the 30-24 entity, establish the length of their terms, define their duties, 30-25 and fix their compensation; 30-26 (15) pay pensions and establish pension plans, pension 30-27 trusts, profit-sharing plans, bonus plans, and incentive plans for 31-1 managerial officials, owners, members, or employees or former 31-2 managerial officials, owners, members, or employees; 31-3 (16) indemnify and maintain liability insurance for 31-4 managerial officials, owners, members, employees, and agents of the 31-5 entity or the entity's affiliate; 31-6 (17) adopt and amend governing documents for managing 31-7 the affairs of the entity subject to applicable law; 31-8 (18) make donations for the public welfare or for a 31-9 charitable, scientific, or educational purpose; 31-10 (19) voluntarily wind up its business and activities 31-11 and terminate its existence; 31-12 (20) transact business or take action that will aid 31-13 governmental policy; and 31-14 (21) take other action necessary or appropriate to 31-15 further the purposes of the entity. 31-16 Sec. 2.102. ADDITIONAL POWERS OF NONPROFIT ENTITY OR 31-17 INSTITUTION. To effect its purposes, a domestic nonprofit entity or 31-18 institution formed for a religious, charitable, educational, or 31-19 eleemosynary purpose may acquire, own, hold, mortgage, and dispose 31-20 of and invest its funds in property for the use and benefit of, 31-21 under the discretion of, and in trust for a convention, conference, 31-22 or association organized under the laws of this state or another 31-23 state with which it is affiliated or by which it is controlled. 31-24 Sec. 2.103. POWER TO INCUR INDEBTEDNESS. (a) Unless 31-25 otherwise provided by its governing documents or this code, a 31-26 domestic entity may create indebtedness for any consideration the 31-27 entity considers appropriate, including: 32-1 (1) cash; 32-2 (2) property; 32-3 (3) a contract to receive property; 32-4 (4) a debt or other obligation of the entity or of 32-5 another person; 32-6 (5) services performed or a contract for services to 32-7 be performed; or 32-8 (6) a direct or indirect benefit realized by the 32-9 entity. 32-10 (b) In the absence of fraud in the transaction, the judgment 32-11 of the governing authority of a domestic entity as to the value of 32-12 the consideration received by the entity for indebtedness is 32-13 conclusive. 32-14 (c) For purposes of this section, a domestic entity is 32-15 treated as part of the entity creating indebtedness if the domestic 32-16 entity is directly or indirectly or wholly or partly owned by that 32-17 entity. 32-18 (d) This section does not apply to indebtedness created by a 32-19 for-profit entity that is incurred by reason of the authorization 32-20 or payment of a distribution. 32-21 Sec. 2.104. POWER TO MAKE GUARANTIES. (a) In this section, 32-22 "guaranty" means a mortgage, pledge, security agreement, or other 32-23 agreement making the domestic entity or its assets secondarily 32-24 liable for another person's contract, security, or other 32-25 obligation. 32-26 (b) Unless otherwise provided by its governing documents or 32-27 this code, a domestic entity may: 33-1 (1) make a guaranty on behalf of a parent, subsidiary, 33-2 or affiliate of the entity; or 33-3 (2) make a guaranty of the indebtedness of another 33-4 person if the guaranty may reasonably be expected directly or 33-5 indirectly to benefit the entity. 33-6 (c) For purposes of Subsection (b)(2), a decision by the 33-7 governing authority of the domestic entity that a guaranty may 33-8 reasonably be expected to benefit the entity is conclusive and not 33-9 subject to attack by any person, except: 33-10 (1) a guaranty may not be enforced by a person who 33-11 participated in a fraud on the domestic entity resulting in the 33-12 making of the guaranty or by a person who had notice of that fraud 33-13 at the time the person acquired rights under the guaranty; 33-14 (2) a proposed guaranty may be enjoined at the request 33-15 of an owner of the domestic entity on the ground that the guaranty 33-16 cannot reasonably be expected to benefit the domestic entity; or 33-17 (3) the domestic entity, whether acting directly or 33-18 through a receiver, trustee, or other legal representative, or 33-19 through an owner on behalf of the domestic entity, may bring suit 33-20 for damages against the managerial officials, owners, or members 33-21 who authorized the guaranty on the ground that the guaranty could 33-22 not reasonably be expected to benefit the domestic entity. 33-23 (d) This section does not: 33-24 (1) apply to a domestic entity governed by the 33-25 Insurance Code; or 33-26 (2) authorize a domestic entity that is not governed 33-27 by the Insurance Code to engage in a business or transaction 34-1 regulated by the Insurance Code. 34-2 Sec. 2.105. STATED POWERS IN SUBCHAPTER SUFFICIENT. A 34-3 domestic entity is not required to state any of the powers provided 34-4 to the entity by this subchapter in its governing documents. 34-5 Sec. 2.106. LIMITATION ON POWERS. (a) This subchapter does 34-6 not authorize a domestic entity or a managerial official of a 34-7 domestic entity to exercise a power in a manner inconsistent with a 34-8 limitation on the purposes or powers of the entity contained in its 34-9 governing documents, this code, or other law of this state. 34-10 (b) This code does not authorize any action in violation of 34-11 the antitrust laws of this state. 34-12 Sec. 2.107. CERTIFICATED INDEBTEDNESS; MANNER OF ISSUANCE; 34-13 SIGNATURE AND SEAL. (a) Except as otherwise provided by the 34-14 governing documents of the domestic entity, this code, or other 34-15 law, on the issuance by a domestic entity of a bond, debenture, or 34-16 other evidence of indebtedness in certificated form, the seal of 34-17 the entity, if the entity has adopted a seal, may be a facsimile 34-18 that may be engraved or printed on the certificate. 34-19 (b) Except as otherwise provided by the governing documents 34-20 of the domestic entity, this code, or other law, if a security 34-21 described by Subsection (a) is authenticated with the manual 34-22 signature of an authorized officer of the domestic entity or an 34-23 authorized officer or representative, to the extent permitted by 34-24 law, of a transfer agent or trustee appointed or named by an 34-25 indenture of trust or other agreement under which the security is 34-26 issued, the signature of any officer of the domestic entity may be 34-27 a facsimile signature. 35-1 (c) A security described by Subsection (a) that contains the 35-2 manual or facsimile signature of a person who is no longer an 35-3 officer when the security is delivered by the entity may be 35-4 adopted, issued, and delivered by the entity in the same manner and 35-5 to the same extent as if the person had remained an officer of the 35-6 entity. 35-7 CHAPTER 3. FORMATION AND GOVERNANCE 35-8 SUBCHAPTER A. FORMATION, EXISTENCE, AND CERTIFICATE 35-9 OF FORMATION 35-10 Sec. 3.001. FORMATION AND EXISTENCE OF FILING ENTITIES. (a) 35-11 Subject to the other provisions of this code, to form a filing 35-12 entity, a certificate of formation complying with Sections 3.003, 35-13 3.004, and 3.005 must be filed in accordance with Chapter 4. 35-14 (b) The filing of a certificate of formation described by 35-15 Subsection (a) may be included in a filing under Chapter 10. 35-16 (c) The existence of a filing entity commences when the 35-17 filing of the certificate of formation takes effect as provided by 35-18 Chapter 4. 35-19 (d) Except in a proceeding by the state to terminate the 35-20 existence of a filing entity, an acknowledgment of the filing of a 35-21 certificate of formation issued by the filing officer is conclusive 35-22 evidence of: 35-23 (1) the formation and existence of the filing entity; 35-24 (2) the satisfaction of all conditions precedent to 35-25 the formation of the filing entity; and 35-26 (3) the authority of the filing entity to transact 35-27 business in this state. 36-1 Sec. 3.002. FORMATION AND EXISTENCE OF NONFILING ENTITIES. 36-2 The requirements for the formation of and the determination of the 36-3 existence of a nonfiling entity are governed by the title of this 36-4 code that applies to that entity. 36-5 Sec. 3.003. DURATION. A domestic entity exists perpetually 36-6 unless otherwise provided in the governing documents of the entity. 36-7 A domestic entity may be terminated in accordance with this code or 36-8 the Tax Code. 36-9 Sec. 3.004. ORGANIZERS. (a) Any person having the capacity 36-10 to contract for the person or for another may be an organizer of a 36-11 filing entity. 36-12 (b) Each organizer of a filing entity must sign the 36-13 certificate of formation of the filing entity, except that: 36-14 (1) each general partner must sign the certificate of 36-15 formation of a domestic limited partnership; and 36-16 (2) each trust manager must sign and acknowledge 36-17 before an officer who is authorized by law to take acknowledgment 36-18 of a deed the certificate of formation of a domestic real estate 36-19 investment trust. 36-20 Sec. 3.005. CERTIFICATE OF FORMATION. (a) The certificate 36-21 of formation must state: 36-22 (1) the name of the filing entity being formed; 36-23 (2) the type of filing entity being formed; 36-24 (3) for filing entities other than limited 36-25 partnerships, the purpose or purposes for which the filing entity 36-26 is formed, including any lawful purpose for that type of entity; 36-27 (4) the period of duration, if the entity is not 37-1 formed to exist perpetually; 37-2 (5) the street address of the initial registered 37-3 office of the filing entity and the name of the initial registered 37-4 agent of the filing entity at the office; 37-5 (6) the name and address of each: 37-6 (A) organizer for the filing entity, unless the 37-7 entity is formed under a plan of conversion or merger; 37-8 (B) general partner, if the filing entity is a 37-9 limited partnership; or 37-10 (C) trust manager, if the filing entity is a 37-11 real estate investment trust; 37-12 (7) if the filing entity is formed under a plan of 37-13 conversion or merger, a statement to that effect and, if formed 37-14 under a plan of conversion, the name, address, date of formation, 37-15 prior form of organization, and jurisdiction of formation of the 37-16 converting entity; and 37-17 (8) any other information required by this code to be 37-18 included in the certificate of formation for the filing entity. 37-19 (b) The certificate of formation may contain other 37-20 provisions not inconsistent with law relating to the organization, 37-21 ownership, governance, business, or affairs of the filing entity. 37-22 (c) Except as provided by Section 3.004, Chapter 4 governs 37-23 the signing and filing of a certificate of formation for a domestic 37-24 entity. 37-25 Sec. 3.006. FILINGS IN CASE OF MERGER OR CONVERSION. (a) 37-26 If a new domestic entity is formed under a plan of conversion or 37-27 merger, the certificate of formation of the entity must be filed 38-1 with the certificate of conversion or merger under Section 38-2 10.155(a) or 10.153(a). The certificate of formation is not 38-3 required to be filed separately under Section 3.001. 38-4 (b) The formation and existence of a domestic filing entity 38-5 that is a converted entity in a conversion or that is to be created 38-6 under a plan of merger takes effect and commences on the 38-7 effectiveness of the conversion or merger, as appropriate. 38-8 (Sections 3.007-3.050 reserved for expansion) 38-9 SUBCHAPTER B. AMENDMENTS AND RESTATEMENTS OF 38-10 CERTIFICATE OF FORMATION 38-11 Sec. 3.051. RIGHT TO AMEND CERTIFICATE OF FORMATION. (a) A 38-12 filing entity may amend its certificate of formation. 38-13 (b) An amended certificate of formation may contain only 38-14 provisions that: 38-15 (1) would be permitted at the time of the amendment if 38-16 the amended certificate of formation were a newly filed original 38-17 certificate of formation; or 38-18 (2) effect a change, exchange, reclassification, or 38-19 cancellation in the membership or ownership interests or the rights 38-20 of owners or members of the filing entity. 38-21 Sec. 3.052. PROCEDURES TO AMEND CERTIFICATE OF FORMATION. 38-22 (a) The procedure to adopt an amendment to the certificate of 38-23 formation is as provided by the title of this code that applies to 38-24 the entity. 38-25 (b) A filing entity that amends its certificate of formation 38-26 shall sign and file, in the manner required by Chapter 4, a 38-27 certificate of amendment complying with Section 3.053 or a restated 39-1 certificate of formation complying with Section 3.057. 39-2 Sec. 3.053. CERTIFICATE OF AMENDMENT. A certificate of 39-3 amendment for a filing entity must state: 39-4 (1) the name of the filing entity; 39-5 (2) the type of the filing entity; 39-6 (3) for each provision of the certificate of formation 39-7 that is added, altered, or deleted, an identification by reference 39-8 or description of the added, altered, or deleted provision and, if 39-9 the provision is added or altered, a statement of the text of the 39-10 amended or added provision; 39-11 (4) that the amendment or amendments have been 39-12 approved in the manner required by this code and the governing 39-13 documents of the entity; and 39-14 (5) any other matter required by the provisions of 39-15 this code applicable to the filing entity to be in the certificate 39-16 of amendment. 39-17 Sec. 3.054. EFFECT OF FILING OF CERTIFICATE OF AMENDMENT. 39-18 (a) An amendment to a certificate of formation takes effect when 39-19 the filing of the certificate of amendment takes effect as provided 39-20 by Chapter 4. 39-21 (b) An amendment to a certificate of formation does not 39-22 affect: 39-23 (1) an existing cause of action in favor of or against 39-24 the entity for which the certificate of amendment is sought; 39-25 (2) a pending suit to which the entity is a party; or 39-26 (3) an existing right of a person other than an 39-27 existing owner. 40-1 (c) If the name of an entity is changed by amendment, an 40-2 action brought by or against the entity in the former name of the 40-3 entity does not abate because of the name change. 40-4 Sec. 3.055. RIGHT TO RESTATE CERTIFICATE OF FORMATION. (a) 40-5 A filing entity may restate its certificate of formation. 40-6 (b) An amendment effected by a restated certificate of 40-7 formation must comply with Section 3.051(b). 40-8 Sec. 3.056. PROCEDURES TO RESTATE CERTIFICATE OF FORMATION. 40-9 (a) The procedure to adopt a restated certificate of formation is 40-10 governed by the title of this code that applies to the entity. 40-11 (b) A filing entity that restates its certificate of 40-12 formation shall sign and file, in the manner required by Chapter 4, 40-13 a restated certificate of formation and accompanying statements 40-14 complying with Section 3.057. 40-15 Sec. 3.057. RESTATED CERTIFICATE OF FORMATION. (a) A 40-16 restated certificate of formation must accurately state the text of 40-17 the previous certificate of formation, regardless of whether the 40-18 certificate of formation is an original, corrected, or restated 40-19 certificate, and include: 40-20 (1) each previous amendment to the certificate being 40-21 restated that is carried forward; and 40-22 (2) each new amendment to the certificate being 40-23 restated. 40-24 (b) A restated certificate of formation may omit: 40-25 (1) the name and address of each organizer other than 40-26 the name and address of each general partner of a limited 40-27 partnership or trust manager of a real estate investment trust; and 41-1 (2) any other information that may be omitted under 41-2 the provisions of this code applicable to the filing entity. 41-3 (c) A restated certificate of formation that does not make 41-4 new amendments to the certificate of formation being restated must 41-5 be accompanied by: 41-6 (1) a statement that the restated certificate of 41-7 formation accurately states the text of the certificate of 41-8 formation being restated, as amended, restated, and corrected, 41-9 except for information omitted under Subsection (b); and 41-10 (2) any other information required by other provisions 41-11 of this code applicable to the filing entity. 41-12 (d) A restated certificate of formation that makes new 41-13 amendments to the certificate of formation being restated must: 41-14 (1) be accompanied by a statement that each new 41-15 amendment has been made in accordance with this code; 41-16 (2) identify by reference or description each added, 41-17 altered, or deleted provision; 41-18 (3) be accompanied by a statement that each amendment 41-19 has been approved in the manner required by this code and the 41-20 governing documents of the entity; 41-21 (4) be accompanied by a statement that the restated 41-22 certificate of formation: 41-23 (A) accurately states the text of the 41-24 certificate of formation being restated and each amendment to the 41-25 certificate of formation being restated that is in effect, as 41-26 further amended by the restated certificate of formation; and 41-27 (B) does not contain any other change in the 42-1 certificate of formation being restated except for information 42-2 omitted under Subsection (b); and 42-3 (5) include any other information required by the 42-4 title of this code applicable to the entity. 42-5 Sec. 3.058. EFFECT OF FILING OF RESTATED CERTIFICATE OF 42-6 FORMATION. (a) A restated certificate of formation takes effect 42-7 when the filing of the restated certificate of formation takes 42-8 effect as provided by Chapter 4. 42-9 (b) On the date the restated certificate of formation takes 42-10 effect, the original certificate of formation and each prior 42-11 amendment or restatement of the certificate of formation is 42-12 superseded and the restated certificate of formation is the 42-13 effective certificate of formation. 42-14 (c) Sections 3.054(b) and (c) apply to an amendment effected 42-15 by a restated certificate of formation. 42-16 (Sections 3.059-3.100 reserved for expansion) 42-17 SUBCHAPTER C. GOVERNING PERSONS AND OFFICERS 42-18 Sec. 3.101. RIGHTS OF GOVERNING PERSONS IN CERTAIN CASES. 42-19 (a) In discharging a duty or exercising a power, a governing 42-20 person, including a governing person who is a member of a 42-21 committee, may, in good faith and with ordinary care, rely on 42-22 information, opinions, reports, or statements, including financial 42-23 statements and other financial data, concerning a domestic entity 42-24 or another person and prepared or presented by: 42-25 (1) an officer or employee of the entity; 42-26 (2) legal counsel; 42-27 (3) a public accountant; 43-1 (4) an investment banker; 43-2 (5) a person who the governing person reasonably 43-3 believes possesses professional expertise in the matter; or 43-4 (6) a committee of the governing authority of which 43-5 the governing person is not a member. 43-6 (b) A governing person may not in good faith rely on the 43-7 information described by Subsection (a) if the governing person has 43-8 knowledge of a matter that makes the reliance unwarranted. 43-9 (c) A governing person held liable on a claim is entitled to 43-10 contribution from each of the other governing persons held liable 43-11 on the same claim, as appropriate to achieve equity. 43-12 Sec. 3.102. OFFICERS. (a) Officers of a domestic entity 43-13 may be elected or appointed in accordance with the governing 43-14 documents of the entity or by the governing authority of the entity 43-15 unless prohibited by the governing documents. 43-16 (b) An officer of an entity shall perform the duties in the 43-17 management of the entity and has the authority as provided by the 43-18 governing documents of the entity or the governing authority that 43-19 elects or appoints the officer. 43-20 (c) A person may simultaneously hold any two or more offices 43-21 of an entity unless prohibited by this code or the governing 43-22 documents of the entity. 43-23 Sec. 3.103. REMOVAL OF OFFICERS. (a) Unless otherwise 43-24 provided by the governing documents of a domestic entity, an 43-25 officer may be removed for or without cause by the governing 43-26 authority or as provided by the governing documents of the entity. 43-27 The removal of an officer does not prejudice any contract rights of 44-1 the person removed. 44-2 (b) Election or appointment of an officer does not by itself 44-3 create contract rights. 44-4 Sec. 3.104. RIGHTS OF OFFICERS IN CERTAIN CASES. (a) In 44-5 discharging a duty or exercising a power, an officer of a domestic 44-6 entity may, in good faith and ordinary care, rely on information, 44-7 opinions, reports, or statements, including financial statements 44-8 and other financial data, concerning the entity or another person 44-9 and prepared or presented by: 44-10 (1) another officer or an employee of the entity; 44-11 (2) legal counsel; 44-12 (3) a public accountant; 44-13 (4) an investment banker; or 44-14 (5) a person who the officer reasonably believes 44-15 possesses professional expertise in the matter. 44-16 (b) An officer may not in good faith rely on the information 44-17 described by Subsection (a) if the officer has knowledge of a 44-18 matter that makes the reliance unwarranted. 44-19 (Sections 3.105-3.150 reserved for expansion) 44-20 SUBCHAPTER D. RECORDKEEPING 44-21 Sec. 3.151. BOOKS AND RECORDS FOR ALL FILING ENTITIES. 44-22 (a) Each filing entity shall keep: 44-23 (1) books and records of accounts; 44-24 (2) minutes of the proceedings of the owners or 44-25 members or governing authority of the filing entity and committees 44-26 of the owners or members or governing authority of the filing 44-27 entity; 45-1 (3) at its registered office or principal place of 45-2 business, or at the office of its transfer agent or registrar, a 45-3 record of: 45-4 (A) the original issuance of ownership or 45-5 membership interests issued by the entity; and 45-6 (B) each transfer of the issued ownership or 45-7 membership interests that have been presented to the entity for 45-8 registration or transfer; and 45-9 (4) other books and records as required by the title 45-10 of this code governing the entity. 45-11 (b) The records required by Subsection (a)(3) must state: 45-12 (1) the name and address of each past and current 45-13 owner or member of the entity; 45-14 (2) the number, amount, or percentage and class or 45-15 series of ownership or membership interests issued by the entity 45-16 held by each past and current owner or member; and 45-17 (3) if different, the number of votes to which each is 45-18 entitled. 45-19 (c) The books, records, minutes, and ownership or membership 45-20 transfer records of any entity may be in written form or another 45-21 form capable of being converted into written form within a 45-22 reasonable time. 45-23 Sec. 3.152. GOVERNING PERSON'S RIGHT OF INSPECTION. (a) A 45-24 governing person may examine the entity's books and records 45-25 maintained under Section 3.151 and other books and records of the 45-26 entity for a purpose reasonably related to the governing person's 45-27 service as a governing person. 46-1 (b) A court may require an entity to open the books and 46-2 records of the entity, including the books and records maintained 46-3 under Section 3.151, to permit a governing person to inspect, make 46-4 copies of, or take extracts from the books and records on a showing 46-5 by the governing person that: 46-6 (1) the person is a governing person of the entity; 46-7 (2) the person demanded to inspect the entity's books 46-8 and records; 46-9 (3) the person's purpose for inspecting the entity's 46-10 books and records is reasonably related to the person's service as 46-11 a governing person; and 46-12 (4) the entity refused the person's good faith demand 46-13 to inspect the books and records. 46-14 (c) A court may award a governing person attorney's fees and 46-15 any other proper relief in a suit to require an entity to open its 46-16 books and records under Subsection (b). 46-17 Sec. 3.153. RIGHT OF EXAMINATION BY OWNER OR MEMBER. Each 46-18 owner or member of an entity may examine the books and records of 46-19 an entity maintained under Section 3.151 and other books and 46-20 records of the entity to the extent provided by the governing 46-21 documents of the entity and the title of this code governing the 46-22 entity. 46-23 (Sections 3.154-3.200 reserved for expansion) 46-24 SUBCHAPTER E. CERTIFICATES REPRESENTING OWNERSHIP INTEREST 46-25 Sec. 3.201. CERTIFICATED OR UNCERTIFICATED OWNERSHIP 46-26 INTEREST. (a) Ownership interests in a domestic entity may be 46-27 certificated or uncertificated. 47-1 (b) The ownership interests in a for-profit corporation, 47-2 real estate investment trust, or professional corporation must be 47-3 certificated unless the governing documents of the entity or a 47-4 resolution adopted by the governing authority of the entity states 47-5 that the ownership interests are uncertificated. If a domestic 47-6 entity changes the form of its ownership interests from 47-7 certificated to uncertificated, a certificated ownership interest 47-8 subject to the change becomes an uncertificated ownership interest 47-9 only after the certificate is surrendered to the domestic entity. 47-10 (c) Ownership interests in a domestic entity, other than a 47-11 domestic entity described by Subsection (b), are uncertificated 47-12 unless this code or the governing documents of the domestic entity 47-13 state that the interests are certificated. 47-14 Sec. 3.202. FORM AND VALIDITY OF CERTIFICATES; ENFORCEMENT 47-15 OF ENTITY'S RIGHTS. (a) A certificated ownership interest in a 47-16 domestic entity may contain an impression of the seal of the 47-17 entity, if any. A facsimile of the entity's seal may be printed or 47-18 lithographed on the certificate. 47-19 (b) If a domestic entity is authorized to issue ownership 47-20 interests of more than one class or series, each certificate 47-21 representing ownership interests that is issued by the entity must 47-22 conspicuously state on the front or back of the certificate: 47-23 (1) the designations, preferences, limitations, and 47-24 relative rights of the ownership interests of each class or series 47-25 to the extent they have been determined and the authority of the 47-26 governing authority to make those determinations as to subsequent 47-27 series; or 48-1 (2) that the information required by Subdivision (1) 48-2 is stated in the domestic entity's governing documents and that the 48-3 domestic entity, on written request to the entity's principal place 48-4 of business or registered office, will provide a free copy of that 48-5 information to the record holder of the certificate. 48-6 (c) A certificate representing ownership interests must 48-7 state on the front of the certificate: 48-8 (1) that the domestic entity is organized under the 48-9 laws of this state; 48-10 (2) the name of the person to whom the certificate is 48-11 issued; 48-12 (3) the number and class of ownership interests and 48-13 the designation of the series, if any, represented by the 48-14 certificate; and 48-15 (4) if the ownership interests are shares, the par 48-16 value of each share represented by the certificate, or a statement 48-17 that the shares are without par value. 48-18 (d) A certificate representing ownership interests that is 48-19 subject to a restriction, placed by or agreed to by the domestic 48-20 entity under this subchapter, on the transfer or registration of 48-21 the transfer of the ownership interests must: 48-22 (1) conspicuously state or provide a summary of the 48-23 restriction on the front of the certificate; 48-24 (2) state the restriction on the back of the 48-25 certificate and conspicuously refer to that statement on the front 48-26 of the certificate; or 48-27 (3) conspicuously state on the front or back of the 49-1 certificate that a restriction exists pursuant to a specified 49-2 document and: 49-3 (A) that the domestic entity, on written request 49-4 to the entity's principal place of business, will provide a free 49-5 copy of the document to the certificate record holder; or 49-6 (B) if the document has been filed in accordance 49-7 with this code, that the document: 49-8 (i) is on file with the secretary of state 49-9 or, in the case of a real estate investment trust, with the county 49-10 clerk of the county in which the real estate investment trust's 49-11 principal place of business is located; and 49-12 (ii) contains a complete statement of the 49-13 restriction. 49-14 (e) A domestic entity that fails to provide to the record 49-15 holder of a certificate within a reasonable time a document as 49-16 required by Subsection (d)(3)(A) may not enforce the entity's 49-17 rights under the restriction imposed on the certificated ownership 49-18 interests. 49-19 (f) A certificate representing shares of a corporation in 49-20 which any provision of the certificate of formation, bylaws, 49-21 resolution of the board of directors or shareholders, or agreement 49-22 restricting the transfer of shares has been incorporated by 49-23 reference as provided by Section F, Article 2.19, Texas Business 49-24 Corporation Act, before September 1, 1975, is not invalidated or 49-25 affected by the repeal of that section. An incorporation by 49-26 reference as provided by Section F, Article 2.19, Texas Business 49-27 Corporation Act, may not be used on a certificate issued on or 50-1 after September 1, 1975, without regard to the form of issuance. 50-2 Sec. 3.203. SIGNATURE REQUIREMENT. (a) The managerial 50-3 official or officials of a domestic entity authorized by the 50-4 governing documents of the entity to sign certificated ownership 50-5 interests of the entity must sign any certificate representing an 50-6 ownership interest in the entity. 50-7 (b) A certificated ownership interest that contains the 50-8 manual or facsimile signature of a person who is no longer a 50-9 managerial official of a domestic entity when the certificate is 50-10 issued may be issued by the entity in the same manner and with the 50-11 same effect as if the person had remained a managerial official. 50-12 Sec. 3.204. DELIVERY REQUIREMENT. A domestic entity shall 50-13 deliver a certificate representing a certificated ownership 50-14 interest to which the owner is entitled. 50-15 Sec. 3.205. NOTICE FOR UNCERTIFICATED OWNERSHIP INTEREST. 50-16 (a) Except as provided by Subsection (c) and in accordance with 50-17 Chapter 8, Business & Commerce Code, after issuing or transferring 50-18 an uncertificated ownership interest, a domestic entity shall 50-19 notify the owner of the ownership interest in writing of any 50-20 information required under this subchapter to be stated on a 50-21 certificate representing the ownership interest. 50-22 (b) Except as otherwise expressly provided by law, the 50-23 rights and obligations of the owner of an uncertificated ownership 50-24 interest are the same as the rights and obligations of the owner of 50-25 a certificated ownership interest of the same class and series. 50-26 (c) A domestic entity is not required to send a notice under 50-27 Subsection (a) if: 51-1 (1) the required information is included in the 51-2 governing documents of the entity; and 51-3 (2) the owner of the uncertificated ownership interest 51-4 is provided with a copy of the governing documents. 51-5 CHAPTER 4. FILINGS 51-6 SUBCHAPTER A. GENERAL PROVISIONS 51-7 Sec. 4.001. SIGNATURE AND DELIVERY. (a) A filing 51-8 instrument must be: 51-9 (1) signed by a person authorized by this code to act 51-10 on behalf of the entity in regard to the filing instrument; and 51-11 (2) delivered to the secretary of state in person or 51-12 by mail, courier, facsimile or electronic transmission, or any 51-13 other comparable form of delivery. 51-14 (b) A person authorized by this code to sign a filing 51-15 instrument for an entity is not required to show evidence of the 51-16 person's authority as a requirement for filing. 51-17 Sec. 4.002. ACTION BY SECRETARY OF STATE. (a) If the 51-18 secretary of state finds that a filing instrument delivered under 51-19 Section 4.001 conforms to the provisions of this code that apply to 51-20 the entity and to applicable rules adopted under Section 12.001 and 51-21 that all required fees have been paid, the secretary of state 51-22 shall: 51-23 (1) file the instrument by accepting it into the 51-24 filing system adopted by the secretary of state and assigning the 51-25 instrument a date of filing; and 51-26 (2) deliver a written or electronic acknowledgment of 51-27 filing to the entity or its representative. 52-1 (b) If a duplicate copy of the filing instrument is 52-2 delivered to the secretary of state, on accepting the filing 52-3 instrument, the secretary of state shall return the duplicate copy, 52-4 endorsed with the word "Filed" and the month, day, and year of 52-5 filing, to the entity or its representative with the acknowledgment 52-6 of filing. 52-7 Sec. 4.003. FILING OR ISSUANCE OF REPRODUCTION OR FACSIMILE. 52-8 (a) A photographic, photostatic, facsimile, electronic, or similar 52-9 reproduction of a filing instrument, signature, acknowledgment of 52-10 filing, or communication may be filed or issued in place of: 52-11 (1) an original filing instrument; 52-12 (2) an original signature on a filing instrument; or 52-13 (3) an original acknowledgment of filing or other 52-14 written communication from the secretary of state relating to a 52-15 filing instrument. 52-16 (b) To the extent any filing or action on a filing conforms 52-17 to this subchapter, a filing instrument or an acknowledgement of 52-18 filing issued by the secretary of state is not required to be on 52-19 paper or to be reduced to printed form. 52-20 Sec. 4.004. TIME FOR FILING. Unless this code prescribes a 52-21 specific period for filing, an entity shall promptly file each 52-22 filing instrument that this code requires the entity to file. 52-23 Sec. 4.005. CERTIFICATES AND CERTIFIED COPIES. (a) A 52-24 court, public office, or official body shall accept a certificate 52-25 issued as provided by this code by the secretary of state or a copy 52-26 of a filing instrument accepted by the secretary of state for 52-27 filing as provided by this code that is certified by the secretary 53-1 of state as prima facie evidence of the facts stated in the 53-2 certificate or instrument. 53-3 (b) A court, public office, or official body may record a 53-4 certificate or certified copy described by Subsection (a). 53-5 (c) A court, public office, or official body shall accept a 53-6 certificate issued under an official seal by the secretary of state 53-7 as to the existence or nonexistence of facts that relate to an 53-8 entity that would not appear from a certified copy of a filing 53-9 instrument as prima facie evidence of the existence or nonexistence 53-10 of the facts stated in the certificate. 53-11 Sec. 4.006. FORMS ADOPTED BY SECRETARY OF STATE. (a) The 53-12 secretary of state may adopt forms for a filing instrument or a 53-13 report authorized or required by this code to be filed with the 53-14 secretary of state. 53-15 (b) A person is not required to use a form adopted by the 53-16 secretary of state unless this code expressly requires use of that 53-17 form. 53-18 Sec. 4.007. LIABILITY FOR FALSE FILING INSTRUMENTS. (a) A 53-19 person may recover damages, court costs, and reasonable attorney's 53-20 fees if the person incurs a loss and: 53-21 (1) the loss is caused by a filed filing instrument 53-22 that constitutes an offense under Section 4.008; or 53-23 (2) the person reasonably relies on: 53-24 (A) a false statement of material fact in a 53-25 filed filing instrument; or 53-26 (B) the omission in a filed filing instrument of 53-27 a material fact required by this code to be included in the 54-1 instrument. 54-2 (b) A person may recover under Subsection (a) from: 54-3 (1) each person who signed the filing instrument and 54-4 knew when the instrument was signed of the false statement or 54-5 omission; 54-6 (2) any managerial official of the entity who directed 54-7 the signing and filing of the filing instrument who knew or should 54-8 have known when the instrument was signed or filed of the false 54-9 statement or omission; or 54-10 (3) the entity that authorizes the filing of the 54-11 filing instrument. 54-12 Sec. 4.008. OFFENSE; PENALTY. (a) A person commits an 54-13 offense if the person signs or directs the filing of a filing 54-14 instrument that the person knows is materially false with intent 54-15 that the filing instrument be delivered on behalf of an entity to 54-16 the secretary of state for filing. 54-17 (b) An offense under this section is a Class A misdemeanor 54-18 unless the actor's intent is to defraud or harm another, in which 54-19 event the offense is a state jail felony. 54-20 Sec. 4.009. FILINGS BY REAL ESTATE INVESTMENT TRUST. (a) A 54-21 filing instrument relating to a real estate investment trust must 54-22 be filed with the county clerk of the county in which the real 54-23 estate investment trust's principal place of business is located. 54-24 (b) Subject to other state law governing the requirements 54-25 for filing instruments with a county clerk, this chapter applies to 54-26 a filing by a real estate investment trust, except that in relation 54-27 to such a filing a reference in this chapter to the secretary of 55-1 state is considered to be a reference to the county clerk of the 55-2 county in which the real estate investment trust's principal place 55-3 of business is located. 55-4 (Sections 4.010-4.050 reserved for expansion) 55-5 SUBCHAPTER B. WHEN FILINGS TAKE EFFECT 55-6 Sec. 4.051. GENERAL RULE. A filing instrument submitted to 55-7 the secretary of state takes effect on filing, except as permitted 55-8 by Section 4.052 or as provided by the provisions of this code that 55-9 apply to the entity making the filing or other law. 55-10 Sec. 4.052. DELAYED EFFECTIVENESS OF CERTAIN FILINGS. 55-11 Except as provided by Section 4.058, a filing instrument may take 55-12 effect after the time the instrument would otherwise take effect as 55-13 provided by this code for the entity filing the instrument and: 55-14 (1) at a specified date and time; or 55-15 (2) on the occurrence of a future event or fact, 55-16 including an act of any person. 55-17 Sec. 4.053. CONDITIONS FOR DELAYED EFFECTIVENESS. (a) The 55-18 date and time at which a filing instrument takes effect is delayed 55-19 if the instrument clearly and expressly states, in addition to any 55-20 other required statement or information: 55-21 (1) the specific date and time at which the instrument 55-22 takes effect; or 55-23 (2) if the instrument takes effect on the occurrence 55-24 of a future event or fact that may occur: 55-25 (A) the manner in which the event or fact will 55-26 cause the instrument to take effect; and 55-27 (B) the date of the 90th day after the date the 56-1 instrument is signed. 56-2 (b) If a filing instrument is to take effect on a specific 56-3 date and time other than that provided by this code: 56-4 (1) the date may not be later than the 90th day after 56-5 the date the instrument is signed; and 56-6 (2) the specific time at which the instrument is to 56-7 take effect may not be specified as "12:00 a.m." or "12:00 p.m." 56-8 Sec. 4.054. DELAYED EFFECTIVENESS ON FUTURE EVENT OR FACT. 56-9 A filing instrument that is to take effect on the occurrence of a 56-10 future event or fact, other than the passage of time, and for which 56-11 the statement required by Section 4.055 is filed within the 56-12 prescribed time, takes effect on the date and time at which the 56-13 last specified event or fact occurs or the date and time at which a 56-14 condition is satisfied or waived. 56-15 Sec. 4.055. STATEMENT OF EVENT OR FACT. An entity that 56-16 files a filing instrument that takes effect on the occurrence of a 56-17 future event or fact, other than the passage of time, must sign and 56-18 file as provided by Subchapter A, not later than the 90th day after 56-19 the date the filing instrument is filed, a statement that: 56-20 (1) confirms that each event or fact on which the 56-21 effect of the instrument is conditioned has been satisfied or 56-22 waived; and 56-23 (2) states the date and time on which the condition 56-24 was satisfied or waived. 56-25 Sec. 4.056. FAILURE TO FILE STATEMENT. If the effect of a 56-26 filing instrument is conditioned on the occurrence of a future 56-27 event or fact, other than the passage of time, and the statement 57-1 required by Section 4.055 is not filed before the expiration of the 57-2 prescribed time, the filing instrument does not take effect. This 57-3 section does not preclude the filing of a subsequent filing 57-4 instrument required by this code to make the event or transaction 57-5 evidenced by the original filing instrument effective. 57-6 Sec. 4.057. ABANDONMENT BEFORE EFFECTIVENESS. (a) The 57-7 parties to a filing instrument may abandon the filing instrument if 57-8 the instrument has not taken effect. 57-9 (b) To abandon a filing instrument the parties to the 57-10 instrument must file with the filing officer a certificate of 57-11 abandonment. 57-12 (c) A certificate of abandonment must: 57-13 (1) be signed on behalf of each entity that is a party 57-14 to the action or transaction by the person authorized by this code 57-15 to act on behalf of the entity; 57-16 (2) state the nature of the filing instrument to be 57-17 abandoned, the date of the instrument, and the parties to the 57-18 instrument; and 57-19 (3) state that the filing instrument has been 57-20 abandoned in accordance with the agreement of the parties. 57-21 (d) On the filing of the certificate of abandonment, the 57-22 action or transaction evidenced by the original filing instrument 57-23 is abandoned and may not take effect. 57-24 (e) If in the interim before a certificate of abandonment is 57-25 filed, the name of an entity that is a party to the action or 57-26 transaction becomes the same as or deceptively similar to the name 57-27 of another entity already on file or reserved or registered under 58-1 this code, the filing officer may not file the certificate of 58-2 abandonment unless the entity by or for whom the certificate is 58-3 filed changes its name in the manner provided by this code for that 58-4 entity. 58-5 Sec. 4.058. DELAYED EFFECTIVENESS NOT PERMITTED. The effect 58-6 of the following filing instruments may not be delayed: 58-7 (1) a reservation of name as provided by Subchapter C, 58-8 Chapter 5; 58-9 (2) a registration of name as provided by Subchapter 58-10 D, Chapter 5; 58-11 (3) a statement of event or fact as provided by 58-12 Section 4.055; or 58-13 (4) a certificate of abandonment as provided by 58-14 Section 4.057. 58-15 Sec. 4.059. ACKNOWLEDGMENT OF FILING WITH DELAYED 58-16 EFFECTIVENESS. (a) An acknowledgment of filing issued or other 58-17 action taken by the secretary of state affirming the filing of a 58-18 filing instrument that has a specific delayed effective date must 58-19 state the date and time at which the instrument takes effect. 58-20 (b) An acknowledgment of filing issued or other action taken 58-21 by the secretary of state affirming the filing of a filing 58-22 instrument the effect of which is delayed until the occurrence of a 58-23 future event or fact must: 58-24 (1) state that the effective date and time of the 58-25 filing instrument is conditioned on the occurrence of a future 58-26 event or fact as described in the filing instrument; or 58-27 (2) otherwise indicate that the effective date and 59-1 time of the instrument is conditioned on the occurrence of a future 59-2 event or fact. 59-3 (Sections 4.060-4.100 reserved for expansion) 59-4 SUBCHAPTER C. CORRECTION AND AMENDMENT 59-5 Sec. 4.101. CORRECTION OF FILINGS. (a) A filing instrument 59-6 that has been filed with the secretary of state that is an 59-7 inaccurate record of the event or transaction evidenced in the 59-8 instrument, that contains an inaccurate or erroneous statement, or 59-9 that was defectively or erroneously signed, sealed, acknowledged, 59-10 or verified may be corrected by filing a certificate of correction. 59-11 (b) A certificate of correction must be signed by the person 59-12 authorized by this code to act on behalf of the entity. 59-13 Sec. 4.102. LIMITATION ON CORRECTION OF FILINGS. A filing 59-14 instrument may be corrected to contain only those statements that 59-15 this code authorizes or requires to be included in the original 59-16 instrument. A certificate of correction may not alter, add, or 59-17 delete a statement that by its alteration, addition, or deletion 59-18 would have caused the secretary of state to determine the filing 59-19 instrument did not conform to this code at the time of filing. 59-20 Sec. 4.103. CERTIFICATE OF CORRECTION. The certificate of 59-21 correction must: 59-22 (1) state the name of the entity; 59-23 (2) identify the filing instrument to be corrected by 59-24 description and date of filing with the secretary of state; 59-25 (3) identify the inaccuracy, error, or defect to be 59-26 corrected; and 59-27 (4) state in corrected form the portion of the filing 60-1 instrument to be corrected. 60-2 Sec. 4.104. FILING CERTIFICATE OF CORRECTION. The 60-3 certificate of correction shall be filed with and acted on by the 60-4 secretary of state as provided by Subchapter A. On filing, the 60-5 secretary of state shall deliver to the entity or its 60-6 representative an acknowledgment of the filing. 60-7 Sec. 4.105. EFFECT OF CERTIFICATE OF CORRECTION. (a) After 60-8 the secretary of state files the certificate of correction, the 60-9 filing instrument is considered to have been corrected on the date 60-10 the filing instrument was originally filed, except as provided by 60-11 Subsection (b). 60-12 (b) As to a person who is adversely affected by the 60-13 correction, the filing instrument is considered to have been 60-14 corrected on the date the certificate of correction is filed. 60-15 (c) An acknowledgment of filing or a similar instrument 60-16 issued by the secretary of state before a filing instrument is 60-17 corrected, with respect to the effect of filing the original filing 60-18 instrument, applies to the corrected filing instrument as of the 60-19 date the corrected filing instrument is considered to have been 60-20 filed under this section. 60-21 Sec. 4.106. AMENDMENT OF FILINGS. A filing instrument that 60-22 an entity files with the secretary of state may be amended or 60-23 supplemented to the extent permitted by the provisions of this code 60-24 that apply to that entity. 60-25 (Sections 4.107-4.150 reserved for expansion) 60-26 SUBCHAPTER D. FILING FEES 60-27 Sec. 4.151. FILING FEES: ALL ENTITIES. The secretary of 61-1 state shall impose the following fees: 61-2 (1) for filing a certificate of correction, $15; 61-3 (2) for filing an application for reservation or 61-4 registration of a name, $40; 61-5 (3) for filing a notice of transfer of a name 61-6 reservation or registration, $15; 61-7 (4) for filing an application for renewal of 61-8 registration of a name, $40; 61-9 (5) for filing a certificate of merger or conversion, 61-10 other than a filing on behalf of a nonprofit corporation, $300 61-11 plus, with respect to a merger, any fee imposed for filing a 61-12 certificate of formation for each newly created filing entity or, 61-13 with respect to a conversion, the fee imposed for filing a 61-14 certificate of formation for the converted entity; and 61-15 (6) for preclearance of a filing instrument, $50. 61-16 Sec. 4.152. FILING FEES: FOR-PROFIT CORPORATION. For a 61-17 filing by or for a for-profit corporation, the secretary of state 61-18 shall impose the following fees: 61-19 (1) for filing a certificate of formation, $300; 61-20 (2) for filing a certificate of amendment, $150; 61-21 (3) for filing an application of a foreign corporation 61-22 for registration to transact business in this state, $750; 61-23 (4) for filing an application of a foreign corporation 61-24 for an amended registration to transact business in this state, 61-25 $150; 61-26 (5) for filing a restated certificate of formation and 61-27 accompanying statement, $300; 62-1 (6) for filing a statement of change of registered 62-2 office, registered agent, or both, $15; 62-3 (7) for filing a statement of change of name or 62-4 address of a registered agent, $15, except that the maximum fee for 62-5 simultaneous filings by a registered agent for more than one 62-6 corporation may not exceed $750; 62-7 (8) for filing a statement of resolution establishing 62-8 one or more series of shares, $15; 62-9 (9) for filing a statement of cancellation of 62-10 redeemable shares, $15; 62-11 (10) for filing a statement of cancellation of 62-12 re-acquired shares, $15; 62-13 (11) for filing a statement of reduction of stated 62-14 capital, $15; 62-15 (12) for filing a certificate of winding up and 62-16 termination, $40; 62-17 (13) for filing a certificate of withdrawal of a 62-18 foreign corporation, $15; 62-19 (14) for filing a certificate from the home state of a 62-20 foreign corporation that the corporation no longer exists in that 62-21 state, $15; 62-22 (15) for filing a bylaw or agreement restricting 62-23 transfer of shares or securities other than as an amendment to the 62-24 certificate of formation, $15; 62-25 (16) for filing an application for reinstatement of a 62-26 certificate of formation or registration as a foreign corporation 62-27 following forfeiture under the Tax Code, $75; 63-1 (17) for filing an application for reinstatement of a 63-2 corporation or registration as a foreign corporation after 63-3 involuntary dissolution or revocation, $75; and 63-4 (18) for filing any instrument as provided by this 63-5 code for which this section does not expressly provide a fee, $15. 63-6 Sec. 4.153. FILING FEES: NONPROFIT CORPORATIONS. For a 63-7 filing by or for a nonprofit corporation, the secretary of state 63-8 shall impose the following fees: 63-9 (1) for filing a certificate of formation, $25; 63-10 (2) for filing a certificate of amendment, $25; 63-11 (3) for filing a certificate of merger or 63-12 consolidation, without regard to whether the surviving or new 63-13 corporation is a domestic or foreign corporation, $50; 63-14 (4) for filing a statement of change of a registered 63-15 office, registered agent, or both, $5; 63-16 (5) for filing a certificate of dissolution, $5; 63-17 (6) for filing an application of a foreign corporation 63-18 for registration to conduct affairs in this state, $25; 63-19 (7) for filing an application of a foreign corporation 63-20 for an amended registration to conduct affairs in this state, $25; 63-21 (8) for filing a certificate of withdrawal of a 63-22 foreign corporation, $5; 63-23 (9) for filing a restated certificate of formation and 63-24 accompanying statement, $50; 63-25 (10) for filing a statement of change of name or 63-26 address of a registered agent, $15, except that the maximum fee for 63-27 simultaneous filings by a registered agent for more than one 64-1 corporation may not exceed $250; 64-2 (11) for filing a report under Chapter 21, $5; 64-3 (12) for filing a report under Chapter 21 to reinstate 64-4 a corporation's right to conduct affairs in this state, $5, plus a 64-5 late fee in the amount of $5 or in the amount of $1 for each month 64-6 or part of a month that the report remains unfiled, whichever 64-7 amount is greater, except that the late fee may not exceed $25; 64-8 (13) for filing a report under Chapter 21 to reinstate 64-9 a corporation or registration following involuntary termination or 64-10 revocation, $25; and 64-11 (14) for filing any instrument of a domestic or 64-12 foreign corporation as provided by this code for which this section 64-13 does not expressly provide a fee, $5. 64-14 Sec. 4.154. FILING FEES: LIMITED LIABILITY COMPANIES. For 64-15 a filing by or for a limited liability company, the secretary of 64-16 state shall impose the same fee as the filing fee for a similar 64-17 instrument under Section 4.152. 64-18 Sec. 4.155. FILING FEES: LIMITED PARTNERSHIPS. For a 64-19 filing by or for a limited partnership, the secretary of state 64-20 shall impose the following fees: 64-21 (1) for filing a certificate of formation or an 64-22 application for registration as a foreign limited partnership, 64-23 $750; 64-24 (2) for filing a certificate of amendment, $150; 64-25 (3) for filing a certificate of cancellation, a 64-26 restated certificate of formation, a certificate under Section 64-27 9.006, or a certificate of cancellation, $200; 65-1 (4) for filing a statement for change of registered 65-2 office, registered agent, or both, $50; 65-3 (5) for filing a statement of change of name or 65-4 address of a registered agent, $50, except that the maximum fee for 65-5 simultaneous filings by a registered agent for more than one 65-6 limited partnership may not exceed $2,500; 65-7 (6) for filing a periodic report required under 65-8 Chapter 153, $50; 65-9 (7) for reviving a limited partnership's right to 65-10 transact business under Chapter 153, $50 plus a late fee in an 65-11 amount equal to the lesser of: 65-12 (A) $25 for each month or part of a month that 65-13 elapses after the date of the notice of forfeiture; or 65-14 (B) $100; 65-15 (8) for reinstatement of a certificate of formation or 65-16 registration under Chapter 153, $50 plus a late fee of $100 and a 65-17 reinstatement fee of $100; and 65-18 (9) for filing any instrument as provided by this code 65-19 for which this section does not expressly provide a fee, $25. 65-20 Sec. 4.156. FILING FEES: PROFESSIONAL ASSOCIATIONS. For a 65-21 filing by or for a professional association, the secretary of state 65-22 shall impose the following fees: 65-23 (1) for filing a certificate of formation or an 65-24 application for registration as a foreign professional association, 65-25 $750; 65-26 (2) for filing an annual statement, $35; and 65-27 (3) for filing any other instrument, the fee provided 66-1 for the filing of a similar instrument under Section 4.152. 66-2 Sec. 4.157. FILING FEES: PROFESSIONAL CORPORATIONS. For a 66-3 filing by or for a professional corporation, the secretary of state 66-4 shall impose the same fee as the filing fee for a similar 66-5 instrument under Section 4.152. 66-6 Sec. 4.158. FILING FEES: GENERAL PARTNERSHIPS. For a 66-7 filing by or for a general partnership, the secretary of state 66-8 shall impose the following fees: 66-9 (1) for filing a registered limited liability 66-10 partnership application, $200 for each partner; 66-11 (2) for filing a registered limited liability 66-12 partnership renewal application, $200 for each partner on the date 66-13 of renewal; 66-14 (3) for filing a statement of foreign qualification by 66-15 a foreign limited liability partnership, $200 for each partner in 66-16 this state, except that the maximum fee may not exceed $750; 66-17 (4) for filing a renewal of registration by a foreign 66-18 limited liability partnership, $200 for each partner in this state, 66-19 except that the maximum fee may not exceed $750; 66-20 (5) for filing a certificate of amendment, $10; 66-21 (6) for filing a certificate of amendment to increase 66-22 the number of partners, $10, plus $200 for each partner added by 66-23 amendment; and 66-24 (7) for filing any other filing instrument, the filing 66-25 fee imposed for a similar instrument under Section 4.155. 66-26 (Sections 4.159-4.200 reserved for expansion) 67-1 SUBCHAPTER E. ANNUAL REPORT 67-2 Sec. 4.201. APPLICABILITY OF SUBCHAPTER. This subchapter 67-3 applies only to for-profit corporations, limited liability 67-4 companies, and professional corporations, whether domestic or 67-5 foreign. 67-6 Sec. 4.202. ANNUAL REPORT. (a) Each domestic entity or 67-7 foreign entity registered to transact business in this state and 67-8 subject to this subchapter shall file an annual report with the 67-9 secretary of state on a form prescribed by the secretary of state. 67-10 The report must include: 67-11 (1) the name of the entity and its jurisdiction of 67-12 formation; 67-13 (2) the federal employer identification number of the 67-14 entity or, if the entity does not have an employer identification 67-15 number, a statement of whether the entity has applied for an 67-16 identification number; 67-17 (3) the address of the registered office of the entity 67-18 in this state and the name of the registered agent at that address; 67-19 (4) the address of the principal office of the entity 67-20 and the mailing address of the entity; 67-21 (5) the name of each subsidiary of the entity in which 67-22 the entity owns at least a 50 percent interest and the interest 67-23 percentage owned by the entity; 67-24 (6) the name of each parent entity of the entity that 67-25 owns at least a 50 percent interest in the entity; and 67-26 (7) the name, title, and mailing address of each 67-27 person who is a managerial official of the entity. 68-1 (b) The annual report must be filed with the secretary of 68-2 state not later than the first anniversary of the domestic entity's 68-3 formation or foreign entity's registration with the secretary of 68-4 state. 68-5 (c) Each annual report must be signed by an authorized 68-6 officer or agent of the entity certifying that: 68-7 (1) the information contained in the report is current 68-8 as of the date the report was signed; and 68-9 (2) any reported change in the information required 68-10 under Subsection (a)(3) has been authorized by all action required 68-11 by the laws of the entity's jurisdiction of formation. 68-12 (d) The secretary of state shall index the filing of any 68-13 additional report received by the secretary of state. The 68-14 secretary of state shall make the information contained in the 68-15 report a part of the official record as provided by Section 4.203. 68-16 (e) The entity shall send a copy of the report to each 68-17 person named in the report under Subsection (a)(7) who is not 68-18 currently employed by the entity or a related business entity 68-19 listed in Subsection (a)(5) or (6). 68-20 (f) An entity that reports a change to its registered office 68-21 or registered agent under this section is not required to file an 68-22 amendment to its certificate of formation or application for 68-23 registration or a statement under this code to reflect the change. 68-24 (g) The fee for filing an annual report under this section 68-25 is $15, except that the fee is $5 if the report is filed by 68-26 electronic transmission. 68-27 (h) An entity that does not file an annual report as 69-1 required by this section is subject to termination or revocation of 69-2 its registration to transact business as provided by Section 4.206. 69-3 Sec. 4.203. ACTION BY SECRETARY OF STATE. (a) The 69-4 secretary of state may furnish to each domestic entity or foreign 69-5 entity registered to transact business in this state copies of the 69-6 report form to be prepared and filed as provided by Section 4.202. 69-7 The report form and a notice that the report is due shall be mailed 69-8 to the registered office address of the entity. 69-9 (b) Neither the secretary of state's failure to furnish the 69-10 report and notice under Subsection (a) nor the entity's failure to 69-11 receive the report form and notice under Subsection (a): 69-12 (1) extends the time for filing the annual report; or 69-13 (2) excuses the entity's failure to file the annual 69-14 report. 69-15 (c) If the secretary of state finds that a report filed 69-16 under this section complies with Section 4.202, the secretary of 69-17 state shall, after the required fees have been paid: 69-18 (1) index the filing of the report in the entity's 69-19 record; and 69-20 (2) update the records of the secretary of state's 69-21 office to show the change in: 69-22 (A) the address of the registered or principal 69-23 office of the entity; or 69-24 (B) the name of the registered agent or 69-25 managerial official of the entity. 69-26 Sec. 4.204. EFFECT OF FAILURE TO FILE ANNUAL REPORT. (a) A 69-27 domestic or foreign entity that does not file a report required by 70-1 Section 4.202 on or before the 30th day after the date the report 70-2 is due forfeits the entity's right to transact business in this 70-3 state. A forfeiture under this section is without judicial 70-4 ascertainment. 70-5 (b) If the right to transact business has been forfeited 70-6 under this section, the secretary of state shall note the 70-7 forfeiture on the entity's record, including the date of the 70-8 forfeiture. 70-9 (c) Notice of the forfeiture of the right to transact 70-10 business shall be mailed to the entity at the entity's registered 70-11 office. 70-12 (d) Unless the right of the entity to transact business is 70-13 revived in accordance with Section 4.205: 70-14 (1) the entity may not maintain an action, suit, or 70-15 proceeding in a court of this state; and 70-16 (2) a successor or assignee of the entity may not 70-17 maintain an action, suit, or proceeding in a court of this state on 70-18 a right, claim, or demand arising from the transaction of business 70-19 by the entity in this state. 70-20 (e) The forfeiture of the right to transact business in this 70-21 state does not: 70-22 (1) impair the validity of a contract or act of the 70-23 entity; or 70-24 (2) prevent the entity from defending an action, suit, 70-25 or proceeding in a court of this state. 70-26 Sec. 4.205. REVIVAL OF RIGHT TO TRANSACT BUSINESS. (a) An 70-27 entity that forfeits the right to transact business in this state 71-1 as provided by Section 4.204 may be relieved from the forfeiture by 71-2 filing the required report not later than the 120th day after the 71-3 date of the notice of forfeiture under Section 4.204, accompanied 71-4 by the filing fee for the report and a late filing fee of $5 for 71-5 each month, or fraction of a month, that has elapsed since the date 71-6 of the notice of the forfeiture of the right to transact business. 71-7 (b) If an entity complies with Subsection (a), the secretary 71-8 of state shall: 71-9 (1) revive the right of the entity to transact 71-10 business in this state; and 71-11 (2) note the revival on the entity's record, including 71-12 the date of revival. 71-13 Sec. 4.206. INVOLUNTARY TERMINATION OR REVOCATION OF 71-14 CERTIFICATE OR REGISTRATION AFTER FORFEITURE. (a) The secretary 71-15 of state may involuntarily terminate an entity or revoke the 71-16 registration of a foreign entity if the entity: 71-17 (1) forfeits its right to transact business in this 71-18 state under Section 4.204; and 71-19 (2) fails to revive that right under Section 4.205. 71-20 (b) Termination of the entity or revocation of the 71-21 registration takes effect without judicial ascertainment. 71-22 (c) The secretary of state shall: 71-23 (1) note the termination or revocation, including the 71-24 date of the termination or revocation, on the entity's record; and 71-25 (2) change the status of the entity to inactive. 71-26 Sec. 4.207. REINSTATEMENT AFTER TERMINATION OR REVOCATION. 71-27 (a) An entity that has been terminated or the registration of 72-1 which has been revoked as provided by Section 4.206 may be 72-2 reinstated by filing the report required by Section 4.202 72-3 accompanied by: 72-4 (1) the filing fee required under Section 4.202; 72-5 (2) a late filing fee of $25; and 72-6 (3) a $50 filing fee for the reinstatement of the 72-7 entity. 72-8 (b) If the entity pays the fees required by Subsection (a), 72-9 the secretary of state shall: 72-10 (1) reinstate the certificate of formation of the 72-11 domestic entity or the registration of the foreign entity without 72-12 judicial ascertainment; 72-13 (2) change the status of the entity to active; and 72-14 (3) note the reinstatement on the entity's record. 72-15 (c) If the name of the entity is not available at the time 72-16 of reinstatement, the secretary of state shall require the entity, 72-17 as a condition of reinstatement, to: 72-18 (1) in the case of a domestic entity, amend its 72-19 certificate of formation to adopt a different available name for 72-20 the entity; or 72-21 (2) in the case of a foreign entity, amend its 72-22 application for registration to adopt an assumed name for use in 72-23 this state. 72-24 Sec. 4.208. DISCLAIMER OF STATUS. (a) If a person's name 72-25 is included in a report under Section 4.202(a)(7) and the person is 72-26 not a managerial official of the entity on the date of the report, 72-27 the person may file with the secretary of state a statement 73-1 disclaiming the person's status as shown on the report. The 73-2 secretary of state shall maintain a record of a statement filed 73-3 under this section in the entity's record. A filing under this 73-4 section has no effect on any issue of personal liability during the 73-5 period that the person was, in fact, a managerial official. 73-6 (b) The secretary of state shall prescribe a form for making 73-7 a statement under Subsection (a). 73-8 CHAPTER 5. NAMES OF ENTITIES; REGISTERED AGENTS 73-9 AND REGISTERED OFFICES 73-10 SUBCHAPTER A. GENERAL PROVISIONS 73-11 Sec. 5.001. EFFECT ON RIGHTS UNDER OTHER LAW. (a) The 73-12 filing of a certificate of formation by a filing entity under this 73-13 code, an application for registration by a foreign filing entity 73-14 under this code, or an application for reservation or registration 73-15 of a name under this chapter does not authorize the use of a name 73-16 in this state in violation of a right of another under: 73-17 (1) the Trademark Act of 1946, as amended (15 U.S.C. 73-18 Section 1051 et seq.); 73-19 (2) Chapter 16 or 36, Business & Commerce Code; or 73-20 (3) common law. 73-21 (b) The secretary of state shall deliver a notice that 73-22 contains the substance of Subsection (a) to each of the following: 73-23 (1) a filing entity that files a certificate of 73-24 formation under this code; 73-25 (2) a foreign filing entity that registers under this 73-26 code; 73-27 (3) a person that reserves a name under Subchapter C; 74-1 and 74-2 (4) a person that registers a name under Subchapter D. 74-3 (Sections 5.002-5.050 reserved for expansion) 74-4 SUBCHAPTER B. GENERAL PROVISIONS RELATING TO NAMES OF ENTITIES 74-5 Sec. 5.051. ASSUMED NAME. A domestic entity or a foreign 74-6 entity having authority to transact business in this state may 74-7 transact business under an assumed name by filing an assumed name 74-8 certificate in accordance with Chapter 36, Business & Commerce 74-9 Code. The requirements of this subchapter do not apply to an 74-10 assumed name set forth in an assumed name certificate filed under 74-11 that chapter. 74-12 Sec. 5.052. UNAUTHORIZED PURPOSE IN NAME PROHIBITED. A 74-13 filing entity or a foreign filing entity may not have a name that 74-14 contains any word or phrase that indicates or implies that the 74-15 entity is formed for a purpose that the entity is not authorized by 74-16 law to pursue. 74-17 Sec. 5.053. IDENTICAL AND DECEPTIVELY SIMILAR NAMES 74-18 PROHIBITED. (a) A filing entity may not have a name, and a 74-19 foreign filing entity may not register to transact business in this 74-20 state under a name, that is the same as, or that the secretary of 74-21 state determines to be deceptively similar or similar to: 74-22 (1) the name of another existing filing entity; 74-23 (2) the name of a foreign filing entity that is 74-24 registered under Chapter 9; 74-25 (3) a name that is reserved under Subchapter C; or 74-26 (4) a name that is registered under Subchapter D. 74-27 (b) Subsection (a) does not apply if the other entity or the 75-1 person for whom the name is reserved or registered, as appropriate, 75-2 consents in writing to the use of the similar name. 75-3 Sec. 5.054. NAME OF CORPORATION, FOREIGN CORPORATION, OR 75-4 PROFESSIONAL CORPORATION. (a) The name of a corporation or 75-5 foreign corporation must contain: 75-6 (1) the word "company," "corporation," "incorporated," 75-7 or "limited"; or 75-8 (2) an abbreviation of one of those words. 75-9 (b) Subsection (a) does not apply to a nonprofit corporation 75-10 or foreign nonprofit corporation. 75-11 (c) In lieu of a word or abbreviation required by Subsection 75-12 (a), the name of a professional corporation may contain the phrase 75-13 "professional corporation" or an abbreviation of the phrase. 75-14 Sec. 5.055. NAME OF LIMITED PARTNERSHIP OR FOREIGN LIMITED 75-15 PARTNERSHIP. (a) The name of a limited partnership or foreign 75-16 limited partnership must contain: 75-17 (1) the word "limited"; 75-18 (2) the phrase "limited partnership"; or 75-19 (3) an abbreviation of that word or phrase. 75-20 (b) The name of the limited partnership may not contain: 75-21 (1) a word or phrase that indicates or implies that 75-22 the partnership is a corporation; or 75-23 (2) the name of a limited partner in the partnership. 75-24 (c) Subsection (b)(2) does not apply if: 75-25 (1) the name of the limited partner is also the name 75-26 of a general partner; or 75-27 (2) the business of the partnership was conducted 76-1 under the name of that person before the date the person was 76-2 admitted as a limited partner. 76-3 (d) The name of a registered limited liability partnership 76-4 must comply with Title 4. 76-5 Sec. 5.056. NAME OF LIMITED LIABILITY COMPANY OR FOREIGN 76-6 LIMITED LIABILITY COMPANY. (a) The name of a limited liability 76-7 company or a foreign limited liability company doing business in 76-8 this state must contain: 76-9 (1) the phrase "limited liability company" or "limited 76-10 company"; or 76-11 (2) an abbreviation of one of those phrases. 76-12 (b) A limited liability company formed before September 1, 76-13 1993, the name of which complied with the laws of this state on the 76-14 date of formation but does not comply with this section is not 76-15 required to change its name. 76-16 Sec. 5.057. NAME OF COOPERATIVE ASSOCIATION. The name of a 76-17 cooperative association must contain: 76-18 (1) the word "cooperative"; or 76-19 (2) an abbreviation of that word. 76-20 Sec. 5.058. NAME OF PROFESSIONAL ASSOCIATION. The name of a 76-21 professional association must contain: 76-22 (1) the word "associated," "associates," or 76-23 "association"; 76-24 (2) the phrase "professional association"; or 76-25 (3) an abbreviation of one of those words or that 76-26 phrase. 76-27 Sec. 5.059. NAME OF PROFESSIONAL LIMITED LIABILITY COMPANY. 77-1 The name of a professional limited liability company must contain: 77-2 (1) the phrase "professional limited liability 77-3 company"; or 77-4 (2) an abbreviation of that phrase. 77-5 Sec. 5.060. NAME OF PROFESSIONAL ENTITY; CONFLICTS WITH 77-6 OTHER LAW OR ETHICAL RULE. The name of a professional entity must 77-7 be consistent with a statute or regulation that governs a person 77-8 who provides a professional service through the professional 77-9 entity, including a rule of professional ethics. 77-10 Sec. 5.061. NAME CONTAINING "LOTTO" OR "LOTTERY" PROHIBITED. 77-11 A filing entity or a foreign filing entity may not have a name that 77-12 contains the word "lotto" or "lottery." 77-13 Sec. 5.062. VETERANS ORGANIZATIONS; UNAUTHORIZED USE OF 77-14 NAME. (a) Subject to Subsection (b), a filing entity may not have 77-15 a name that: 77-16 (1) reasonably implies that the entity is created by 77-17 or for the benefit of war veterans or their families; and 77-18 (2) contains the word or phrase, or any variation or 77-19 abbreviation of: 77-20 (A) "veteran"; 77-21 (B) "legion"; 77-22 (C) "foreign"; 77-23 (D) "Spanish"; 77-24 (E) "disabled"; 77-25 (F) "war"; or 77-26 (G) "world war." 77-27 (b) The prohibition in Subsection (a) does not apply to a 78-1 filing entity with a name approved in writing by: 78-2 (1) a congressionally recognized veterans organization 78-3 with a name containing the same word or phrase, or variation or 78-4 abbreviation, contained in the filing entity's name; or 78-5 (2) if a veterans organization described by 78-6 Subdivision (1) does not exist, the state commander of the: 78-7 (A) American Legion; 78-8 (B) Disabled American Veterans of the World War; 78-9 (C) Veterans of Foreign Wars of the United 78-10 States; 78-11 (D) United Spanish War Veterans; or 78-12 (E) Veterans of the Spanish-American War. 78-13 (Sections 5.063-5.100 reserved for expansion) 78-14 SUBCHAPTER C. RESERVATION OF NAMES 78-15 Sec. 5.101. APPLICATION FOR RESERVATION OF NAME. (a) Any 78-16 person may file an application with the secretary of state to 78-17 reserve the exclusive use of a name under this chapter. 78-18 (b) The application must be: 78-19 (1) accompanied by any required filing fee; and 78-20 (2) signed by the applicant or by the agent or 78-21 attorney of the applicant. 78-22 Sec. 5.102. RESERVATION OF CERTAIN NAMES PROHIBITED; 78-23 EXCEPTIONS. (a) The secretary of state may not reserve a name 78-24 that is the same as, or that the secretary of state considers 78-25 deceptively similar or similar to: 78-26 (1) the name of an existing filing entity; 78-27 (2) the name of a foreign filing entity that is 79-1 registered under Chapter 9; 79-2 (3) a name that is reserved under this subchapter; or 79-3 (4) a name that is registered under Subchapter D. 79-4 (b) Subsection (a) does not apply if the other entity or the 79-5 person for whom the name is reserved or registered, as appropriate, 79-6 consents in writing to the subsequent reservation of the similar 79-7 name. 79-8 Sec. 5.103. ACTION ON APPLICATION. If the secretary of 79-9 state determines that the name specified in the application is 79-10 eligible for reservation, the secretary shall reserve that name for 79-11 the exclusive use of the applicant. 79-12 Sec. 5.104. DURATION OF RESERVATION OF NAME. The secretary 79-13 of state shall reserve the name for the applicant until the earlier 79-14 of: 79-15 (1) the 121st day after the date the application is 79-16 accepted for filing; or 79-17 (2) the date the applicant files with the secretary 79-18 of state a written notice of withdrawal of the reservation. 79-19 Sec. 5.105. RENEWAL OF RESERVATION. A person may renew the 79-20 person's reservation of a name under this subchapter for successive 79-21 120-day periods if, during the 30-day period preceding the 79-22 expiration of that reservation, the person: 79-23 (1) files a new application to reserve the name; and 79-24 (2) pays the required filing fee. 79-25 Sec. 5.106. TRANSFER OF RESERVATION OF NAME. (a) A person 79-26 may transfer the person's reservation of a name by filing with the 79-27 secretary of state a notice of transfer. 80-1 (b) The notice of transfer must: 80-2 (1) be signed by the person for whom the name is 80-3 reserved; and 80-4 (2) state the name and address of the person to whom 80-5 the reservation is to be transferred. 80-6 (Sections 5.107-5.150 reserved for expansion) 80-7 SUBCHAPTER D. REGISTRATION OF NAMES 80-8 Sec. 5.151. APPLICATION BY CERTAIN ENTITIES FOR REGISTRATION 80-9 OF NAME. An organization that is authorized to do business in this 80-10 state as a bank, trust company, savings association, or insurance 80-11 company, or that is a foreign filing entity not registered to do 80-12 business in this state under this code, may apply to register its 80-13 name under this subchapter. 80-14 Sec. 5.152. APPLICATION FOR REGISTRATION OF NAME. (a) To 80-15 register a name under this subchapter, an organization must file an 80-16 application with the secretary of state. 80-17 (b) The application must: 80-18 (1) state that the organization validly exists and is 80-19 doing business; 80-20 (2) contain a brief statement of the nature of the 80-21 organization's business; 80-22 (3) set out: 80-23 (A) the name of the organization; 80-24 (B) the name of the jurisdiction under whose 80-25 laws the organization is formed; and 80-26 (C) the date the organization was formed; and 80-27 (4) be accompanied by any required filing fee. 81-1 Sec. 5.153. CERTAIN REGISTRATIONS PROHIBITED; EXCEPTIONS. 81-2 (a) The secretary of state may not register a name that is the 81-3 same as, or that the secretary of state determines to be 81-4 deceptively similar or similar to: 81-5 (1) the name of an existing filing entity; 81-6 (2) the name of a foreign filing entity that is 81-7 registered under Chapter 9; 81-8 (3) a name that is reserved under Subchapter C; or 81-9 (4) a name that is registered under this subchapter. 81-10 (b) Subsection (a) does not apply if: 81-11 (1) the other entity or the person for whom the name 81-12 is reserved or registered, as appropriate, consents in writing to 81-13 the registration of the similar name; or 81-14 (2) the applicant is a bank, trust company, savings 81-15 association, or insurance company that has been in continuous 81-16 existence from a date that precedes the date the conflicting name 81-17 is filed with the secretary of state. 81-18 Sec. 5.154. DURATION OF REGISTRATION OF NAME. The 81-19 registration of a name under this subchapter is effective until the 81-20 earlier of: 81-21 (1) the first anniversary of the date the application 81-22 is accepted for filing; or 81-23 (2) the date the entity files with the secretary of 81-24 state a written notice of withdrawal of the registration. 81-25 Sec. 5.155. RENEWAL OF REGISTRATION. A person may renew the 81-26 person's registration of a name under this subchapter for 81-27 successive one-year periods if, during the 90-day period preceding 82-1 the expiration of that registration, the person: 82-2 (1) files a new application to register the name; and 82-3 (2) pays the required filing fee. 82-4 (Sections 5.156-5.200 reserved for expansion) 82-5 SUBCHAPTER E. REGISTERED AGENTS AND REGISTERED OFFICES; 82-6 SERVICE OF PROCESS 82-7 Sec. 5.201. DESIGNATION AND MAINTENANCE OF REGISTERED AGENT 82-8 AND REGISTERED OFFICE. (a) Each filing entity and each foreign 82-9 filing entity shall designate and continuously maintain in this 82-10 state: 82-11 (1) a registered agent; and 82-12 (2) a registered office. 82-13 (b) The registered agent: 82-14 (1) is an agent of the entity on whom may be served 82-15 any process, notice, or demand required or permitted by law to be 82-16 served on the entity; 82-17 (2) may be: 82-18 (A) an individual who is a resident of this 82-19 state; or 82-20 (B) a domestic entity or a foreign entity that 82-21 is registered to do business in this state; and 82-22 (3) must maintain a business office at the same 82-23 address as the entity's registered office. 82-24 (c) The registered office: 82-25 (1) must be located at a street address where process 82-26 may be personally served on the entity's registered agent; 82-27 (2) is not required to be a place of business of the 83-1 filing entity or foreign filing entity; and 83-2 (3) may not be solely a mailbox service or a telephone 83-3 answering service. 83-4 Sec. 5.202. CHANGE BY ENTITY TO REGISTERED OFFICE OR 83-5 REGISTERED AGENT. (a) A filing entity or foreign filing entity 83-6 may change its registered office, its registered agent, or both by 83-7 filing a statement of the change in accordance with Chapter 4. 83-8 (b) The statement must contain: 83-9 (1) the name of the entity; 83-10 (2) the name of the entity's registered agent; 83-11 (3) the street address of the entity's registered 83-12 agent; 83-13 (4) if the change relates to the registered agent, the 83-14 name of the entity's new registered agent; 83-15 (5) if the change relates to the registered office, 83-16 the street address of the entity's new registered office; 83-17 (6) a recitation that the change specified in the 83-18 statement is authorized by the entity; and 83-19 (7) a recitation that the street address of the 83-20 registered office and the street address of the registered agent's 83-21 business are the same. 83-22 (c) On acceptance of the statement by the filing officer, 83-23 the statement is effective as an amendment to the appropriate 83-24 provision of: 83-25 (1) the filing entity's certificate of formation; or 83-26 (2) the foreign filing entity's registration. 83-27 Sec. 5.203. CHANGE BY REGISTERED AGENT TO NAME OR ADDRESS OF 84-1 REGISTERED OFFICE. (a) The registered agent of a filing entity or 84-2 a foreign filing entity may change its name, its address as the 84-3 address of the entity's registered office, or both by filing a 84-4 statement of the change in accordance with Chapter 4. 84-5 (b) The statement must be signed by the registered agent, or 84-6 a person authorized to sign the statement on behalf of the 84-7 registered agent, and must contain: 84-8 (1) the name of the entity represented by the 84-9 registered agent; 84-10 (2) the name of the entity's registered agent and the 84-11 address at which the registered agent maintained the entity's 84-12 registered office; 84-13 (3) if the change relates to the name of the 84-14 registered agent, the new name of that agent; 84-15 (4) if the change relates to the address of the 84-16 registered office, the new address of that office; and 84-17 (5) a recitation that written notice of the change was 84-18 given to the entity at least 10 days before the date the statement 84-19 is filed. 84-20 (c) On acceptance of the statement by the filing officer, 84-21 the statement is effective as an amendment to the appropriate 84-22 provision of: 84-23 (1) the filing entity's certificate of formation; or 84-24 (2) the foreign filing entity's registration. 84-25 (d) A registered agent may file a statement under this 84-26 section that applies to more than one entity. 84-27 Sec. 5.204. RESIGNATION OF REGISTERED AGENT. (a) A 85-1 registered agent of a filing entity or a foreign filing entity may 85-2 resign as the registered agent by giving notice to that entity and 85-3 to the appropriate filing officer. 85-4 (b) Notice to the entity must be given to the entity at: 85-5 (1) the address of the entity most recently known by 85-6 the agent; and 85-7 (2) the address most recently known by the agent of 85-8 the attorney or individual at whose request the registered agent 85-9 was appointed. 85-10 (c) Notice to the filing officer must be given before the 85-11 11th day after the date notice under Subsection (b) is mailed or 85-12 delivered and must include: 85-13 (1) the address of the entity most recently known by 85-14 the agent; 85-15 (2) a statement that written notice of the resignation 85-16 has been given to the entity; and 85-17 (3) the date on which that written notice of 85-18 resignation was given. 85-19 (d) On compliance with Subsections (b) and (c), the 85-20 appointment of the registered agent terminates. The termination is 85-21 effective on the 31st day after the date the secretary of state 85-22 receives the notice. 85-23 (e) If the filing officer finds that a notice of resignation 85-24 received by the filing officer conforms to Subsections (b) and (c), 85-25 the filing officer shall: 85-26 (1) notify the entity of the registered agent's 85-27 resignation; and 86-1 (2) file the resignation in accordance with Chapter 4, 86-2 except that a fee is not required to file the resignation. 86-3 Sec. 5.205. FAILURE TO DESIGNATE REGISTERED AGENT. The 86-4 secretary of state is an agent of an entity for purposes of service 86-5 of process, notice, or demand on the entity if: 86-6 (1) the entity is a filing entity or a foreign filing 86-7 entity and: 86-8 (A) the entity fails to appoint or does not 86-9 maintain a registered agent in this state; or 86-10 (B) the registered agent of the entity cannot 86-11 with reasonable diligence be found at the registered office of the 86-12 entity; or 86-13 (2) the entity is a foreign filing entity and: 86-14 (A) the entity's registration to do business 86-15 under this code is revoked; or 86-16 (B) the entity transacts business in this state 86-17 without being registered as required by Chapter 9. 86-18 Sec. 5.206. SERVICE ON SECRETARY OF STATE. (a) Service on 86-19 the secretary of state under Section 5.205 is effected by: 86-20 (1) delivering to the secretary duplicate copies of 86-21 the process, notice, or demand; and 86-22 (2) accompanying the copies with any fee required by 86-23 law, including this code or the Government Code, for: 86-24 (A) maintenance by the secretary of a record of 86-25 the service; and 86-26 (B) forwarding by the secretary of the process, 86-27 notice, or demand. 87-1 (b) Notice on the secretary of state under Subsection (a) is 87-2 returnable in not less than 30 days. 87-3 Sec. 5.207. ACTION BY SECRETARY OF STATE. (a) After 87-4 service in compliance with Section 5.206, the secretary of state 87-5 shall immediately send one of the copies of the process, notice, or 87-6 demand to the named entity. 87-7 (b) The notice must be: 87-8 (1) addressed to the most recent address of the entity 87-9 on file with the secretary of state; and 87-10 (2) sent by certified mail, with return receipt 87-11 requested. 87-12 Sec. 5.208. REQUIRED RECORDS OF SECRETARY OF STATE. The 87-13 secretary of state shall keep a record of each process, notice, or 87-14 demand served on the secretary under this subchapter and shall 87-15 record: 87-16 (1) the time when each service on the secretary was 87-17 made; and 87-18 (2) each subsequent action of the secretary taken in 87-19 relation to that service. 87-20 Sec. 5.209. AGENT FOR SERVICE OF PROCESS, NOTICE, OR DEMAND 87-21 AS MATTER OF LAW. For the purpose of service of process, notice, 87-22 or demand: 87-23 (1) the president and each vice president of a 87-24 domestic or foreign corporation is an agent of that corporation; 87-25 (2) each general partner of a domestic or foreign 87-26 limited partnership and each partner of a domestic or foreign 87-27 general partnership is an agent of that partnership; 88-1 (3) each manager of a manager-managed domestic or 88-2 foreign limited liability company and each member of a 88-3 member-managed domestic or foreign limited liability company is an 88-4 agent of that limited liability company; 88-5 (4) each person who is a governing person of a 88-6 domestic or foreign entity, other than an entity listed in 88-7 Subdivisions (1)-(3), is an agent of that entity; and 88-8 (5) each member of a committee of a nonprofit 88-9 corporation authorized to perform the chief executive function of 88-10 the corporation is an agent of that corporation. 88-11 Sec. 5.210. OTHER MEANS OF SERVICE NOT PRECLUDED. This 88-12 chapter does not preclude other means of service of process, 88-13 notice, or demand on a domestic or foreign entity as provided by 88-14 other law. 88-15 CHAPTER 6. MEETINGS, NOTICES, RECORD DATES, VOTING, AND 88-16 WRITTEN CONSENTS TO ACTION 88-17 SUBCHAPTER A. MEETINGS 88-18 Sec. 6.001. LOCATION OF MEETINGS. (a) Meetings of the 88-19 owners or members of a domestic entity may be held at locations in 88-20 or outside the state as: 88-21 (1) provided by or fixed in accordance with the 88-22 governing documents of the domestic entity; or 88-23 (2) agreed to by all persons entitled to notice of the 88-24 meeting. 88-25 (b) If the location of meetings of the owners or members of 88-26 the entity is not established under Subsection (a), the owners or 88-27 members may hold meetings only at the registered office of the 89-1 entity in this state or the principal office of the entity. 89-2 (c) The governing persons of a domestic entity, or a 89-3 committee of the governing persons, may hold meetings in or outside 89-4 the state as: 89-5 (1) provided by or fixed in accordance with: 89-6 (A) the governing documents of the domestic 89-7 entity; or 89-8 (B) the person calling the meeting; or 89-9 (2) as agreed to by all persons entitled to notice of 89-10 the meeting. 89-11 Sec. 6.002. ALTERNATIVE FORMS OF MEETINGS. Subject to this 89-12 code and the governing documents of a domestic entity, the owners, 89-13 members, or governing persons of the entity, or a committee of the 89-14 owners, members, or governing persons, may hold meetings by using a 89-15 conference telephone or other communications equipment if the 89-16 telephone or other equipment permits each person participating in 89-17 the meeting to communicate with all other persons participating in 89-18 the meeting. 89-19 Sec. 6.003. PARTICIPATION CONSTITUTES PRESENCE. A person 89-20 participating in a meeting is considered present at the meeting, 89-21 unless the participation is for the express purpose of objecting to 89-22 the transaction of business at the meeting on the ground that the 89-23 meeting has not been lawfully called or convened. 89-24 Sec. 6.004. OWNERSHIP OR MEMBERSHIP MEETING LIST FOR CERTAIN 89-25 ENTITIES. (a) This section applies to: 89-26 (1) a domestic for-profit corporation; 89-27 (2) a domestic nonprofit corporation; and 90-1 (3) a domestic limited liability company and a 90-2 domestic limited partnership, if the limited liability company or 90-3 partnership has a class of ownership interests registered under 90-4 Section 12(b) or (g), Securities Exchange Act of 1934, as amended 90-5 (15 U.S.C. Section 78l(b) or (g)). 90-6 (b) Not later than the 11th day before the date of each 90-7 meeting of the owners or members of an entity, an officer or agent 90-8 of the entity who is in charge of the entity's ownership or 90-9 membership records shall prepare an alphabetical list of the owners 90-10 or members entitled to vote at the meeting or at any adjournment of 90-11 the meeting. The list of owners or members must: 90-12 (1) state: 90-13 (A) the address of each owner or member; 90-14 (B) the type of ownership or membership interest 90-15 held by each owner or member; 90-16 (C) the number, amount, or percentage of 90-17 ownership or membership interests held by each owner or member; and 90-18 (D) the number of votes that each owner or 90-19 member is entitled to if the number of votes is different from the 90-20 number, amount, or percentage of ownership or membership interests 90-21 stated under Paragraph (C); and 90-22 (2) be kept on file at the registered office or 90-23 principal executive office of the entity for at least 10 days 90-24 before the date of the meeting. 90-25 (c) The original ownership or membership transfer records of 90-26 an entity are prima facie evidence of the owners or members of the 90-27 entity entitled to vote at the meeting. 91-1 (d) Failure to comply with this section does not affect the 91-2 validity of any action taken at a meeting of the owners or members 91-3 of an entity. 91-4 (Sections 6.005-6.050 reserved for expansion) 91-5 SUBCHAPTER B. NOTICE OF MEETINGS 91-6 Sec. 6.051. GENERAL NOTICE REQUIREMENTS. (a) Subject to 91-7 this code and the governing documents of an entity, notice of a 91-8 meeting of the owners, members, or governing persons of the entity, 91-9 or a committee of the owners, members, or governing persons, must: 91-10 (1) be given in the manner determined by the governing 91-11 authority of the entity; and 91-12 (2) state: 91-13 (A) the date and time of the meeting; and 91-14 (B) the location of the meeting or, if the 91-15 meeting is held by using a conference telephone or other 91-16 communications equipment, the form of communication used for the 91-17 meeting. 91-18 (b) Subject to this code or the governing documents of an 91-19 entity, notice of a meeting that is: 91-20 (1) mailed is considered to be delivered on the date 91-21 notice is deposited in the United States mail with postage paid in 91-22 an envelope addressed to the person at the person's address as it 91-23 appears on the ownership or membership records of the entity; and 91-24 (2) transmitted by facsimile or electronic message is 91-25 considered to be delivered when the facsimile or electronic message 91-26 is successfully transmitted. 91-27 Sec. 6.052. WAIVER OF NOTICE. (a) Notice of a meeting is 92-1 not required to be given to an owner, member, or governing person 92-2 of a domestic entity, or a member of a committee of the owners, 92-3 members, or governing persons, entitled to notice under this code 92-4 or the governing documents of the entity if the person entitled to 92-5 notice signs a written waiver of notice of the meeting, regardless 92-6 of whether the waiver is signed before or after the time of the 92-7 meeting. 92-8 (b) If a person entitled to notice of a meeting participates 92-9 in the meeting, the person's participation constitutes a waiver of 92-10 notice of the meeting unless the person participates in the meeting 92-11 solely to object to the transaction of business at the meeting on 92-12 the ground that the meeting was not lawfully called or convened. 92-13 Sec. 6.053. EXCEPTION. (a) Notice of a meeting is not 92-14 required to be given to an owner or member of a filing entity 92-15 entitled to notice under this code or the governing documents of 92-16 the entity if either of the following is mailed to the person 92-17 entitled to notice of the meeting to the person's address as it 92-18 appears on the ownership or membership transfer records of the 92-19 entity and is returned undeliverable: 92-20 (1) notice of two consecutive annual meetings and 92-21 notice of any meeting held during the period between the two annual 92-22 meetings; or 92-23 (2) all, but in no event less than two, payments of 92-24 distribution or interest on securities during a 12-month period if 92-25 the payments are sent by first class mail. 92-26 (b) Notice of a meeting is not required to be given to an 92-27 owner or member entitled to notice under this code or the governing 93-1 documents of a filing entity the notice requirements of which are 93-2 subject to the Securities Exchange Act of 1934, as amended (15 93-3 U.S.C. Section 78a et seq.), if the person entitled to notice of 93-4 the meeting is considered a lost security holder under that Act and 93-5 the regulations adopted under that Act. 93-6 (c) An action taken or a meeting held without giving notice 93-7 to a person not entitled to notice under this section has the same 93-8 force and effect as if notice had been given to the person. 93-9 (d) A certificate or other document filed with the secretary 93-10 of state as a result of a meeting held or an action taken by a 93-11 filing entity without giving notice of the meeting or action to a 93-12 person not entitled to notice under this section may state that 93-13 notice of the meeting or action was given to each person entitled 93-14 to notice. 93-15 (e) Notice of a meeting must be given to a person not 93-16 entitled to notice of the meeting under this section if the person 93-17 delivers to the entity a written notice of the person's address. 93-18 (Sections 6.054-6.100 reserved for expansion) 93-19 SUBCHAPTER C. RECORD DATES 93-20 Sec. 6.101. RECORD DATE FOR PURPOSE OTHER THAN WRITTEN 93-21 CONSENT TO ACTION. (a) Subject to this code, the governing 93-22 documents of a domestic entity may provide the record date, or the 93-23 manner of determining the record date, for: 93-24 (1) determining the owners or members of the entity 93-25 entitled to: 93-26 (A) receive notice of a meeting of the owners or 93-27 members; 94-1 (B) vote at a meeting of the owners or members 94-2 or at any adjournment of a meeting; or 94-3 (C) receive a distribution from the entity other 94-4 than a distribution involving a purchase or redemption by the 94-5 entity of the entity's own securities; or 94-6 (2) any other proper purpose other than for 94-7 determining the owners or members entitled to consent to action 94-8 without a meeting of the owners or members. 94-9 (b) Subject to this code and the governing documents of a 94-10 domestic entity, the governing authority of the entity, in advance, 94-11 may provide a record date for determining the owners or members of 94-12 the entity, except that the date may not be earlier than the 60th 94-13 day before the date the action requiring the determination of 94-14 owners or members is taken. 94-15 (c) Subject to this code and the governing documents of a 94-16 domestic entity, the governing authority of the entity may provide 94-17 for the closing of the ownership or membership transfer records of 94-18 the entity for a period of not longer than 60 days to determine the 94-19 owners or members of the entity for a purpose described by 94-20 Subsection (a). 94-21 (d) If the owners or members of an entity are not otherwise 94-22 determined under this section, the record date for determining the 94-23 owners or members of an entity is the date on which: 94-24 (1) notice of the meeting is mailed to the owners or 94-25 members entitled to notice of the meeting; or 94-26 (2) with respect to a distribution, other than a 94-27 distribution involving a purchase or redemption by the domestic 95-1 entity of any of its own securities, the governing authority adopts 95-2 the resolution declaring the distribution. 95-3 (e) The record date for determining a meeting applies to any 95-4 adjournment of the meeting unless: 95-5 (1) the owners or members entitled to vote are 95-6 determined under Subsection (c); and 95-7 (2) the period during which the transfer records are 95-8 closed expires. 95-9 Sec. 6.102. RECORD DATE FOR WRITTEN CONSENT TO ACTION. (a) 95-10 Subject to this code and the governing documents of an entity, the 95-11 governing authority of the entity may provide the record date for 95-12 determining the owners or members of the entity entitled to written 95-13 consent to action without a meeting of the owners or members unless 95-14 a record date is provided under Section 6.101 for that action. The 95-15 record date may not be earlier than the date the governing 95-16 authority adopts the resolution providing for the record date. 95-17 (b) Subject to this code and the governing documents of an 95-18 entity, the record date for determining the owners or members of 95-19 the entity entitled to written consent to action without a meeting 95-20 of the owners or members is the date a signed written consent to 95-21 action stating the action taken or proposed to be taken is first 95-22 delivered to the entity if: 95-23 (1) the governing authority of the entity does not 95-24 provide a record date under Subsection (a); and 95-25 (2) prior action by the governing authority is not 95-26 required under this code. 95-27 (c) Subject to this code or the governing documents of an 96-1 entity, the record date for determining the owners or members of 96-2 the entity entitled to written consent to action without a meeting 96-3 of the owners or members is at the close of business on the date 96-4 the governing authority of the entity adopts a resolution taking 96-5 prior action if: 96-6 (1) the governing authority does not provide a record 96-7 date under Subsection (a); and 96-8 (2) prior action by the governing authority is 96-9 required by this code. 96-10 Sec. 6.103. RECORD DATE FOR SUSPENDED DISTRIBUTIONS. (a) 96-11 In this section, "distribution" includes a distribution that: 96-12 (1) was payable to an owner or member but not paid and 96-13 was held in suspension by the entity making the distribution; or 96-14 (2) is paid or delivered by the entity making the 96-15 distribution into an escrow account or to a trustee or custodian. 96-16 (b) A distribution made by a domestic entity shall be 96-17 payable by the entity, or an escrow agent, trustee, or custodian of 96-18 the distribution, to the owner or member determined on the record 96-19 date for the distribution as provided by this subchapter. 96-20 (c) The right to a distribution under this section may be 96-21 transferred by contract, by operation of law, or under the laws of 96-22 descent and distribution. 96-23 (Sections 6.104-6.150 reserved for expansion) 96-24 SUBCHAPTER D. VOTING OF OWNERSHIP INTERESTS 96-25 Sec. 6.151. MANNER OF VOTING OF INTERESTS. Subject to this 96-26 code, voting of interests of a domestic entity must be conducted in 96-27 the manner provided by the governing documents of the entity. 97-1 Sec. 6.152. VOTING OF INTERESTS OWNED BY ENTITY. (a) 97-2 Except as provided by Subsection (b), an ownership interest owned 97-3 by the entity that is the issuer of the interest, or by its direct 97-4 or indirect subsidiary, may not be: 97-5 (1) directly or indirectly voted at a meeting; or 97-6 (2) included in determining at any time the total 97-7 number of outstanding ownership interests of the entity. 97-8 (b) This section does not preclude a domestic or foreign 97-9 entity from voting an ownership interest, including an interest in 97-10 the entity, held or controlled by the entity in a fiduciary 97-11 capacity or for which the entity otherwise exercises voting power 97-12 in a fiduciary capacity. 97-13 Sec. 6.153. VOTING OF INTERESTS OWNED BY ANOTHER ENTITY. An 97-14 ownership interest in an entity owned by another entity, whether a 97-15 domestic or foreign entity, may be voted by the officer, agent, or 97-16 proxy as authorized by: 97-17 (1) the governing documents of the entity that owns 97-18 the interest; or 97-19 (2) the governing authority of the entity that owns 97-20 the interest, if the governing documents do not provide for the 97-21 manner of voting. 97-22 Sec. 6.154. VOTING OF INTERESTS IN AN ESTATE OR TRUST. (a) 97-23 An administrator, executor, guardian, or conservator of an estate 97-24 who holds an ownership interest as part of the estate may vote the 97-25 interest without transferring the interest into the person's name. 97-26 (b) An ownership interest in the name of a trust may be 97-27 voted in person or by proxy by: 98-1 (1) the trustee; or 98-2 (2) a person authorized to act on behalf of the trust 98-3 by the trust agreement or the trustee. 98-4 Sec. 6.155. VOTING OF INTERESTS BY RECEIVER. (a) A receiver 98-5 may vote an ownership interest standing in the name of the 98-6 receiver. 98-7 (b) A receiver may vote an ownership interest held by or 98-8 under the control of the receiver without transferring the interest 98-9 into the receiver's name if the court appointing the receiver 98-10 authorizes the receiver to vote the interest. 98-11 Sec. 6.156. VOTING OF PLEDGED INTERESTS. A pledged 98-12 ownership interest may be voted by: 98-13 (1) the owner of the pledged interest until the 98-14 interest is transferred into the pledgee's name; and 98-15 (2) the pledgee after the pledged interest is 98-16 transferred into the pledgee's name. 98-17 (Sections 6.157-6.200 reserved for expansion) 98-18 SUBCHAPTER E. ACTION BY WRITTEN CONSENT 98-19 Sec. 6.201. UNANIMOUS WRITTEN CONSENT TO ACTION. (a) This 98-20 section applies to any action required or authorized to be taken 98-21 under this code or the governing documents of a filing entity at an 98-22 annual or special meeting of the owners or members of the entity or 98-23 at a regular, special, or other meeting of the governing authority 98-24 of the entity or a committee of the governing authority. 98-25 (b) The owners or members or the governing authority of a 98-26 filing entity, or a committee of the governing authority, may take 98-27 action without holding a meeting, providing notice, or taking a 99-1 vote if each person entitled to vote on the action signs a written 99-2 consent or consents stating the action taken. 99-3 (c) A written consent described by Subsection (b) has the 99-4 same effect as a unanimous vote at a meeting. 99-5 (d) A filing instrument filed with the filing officer may 99-6 state that an action approved by written consent or consents has 99-7 the effect of an approval by a unanimous vote at a meeting. 99-8 Sec. 6.202. ACTION BY LESS THAN UNANIMOUS WRITTEN CONSENT. 99-9 (a) This section applies to any action required or authorized to 99-10 be taken under this code or the governing documents of an entity at 99-11 an annual or special meeting of the owners or members of the 99-12 entity. 99-13 (b) Except as provided by this code, the governing documents 99-14 of an entity may authorize the owners or members of the entity to 99-15 take action without holding a meeting, providing notice, or taking 99-16 a vote if owners or members of the entity having at least the 99-17 minimum number of votes that would be necessary to take the action 99-18 that is the subject of the consent at a meeting, in which each 99-19 owner or member entitled to vote on the action is present and 99-20 votes, sign a written consent or consents stating the action taken. 99-21 (c) A written consent or consents described by Subsection 99-22 (b) must include the date each owner or member signed the consent 99-23 and is effective to take the action that is the subject of the 99-24 consent only if the consent or consents are delivered to the entity 99-25 not later than the 60th day after the date the earliest dated 99-26 consent is delivered to the entity as required by Section 6.203. 99-27 (d) The entity shall promptly notify each owner or member 100-1 who does not sign a consent as provided by Subsection (b) of the 100-2 action that is the subject of the consent. 100-3 Sec. 6.203. DELIVERY OF LESS THAN UNANIMOUS WRITTEN CONSENT. 100-4 (a) A written consent signed by an owner or member of an entity as 100-5 provided by Section 6.202 must be delivered by hand or certified 100-6 or registered mail, return receipt requested, to: 100-7 (1) the entity's registered office or principal 100-8 executive office or place of business; or 100-9 (2) the managerial official or agent of the entity 100-10 having custody of the entity's records of meetings of owners or 100-11 members. 100-12 (b) A consent delivered to an entity's principal executive 100-13 office or place of business under Subsection (a)(1) must be 100-14 addressed to the chief managerial official of the entity or, if the 100-15 entity does not have a chief managerial official, the governing 100-16 authority of the entity. 100-17 Sec. 6.204. FILINGS WITH FILING OFFICER. Instead of 100-18 containing a statement required by this code concerning any vote of 100-19 the owners or members, the governing authority, or a committee of 100-20 the owners or members or governing authority, a certificate or 100-21 document filed with the filing officer as a result of an action 100-22 taken by written consent by the owners or members or governing 100-23 authority of an entity, or a committee of the owners or members or 100-24 governing authority, must state that: 100-25 (1) written consent has been given as required by this 100-26 subchapter; and 100-27 (2) written notice has been given as required by this 101-1 subchapter. 101-2 Sec. 6.205. ADVANCE NOTICE NOT REQUIRED. Advance notice is 101-3 not required to be given to take an action by written consent as 101-4 provided by this subchapter. 101-5 (Sections 6.206-6.250 reserved for expansion) 101-6 SUBCHAPTER F. VOTING TRUSTS AND VOTING AGREEMENTS 101-7 Sec. 6.251. VOTING TRUSTS. (a) Except as provided by this 101-8 code or the governing documents, any number of owners of an entity 101-9 may enter into a written voting trust agreement to confer on a 101-10 trustee the right to vote or otherwise represent ownership or 101-11 membership interests of the entity. 101-12 (b) An ownership or membership interest that is the subject 101-13 of a voting trust agreement described by Subsection (a) shall be 101-14 transferred to the trustee named in the agreement for purposes of 101-15 the agreement. 101-16 (c) A copy of a voting trust agreement described by 101-17 Subsection (a) shall be deposited with the entity at the entity's 101-18 principal executive office or registered office and is subject to 101-19 examination by: 101-20 (1) an owner, whether in person or by the owner's 101-21 agent or attorney, in the same manner as the owner is entitled to 101-22 examine the books and records of the entity; and 101-23 (2) a holder of a beneficial interest in the voting 101-24 trust, whether in person or by the holder's agent or attorney, at 101-25 any reasonable time for any proper purpose. 101-26 Sec. 6.252. VOTING AGREEMENTS. (a) Except as provided by 101-27 this code or the governing documents, any number of owners of an 102-1 entity, or any number of owners of the entity and the entity 102-2 itself, may enter into a written voting agreement to provide the 102-3 manner of voting of the ownership interests of the entity. A 102-4 voting agreement entered into under this subsection is not part of 102-5 the governing documents of the entity. 102-6 (b) A copy of a voting agreement entered into under 102-7 Subsection (a): 102-8 (1) shall be deposited with the entity at the entity's 102-9 principal executive office or registered office; and 102-10 (2) is subject to examination by an owner, whether in 102-11 person or by the owner's agent or attorney, in the same manner as 102-12 the owner is entitled to examine the books and records of the 102-13 entity. 102-14 (c) A voting agreement entered into under Subsection (a) is 102-15 specifically enforceable against the holder of an ownership 102-16 interest that is the subject of the agreement, and any successor or 102-17 transferee of the holder, if: 102-18 (1) the voting agreement is noted conspicuously on the 102-19 certificate representing the ownership interests; or 102-20 (2) a notation of the voting agreement is contained in 102-21 a notice sent by or on behalf of the entity, if the ownership 102-22 interest is not represented by a certificate. 102-23 (d) Except as provided by Subsection (e), a voting agreement 102-24 entered into under Subsection (a) is specifically enforceable 102-25 against any person other than a transferee for value who acquires 102-26 actual knowledge of the existence of the agreement. 102-27 (e) An otherwise enforceable voting agreement entered into 103-1 under Subsection (a) is not enforceable against a transferee for 103-2 value without actual knowledge of the existence of the agreement at 103-3 the time of the transfer, or any subsequent transferee, without 103-4 regard to value, if the voting agreement is not noted as required 103-5 by Subsection (c). 103-6 (f) Section 6.251 does not apply to a voting agreement 103-7 entered into under Subsection (a). 103-8 CHAPTER 7. LIABILITY 103-9 Sec. 7.001. SEPARATE LEGAL ENTITY APART FROM OWNERS OR 103-10 MEMBERS. A domestic entity is legally separate from its owners or 103-11 members for all purposes. 103-12 Sec. 7.002. LIMITATION OF LIABILITY FOR CONTRACTUAL OR 103-13 RELATED OBLIGATION. (a) Except as provided by this chapter or the 103-14 governing documents of a domestic entity, an owner, member, 103-15 subscriber, or affiliate of the domestic entity may not be held 103-16 liable to the domestic entity or its obligees for any obligation or 103-17 claim arising from or relating to a contract or contractual 103-18 relationship entered into between the domestic entity and an 103-19 obligee or for the benefit of an obligee. 103-20 (b) Subsection (a) applies notwithstanding that: 103-21 (1) the owner, member, subscriber, or affiliate is or 103-22 was the alter ego of the domestic entity or otherwise would be 103-23 liable under a similar theory under common law; or 103-24 (2) the claim or obligation is based on actual or 103-25 constructive fraud, a sham to perpetrate a fraud, or other similar 103-26 theory. 103-27 (c) Subsection (a) does not prevent or limit the liability 104-1 of an owner, member, subscriber, or affiliate to an obligee if the 104-2 obligee demonstrates that the owner, member, subscriber, or 104-3 affiliate, as appropriate, for the primary purpose of providing a 104-4 direct personal benefit to the owner, member, subscriber, or 104-5 affiliate, caused the entity to be used to perpetrate an actual 104-6 fraud on the obligee. 104-7 (d) The liability of an owner, member, subscriber, or 104-8 affiliate of a domestic entity for an obligation or claim limited 104-9 by Subsection (a) is exclusive and preempts any liability under 104-10 common law or otherwise. 104-11 Sec. 7.003. IMMUNITY FROM LIABILITY FOR FAILURE TO OBSERVE 104-12 FORMALITY. An owner, member, subscriber, or affiliate of a 104-13 domestic entity is not obligated to the domestic entity or its 104-14 obligees for a contractual or other obligation of the domestic 104-15 entity because the domestic entity failed to observe a formality, 104-16 including: 104-17 (1) the failure to comply with this code or the 104-18 governing documents of the domestic entity; or 104-19 (2) the failure of the domestic entity, or its 104-20 governing persons, owners, members, subscribers, or affiliates, to 104-21 take an action as required by this code or the governing documents 104-22 of the domestic entity. 104-23 Sec. 7.004. LIMITATION OF LIABILITY OF MANAGERIAL OFFICIAL 104-24 FOR DEBTS AND CONTRACTS. Except as otherwise provided by this code 104-25 or other statutes, a person is not liable for a domestic entity's 104-26 debt or for a domestic entity's breach of contract solely because 104-27 the person: 105-1 (1) is a managerial official of the domestic entity; 105-2 (2) is authorized to participate in the management of 105-3 the domestic entity; or 105-4 (3) is considered by the domestic entity to be a 105-5 managerial official of the domestic entity. 105-6 Sec. 7.005. LIABILITY OF OWNER, MEMBER, OR MANAGERIAL 105-7 OFFICIAL FOR TORT. Except as otherwise provided by this code or 105-8 other law, a person is not liable for a domestic entity's tortious 105-9 act or omission solely because the person: 105-10 (1) is an owner, member, or managerial official of the 105-11 domestic entity; 105-12 (2) is authorized to participate in the management of 105-13 the domestic entity; or 105-14 (3) is considered by the domestic entity to be an 105-15 owner, member, or managerial official of the domestic entity. 105-16 Sec. 7.006. IMPUTED LIABILITY OF OWNER, MEMBER, OR 105-17 MANAGERIAL OFFICIAL. Except as otherwise provided by this code, a 105-18 tortious act or omission of an owner, member, managerial official, 105-19 or other person for which a domestic entity is liable is not 105-20 imputed to another person solely because the person: 105-21 (1) is an owner, member, or managerial official of the 105-22 domestic entity; 105-23 (2) is authorized to participate in the management of 105-24 the domestic entity; or 105-25 (3) is considered by the domestic entity to be an 105-26 owner, member, or managerial official of the domestic entity. 105-27 Sec. 7.007. PLEDGEES AND TRUSTS. (a) A pledgee or other 106-1 holder of an ownership or membership interest as collateral may not 106-2 be held personally liable as an owner or member of the interest. 106-3 (b) An executor, administrator, conservator, guardian, 106-4 trustee, assignee for the benefit of creditors, or receiver may not 106-5 be held personally liable as an owner or subscriber of an ownership 106-6 interest. The property being administered by an executor, 106-7 administrator, conservator, guardian, trustee, assignee, or 106-8 receiver is subject to liability of an owner or subscriber of an 106-9 ownership interest. 106-10 Sec. 7.008. ASSERTION OF CLAIMS. (a) An owner, member, or 106-11 managerial official of a domestic entity or a person considered to 106-12 be an owner, member, or managerial official of a domestic entity by 106-13 the domestic entity may assert a claim in the manner provided by 106-14 this code or other law against the domestic entity. 106-15 (b) A domestic entity may assert a claim in the manner 106-16 provided by this code or other law against: 106-17 (1) an owner, member, or managerial official of the 106-18 domestic entity; or 106-19 (2) a person considered by the domestic entity to be 106-20 an owner, member, or managerial official of the domestic entity. 106-21 Sec. 7.009. EFFECT OF JUDGMENT OR ORDER AGAINST DOMESTIC 106-22 ENTITY. Unless otherwise provided by the judgment or order, a 106-23 judgment or order of a court or other governmental entity against a 106-24 domestic entity is not a judgment or order against: 106-25 (1) an owner, member, or managerial official of the 106-26 domestic entity; or 106-27 (2) a person considered by the domestic entity to be 107-1 an owner, member, or managerial official of the domestic entity. 107-2 Sec. 7.010. CLAIM NOT ABATED BY CHANGE OF OWNERSHIP, 107-3 MEMBERSHIP, OR MANAGEMENT. A claim for relief against a domestic 107-4 entity does not abate solely because of a change in: 107-5 (1) the owners, members, or managerial officials of 107-6 the domestic entity; or 107-7 (2) the persons authorized to manage the domestic 107-8 entity. 107-9 Sec. 7.011. EXCEPTIONS TO LIMITATIONS. (a) A partner in a 107-10 general partnership or registered limited liability partnership or 107-11 a general partner in a limited partnership or registered limited 107-12 liability limited partnership may be held liable for the 107-13 obligations of the partnership as provided by Title 4. 107-14 (b) A limited partner may be held liable as a general 107-15 partner of a limited partnership as provided by Title 4. 107-16 (c) An owner of or subscriber in a domestic entity whose 107-17 subscription has been accepted shall pay to the domestic entity the 107-18 full amount of consideration established in compliance with this 107-19 code and that the owner or subscriber agreed to pay for an 107-20 ownership interest in the domestic entity. 107-21 (d) An owner may be required to make a capital contribution 107-22 to a domestic entity as provided by this code and the governing 107-23 documents of the domestic entity. 107-24 (e) Nothing in this chapter limits the liability of a person 107-25 who: 107-26 (1) expressly assumes, guarantees, or otherwise agrees 107-27 to be personally liable to an obligee of a domestic entity; or 108-1 (2) is otherwise liable for the obligation to an 108-2 obligee of a domestic entity under this code or other applicable 108-3 statute, including a statute relating to fraudulent transfer and 108-4 conveyance. 108-5 Sec. 7.012. LIMITATION OF LIABILITY OF GOVERNING 108-6 PERSON: DOMESTIC ENTITY, CERTAIN OTHER ORGANIZATIONS, CERTAIN 108-7 FEDERAL FINANCIAL INSTITUTIONS. (a) This section applies to: 108-8 (1) a domestic entity other than a partnership; 108-9 (2) an entity, association, or other organization 108-10 incorporated or organized under another law of this state; and 108-11 (3) to the extent permitted by federal law, a 108-12 federally chartered bank, savings and loan association, or credit 108-13 union. 108-14 (b) The governing documents of an entity to which this 108-15 section applies may provide that a governing person of the entity 108-16 is not liable, or is liable only to the extent provided by the 108-17 governing documents, to the entity or its owners or members for 108-18 monetary damages for an act or omission by the person in the 108-19 person's capacity as a governing person. 108-20 (c) Subsection (b) does not authorize the elimination or 108-21 limitation of the liability of a governing person to the extent the 108-22 person is found liable under applicable law for: 108-23 (1) a breach of the person's duty of loyalty, if any, 108-24 to the entity or its owners or members; 108-25 (2) an act or omission not in good faith that: 108-26 (A) constitutes a breach of duty of the person 108-27 to the entity; or 109-1 (B) involves intentional misconduct or a knowing 109-2 violation of law; 109-3 (3) a transaction from which the person received an 109-4 improper benefit, regardless of whether the benefit resulted from 109-5 an action taken within the scope of the person's duties; or 109-6 (4) an act or omission for which the liability of a 109-7 governing person is expressly provided by an applicable statute. 109-8 Sec. 7.013. LIMITATION UNDER GOVERNING DOCUMENTS OF 109-9 PARTNERSHIPS AND LIMITED LIABILITY COMPANIES. Subject to this 109-10 code, the governing documents of a partnership or limited liability 109-11 company may modify the duties, including fiduciary duties, 109-12 obligations, and liabilities, of a managerial official, owner, or 109-13 other person to the partnership or limited liability company and 109-14 its owners and managerial officials. 109-15 CHAPTER 8. INDEMNIFICATION AND INSURANCE 109-16 SUBCHAPTER A. GENERAL PROVISIONS 109-17 Sec. 8.001. DEFINITIONS. In this chapter: 109-18 (1) "Delegate" means a person who is serving or who 109-19 has served as a representative of an enterprise at the request of 109-20 that enterprise at another enterprise. A person is a delegate to 109-21 an employee benefit plan if the performance of the person's 109-22 official duties to the enterprise also imposes duties on or 109-23 otherwise involves service by the person to the plan or 109-24 participants in or beneficiaries of the plan. 109-25 (2) "Enterprise" means a domestic entity or an 109-26 organization subject to this chapter, including a predecessor 109-27 domestic entity or organization. 110-1 (3) "Expenses" includes court costs and attorney's 110-2 fees. The term does not include a judgment, a penalty, a 110-3 settlement, a fine, or an excise or similar tax or an excise tax 110-4 assessed against the person regarding an employee benefit plan. 110-5 (4) "Former governing person" means a person who was a 110-6 governing person of an enterprise. 110-7 (5) "Official capacity" means: 110-8 (A) with respect to a governing person, the 110-9 office of the governing person in the enterprise or the exercise of 110-10 authority by or on behalf of the governing person under this code 110-11 or the governing documents of the enterprise; and 110-12 (B) with respect to a person other than a 110-13 governing person, the elective or appointive office, if any, in the 110-14 enterprise held by the person or the relationship undertaken by the 110-15 person on behalf of the enterprise. 110-16 (6) "Predecessor enterprise" means a sole 110-17 proprietorship or organization that is a predecessor to an 110-18 enterprise in: 110-19 (A) a merger, conversion, consolidation, or 110-20 other transaction in which the liabilities of the predecessor 110-21 enterprise are transferred or allocated to the enterprise by 110-22 operation of law; or 110-23 (B) any other transaction in which the 110-24 enterprise assumes the liabilities of the predecessor enterprise 110-25 and the liabilities that are the subject matter of this chapter are 110-26 not specifically excluded. 110-27 (7) "Proceeding" means: 111-1 (A) a threatened, pending, or completed action 111-2 or other proceeding, whether civil, criminal, administrative, 111-3 arbitrative, or investigative; 111-4 (B) an appeal of an action or proceeding 111-5 described by Paragraph (A); and 111-6 (C) an inquiry or investigation that could lead 111-7 to an action or proceeding described by Paragraph (A). 111-8 (8) "Representative" means a person serving as a 111-9 partner, director, officer, venturer, proprietor, trustee, 111-10 employee, or agent of an enterprise or serving a similar function 111-11 for an enterprise. 111-12 (9) "Respondent" means a person named as a respondent 111-13 or defendant in a proceeding. 111-14 Sec. 8.002. APPLICATION OF CHAPTER. (a) Except as provided 111-15 by Subsection (b), this chapter does not apply to a: 111-16 (1) general partnership; or 111-17 (2) limited liability company. 111-18 (b) The governing documents of a general partnership or 111-19 limited liability company may adopt provisions of this chapter or 111-20 may contain enforceable provisions relating to: 111-21 (1) indemnification; 111-22 (2) advancement of expenses; or 111-23 (3) insurance or another arrangement to indemnify or 111-24 hold harmless a governing person. 111-25 (Sections 8.003-8.050 reserved for expansion) 111-26 SUBCHAPTER B. MANDATORY AND COURT-ORDERED INDEMNIFICATION 111-27 Sec. 8.051. MANDATORY INDEMNIFICATION. (a) An enterprise 112-1 shall indemnify a governing person or former governing person 112-2 against reasonable expenses actually incurred by the person in 112-3 connection with a proceeding in which the person is a respondent 112-4 because the person is or was a governing person if the person is 112-5 wholly successful, on the merits or otherwise, in the defense of 112-6 the proceeding. 112-7 (b) A court that determines, in a suit for indemnification, 112-8 that a governing person is entitled to indemnification under this 112-9 section shall order indemnification and award to the person the 112-10 expenses incurred in securing the indemnification. 112-11 Sec. 8.052. COURT-ORDERED INDEMNIFICATION. (a) On 112-12 application of a governing person, former governing person, or 112-13 delegate and after notice is provided as required by the court, a 112-14 court may order an enterprise to indemnify the person to the extent 112-15 the court determines that the person is fairly and reasonably 112-16 entitled to indemnification in view of all the relevant 112-17 circumstances. 112-18 (b) This section applies without regard to whether the 112-19 governing person, former governing person, or delegate applying to 112-20 the court satisfies the requirements of Section 8.101 or has been 112-21 found liable: 112-22 (1) to the enterprise; or 112-23 (2) because the person improperly received a personal 112-24 benefit, without regard to whether the benefit resulted from an 112-25 action taken in the person's official capacity. 112-26 (c) The indemnification ordered by the court under this 112-27 section is limited to reasonable expenses if the governing person, 113-1 former governing person, or delegate is found liable: 113-2 (1) to the enterprise; or 113-3 (2) because the person improperly received a personal 113-4 benefit, without regard to whether the benefit resulted from an 113-5 action taken in the person's official capacity. 113-6 (Sections 8.053-8.100 reserved for expansion) 113-7 SUBCHAPTER C. PERMISSIVE INDEMNIFICATION AND 113-8 ADVANCEMENT OF EXPENSES 113-9 Sec. 8.101. PERMISSIVE INDEMNIFICATION. (a) An enterprise 113-10 may indemnify a governing person, former governing person, or 113-11 delegate who was, is, or is threatened to be made a respondent in a 113-12 proceeding to the extent permitted by Section 8.102 if it is 113-13 determined in accordance with Section 8.103 that: 113-14 (1) the person: 113-15 (A) acted in good faith; 113-16 (B) reasonably believed: 113-17 (i) in the case of conduct in the person's 113-18 official capacity, that the person's conduct was in the 113-19 enterprise's best interests; and 113-20 (ii) in any other case, that the person's 113-21 conduct was not opposed to the enterprise's best interests; and 113-22 (C) in the case of a criminal proceeding, did 113-23 not have a reasonable cause to believe the person's conduct was 113-24 unlawful; 113-25 (2) with respect to expenses, the amount of expenses 113-26 is reasonable; and 113-27 (3) indemnification should be paid. 114-1 (b) Action taken or omitted by a governing person or 114-2 delegate with respect to an employee benefit plan in the 114-3 performance of the person's duties for a purpose reasonably 114-4 believed by the person to be in the interest of the participants 114-5 and beneficiaries of the plan is for a purpose that is not opposed 114-6 to the best interests of the enterprise. 114-7 (c) Action taken or omitted by a delegate to another 114-8 enterprise for a purpose reasonably believed by the delegate to be 114-9 in the interest of the other enterprise or its owners or members is 114-10 for a purpose that is not opposed to the best interests of the 114-11 enterprise. 114-12 (d) A person does not fail to meet the standard under 114-13 Subsection (a)(1) solely because of the termination of a proceeding 114-14 by: 114-15 (1) judgment; 114-16 (2) order; 114-17 (3) settlement; 114-18 (4) conviction; or 114-19 (5) a plea of nolo contendere or its equivalent. 114-20 Sec. 8.102. GENERAL SCOPE OF PERMISSIVE INDEMNIFICATION. 114-21 (a) Except as provided by Subsection (d) and subject to Subsection 114-22 (b), an enterprise may indemnify a governing person, former 114-23 governing person, or delegate against a judgment, penalty, 114-24 settlement, or fine, including an excise or similar tax or an 114-25 excise tax assessed against the person regarding an employee 114-26 benefit plan, and against reasonable expenses actually incurred by 114-27 the person in connection with a proceeding. 115-1 (b) Indemnification under this subchapter of a person who is 115-2 found liable to the enterprise or is found liable because the 115-3 person improperly received a personal benefit: 115-4 (1) is limited to reasonable expenses actually 115-5 incurred by the person in connection with the proceeding; and 115-6 (2) may not be made in relation to a proceeding in 115-7 which the person has been found liable for: 115-8 (A) wilful or intentional misconduct in the 115-9 performance of the person's duty to the enterprise; 115-10 (B) breach of the person's duty of loyalty owed 115-11 to the enterprise; or 115-12 (C) an act or omission not committed in good 115-13 faith that constitutes a breach of a duty owed by the person to the 115-14 enterprise. 115-15 (c) A governing person, former governing person, or delegate 115-16 is considered to have been found liable in relation to a claim, 115-17 issue, or matter only if the liability is established by an order, 115-18 including a judgment or decree of a court, and all appeals of the 115-19 order are exhausted or foreclosed by law. 115-20 (d) Notwithstanding any other provision of this chapter, an 115-21 enterprise may not indemnify or advance expenses to a person if the 115-22 indemnification or advancement conflicts with a restriction in the 115-23 enterprise's governing documents. 115-24 Sec. 8.103. MANNER FOR DETERMINING PERMISSIVE 115-25 INDEMNIFICATION. (a) Except as provided by Subsections (b) and 115-26 (c), the determinations required under Section 8.101(a) must be 115-27 made by: 116-1 (1) a majority vote of a quorum composed of the 116-2 governing persons who at the time of the vote are disinterested and 116-3 independent; 116-4 (2) if a quorum described by Subdivision (1) cannot be 116-5 obtained, a majority vote of a committee of the board of directors 116-6 of the enterprise designated to act in the matter by a majority 116-7 vote of the governing persons and composed of at least one 116-8 governing person who at the time of the vote is disinterested and 116-9 independent; 116-10 (3) special legal counsel selected by the board of 116-11 directors of the enterprise, or selected by a committee of the 116-12 board of directors, by vote in accordance with Subdivision (1) or 116-13 (2) or, if a quorum described by Subdivision (1) cannot be obtained 116-14 and a committee described by Subdivision (2) cannot be established, 116-15 by a majority vote of the governing persons of the enterprise; 116-16 (4) the owners or members of the enterprise in a vote 116-17 that excludes the ownership or membership interests held by each 116-18 governing person who is not disinterested and independent; or 116-19 (5) a unanimous vote of the owners or members of the 116-20 enterprise. 116-21 (b) If special legal counsel determines under Subsection 116-22 (a)(3) that a person meets the standard under Section 8.101(a)(1), 116-23 the special legal counsel shall determine whether the amount of 116-24 expenses is reasonable under Section 8.101(a)(2) but may not 116-25 determine whether indemnification should be paid under Section 116-26 8.101(a)(3). The determination whether indemnification should be 116-27 paid must be made in a manner specified by Subsection (a)(1), (2), 117-1 (4), or (5). 117-2 (c) A provision contained in the governing documents of the 117-3 enterprise, a resolution of the owners, members, or board of 117-4 directors, or an agreement that requires the indemnification of a 117-5 person who meets the standard under Section 8.101(a)(1) constitutes 117-6 a determination under Section 8.101(a)(3) that indemnification 117-7 should be paid even though the provision may not have been adopted 117-8 or authorized in the same manner as the determinations required 117-9 under Section 8.101(a). The determinations required under Sections 117-10 8.101(a)(1) and (2) must be made in a manner provided by Subsection 117-11 (a). 117-12 Sec. 8.104. ADVANCEMENT OF EXPENSES. (a) An enterprise may 117-13 pay or reimburse reasonable expenses incurred by a governing 117-14 person, former governing person, or delegate who was, is, or is 117-15 threatened to be made a respondent in a proceeding in advance of 117-16 the final disposition of the proceeding without making the 117-17 determinations required under Section 8.101(a) after the enterprise 117-18 receives: 117-19 (1) a written affirmation by the person of the 117-20 person's good faith belief that the person has met the standard of 117-21 conduct necessary for indemnification under this chapter; and 117-22 (2) a written undertaking by or on behalf of the 117-23 person to repay the amount paid or reimbursed if the final 117-24 determination is that the person has not met that standard or that 117-25 indemnification is prohibited by Section 8.102. 117-26 (b) A provision in the governing documents of the 117-27 enterprise, a resolution of the owners, members, or governing 118-1 authority, or an agreement that requires the payment or 118-2 reimbursement permitted under this section authorizes that payment 118-3 or reimbursement after the enterprise receives an affirmation and 118-4 undertaking described by Subsection (a). 118-5 (c) The written undertaking required by Subsection (a)(2) 118-6 must be an unlimited general obligation of the person but need not 118-7 be secured and may be accepted by the enterprise without regard to 118-8 the person's ability to make repayment. 118-9 (d) An enterprise may not advance expenses to or reimburse 118-10 expenses of a person if the advancement or reimbursement conflicts 118-11 with a restriction in the enterprise's governing documents. 118-12 Sec. 8.105. PERMISSIVE INDEMNIFICATION OF AND ADVANCEMENT OF 118-13 EXPENSES TO PERSONS OTHER THAN GOVERNING PERSONS. 118-14 (a) Notwithstanding any other provision of this chapter and to the 118-15 extent consistent with other law, an enterprise may indemnify and 118-16 advance expenses to a person who is not a governing person, 118-17 including an officer, employee, agent, or delegate, as provided by: 118-18 (1) the enterprise's governing documents; 118-19 (2) general or specific action of the enterprise's 118-20 board of directors; 118-21 (3) resolution of the enterprise's owners or members; 118-22 (4) contract; or 118-23 (5) common law. 118-24 (b) An enterprise shall indemnify and advance expenses to an 118-25 officer to the same extent that indemnification or advancement of 118-26 expenses is required under this chapter for a governing person. 118-27 (c) A person described by Subsection (a) may seek 119-1 indemnification or advancement of expenses from an enterprise to 119-2 the same extent that a governing person may seek indemnification or 119-3 advancement of expenses under this chapter. 119-4 Sec. 8.106. PERMISSIVE INDEMNIFICATION OF AND REIMBURSEMENT 119-5 OF EXPENSES TO WITNESSES. Notwithstanding any other provision of 119-6 this chapter, an enterprise may pay or reimburse reasonable 119-7 expenses incurred by a governing person, officer, employee, agent, 119-8 delegate, or other person in connection with that person's 119-9 appearance as a witness or other participation in a proceeding at a 119-10 time when the person is not a respondent in the proceeding. 119-11 (Sections 8.107-8.150 reserved for expansion) 119-12 SUBCHAPTER D. LIABILITY INSURANCE; 119-13 REPORTING REQUIREMENTS 119-14 Sec. 8.151. INSURANCE AND OTHER ARRANGEMENTS. (a) 119-15 Notwithstanding any other provision of this chapter, an enterprise 119-16 may purchase or procure or establish and maintain insurance or 119-17 another arrangement to indemnify or hold harmless an existing or 119-18 former governing person, delegate, officer, employee, or agent 119-19 against any liability: 119-20 (1) asserted against and incurred by the person in 119-21 that capacity; or 119-22 (2) arising out of the person's status in that 119-23 capacity. 119-24 (b) The insurance or other arrangement established under 119-25 Subsection (a) may insure or indemnify against the liability 119-26 described by Subsection (a) without regard to whether the 119-27 enterprise otherwise would have had the power to indemnify the 120-1 person against that liability under this chapter. 120-2 (c) Insurance or another arrangement that involves 120-3 self-insurance or an agreement to indemnify made with the 120-4 enterprise or a person that is not regularly engaged in the 120-5 business of providing insurance coverage may provide for payment of 120-6 a liability with respect to which the enterprise does not otherwise 120-7 have the power to provide indemnification only if the insurance or 120-8 arrangement is approved by the owners or members of the enterprise. 120-9 (d) For the benefit of persons to be indemnified by the 120-10 enterprise, an enterprise may, in addition to purchasing or 120-11 procuring or establishing and maintaining insurance or another 120-12 arrangement: 120-13 (1) create a trust fund; 120-14 (2) establish any form of self-insurance, including a 120-15 contract to indemnify; 120-16 (3) secure the enterprise's indemnity obligation by 120-17 grant of a security interest or other lien on the assets of the 120-18 enterprise; or 120-19 (4) establish a letter of credit, guaranty, or surety 120-20 arrangement. 120-21 (e) Insurance or another arrangement established under this 120-22 section may be purchased or procured or established and maintained: 120-23 (1) within the enterprise; or 120-24 (2) with any insurer or other person considered 120-25 appropriate by the governing authority, regardless of whether all 120-26 or part of the stock, securities, or other ownership interest in 120-27 the insurer or other person is owned in whole or in part by the 121-1 enterprise. 121-2 (f) The governing authority's decision as to the terms of 121-3 the insurance or other arrangement and the selection of the insurer 121-4 or other person participating in an arrangement is conclusive. The 121-5 insurance or arrangement is not voidable and does not subject the 121-6 governing persons approving the insurance or arrangement to 121-7 liability, on any ground, regardless of whether the governing 121-8 persons participating in approving the insurance or other 121-9 arrangement are beneficiaries of the insurance or arrangement. 121-10 This subsection does not apply in case of actual fraud. 121-11 Sec. 8.152. REPORTS OF INDEMNIFICATION AND ADVANCES. (a) 121-12 An enterprise shall report in writing to the owners or members of 121-13 the enterprise an indemnification of or advance of expenses to a 121-14 governing person. 121-15 (b) Subject to Subsection (c), the report must be made with 121-16 or before the notice or waiver of notice of the next meeting of the 121-17 owners or members of the enterprise and before the next submission 121-18 to the owners or members of a consent to action without a meeting. 121-19 (c) The report must be made not later than the first 121-20 anniversary of the date of the indemnification or advance. 121-21 CHAPTER 9. FOREIGN ENTITIES 121-22 SUBCHAPTER A. REGISTRATION 121-23 Sec. 9.001. FOREIGN ENTITIES REQUIRED TO REGISTER. (a) To 121-24 transact business in this state, a foreign entity must register 121-25 under this chapter if the entity: 121-26 (1) is a foreign corporation, foreign limited 121-27 partnership, foreign limited liability company, foreign business 122-1 trust, foreign real estate investment trust, foreign cooperative, 122-2 foreign public or private limited company, or another foreign 122-3 entity, the formation of which, if formed in this state, would 122-4 require the filing under Chapter 3 of a certificate of formation; 122-5 or 122-6 (2) affords limited liability under the law of its 122-7 jurisdiction of formation for any owner or member. 122-8 (b) A foreign entity described by Subsection (a) must 122-9 maintain the entity's registration while transacting business in 122-10 this state. 122-11 Sec. 9.002. FOREIGN ENTITIES NOT REQUIRED TO REGISTER. (a) 122-12 A foreign entity not described by Section 9.001(a) may transact 122-13 business in this state without registering under this chapter. 122-14 (b) Subsection (a) does not relieve a foreign entity from 122-15 the duty to comply with applicable requirements under other law to 122-16 file or register. 122-17 (c) A foreign entity is not required to register under this 122-18 chapter if other state law authorizes the entity to transact 122-19 business in this state. 122-20 (d) A foreign unincorporated nonprofit association is not 122-21 required to register under this chapter. 122-22 Sec. 9.003. PERMISSIVE REGISTRATION. A foreign entity that 122-23 is eligible under other law of this state to register to transact 122-24 business in this state, but that is not registered under that law, 122-25 may register under this chapter unless that registration is 122-26 prohibited by the other law. The registration under this chapter 122-27 confers only the authority provided by this chapter. 123-1 Sec. 9.004. REGISTRATION PROCEDURE. (a) A foreign filing 123-2 entity registers by filing an application for registration as 123-3 provided by Chapter 4. 123-4 (b) The application must state: 123-5 (1) the entity's name and, if that name would not 123-6 comply with Chapter 5, a name that complies with Chapter 5 under 123-7 which the entity will transact business in this state; 123-8 (2) the entity's type; 123-9 (3) the entity's jurisdiction of formation; 123-10 (4) the date of the entity's formation; 123-11 (5) that the entity exists as a valid foreign filing 123-12 entity of the stated type under the laws of the entity's 123-13 jurisdiction of formation; 123-14 (6) for a foreign entity other than a foreign limited 123-15 partnership: 123-16 (A) each business or activity that the entity 123-17 proposes to pursue in this state, which may be stated to be any 123-18 lawful business or activity under the law of this state; and 123-19 (B) that the entity is authorized to pursue the 123-20 same business or activity under the laws of the entity's 123-21 jurisdiction of formation; 123-22 (7) the date the foreign entity began or will begin to 123-23 transact business in this state; 123-24 (8) the address of the principal office of the foreign 123-25 filing entity; 123-26 (9) the address of the initial registered office and 123-27 the name and the address of the initial registered agent for 124-1 service of process that Chapter 5 requires to be maintained; 124-2 (10) the name and address of each of the entity's 124-3 governing persons; and 124-4 (11) that the secretary of state is appointed the 124-5 agent of the foreign filing entity for service of process under the 124-6 circumstances provided by Section 5.205. 124-7 (c) A foreign filing entity may register regardless of any 124-8 differences between the law of the entity's jurisdiction of 124-9 formation and of this state applicable to the governing of the 124-10 internal affairs or to the liability of an owner, member, or 124-11 managerial official. 124-12 Sec. 9.005. EFFECT OF REGISTRATION. (a) The registration 124-13 of a foreign entity is effective when the application filed under 124-14 Chapter 4 takes effect. The registration remains in effect until 124-15 the registration terminates, is withdrawn, or is revoked. 124-16 (b) Except in a proceeding to revoke the registration, the 124-17 secretary of state's issuance of an acknowledgment that the entity 124-18 has filed an application is conclusive evidence of the authority of 124-19 the foreign filing entity to transact business in this state under 124-20 the entity's name or under another name stated in the application, 124-21 in accordance with Section 9.004(b)(1). 124-22 Sec. 9.006. AMENDMENTS TO REGISTRATION. (a) A foreign 124-23 filing entity must amend its registration to change its name or the 124-24 purpose stated in its application for registration if the name or 124-25 purpose has changed. 124-26 (b) A foreign filing entity may amend its application for 124-27 registration by filing an application for amendment of registration 125-1 as provided by Chapter 4. 125-2 (c) The application for amendment must be filed on or before 125-3 the 91st day following the date of the change. 125-4 Sec. 9.007. VOLUNTARY WITHDRAWAL OF REGISTRATION. (a) A 125-5 foreign filing entity registered in this state may withdraw the 125-6 entity's registration at any time by filing a certificate of 125-7 withdrawal as provided by Chapter 4. 125-8 (b) A certificate of withdrawal must state: 125-9 (1) the name of the foreign filing entity as 125-10 registered in this state; 125-11 (2) the type of entity and the entity's jurisdiction 125-12 of formation; 125-13 (3) the address of the principal office of the foreign 125-14 filing entity; 125-15 (4) that the foreign filing entity no longer is 125-16 transacting business in this state; 125-17 (5) that the foreign filing entity: 125-18 (A) revokes the authority of the entity's 125-19 registered agent in this state to accept service of process; and 125-20 (B) consents that service of process in any 125-21 action, suit, or proceeding stating a cause of action arising in 125-22 this state during the time the foreign filing entity was 125-23 authorized to transact business in this state may be made on the 125-24 foreign filing entity by serving the secretary of state; 125-25 (6) an address to which the secretary of state may 125-26 mail a copy of any process against the foreign filing entity served 125-27 on the secretary of state; and 126-1 (7) that any money due or accrued to the state has 126-2 been paid or that adequate provision has been made for the payment 126-3 of that money. 126-4 (c) A certificate from the comptroller that all franchise 126-5 taxes have been paid must be filed with the certificate of 126-6 withdrawal in accordance with Chapter 4 if the foreign filing 126-7 entity is a foreign professional corporation, foreign for-profit 126-8 corporation, or foreign limited liability company. 126-9 (d) If the existence or separate existence of a foreign 126-10 filing entity registered in this state terminates because of 126-11 dissolution, termination, merger, conversion, or other 126-12 circumstances, a certificate by an authorized governmental official 126-13 of the entity's jurisdiction of formation that evidences the 126-14 termination shall be filed with the secretary of state. 126-15 (e) The registration of the foreign filing entity in this 126-16 state terminates when a certificate of withdrawal under this 126-17 section or a certificate evidencing termination under Subsection 126-18 (d) is filed. 126-19 (f) If the address stated in a certificate of withdrawal 126-20 under Subsection (b)(6) changes, the foreign filing entity must 126-21 promptly amend the certificate of withdrawal to update the address. 126-22 (g) A certificate of withdrawal does not terminate the 126-23 authority of the secretary of state to accept service of process on 126-24 the foreign filing entity with respect to causes of action arising 126-25 out of the transaction of business in this state. 126-26 Sec. 9.008. REVOCATION OF REGISTRATION BY COURT ACTION. (a) 126-27 On application of the attorney general, a court may revoke the 127-1 registration of the foreign filing entity if: 127-2 (1) the entity did not comply with a condition to the 127-3 issuance of the entity's certificate of authority or an amendment 127-4 to the certificate; 127-5 (2) the entity's registration or any amendment to the 127-6 entity's application for registration was procured by fraud; 127-7 (3) a misrepresentation of a material matter was made 127-8 in an application, report, affidavit, or other document the entity 127-9 submitted as required by law; 127-10 (4) the entity has continued to transact business 127-11 beyond the scope of the purpose or purposes expressed in the 127-12 entity's application for registration; or 127-13 (5) the public interest requires revocation because: 127-14 (A) the entity has been convicted of a felony or 127-15 a high managerial agent of the entity has been convicted of a 127-16 felony committed in the conduct of the entity's affairs; 127-17 (B) the entity or the high managerial agent has 127-18 engaged in a persistent course of felonious conduct; and 127-19 (C) revocation is necessary to prevent future 127-20 felonious conduct of the same character. 127-21 (b) Only a district court of Travis County or a district 127-22 court of the county in which a foreign filing entity's registered 127-23 office is located has jurisdiction of a suit under Subsection (a). 127-24 Venue is in either court. 127-25 (c) The clerk of the court that revokes the registration 127-26 shall file with the secretary of state a certified copy of the 127-27 order of revocation. 128-1 (d) When a copy of an order of revocation is filed with the 128-2 secretary of state, the secretary of state shall: 128-3 (1) file a certificate of revocation; and 128-4 (2) deliver a certificate of revocation by regular or 128-5 certified mail to the foreign filing entity at its registered 128-6 office or principal place of business. 128-7 (e) The certificate of revocation must state the cause of 128-8 the revocation. 128-9 (f) The revocation of a foreign filing entity's registration 128-10 under this section takes effect on the date the court issues the 128-11 order of revocation. 128-12 (g) Sections 9.017-9.020 do not apply to Subsection (a)(5). 128-13 Sec. 9.009. REVOCATION OF REGISTRATION BY STATE ACTION. (a) 128-14 If it appears to the secretary of state that, with respect to a 128-15 foreign filing entity, a circumstance described by Subsection (b) 128-16 exists, the secretary of state may notify the entity of the 128-17 circumstance by mail or certified mail addressed to the foreign 128-18 filing entity at the entity's registered office or principal place 128-19 of business as shown on the records of the secretary of state. 128-20 (b) The secretary of state may revoke a foreign filing 128-21 entity's registration if the secretary of state finds that the 128-22 entity has failed to, and, before the 91st day after the date 128-23 notice was mailed, has not corrected the entity's failure to: 128-24 (1) file a report within the period required by law or 128-25 to pay a fee or penalty prescribed by law when due and payable; 128-26 (2) maintain a registered agent or registered office 128-27 in this state as required by law; 129-1 (3) amend its registration when required by law; or 129-2 (4) pay a fee required in connection with a filing, or 129-3 payment of the fee was dishonored when presented by the state for 129-4 payment. 129-5 (c) If revocation of a registration is required, the 129-6 secretary of state shall: 129-7 (1) file a certificate of revocation; and 129-8 (2) deliver a certificate of revocation by regular or 129-9 certified mail to the foreign filing entity at its registered 129-10 office or principal place of business. 129-11 (d) The certificate of revocation must state: 129-12 (1) that the foreign filing entity's registration has 129-13 been revoked; and 129-14 (2) the date and cause of the revocation. 129-15 (e) The revocation of a foreign filing entity's registration 129-16 under this section takes effect on the date the certificate of 129-17 revocation is filed. 129-18 Sec. 9.010. REINSTATEMENT. (a) The secretary of state 129-19 shall reinstate the registration of an entity that has been revoked 129-20 under Section 9.009 if the entity files an application for 129-21 reinstatement, accompanied by each amendment to the entity's 129-22 registration that is required by intervening events, including the 129-23 unavailability of the name the entity uses because of a filing made 129-24 since the revocation, and: 129-25 (1) the entity has corrected the circumstances that 129-26 led to the revocation and any other circumstances that may exist of 129-27 the types described by Section 9.009(b), including the payment of 130-1 fees, interest, or penalties; or 130-2 (2) the secretary of state finds that the 130-3 circumstances that led to the revocation did not exist at the time 130-4 of revocation. 130-5 (b) If a foreign filing entity's registration is reinstated 130-6 before the third anniversary of the revocation, the entity is 130-7 considered to have been registered or in existence at all times 130-8 during the period of revocation. 130-9 Sec. 9.011. NAME CHANGE OF FOREIGN ENTITY. If a foreign 130-10 entity authorized to conduct affairs in this state changes its name 130-11 to a name that would cause the entity to be denied an application 130-12 for registration under this subchapter, the entity's registration 130-13 must be suspended. An entity the registration of which has been 130-14 suspended under this section may conduct affairs in this state only 130-15 after the entity: 130-16 (1) changes its name to a name that is available to it 130-17 under the laws of this state; or 130-18 (2) otherwise complies with this chapter. 130-19 Sec. 9.012. TRANSACTING BUSINESS OR MAINTAINING COURT 130-20 PROCEEDING WITHOUT REGISTRATION. (a) On application by the 130-21 attorney general, a court may enjoin a foreign filing entity or the 130-22 entity's agent from transacting business in this state if: 130-23 (1) the entity is not registered in this state; or 130-24 (2) the entity's registration is obtained on the basis 130-25 of a false or misleading representation. 130-26 (b) A foreign filing entity or the entity's legal 130-27 representative may not maintain an action, suit, or proceeding in a 131-1 court of this state, brought either directly by the entity or in 131-2 the form of a derivative action in the entity's name, on a cause of 131-3 action that arises out of the transaction of business in this state 131-4 unless the foreign filing entity is registered in accordance with 131-5 this chapter. This subsection does not affect the rights of an 131-6 assignee of the foreign filing entity as: 131-7 (1) the holder in due course of a negotiable 131-8 instrument; or 131-9 (2) the bona fide purchaser for value of a warehouse 131-10 receipt, security, or other instrument made negotiable by law. 131-11 (c) The failure of a foreign filing entity to register does 131-12 not: 131-13 (1) affect the validity of any contract or act of the 131-14 foreign filing entity; 131-15 (2) prevent the entity from defending an action, suit, 131-16 or proceeding in a court in this state; or 131-17 (3) except as provided by Subsection (d), cause any 131-18 owner, member, or managerial official of the foreign filing entity 131-19 to become liable for the debts, obligations, or liabilities of the 131-20 foreign filing entity. 131-21 (d) Subsection (c)(3) does not apply to a general partner of 131-22 a foreign limited partnership. 131-23 Sec. 9.013. CIVIL PENALTY. (a) A foreign filing entity 131-24 that transacts business in this state and is not registered under 131-25 this chapter is liable to this state for a civil penalty in an 131-26 amount equal to all: 131-27 (1) fees and taxes that would have been imposed by law 132-1 on the entity had the entity registered when first required and 132-2 filed all reports required by law; and 132-3 (2) penalties and interest imposed by law for failure 132-4 to pay those fees and taxes. 132-5 (b) The attorney general may bring suit to recover amounts 132-6 due to this state under this section. 132-7 Sec. 9.014. VENUE. In addition to any other venue 132-8 authorized by law, a suit under Section 9.012 or 9.013 may be 132-9 brought in Travis County. 132-10 Sec. 9.015. LATE FILING FEE. The secretary of state may 132-11 collect from a foreign filing entity a late filing fee equal to the 132-12 registration fee for the entity for each year of delinquency if the 132-13 entity has transacted business in this state for more than 90 days. 132-14 The secretary may condition the effectiveness of a registration on 132-15 the payment of the late filing fee. 132-16 Sec. 9.016. REQUIREMENTS OF OTHER LAW. This chapter does 132-17 not excuse a foreign entity from complying with duties imposed 132-18 under other law, including other chapters of this code, relating to 132-19 filing or registration requirements. 132-20 Sec. 9.017. INVOLUNTARY REVOCATION OF REGISTRATION BY STATE 132-21 ACTION; NOTIFICATION OF ATTORNEY GENERAL. (a) If the secretary of 132-22 state determines that cause exists for judicial revocation of a 132-23 foreign filing entity's registration as provided by Section 9.008, 132-24 the secretary shall simultaneously notify the: 132-25 (1) attorney general of the name of the foreign filing 132-26 entity and the grounds for judicial revocation; and 132-27 (2) foreign filing entity by mail at its registered 133-1 office in this state: 133-2 (A) that the secretary of state has notified the 133-3 attorney general as provided by Subdivision (1); and 133-4 (B) of the grounds for judicial revocation of 133-5 the entity's registration. 133-6 (b) The secretary of state shall maintain a record of the 133-7 date notice is mailed under Subsection (a)(2). 133-8 (c) A court shall accept a certificate issued by the 133-9 secretary of state as to the grounds for judicial revocation of a 133-10 foreign filing entity's registration and the mailing of a notice 133-11 under Subsection (a)(2) as prima facie evidence of the grounds for 133-12 judicial revocation and the mailing of the notice. 133-13 Sec. 9.018. ACTION TO REVOKE REGISTRATION. (a) The 133-14 attorney general shall file an action against a foreign filing 133-15 entity in the name of the state seeking the revocation of the 133-16 entity's registration if: 133-17 (1) the entity does not cure the problems for which 133-18 revocation is sought before the 31st day after the date the notice 133-19 is mailed; and 133-20 (2) the attorney general determines that cause exists 133-21 for judicial revocation of the entity's registration under Section 133-22 9.008. 133-23 (b) An action filed by the attorney general under Subsection 133-24 (a) shall be abated if, before a district court renders judgment 133-25 on the action, the foreign filing entity: 133-26 (1) cures the problems for which revocation is sought; 133-27 and 134-1 (2) pays the costs of the action. 134-2 (c) If a district court finds in an action brought under 134-3 Subsection (a) that proper grounds exist under Section 9.008(a) for 134-4 revocation of the foreign filing entity's registration, the court 134-5 shall: 134-6 (1) make findings to that effect; and 134-7 (2) subject to Section 9.019, enter a judgment not 134-8 earlier than the fifth day after the date the court makes its 134-9 findings. 134-10 Sec. 9.019. APPLICATION FOR STAY OF JUDGMENT. (a) If, in 134-11 an action brought under this subchapter, a foreign filing entity 134-12 has proved by a preponderance of the evidence and obtained a 134-13 finding that the problems for which the foreign filing entity has 134-14 been found guilty were not wilful or the result of a failure to 134-15 take reasonable precautions, the entity may make a sworn 134-16 application to the court for a stay of entry of the judgment to 134-17 allow the foreign filing entity a reasonable opportunity to cure 134-18 the problems for which it has been found guilty. An application 134-19 made under this subsection must be made not later than the fifth 134-20 day after the date the court makes its findings under Section 134-21 9.018. 134-22 (b) After a foreign filing entity has made an application 134-23 under Subsection (a), a court shall stay the entry of the judgment 134-24 if the court is reasonably satisfied after considering the 134-25 application and evidence offered for or against the application 134-26 that the foreign filing entity: 134-27 (1) is able and intends in good faith to cure the 135-1 problems for which it has been found guilty; and 135-2 (2) has not applied for the stay without just cause. 135-3 (c) A court shall stay an entry of judgment under Subsection 135-4 (b) for the period the court determines is reasonably necessary to 135-5 afford the foreign filing entity the opportunity to cure its 135-6 problems if the entity acts with reasonable diligence. The court 135-7 may not stay the entry of the judgment for longer than 60 days 135-8 after the date the court's findings are made. 135-9 (d) The court shall dismiss an action against a foreign 135-10 filing entity that, during the period the action is stayed by the 135-11 court under this section, cures the problems for which revocation 135-12 is sought and pays all costs accrued in the action. 135-13 (e) If a court finds that a foreign filing entity has not 135-14 cured the problems for which revocation is sought within the period 135-15 prescribed by Subsection (c), the court shall enter final judgment 135-16 requiring revocation of the foreign filing entity's registration. 135-17 Sec. 9.020. OPPORTUNITY FOR CURE AFTER AFFIRMATION OF 135-18 FINDINGS BY APPEALS COURT. (a) An appellate court that affirms a 135-19 trial court's findings against a foreign filing entity under this 135-20 subchapter shall remand the case to the trial court with 135-21 instructions to grant the foreign filing entity an opportunity to 135-22 cure the problems for which the entity has been found guilty if: 135-23 (1) the foreign filing entity did not make an 135-24 application to the trial court for stay of the entry of the 135-25 judgment; 135-26 (2) the appellate court is satisfied that the appeal 135-27 was taken in good faith and not for purpose of delay or with no 136-1 sufficient cause; 136-2 (3) the appellate court finds that the problems for 136-3 which the foreign filing entity has been found guilty are capable 136-4 of being cured; and 136-5 (4) the foreign filing entity has prayed for the 136-6 opportunity to cure its problems in the appeal. 136-7 (b) The appellate court shall determine the period, which 136-8 may not be longer than 60 days after the date the case is remanded 136-9 to the trial court, to be afforded to a foreign filing entity to 136-10 enable the foreign filing entity to cure its problems under 136-11 Subsection (a). 136-12 (c) The trial court to which an action against a foreign 136-13 filing entity has been remanded under this section shall dismiss 136-14 the action if, during the period prescribed by the appellate court 136-15 for that conduct, the foreign filing entity cures the problems for 136-16 which revocation is sought and pays all costs accrued in the 136-17 action. 136-18 (d) If a foreign filing entity has not cured the problems 136-19 for which revocation is sought within the period prescribed by the 136-20 appellate court under Subsection (b), the judgment requiring 136-21 revocation shall become final. 136-22 Sec. 9.021. VENUE. The attorney general shall bring an 136-23 action for the involuntary revocation of the registration of a 136-24 foreign filing entity under this subchapter in: 136-25 (1) a district court of the county in which the 136-26 registered office or principal place of business of the filing 136-27 entity in this state is located; or 137-1 (2) a district court of Travis County. 137-2 Sec. 9.022. PROCESS IN STATE ACTION. Citation in an action 137-3 for the involuntary revocation of a foreign filing entity's 137-4 registration under this subchapter shall be issued and served as 137-5 provided by law. 137-6 Sec. 9.023. PUBLICATION OF NOTICE. (a) If process in an 137-7 action under this subchapter is returned not found, the attorney 137-8 general shall publish notice in a newspaper in the county in which 137-9 the registered office of the foreign filing entity in this state is 137-10 located. The notice must contain: 137-11 (1) a statement of the pendency of the action; 137-12 (2) the title of the court; 137-13 (3) the title of the action; and 137-14 (4) the earliest date on which default judgment may be 137-15 entered by the court. 137-16 (b) Notice under this section must be published at least 137-17 once a week for two consecutive weeks beginning at any time after 137-18 the citation has been returned. 137-19 (c) The attorney general may include in one published notice 137-20 the name of each foreign filing entity against which an action for 137-21 involuntary revocation is pending in the same court. 137-22 (d) Not later than the 10th day after the date notice under 137-23 this section is first published, the attorney general shall mail a 137-24 copy of the notice to the appropriate foreign filing entity at the 137-25 foreign filing entity's registered office in this state. The 137-26 attorney general's record of the mailing of the notice is prima 137-27 facie evidence that notice was mailed under this section. 138-1 (e) Unless a foreign filing entity has been served with 138-2 citation, a default judgment may not be taken against the entity 138-3 before the 31st day after the date the notice is first published. 138-4 Sec. 9.024. FILING OF DECREE OF REVOCATION AGAINST FOREIGN 138-5 FILING ENTITY. (a) The clerk of a court that enters a decree 138-6 revoking the registration of a foreign filing entity shall file a 138-7 certified copy of the decree in accordance with Chapter 4. 138-8 (b) A fee may not be charged for the filing of a decree 138-9 under this section. 138-10 (Sections 9.025-9.050 reserved for expansion) 138-11 SUBCHAPTER B. BUSINESS, RIGHTS, AND OBLIGATIONS 138-12 Sec. 9.051. BUSINESS OF FOREIGN ENTITY. A foreign entity 138-13 may not conduct in this state a business or activity that is not 138-14 permitted by this code to be transacted by the domestic entity to 138-15 which it most closely corresponds, unless other law of this state 138-16 authorizes the entity to conduct the business or activity. 138-17 Sec. 9.052. RIGHTS AND PRIVILEGES. A foreign nonfiling 138-18 entity or a foreign filing entity registered under this chapter 138-19 enjoys the same but no greater rights and privileges as the 138-20 domestic entity to which it most closely corresponds. 138-21 Sec. 9.053. OBLIGATIONS AND LIABILITIES. Subject to this 138-22 code and other laws of this state and except as provided by 138-23 Subchapter C, Chapter 1, in any matter that affects the transaction 138-24 of intrastate business in this state, a foreign entity and each 138-25 member, owner, or managerial official of the entity is subject to 138-26 the same duties, restrictions, penalties, and liabilities imposed 138-27 on a domestic entity to which it most closely corresponds or on a 139-1 member, owner, or managerial official of that domestic entity. 139-2 Sec. 9.054. RIGHT OF FOREIGN FILING ENTITY TO PARTICIPATE IN 139-3 THE BUSINESS OF CERTAIN DOMESTIC ENTITIES. A vote cast or consent 139-4 provided by a foreign filing entity with respect to its ownership 139-5 or membership interest in a domestic entity of which the foreign 139-6 filing entity is a lawful owner or member, and the foreign filing 139-7 entity's participation in the management and control of the 139-8 business and affairs of the domestic entity to the extent of the 139-9 participation of other owners or members, are not invalidated if 139-10 the foreign filing entity does not register to transact business in 139-11 this state, subject to all law governing a domestic entity, 139-12 including the antitrust law of this state. 139-13 (Sections 9.055-9.100 reserved for expansion) 139-14 SUBCHAPTER C. DETERMINATION OF TRANSACTING BUSINESS 139-15 IN THIS STATE 139-16 Sec. 9.101. ACTIVITIES NOT CONSTITUTING TRANSACTING BUSINESS 139-17 IN THIS STATE. For purposes of this chapter, activities that do 139-18 not constitute transaction of business in this state include: 139-19 (1) maintaining or defending an action or suit or an 139-20 administrative or arbitration proceeding, or effecting the 139-21 settlement of: 139-22 (A) such an action, suit, or proceeding; or 139-23 (B) a claim or dispute to which the entity is a 139-24 party; 139-25 (2) holding a meeting of the entity's managerial 139-26 officials, owners, or members or carrying on another activity 139-27 concerning the entity's internal affairs; 140-1 (3) maintaining a bank account; 140-2 (4) maintaining an office or agency for: 140-3 (A) transferring, exchanging, or registering 140-4 securities the entity issues; or 140-5 (B) appointing or maintaining a trustee or 140-6 depositary related to the entity's securities; 140-7 (5) voting the interest of an entity the foreign 140-8 entity has acquired; 140-9 (6) effecting a sale through an independent 140-10 contractor; 140-11 (7) creating, as borrower or lender, or acquiring 140-12 indebtedness or a mortgage or other security interest in real or 140-13 personal property; 140-14 (8) securing or collecting a debt due the entity or 140-15 enforcing a right in property that secures a debt due the entity; 140-16 (9) transacting business in interstate commerce; 140-17 (10) conducting an isolated transaction that: 140-18 (A) is completed within a period of 30 days; and 140-19 (B) is not in the course of a number of 140-20 repeated, similar transactions; 140-21 (11) in a case that does not involve an activity that 140-22 would constitute the transaction of business in this state if the 140-23 activity were one of a foreign entity acting in its own right: 140-24 (A) exercising a power of executor or 140-25 administrator of the estate of a nonresident decedent under 140-26 ancillary letters issued by a court of this state; or 140-27 (B) exercising a power of a trustee under the 141-1 will of a nonresident decedent, or under a trust created by one or 141-2 more nonresidents of this state, or by one or more foreign 141-3 entities; 141-4 (12) regarding a debt secured by a mortgage or lien on 141-5 real or personal property in this state: 141-6 (A) acquiring the debt in a transaction outside 141-7 this state or in interstate commerce; 141-8 (B) collecting or adjusting a principal or 141-9 interest payment on the debt; 141-10 (C) enforcing or adjusting a right or property 141-11 securing the debt; 141-12 (D) taking an action necessary to preserve and 141-13 protect the interest of the mortgagee in the security; or 141-14 (E) engaging in any combination of transactions 141-15 described by this subdivision; 141-16 (13) investing in or acquiring, in a transaction 141-17 outside of this state, a royalty or other nonoperating mineral 141-18 interest; or 141-19 (14) the execution of a division order, contract of 141-20 sale, or other instrument incidental to ownership of a nonoperating 141-21 mineral interest. 141-22 Sec. 9.102. OTHER ACTIVITIES. The list provided by Section 141-23 9.101 is not exclusive of activities that do not constitute 141-24 transacting business in this state for the purposes of this code. 141-25 (Sections 9.103-9.150 reserved for expansion) 142-1 SUBCHAPTER D. MISCELLANEOUS PROVISIONS 142-2 Sec. 9.151. APPLICABILITY OF THIS CODE TO CERTAIN FOREIGN 142-3 ENTITIES. (a) Except as provided by a statute described by this 142-4 subsection, the provisions of this code governing a foreign entity 142-5 apply to a foreign entity registered or granted authority to 142-6 transact business in this state under: 142-7 (1) a special statute that does not contain a 142-8 provision regarding a matter provided for by this code with respect 142-9 to a foreign entity; or 142-10 (2) another statute that specifically provides that 142-11 the general law for the granting of a registration or certificate 142-12 of authority to the foreign entity to transact business in this 142-13 state supplements the special statute. 142-14 (b) Except as provided by a special statute described by 142-15 Subsection (a), a document required to be filed with the secretary 142-16 of state under the special statute must be signed and filed in 142-17 accordance with Chapter 4. 142-18 CHAPTER 10. MERGERS, SHARE EXCHANGES, AND CONVERSIONS 142-19 SUBCHAPTER A. MERGERS 142-20 Sec. 10.001. ADOPTION OF PLAN OF MERGER. (a) A domestic 142-21 entity may effect a merger by complying with the applicable 142-22 provisions of this code. A merger must be set forth in a plan of 142-23 merger. 142-24 (b) To effect a merger, the governing authority of each 142-25 domestic entity that is a party to the merger must act on, and, if 142-26 required by this code, the owners or members of the domestic entity 142-27 must approve, the plan of merger in the manner prescribed by this 143-1 code for the approval of mergers by the domestic entity. 143-2 (c) If one or more non-code organizations is a party to the 143-3 merger or is to be created by the plan of merger: 143-4 (1) to effect the merger each non-code organization 143-5 must take all action required by this code and its governing 143-6 documents; 143-7 (2) the merger must be permitted by: 143-8 (A) the law of the state or country under whose 143-9 law each non-code organization is incorporated or organized; or 143-10 (B) the governing documents of each non-code 143-11 organization if the documents are not inconsistent with the law 143-12 under which the non-code organization is incorporated or organized; 143-13 and 143-14 (3) in effecting the merger, each non-code 143-15 organization that is a party to the merger must comply with: 143-16 (A) the applicable laws under which it is 143-17 incorporated or organized; and 143-18 (B) the governing documents of the non-code 143-19 organization. 143-20 (d) An organization may not merge under this subchapter if 143-21 an owner or member of that entity that is a party to the merger 143-22 will, as a result of the merger, become personally liable, without 143-23 that owner's or member's consent, for a liability or other 143-24 obligation of any other person. 143-25 Sec. 10.002. PLAN OF MERGER: REQUIRED PROVISIONS. (a) A 143-26 plan of merger must include: 143-27 (1) the name of each organization that is a party to 144-1 the merger; 144-2 (2) the name of each organization that will survive 144-3 the merger; 144-4 (3) the name of each new organization that is to be 144-5 created by the plan of merger; 144-6 (4) a description of the organizational form of each 144-7 organization that is a party to the merger or that is to be created 144-8 by the plan of merger and the state or country where incorporated 144-9 or organized; 144-10 (5) the manner and basis of converting any of the 144-11 ownership or membership interests of each organization that is a 144-12 party to the merger into: 144-13 (A) ownership interests, membership interests, 144-14 obligations, rights to purchase securities, or other securities of 144-15 one or more of the surviving or new domestic organizations; 144-16 (B) cash; 144-17 (C) other property, including ownership 144-18 interests, membership interests, obligations, rights to purchase 144-19 securities, or other securities of any other person or entity; or 144-20 (D) any combination of the items described by 144-21 Paragraphs (A)-(C); 144-22 (6) the certificate of formation of each new domestic 144-23 entity to be created by the plan of merger; 144-24 (7) the governing documents of each non-code 144-25 organization that: 144-26 (A) is to survive the merger or to be created by 144-27 the plan of merger; and 145-1 (B) is an entity that is not: 145-2 (i) organized under the laws of any state 145-3 or the United States; or 145-4 (ii) required to file its certificate of 145-5 formation or similar document under which the entity is organized 145-6 with the appropriate governmental authority; and 145-7 (8) the address of the registered office and name of 145-8 each registered agent of the surviving or new organizations if a 145-9 registered office or agent is required by the laws under which the 145-10 surviving or new organizations are formed. 145-11 (b) An item required by Subsections (a)(6)-(8) may be 145-12 included in the plan of merger by an attachment or exhibit to the 145-13 plan. 145-14 (c) If the plan of merger provides for a manner and basis of 145-15 converting an ownership or membership interest that may be 145-16 converted in a manner or basis different than any other ownership 145-17 or membership interest of the same class or series of the ownership 145-18 or membership interest, the manner and basis of conversion must be 145-19 included in the plan of merger in the same manner as provided by 145-20 Subsection (a)(5). 145-21 Sec. 10.003. CONTENTS OF PLAN OF MERGER: MORE THAN ONE 145-22 SUCCESSOR. If more than one organization is to survive or to be 145-23 created by the plan of merger, the plan of merger must include: 145-24 (1) the manner and basis of allocating and vesting the 145-25 property of each organization that is a party to the merger among 145-26 one or more of the surviving or new organizations; 145-27 (2) the name of each surviving or new organization 146-1 that is primarily obligated for the payment of the fair value of an 146-2 ownership or membership interest of an owner or member of a 146-3 domestic entity that is a party to the merger and who may have a 146-4 right to, and complies with the requirements for, dissent and 146-5 appraisal under this code applicable to the domestic entity; and 146-6 (3) the manner and basis of allocating each liability 146-7 and obligation of each organization that is a party to the merger, 146-8 or adequate provisions for the payment and discharge of each 146-9 liability and obligation, among one or more of the surviving or new 146-10 organizations. 146-11 Sec. 10.004. PLAN OF MERGER: PERMISSIVE PROVISIONS. A plan 146-12 of merger may include: 146-13 (1) amendments to the governing documents of any 146-14 surviving organization; 146-15 (2) provisions relating to an interest exchange, 146-16 including a plan of exchange; and 146-17 (3) any other provisions relating to the merger that 146-18 are not required by this chapter. 146-19 Sec. 10.005. CREATION OF HOLDING COMPANY BY MERGER. (a) In 146-20 this section: 146-21 (1) "Direct or indirect wholly owned subsidiary" 146-22 means, with respect to a domestic entity, another domestic entity, 146-23 all of the outstanding voting ownership or membership interests of 146-24 which are owned by the domestic entity or by one or more other 146-25 domestic entities or non-code organizations, all of the outstanding 146-26 voting ownership or membership interests of which are owned by the 146-27 domestic entity or one or more other wholly owned domestic entities 147-1 or non-code organizations. 147-2 (2) "Holding company" means a domestic entity that, 147-3 from its organization until a merger takes effect, was at all times 147-4 a direct or indirect wholly owned subsidiary of the domestic entity 147-5 and the ownership or membership interests of which are issued in 147-6 the merger. 147-7 (b) A domestic entity may, without owner approval and 147-8 pursuant to a plan of merger, restructure the ownership structure 147-9 of that entity to create a holding company structure under this 147-10 chapter and the provisions of this code under which the entity was 147-11 formed. The approval of the owners or members of a domestic entity 147-12 of a plan of merger that creates a holding company is not required 147-13 if: 147-14 (1) approval is not otherwise required by the 147-15 governing documents of the domestic entity; 147-16 (2) the domestic entity merges with a direct or 147-17 indirect domestic wholly owned entity; 147-18 (3) after the merger the domestic entity or its 147-19 successor is a direct or indirect wholly owned entity of a holding 147-20 company; 147-21 (4) the domestic entity and the direct or indirect 147-22 wholly owned entity are the only parties to the merger; 147-23 (5) each ownership or membership interest of the 147-24 domestic entity that is outstanding preceding the merger is 147-25 converted in the merger into an ownership or membership interest of 147-26 the holding company having the same designations, preferences, 147-27 limitations, and relative rights as the ownership or membership 148-1 interest held by the owner or member in the domestic entity; 148-2 (6) the holding company is a domestic entity of the 148-3 same organizational form as the merging domestic entity; 148-4 (7) except as provided by Subsections (c) and (d), the 148-5 initial governing documents of the holding company contain 148-6 provisions identical to the governing documents of the domestic 148-7 entity preceding the merger; 148-8 (8) except as provided by Subsections (c) and (d), the 148-9 initial governing documents of the surviving entity contain 148-10 provisions identical to the governing documents of the domestic 148-11 entity preceding the merger; 148-12 (9) the governing persons of the domestic entity 148-13 become or remain the governing persons of the holding company when 148-14 the merger takes effect; 148-15 (10) the owners or members of the domestic entity will 148-16 not recognize gain or loss for United States federal income tax 148-17 purposes or any other tax benefit or attribute as determined by the 148-18 governing authority of the domestic entity; and 148-19 (11) the governing authority of the domestic entity 148-20 adopts a resolution approving the plan of merger. 148-21 (c) Subsections (b)(7) and (8) do not require identical 148-22 provisions regarding the incorporator or incorporators, the entity 148-23 name, the registered office and agent, the initial governing 148-24 persons, and the initial subscribers of ownership interests and 148-25 provisions contained in any amendment to the certificate as are 148-26 necessary to effect a change, exchange, reclassification, or 148-27 cancellation of ownership or membership interests, if the change, 149-1 exchange, reclassification, or cancellation was in effect preceding 149-2 the merger. 149-3 (d) Notwithstanding Subsection (b)(8): 149-4 (1) the governing documents of the surviving entity 149-5 must require that an act or transaction by or involving the 149-6 surviving entity that requires for its approval under this code the 149-7 approval of the owners or members of the merging domestic entity 149-8 must, by specific reference to this section, require the approval 149-9 of the owners or members of the holding company, or any successor 149-10 by merger, by the same vote as is required by this code and the 149-11 governing documents of the surviving entity; and 149-12 (2) the governing documents of the surviving entity 149-13 may change the classes and series of ownership or membership 149-14 interests and the number of ownership or membership interests that 149-15 the surviving entity is authorized to issue. 149-16 (e) To the extent the provisions contained in Section 21.606 149-17 apply to a domestic entity and its owners or members when a merger 149-18 takes effect under this section, those provisions continue to apply 149-19 to the holding company and its owners or members immediately after 149-20 the merger takes effect as though the holding company were the 149-21 domestic entity. All ownership or membership interests of the 149-22 holding company acquired in the merger, for purposes of Section 149-23 21.606, are considered to have been acquired at the time the 149-24 ownership or membership interest of the domestic entity converted 149-25 in the merger was acquired. Any owner or member who, preceding the 149-26 merger, was not an affiliated owner or member as described by 149-27 Section 21.606 does not solely by reason of the merger become an 150-1 affiliated owner or member of the holding company. 150-2 (f) If the name of a holding company immediately following 150-3 the effectiveness of a merger under this section is the same as the 150-4 name of the domestic entity preceding the merger, the ownership or 150-5 membership interests of the holding company into which the 150-6 ownership or membership interests of the domestic entity are merged 150-7 are represented by the certificates, if any, that previously 150-8 represented the ownership or membership interests in the domestic 150-9 entity. 150-10 Sec. 10.006. SHORT FORM MERGER. (a) A parent organization 150-11 that owns at least 90 percent of the outstanding ownership or 150-12 membership interests of each class and series of each of one or 150-13 more subsidiary organizations may merge with one or more of the 150-14 subsidiary organizations as provided by this section if: 150-15 (1) at least one of the parties to the merger is a 150-16 domestic entity and each other party is a domestic entity or 150-17 another non-code organization organized under the laws of a 150-18 jurisdiction that permits a merger of the type authorized by this 150-19 chapter; and 150-20 (2) the resulting organization is the parent 150-21 organization or an existing or new subsidiary organization. 150-22 (b) A merger of one or more subsidiary organizations into 150-23 the parent organization is required to be approved only by a 150-24 resolution adopted by the governing authority of the parent 150-25 organization authorizing the merger. 150-26 (c) If the parent organization is a domestic entity and the 150-27 parent organization will not survive the merger: 151-1 (1) the owners or members of the parent organization 151-2 must approve the merger in the manner under this code that a merger 151-3 by that domestic entity is approved; and 151-4 (2) action to approve the merger by a subsidiary 151-5 organization is not required. 151-6 (d) If the parent organization does not own all of the 151-7 outstanding ownership or membership interests of each class or 151-8 series of ownership or membership interests of each subsidiary 151-9 organization that is a party to the merger, the resolution of the 151-10 parent organization required by this section must describe the 151-11 terms of the merger, including the cash or other property, 151-12 including ownership or membership interests, obligations, rights to 151-13 purchase securities, or other securities of any person or entity or 151-14 any combination of the ownership or membership interests, 151-15 obligations, rights, or other securities, to be used, paid, or 151-16 delivered by the parent organization on surrender of each ownership 151-17 or membership interest of the subsidiary organizations not owned by 151-18 the parent organization. 151-19 (e) An entity is not disqualified from effecting a merger 151-20 under any other provision of this chapter because it qualifies for 151-21 a merger under this section. 151-22 Sec. 10.007. EFFECTIVENESS OF MERGER. Except as otherwise 151-23 provided by Subchapter B, Chapter 4, a merger takes effect at the 151-24 time provided by the plan of merger or otherwise agreed to by the 151-25 parties, except that a merger that requires a filing under 151-26 Subchapter D takes effect on the acceptance of the filing of the 151-27 certificate of merger by the secretary of state or county clerk, as 152-1 appropriate. 152-2 Sec. 10.008. EFFECT OF MERGER. (a) When a merger takes 152-3 effect: 152-4 (1) the separate existence of each domestic entity 152-5 that is a party to the merger, other than a surviving or new 152-6 domestic entity, ceases; 152-7 (2) all rights, title, and interests to all real 152-8 estate and other property owned by each organization that is a 152-9 party to the merger is allocated to and vested, subject to any 152-10 existing liens or other encumbrances on the property, in one or 152-11 more of the surviving or new organizations as provided in the plan 152-12 of merger without: 152-13 (A) reversion or impairment; 152-14 (B) any further act or deed; or 152-15 (C) any transfer or assignment having occurred; 152-16 (3) all liabilities and obligations of each 152-17 organization that is a party to the merger are allocated to one or 152-18 more of the surviving or new organizations in the manner provided 152-19 by the plan of merger; 152-20 (4) each surviving or new domestic organization to 152-21 which a liability or obligation is allocated under the plan of 152-22 merger is the primary obligor for the liability or obligation, and, 152-23 except as otherwise provided by the plan of merger or by law or 152-24 contract, no other party to the merger, other than a surviving 152-25 domestic entity or non-code organization liable or otherwise 152-26 obligated at the time of the merger, and no other new domestic 152-27 entity or non-code organization created under the plan of merger is 153-1 liable for the debt or other obligation; 153-2 (5) any proceeding pending by or against any domestic 153-3 entity or by or against any non-code organization that is a party 153-4 to the merger may be continued as if the merger did not occur, or 153-5 the surviving or new domestic entity or entities or the surviving 153-6 or new non-code organization or non-code organizations to which the 153-7 liability, obligation, asset, or right associated with that 153-8 proceeding is allocated to and vested in under the plan of merger 153-9 may be substituted in the proceeding; 153-10 (6) the governing documents of each surviving domestic 153-11 entity are amended to the extent provided by the plan of merger; 153-12 (7) each new filing entity whose certificate of 153-13 formation is included in the plan of merger under this chapter, on 153-14 meeting any additional requirements, if any, of this code for its 153-15 formation, is formed as a domestic entity under this code as 153-16 provided by the plan of merger; 153-17 (8) the ownership or membership interests of each 153-18 organization that is a party to the merger and that are to be 153-19 converted or exchanged, in whole or part, into ownership or 153-20 membership interests, obligations, rights to purchase securities, 153-21 or other securities of one or more of the surviving or new 153-22 organizations, into cash or other property, including ownership or 153-23 membership interests, obligations, rights to purchase securities, 153-24 or other securities of any organization, or into any combination of 153-25 these are converted and exchanged and the former owners or members 153-26 who held ownership or membership interests of each domestic entity 153-27 that is a party to the merger are entitled only to the rights 154-1 provided by the certificate of merger or, if applicable, any rights 154-2 to receive the fair value for the ownership or membership interests 154-3 previously held by them provided under this code; and 154-4 (9) notwithstanding Subdivision (4), the surviving or 154-5 new organization named in the plan of merger as primarily obligated 154-6 to pay the fair value of an ownership or membership interest under 154-7 Section 10.003(2) is the primary obligor for that payment and all 154-8 other surviving or new organizations are secondarily liable for 154-9 that payment. 154-10 (b) If the plan of merger does not provide for the 154-11 allocation and vesting of the right, title, and interest in any 154-12 particular real estate or other property or for the allocation of 154-13 any liability or obligation of any party to the merger, the 154-14 unallocated property is owned in undivided interest by, or the 154-15 liability or obligation is the joint and several liability and 154-16 obligation of, each of the surviving and new organizations, pro 154-17 rata to the total number of surviving and new organizations 154-18 resulting from the merger. 154-19 (c) If a surviving organization in a merger is not a 154-20 domestic entity, the surviving organization is considered to have: 154-21 (1) appointed the secretary of state in this state as 154-22 the organization's agent for service of process in a proceeding to 154-23 enforce any obligation of a domestic entity that is a party to the 154-24 merger; and 154-25 (2) agreed to promptly pay to the dissenting owners or 154-26 members of each domestic entity that is a party to the merger who 154-27 have the right of dissent and appraisal under this code the amount, 155-1 if any, to which they are entitled under this code. 155-2 (d) If the surviving organization in a merger is not a 155-3 domestic entity, the organization shall register to transact 155-4 business in this state if the entity is required to register for 155-5 that purpose by another provision of this code. 155-6 Sec. 10.009. SPECIAL PROVISIONS APPLYING TO PARTNERSHIP 155-7 MERGERS. (a) A partner of a domestic partnership that is a party 155-8 to a merger does not become liable as a result of the merger for 155-9 the liability or obligation of another person that is a party to 155-10 the merger unless the partner consents to becoming personally 155-11 liable by action taken in connection with the specific plan of 155-12 merger approved by the partner. 155-13 (b) A partner of a domestic partnership that is a party to a 155-14 merger who remains in or enters a partnership is treated as an 155-15 incoming partner in the partnership when the merger takes effect 155-16 for purposes of determining the partner's liability for a debt or 155-17 obligation of the partnership or partnerships that are parties to 155-18 the merger or to be created in the merger and in which the partner 155-19 was not a partner. 155-20 (c) If a partnership merges with an organization and, 155-21 because of the merger, no longer exists, a former partner who 155-22 becomes an owner or member of the surviving organization may, until 155-23 the first anniversary of the effective date of the merger, bind the 155-24 surviving organization to a transaction for which the owner or 155-25 member no longer has authority to bind the organization if the 155-26 transaction is one in which the actions by the owner or member as a 155-27 partner would have bound the partnership before the effective date 156-1 of the merger, and the other party to the transaction: 156-2 (1) does not have actual or constructive notice of the 156-3 merger; 156-4 (2) had done business with the terminated partnership 156-5 within one year preceding the effective date of the merger; and 156-6 (3) reasonably believes that the partner who was 156-7 previously an owner or member of the partnership that was merged 156-8 into the surviving organization and is now an owner or member of 156-9 the surviving organization has the authority to bind the surviving 156-10 organization to the transaction at the time of the transaction. 156-11 (d) If a partnership is formed under a plan of merger, the 156-12 existence of the partnership as a partnership begins when the 156-13 merger takes effect, and the persons to be partners become partners 156-14 at that time. 156-15 (e) A partner in a domestic partnership that is a party to 156-16 the merger but does not survive shall be treated as a partner who 156-17 withdrew from the nonsurviving domestic partnership as of the 156-18 effective date of the merger. 156-19 Sec. 10.010. SPECIAL PROVISIONS APPLYING TO NONPROFIT ENTITY 156-20 MERGERS. (a) A domestic nonprofit entity may not merge into 156-21 another entity if the domestic nonprofit entity would, because of 156-22 the merger, lose or impair its charitable status. 156-23 (b) One or more domestic for-profit entities or non-code 156-24 organizations may merge into one or more domestic nonprofit 156-25 entities that continue as the surviving entity or entities. 156-26 (c) A domestic nonprofit entity may not merge into a foreign 156-27 for-profit entity if the domestic entity does not continue as the 157-1 surviving entity. 157-2 (d) One or more domestic nonprofit entities and non-code 157-3 organizations may merge into one or more foreign nonprofit entities 157-4 that continue as the surviving entity or entities. 157-5 (Sections 10.011-10.050 reserved for expansion) 157-6 SUBCHAPTER B. EXCHANGES OF INTERESTS 157-7 Sec. 10.051. INTEREST EXCHANGES. (a) For the purpose of 157-8 acquiring all of the outstanding ownership or membership interests 157-9 of one or more classes or series of one or more domestic entities, 157-10 one or more domestic entities or non-code organizations may adopt a 157-11 plan of exchange. 157-12 (b) To make an interest exchange under this section: 157-13 (1) the governing authority of each domestic entity 157-14 the ownership or membership interests of which are to be acquired 157-15 in the interest exchange must act on a plan of exchange and, if 157-16 otherwise required by this code, the owners or members of the 157-17 domestic entity must approve the plan of exchange in the manner 157-18 provided by this code; and 157-19 (2) each acquiring domestic entity must take all 157-20 action that may otherwise be required by this code and its 157-21 governing documents to effect the exchange. 157-22 (c) If a non-code organization is to acquire ownership or 157-23 membership interests in the exchange, each non-code organization 157-24 must take all action that is required under the laws of the 157-25 organization's jurisdiction of formation and the organization's 157-26 governing documents to effect the exchange. 157-27 (d) If one or more non-code organizations as part of the 158-1 plan of exchange are to issue ownership or membership interests, 158-2 the issuance of the ownership or membership interests must be 158-3 permitted by the laws under which the non-code organizations are 158-4 incorporated or organized or not inconsistent with those laws. 158-5 (e) A plan of exchange may not be effected if any owner or 158-6 member of a domestic entity that is a party to the interest 158-7 exchange will, as a result of the interest exchange, become 158-8 personally liable, without the consent of the owner or member, for 158-9 the liabilities or obligations of any other person or organization. 158-10 Sec. 10.052. PLAN OF EXCHANGE: REQUIRED PROVISIONS. (a) A 158-11 plan of exchange must include: 158-12 (1) the name of each domestic entity the ownership or 158-13 membership interests of which are to be acquired; 158-14 (2) the name of each acquiring organization; 158-15 (3) if there is more than one acquiring organization, 158-16 the ownership or membership interests to be acquired by each 158-17 organization; 158-18 (4) the terms and conditions of the exchange; and 158-19 (5) the manner and basis of exchanging the ownership 158-20 or membership interests to be acquired for: 158-21 (A) ownership or membership interests, 158-22 obligations, rights to purchase securities, or other securities of 158-23 one or more of the acquiring organizations that is a party to the 158-24 plan of exchange; 158-25 (B) cash; 158-26 (C) other property, including ownership or 158-27 membership interests, obligations, rights to purchase securities, 159-1 or other securities of any other person or entity; or 159-2 (D) any combination of those items. 159-3 (b) The manner and basis of exchanging an ownership or 159-4 membership interest of an owner or member that is exchanged in a 159-5 manner or basis different from any other owner or member having 159-6 ownership or membership interests of the same class or series must 159-7 be included in the plan of exchange in the same manner as provided 159-8 by Subsection (a)(5). 159-9 Sec. 10.053. PLAN OF EXCHANGE: PERMISSIVE PROVISIONS. A 159-10 plan of exchange may include any other provisions not required by 159-11 Section 10.052 relating to the interest exchange. 159-12 Sec. 10.054. EFFECTIVENESS OF EXCHANGE. Except as otherwise 159-13 provided by Subchapter B, Chapter 4, an interest exchange takes 159-14 effect at the time provided in the plan of exchange or otherwise 159-15 agreed to by the parties, except that an interest exchange that 159-16 requires a filing under Subchapter D takes effect on the acceptance 159-17 of the filing of the certificate of exchange by the secretary of 159-18 state or county clerk, as appropriate. 159-19 Sec. 10.055. GENERAL EFFECT OF INTEREST EXCHANGE. When an 159-20 interest exchange takes effect: 159-21 (1) the ownership or membership interest of each 159-22 acquired organization is exchanged as provided in the plan of 159-23 exchange, and the former owners whose interests are exchanged under 159-24 the plan of exchange are entitled only to the rights provided in 159-25 the certificate of exchange or, if applicable, a right to receive 159-26 the fair value for the ownership or membership interests provided 159-27 under Subchapter H; and 160-1 (2) the acquiring organization has all rights, title, 160-2 and interests with respect to the ownership or membership interest 160-3 to be acquired by it subject to the provisions of the certificate 160-4 of exchange. 160-5 (Sections 10.056-10.100 reserved for expansion) 160-6 SUBCHAPTER C. CONVERSIONS 160-7 Sec. 10.101. CONVERSION OF DOMESTIC ENTITIES. (a) A 160-8 domestic entity may convert into a different type of domestic 160-9 entity or a non-code organization by adopting a plan of conversion. 160-10 (b) To effect a conversion, the converting entity must act 160-11 on and the owners or members of the domestic entity must approve a 160-12 plan of conversion in the same manner as prescribed by this code 160-13 for the adoption and approval of a plan of merger by a domestic 160-14 entity. 160-15 (c) A conversion may not take effect if the conversion is 160-16 prohibited by or inconsistent with the laws of the converted 160-17 entity's jurisdiction of formation, and the formation, 160-18 incorporation, or organization of the converted entity under the 160-19 plan of conversion must be effected in compliance with those laws 160-20 pursuant to the plan of conversion. 160-21 (d) At the time a conversion takes effect, each owner of the 160-22 converting entity, other than those who receive payment of their 160-23 ownership or membership interest under any applicable provisions of 160-24 this code relating to dissent and appraisal, has, unless otherwise 160-25 agreed to by that owner or member, an ownership or membership 160-26 interest in, and is the owner or member of, the converted entity. 160-27 (e) A domestic entity may not convert under this section if 161-1 an owner or member of the domestic entity, as a result of the 161-2 conversion, becomes personally liable, without the consent of the 161-3 owner or member, for a liability or other obligation of the 161-4 converted entity. 161-5 Sec. 10.102. CONVERSION OF NON-CODE ORGANIZATION. (a) A 161-6 non-code organization may convert into a domestic entity by 161-7 adopting a plan of conversion as provided by this section. 161-8 (b) To effect a conversion, the non-code organization must 161-9 take any action that may be required for a conversion under the 161-10 laws of the organization's jurisdiction of formation and the 161-11 organization's governing documents. 161-12 (c) The conversion must be permitted by the laws under which 161-13 the non-code organization is incorporated or organized or by its 161-14 governing documents, which may not be inconsistent with the laws of 161-15 the jurisdiction in which the non-code organization is incorporated 161-16 or organized. 161-17 Sec. 10.103. PLAN OF CONVERSION: REQUIRED PROVISIONS. (a) 161-18 A plan of conversion must include: 161-19 (1) the name of the converting entity; 161-20 (2) the name of the converted entity; 161-21 (3) a statement that the converting entity is 161-22 continuing its existence in the organizational form of the 161-23 converted entity; 161-24 (4) a statement of the type of entity that the 161-25 converted entity is to be and the converted entity's jurisdiction 161-26 of formation; 161-27 (5) the manner and basis of converting the ownership 162-1 or membership interests of the converting entity into ownership or 162-2 membership interests of the converted entity; 162-3 (6) any certificate of formation required to be filed 162-4 under this code if the converted entity is a filing entity; and 162-5 (7) the certificate of formation or similar 162-6 organizational document of the converted entity if the converted 162-7 entity is not a filing entity. 162-8 (b) An item required by Subsection (a)(6) or (7) may be 162-9 included in the plan of conversion by an attachment or exhibit to 162-10 the plan. 162-11 Sec. 10.104. PLAN OF CONVERSION: PERMISSIVE PROVISIONS. A 162-12 plan of conversion may include other provisions relating to the 162-13 conversion that are not inconsistent with law. 162-14 Sec. 10.105. EFFECTIVENESS OF CONVERSION. Except as 162-15 otherwise provided by Subchapter B, Chapter 4, a conversion takes 162-16 effect at the time provided by the plan of conversion or otherwise 162-17 agreed to by the parties, except that a conversion that requires a 162-18 filing under Subchapter D takes effect on the acceptance of the 162-19 filing of the certificate of conversion by the filing officer. 162-20 Sec. 10.106. GENERAL EFFECT OF CONVERSION. When a 162-21 conversion takes effect: 162-22 (1) the converting entity continues to exist without 162-23 interruption in the organizational form of the converted entity 162-24 rather than in the organizational form of the converting entity; 162-25 (2) all rights, title, and interests to all property 162-26 owned by the converting entity continues to be owned, subject to 162-27 any existing liens or other encumbrances on the property, by the 163-1 converted entity in the new organizational form without: 163-2 (A) reversion or impairment; 163-3 (B) further act or deed; or 163-4 (C) any transfer or assignment having occurred; 163-5 (3) all liabilities and obligations of the converting 163-6 entity continue to be liabilities and obligations of the converted 163-7 entity in the new organizational form without impairment or 163-8 diminution because of the conversion; 163-9 (4) the rights of creditors or other parties with 163-10 respect to or against the previous owners or members of the 163-11 converting entity in their capacities as owners or members in 163-12 existence when the conversion takes effect continue to exist as to 163-13 those liabilities and obligations and may be enforced by the 163-14 creditors and obligees as if a conversion had not occurred; 163-15 (5) a proceeding pending by or against the converting 163-16 entity or by or against any of the converting entity's owners or 163-17 members in their capacities as owners or members may be continued 163-18 by or against the converted entity in the new organizational form 163-19 and by or against the previous owners or members without a need for 163-20 substituting a party; 163-21 (6) the ownership or membership interests of the 163-22 converting entity that are to be converted into ownership or 163-23 membership interests of the converted entity as provided in the 163-24 plan of conversion are converted as provided by the plan, and if 163-25 the converting entity is a domestic entity, the former owners or 163-26 members of the domestic entity are entitled only to the rights 163-27 provided in the plan of conversion or a right of dissent and 164-1 appraisal under this code; 164-2 (7) if, after the conversion takes effect, an owner or 164-3 member of the converted entity as an owner or member is liable for 164-4 the liabilities or obligations of the converted entity, the owner 164-5 or member is liable for the liabilities and obligations of the 164-6 converting entity that existed before the conversion took effect 164-7 only to the extent that the owner or member: 164-8 (A) agrees in writing to be liable for the 164-9 liabilities or obligations; 164-10 (B) was liable, before the conversion took 164-11 effect, for the liabilities or obligations; or 164-12 (C) by becoming an owner or member of the 164-13 converted entity, becomes liable under other applicable law for the 164-14 existing liabilities and obligations of the converted entity; and 164-15 (8) if the converted entity is a non-code 164-16 organization, the converted entity is considered to have: 164-17 (A) appointed the secretary of state in this 164-18 state as its agent for service of process in a proceeding to 164-19 enforce any obligation or the rights of dissenting owners or 164-20 members of the converting domestic entity; and 164-21 (B) agreed that the converted entity will 164-22 promptly pay the dissenting owners or members of the converting 164-23 domestic entity the amount, if any, to which they are entitled 164-24 under this code. 164-25 Sec. 10.107. SPECIAL PROVISIONS APPLYING TO PARTNERSHIP 164-26 CONVERSIONS. If a partnership is formed under a plan of conversion 164-27 under this code, the existence of the partnership as a partnership 165-1 begins when the conversion takes effect, and the owners or members 165-2 designated to become the partners under the plan of conversion 165-3 become the partners at that time. 165-4 (Sections 10.108-10.150 reserved for expansion) 165-5 SUBCHAPTER D. CERTIFICATE OF MERGER, EXCHANGE, OR CONVERSION 165-6 Sec. 10.151. CERTIFICATE OF MERGER AND EXCHANGE. (a) After 165-7 approval of a plan of merger or a plan of exchange as provided by 165-8 this code, a certificate of merger, which may also include an 165-9 exchange, or a certificate of exchange, as applicable, must be 165-10 filed for a merger or interest exchange to become effective if: 165-11 (1) for a merger: 165-12 (A) any domestic entity that is a party to the 165-13 merger is a filing entity; or 165-14 (B) any domestic entity to be created under the 165-15 plan of merger is a filing entity; or 165-16 (2) for an exchange, an ownership or membership 165-17 interest in any filing entity is to be acquired in the interest 165-18 exchange. 165-19 (b) If a certificate of merger or exchange is required to be 165-20 filed in connection with an interest exchange or a merger, other 165-21 than a merger under Section 10.006, the certificate must be signed 165-22 on behalf of each domestic entity and non-code organization that is 165-23 a party to the merger or exchange by an officer or other authorized 165-24 representative and must include: 165-25 (1) the plan of merger or exchange or a statement 165-26 certifying: 165-27 (A) the name of each domestic entity or non-code 166-1 organization that is a party to the merger or exchange; 166-2 (B) the name of each domestic entity or non-code 166-3 organization that is to be created by the plan of merger or 166-4 exchange; 166-5 (C) the name of the jurisdiction in which each 166-6 domestic entity or non-code organization named under Paragraph (A) 166-7 or (B) is incorporated or organized; 166-8 (D) for a merger, the amendments or changes to 166-9 the certificate of formation of each filing entity that is a party 166-10 to the merger, or if no amendments are desired to be effected by 166-11 the merger, a statement to that effect; 166-12 (E) that the certificate of formation of each 166-13 new filing entity to be created under the plan of merger or 166-14 exchange is being filed with the certificate of merger or exchange; 166-15 (F) that a signed plan of merger or exchange is 166-16 on file at the principal place of business of each surviving, 166-17 acquiring, or new domestic entity or non-code organization, and the 166-18 address of each principal place of business; and 166-19 (G) that a copy of the plan of merger or 166-20 exchange will be on written request furnished without cost by each 166-21 surviving, acquiring, or new domestic entity or non-code 166-22 organization to any owner or member of any domestic entity that is 166-23 a party to or created by the plan of merger or exchange and, for a 166-24 merger with multiple surviving domestic entities or non-code 166-25 organizations, to any creditor or obligee of the parties to the 166-26 merger at the time of the merger if a liability or obligation is 166-27 then outstanding; 167-1 (2) if approval of the owners or members of any 167-2 domestic entity that was a party to the plan of merger or exchange 167-3 is not required by this code, a statement to that effect; and 167-4 (3) a statement that the plan of merger or exchange 167-5 has been approved as required by the laws of the jurisdiction of 167-6 formation of each organization that is a party to the merger or 167-7 exchange and by the governing documents of those organizations. 167-8 (c) A certificate of merger may also constitute a 167-9 certificate of exchange if it contains the information required for 167-10 a certificate of exchange. 167-11 Sec. 10.152. CERTIFICATE OF MERGER: SHORT FORM MERGER. The 167-12 certificate of merger for a merger under Section 10.006 is required 167-13 to be signed only by an officer or other authorized representative 167-14 of the parent organization described by that section and must 167-15 include: 167-16 (1) the name of the parent organization, the name of 167-17 each subsidiary organization that is a party to the merger, and the 167-18 jurisdiction of formation of each named organization; 167-19 (2) the number of outstanding ownership interests of 167-20 each class or series of each subsidiary organization and the number 167-21 and percentage of ownership interests of each class or series owned 167-22 by the parent organization; 167-23 (3) a copy of the resolution adopted by the governing 167-24 authority of the parent organization authorizing the merger and the 167-25 date of the adoption of the resolution; 167-26 (4) if the surviving organization is not a domestic 167-27 entity, the address, including street number, if any, of its 168-1 registered or principal office in the organization's jurisdiction 168-2 of formation; or 168-3 (5) if the plan of merger is required to be approved 168-4 by the owners or members of the parent organization, the 168-5 information required by Section 10.151(b)(3). 168-6 Sec. 10.153. FILING OF CERTIFICATE OF MERGER OR EXCHANGE. 168-7 (a) If a certificate of merger or exchange is required to be 168-8 filed, the certificate of merger or exchange must be filed in 168-9 accordance with Chapter 4. The certificate of formation of each 168-10 filing entity that is to be formed under a plan of merger must also 168-11 be filed with the certificate of merger in accordance with Chapter 168-12 4. Except as provided by this section, the certificate must be 168-13 filed with the secretary of state. 168-14 (b) If a domestic real estate investment trust is a party to 168-15 the merger or if an ownership interest in a domestic real estate 168-16 investment trust is to be acquired in the interest exchange, the 168-17 certificate of merger or exchange must be filed in accordance with 168-18 Chapter 4 with the county clerk of the county in which the domestic 168-19 real estate investment trust's principal place of business in this 168-20 state is located. 168-21 (c) If a domestic real estate investment trust is to be 168-22 created under the plan of merger, the certificate of formation of 168-23 the domestic real estate investment trust must also be filed with 168-24 the certificate of merger in accordance with Chapter 4 with the 168-25 county clerk of the county in which the domestic real estate 168-26 investment trust's principal place of business in this state is 168-27 located. 169-1 Sec. 10.154. CERTIFICATE OF CONVERSION. (a) After approval 169-2 of a plan of conversion as provided by this code, a certificate of 169-3 conversion must be filed for the conversion to become effective if: 169-4 (1) any domestic entity that is a party to the 169-5 conversion is a filing entity; or 169-6 (2) any domestic entity to be created under the plan 169-7 of conversion is a filing entity. 169-8 (b) If a certificate of conversion is required to be filed 169-9 in connection with a conversion, the certificate must be signed on 169-10 behalf of the converting entity and must include: 169-11 (1) the plan of conversion or a statement certifying 169-12 the following: 169-13 (A) the name and jurisdiction of organization of 169-14 the converting entity; 169-15 (B) the organizational form of the converting 169-16 entity; 169-17 (C) that a signed plan of conversion is on file 169-18 at the principal place of business of the converting entity, and 169-19 the address of the principal place of business; 169-20 (D) that a signed plan of conversion will be on 169-21 file after the conversion at the principal place of business of the 169-22 converted entity, and the address of the principal place of 169-23 business; and 169-24 (E) that a copy of the plan of conversion will 169-25 be on written request furnished without cost by the converting 169-26 entity before the conversion or by the converted entity after the 169-27 conversion to any owner or member of the converting entity or the 170-1 converted entity; and 170-2 (2) a statement that the plan of conversion has been 170-3 approved as required by the laws of the jurisdiction of formation 170-4 and the governing documents of the converting entity. 170-5 Sec. 10.155. FILING OF CERTIFICATE OF CONVERSION. (a) If a 170-6 certificate of conversion is required to be filed, the certificate 170-7 of conversion must be filed in accordance with Chapter 4. If the 170-8 converted entity is a filing entity, the certificate of formation 170-9 of the filing entity must also be filed with the certificate of 170-10 conversion in accordance with Chapter 4. Except as provided by 170-11 this section, the certificate must be filed with the secretary of 170-12 state. 170-13 (b) If the converting entity is a domestic real estate 170-14 investment trust, the certificate of conversion must be filed with 170-15 the county clerk of the county in which the converting entity's 170-16 principal place of business in this state is located in accordance 170-17 with Chapter 4. 170-18 (c) If the converted entity is a domestic real estate 170-19 investment trust, the certificate of formation of the converted 170-20 entity must also be filed with the certificate of conversion with 170-21 the county clerk of the county in which the converted entity's 170-22 principal place of business in this state is located in accordance 170-23 with Chapter 4. 170-24 Sec. 10.156. ACCEPTANCE OF CERTIFICATE FOR FILING. The 170-25 filing officer may not accept a certificate of merger, exchange, or 170-26 conversion for filing if: 170-27 (1) the filing officer finds that the certificate of 171-1 merger, exchange, or conversion does not conform to law; or 171-2 (2) the required franchise taxes have not been paid or 171-3 the certificate of merger, exchange, or conversion does not provide 171-4 that one or more of the surviving, new, or acquiring organizations 171-5 or the converted entity is liable for the payment of the required 171-6 franchise taxes. 171-7 (Sections 10.157-10.200 reserved for expansion) 171-8 SUBCHAPTER E. ABANDONMENT OF MERGER, EXCHANGE, OR CONVERSION 171-9 Sec. 10.201. ABANDONMENT OF PLAN OF MERGER, EXCHANGE, OR 171-10 CONVERSION. After a merger, interest exchange, or conversion is 171-11 approved as provided by this code, and at any time before the 171-12 merger, interest exchange, or conversion takes effect, the plan of 171-13 merger, interest exchange, or conversion may be abandoned, subject 171-14 to any contractual rights, by any of the domestic entities that are 171-15 a party to the merger, interest exchange, or conversion, without 171-16 action by the owners or members, under the procedures provided by 171-17 the plan of merger, exchange, or conversion or, if no abandonment 171-18 procedures are provided, in the manner determined by the governing 171-19 authority. 171-20 Sec. 10.202. ABANDONMENT AFTER FILING. (a) If a 171-21 certificate of merger, exchange, or conversion has been filed, the 171-22 merger, interest exchange, or conversion may be abandoned in 171-23 accordance with Section 4.057. 171-24 (b) A filing of a certificate of abandonment under Section 171-25 4.057 is not required for the abandonment of a merger, interest 171-26 exchange, or conversion if no filing is required under Subchapter D 171-27 to make the merger, interest exchange, or conversion effective. 172-1 Sec. 10.203. ABANDONMENT IF NO FILING REQUIRED. If no 172-2 filing is required by this chapter to abandon a merger, interest 172-3 exchange, or conversion, the merger, interest exchange, or 172-4 conversion is abandoned when and on the terms as provided in 172-5 accordance with the procedures provided by the plan of merger, 172-6 exchange, or conversion or, if no procedures are provided by the 172-7 plan, in the manner determined by the governing authority. 172-8 (Sections 10.204-10.250 reserved for expansion) 172-9 SUBCHAPTER F. PROPERTY TRANSFERS AND DISPOSITIONS 172-10 Sec. 10.251. GENERAL POWER OF DOMESTIC ENTITY TO SELL, 172-11 LEASE, OR CONVEY PROPERTY. (a) Subject to any approval required 172-12 by this code or the governing documents of the domestic entity, a 172-13 domestic entity may transfer and convey by sale, lease, assignment, 172-14 or another method an interest in property of the entity, including 172-15 real property. The transfer and conveyance may: 172-16 (1) be made with or without the goodwill of the 172-17 entity; 172-18 (2) be made on any terms and conditions and for any 172-19 consideration, which may consist wholly or partly of money or other 172-20 property, including an ownership interest in a domestic entity or 172-21 non-code organization; and 172-22 (3) be evidenced by a deed, assignment, or other 172-23 instrument of transfer or conveyance, with or without the seal of 172-24 the entity. 172-25 (b) Subject to any approval required by this code or the 172-26 governing documents of the domestic entity, a domestic entity may 172-27 grant a pledge, mortgage, deed of trust, or trust indenture with 173-1 respect to an interest in property of the entity, including real 173-2 property, with or without the seal of the entity. 173-3 Sec. 10.252. NO APPROVAL REQUIRED FOR CERTAIN DISPOSITIONS 173-4 OF PROPERTY. Except as otherwise provided by this code, the 173-5 governing documents of the domestic entity, or specific limitations 173-6 established by the governing authority, a sale, lease, assignment, 173-7 conveyance, pledge, mortgage, deed of trust, trust indenture, or 173-8 other transfer of an interest in real property or other property 173-9 made by a domestic entity does not require the approval of the 173-10 governing authority, members, or owners of the entity. 173-11 Sec. 10.253. RECORDING INSTRUMENT CONVEYING REAL PROPERTY OF 173-12 DOMESTIC ENTITY. (a) A deed or other instrument executed by a 173-13 domestic entity that conveys an interest in real property may be 173-14 recorded in the same manner and with the same effect as other 173-15 similar instruments if the instrument is signed and acknowledged 173-16 by: 173-17 (1) an officer, authorized attorney-in-fact, or other 173-18 authorized person of the entity; and 173-19 (2) in the case of a partnership or limited liability 173-20 company, a governing person of the entity. 173-21 (b) A deed or other instrument executed by a domestic entity 173-22 that conveys an interest in real property and that is recorded and 173-23 signed by an officer, authorized attorney-in-fact, or other 173-24 authorized person of the entity constitutes prima facie evidence 173-25 that the sale or conveyance that is the subject of the instrument 173-26 was authorized under this code and the governing documents of the 173-27 entity. 174-1 Sec. 10.254. DISPOSITION OF PROPERTY NOT A MERGER OR 174-2 CONVERSION; LIABILITY. (a) A disposition of all or part of the 174-3 property of a domestic entity, regardless of whether the 174-4 disposition requires the approval of the entity's owners or 174-5 members, is not a merger or conversion for any purpose. 174-6 (b) Except as otherwise expressly provided by another law, a 174-7 person acquiring property described by this section may not be held 174-8 responsible or liable for a liability or obligation of the 174-9 transferring domestic entity that is not expressly assumed by the 174-10 person. 174-11 (Sections 10.255-10.300 reserved for expansion) 174-12 SUBCHAPTER G. BANKRUPTCY REORGANIZATION 174-13 Sec. 10.301. REORGANIZATION UNDER BANKRUPTCY AND SIMILAR 174-14 LAWS. (a) A trustee appointed for a domestic entity that is being 174-15 reorganized under a federal statute, the designated officers of a 174-16 domestic entity being reorganized under a federal statute, or any 174-17 other individual designated by a court having jurisdiction of a 174-18 domestic entity being reorganized under a federal statute to act on 174-19 behalf of the domestic entity may, without action by or notice to 174-20 the domestic entity's governing authority, owners, or members, in 174-21 order to carry out a plan of reorganization ordered by a court 174-22 under the federal statute: 174-23 (1) amend or restate the domestic entity's certificate 174-24 of formation if the certificate of formation after amendment or 174-25 restatement contains only provisions required or permitted to be 174-26 contained in the certificate of formation; 174-27 (2) merge or exchange an interest with one or more 175-1 domestic entities or non-code organizations under a plan of merger 175-2 or exchange having any provision required or permitted by Sections 175-3 10.002, 10.003, 10.004, 10.005, 10.052, and 10.053; 175-4 (3) change the location of the domestic entity's 175-5 registered office, change its registered agent, and remove or 175-6 appoint any agent to receive service of process; 175-7 (4) alter, amend, or repeal the domestic entity's 175-8 governing documents other than filing instruments; 175-9 (5) constitute or reconstitute and classify or 175-10 reclassify the domestic entity's governing authority and name, 175-11 constitute, or appoint managerial officials in place of or in 175-12 addition to all or some of the managerial officials; 175-13 (6) sell, lease, exchange, or otherwise dispose of 175-14 all, or substantially all, of the domestic entity's property and 175-15 assets; 175-16 (7) authorize and fix the terms, manner, and 175-17 conditions of the issuance of bonds, debentures, or other 175-18 obligations, regardless of whether the obligation is convertible 175-19 into ownership interests of any class or bearing warrants or other 175-20 evidences of optional rights to purchase or subscribe for any 175-21 ownership interests of any class; 175-22 (8) wind up and terminate the entity's existence; or 175-23 (9) effect a conversion. 175-24 (b) An action taken under Subsection (a)(4) or (5) takes 175-25 effect on entry of the order approving the plan of reorganization 175-26 or on another effective date as may be specified, without further 175-27 action of the domestic entity, as and to the extent provided by the 176-1 plan of reorganization or the order approving the plan of 176-2 reorganization. 176-3 Sec. 10.302. SIGNING OF DOCUMENTS. A trustee appointed for 176-4 a domestic entity being reorganized under a federal statute, the 176-5 designated officers of a domestic entity being reorganized under a 176-6 federal statute, or any other individual designated by a court 176-7 having jurisdiction of a domestic entity being reorganized under a 176-8 federal statute may sign on behalf of a domestic entity that is 176-9 being reorganized: 176-10 (1) a certificate of amendment or restated certificate 176-11 of formation containing: 176-12 (A) the name of the domestic entity; 176-13 (B) each amendment or the restatement approved 176-14 by the court; 176-15 (C) the date of the court's order approving the 176-16 certificate of amendment or the restatement; 176-17 (D) the name of the court having jurisdiction, 176-18 file name, and case number of the reorganization case in which the 176-19 order was entered; and 176-20 (E) a statement that the court had jurisdiction 176-21 of the case under a federal statute; 176-22 (2) a certificate of merger or exchange containing: 176-23 (A) the name of the domestic entity; 176-24 (B) the part of the plan of reorganization that 176-25 contains the plan of merger or exchange approved by the court, 176-26 which must include the information required by Section 10.151(b) or 176-27 10.152, as applicable, but which is not required to include the 177-1 resolution of the governing authority referred to in Section 177-2 10.152; 177-3 (C) the date of the court's order approving the 177-4 plan of merger or consolidation; 177-5 (D) the name of the court having jurisdiction, 177-6 file name, and case number of the reorganization case in which the 177-7 order or decree was entered; and 177-8 (E) a statement that the court had jurisdiction 177-9 of the case under a federal statute; 177-10 (3) a certificate of termination containing: 177-11 (A) the name of the domestic entity; 177-12 (B) the information required by Sections 177-13 11.101(c)(1)-(4); 177-14 (C) the date of the court's order approving the 177-15 certificate of termination; 177-16 (D) a statement that the obligations of the 177-17 domestic entity, including debts and liabilities, have been paid or 177-18 discharged as provided by the plan of reorganization and the 177-19 remaining property and assets of the domestic entity have been 177-20 distributed as provided by the plan of reorganization; 177-21 (E) the name of the court having jurisdiction, 177-22 file name, and case number of the reorganization case in which the 177-23 order or decree was entered; and 177-24 (F) a statement that the court had jurisdiction 177-25 of the case under a federal statute; 177-26 (4) a statement of change of registered office or 177-27 registered agent, or both, containing: 178-1 (A) the name of the domestic entity; 178-2 (B) the information required by Section 178-3 5.202(b), as applicable, but not the information included in the 178-4 statement referred to in Section 5.202(b)(6); 178-5 (C) the date of the court's order approving the 178-6 statement of change of registered office or registered agent, or 178-7 both; 178-8 (D) the name of the court having jurisdiction, 178-9 file name, and case number of the reorganization case in which the 178-10 order or decree was entered; and 178-11 (E) a statement that the court had jurisdiction 178-12 of the case under a federal statute; or 178-13 (5) a certificate of conversion containing: 178-14 (A) the name of the domestic entity; 178-15 (B) the part of the plan of reorganization that 178-16 contains the plan of conversion approved by the court, which must 178-17 include the information required by Section 10.103; 178-18 (C) the date of the court's order or decree 178-19 approving the plan of conversion; 178-20 (D) the name of the court having jurisdiction, 178-21 file name, and case number of the reorganization case in which the 178-22 order was entered; and 178-23 (E) a statement that the court had jurisdiction 178-24 of the case under a federal statute. 178-25 Sec. 10.303. REORGANIZATION WITH OTHER ENTITIES. If a 178-26 domestic entity or non-code organization that is not being 178-27 reorganized under a federal statute merges or exchanges an interest 179-1 with a domestic entity that is being reorganized under a plan of 179-2 reorganization under a federal statute: 179-3 (1) Subchapters A, B, D, E, and H apply to the 179-4 domestic entity or non-code organization that is not being 179-5 reorganized to the same extent those subchapters would apply if the 179-6 domestic entity or non-code organization were merging or engaging 179-7 in an interest exchange with a domestic entity that is not being 179-8 reorganized, except as otherwise provided by the plan of 179-9 reorganization ordered by a court under the federal statute; 179-10 (2) Subchapter H applies to a subsidiary organization 179-11 that is not being reorganized to the same extent that subchapter 179-12 would apply if the subsidiary organization were merging with a 179-13 parent organization that is not being reorganized; 179-14 (3) on the receipt of all required authorization for 179-15 all action required by this code for each domestic entity that is a 179-16 party to the plan of merger or exchange that is not being 179-17 reorganized and all action by each domestic entity or non-code 179-18 organization that is a party to the plan of merger or exchange 179-19 required by the laws of the entity's or organization's jurisdiction 179-20 of formation and governing documents, a certificate of merger or 179-21 exchange shall be signed by each domestic entity or non-code 179-22 organization that is a party to the merger or exchange other than 179-23 the domestic entity that is being reorganized as provided by 179-24 Section 10.151 and on behalf of the domestic entity that is being 179-25 reorganized by the persons specified in Section 10.302; 179-26 (4) the certificate of merger or exchange must contain 179-27 the information required by Section 10.302(2); 180-1 (5) the certificate of merger or exchange must be 180-2 filed in the manner provided by Section 10.153; and 180-3 (6) on the acceptance for filing of the certificate of 180-4 merger or exchange in accordance with Subchapter D, the merger or 180-5 interest exchange, when effective, has the same effect as if it had 180-6 been adopted by unanimous action of the governing authority and 180-7 owners or members of the domestic entity being reorganized, and the 180-8 effectiveness of the merger or interest exchange is determined as 180-9 provided by Section 10.007 or 10.054. 180-10 Sec. 10.304. RIGHT OF DISSENT AND APPRAISAL EXCLUDED. An 180-11 owner or member of a domestic entity being reorganized under a 180-12 federal statute does not have a right to dissent and appraisal 180-13 under this code except as provided by the plan of reorganization. 180-14 Sec. 10.305. AFTER FINAL DECREE. This subchapter does not 180-15 apply after the entry of a final decree in a reorganization case 180-16 under a federal statute even though the court that renders the 180-17 decree may retain jurisdiction of the case for limited purposes 180-18 unrelated to consummation of the plan of reorganization. 180-19 Sec. 10.306. CHAPTER CUMULATIVE OF OTHER CHANGES. This 180-20 chapter does not preclude other changes in a domestic entity or its 180-21 ownership or membership interests or securities by a plan of 180-22 reorganization ordered by a court under a federal statute. 180-23 (Sections 10.307-10.350 reserved for expansion) 180-24 SUBCHAPTER H. RIGHTS OF DISSENTING OWNERS 180-25 Sec. 10.351. APPLICABILITY OF SUBCHAPTER. (a) This 180-26 subchapter does not apply to a fundamental business transaction of 180-27 a domestic entity if, immediately before the effective date of the 181-1 fundamental business transaction, all of the ownership interests of 181-2 the entity otherwise entitled to rights to dissent and appraisal 181-3 under this code are held by one owner or only by the owners who 181-4 approved the fundamental business transaction. 181-5 (b) This subchapter applies only to a domestic entity 181-6 subject to dissenters' rights. 181-7 Sec. 10.352. DEFINITIONS. In this subchapter: 181-8 (1) "Dissenting owner" means an owner of an ownership 181-9 interest in a domestic entity subject to dissenters' rights who: 181-10 (A) provides notice under Section 10.356; and 181-11 (B) complies with the requirements for 181-12 perfecting that owner's right to dissent under this subchapter. 181-13 (2) "Responsible organization" means: 181-14 (A) the organization responsible for: 181-15 (i) the provision of notices under this 181-16 subchapter; and 181-17 (ii) the primary obligation of paying the 181-18 fair value for an ownership interest held by a dissenting owner; 181-19 (B) with respect to a merger or conversion: 181-20 (i) for matters occurring before the 181-21 merger or conversion, the organization that is merging or 181-22 converting; and 181-23 (ii) for matters occurring after the 181-24 merger or conversion, the surviving or new organization that is 181-25 primarily obligated for the payment of the fair value of the 181-26 dissenting owner's ownership interest in the merger or conversion; 181-27 (C) with respect to an interest exchange, the 182-1 organization the ownership interests of which are being acquired in 182-2 the interest exchange; and 182-3 (D) with respect to the sale of all or 182-4 substantially all of the assets of an organization, the 182-5 organization the assets of which are to be transferred by sale or 182-6 in another manner. 182-7 Sec. 10.353. FORM AND VALIDITY OF NOTICE. (a) Notice 182-8 required under this subchapter: 182-9 (1) must be in writing; and 182-10 (2) may be mailed, hand delivered, or delivered by 182-11 courier or electronic transmission. 182-12 (b) Failure to provide notice as required by this subchapter 182-13 does not invalidate any action taken. 182-14 Sec. 10.354. RIGHTS OF DISSENT AND APPRAISAL. (a) Subject 182-15 to Subsection (b), an owner of an ownership interest in a domestic 182-16 entity subject to dissenters' rights, is entitled to: 182-17 (1) dissent from: 182-18 (A) a plan of merger to which the domestic 182-19 entity is a party if owner approval is required by this code and 182-20 the owner owns in the domestic entity an ownership interest that 182-21 was entitled to vote on the plan of merger; 182-22 (B) a sale of all or substantially all of the 182-23 assets of the domestic entity if owner approval is required by this 182-24 code and the owner owns in the domestic entity an ownership 182-25 interest that was entitled to vote on the sale; 182-26 (C) a plan of exchange in which the ownership 182-27 interest of the owner is to be acquired; 183-1 (D) a plan of conversion in which the domestic 183-2 entity is the converting entity if owner approval is required by 183-3 this code and the owner owns in the domestic entity an ownership 183-4 interest that was entitled to vote on the plan of conversion; or 183-5 (E) a plan of merger effected under Section 183-6 10.006 in which: 183-7 (i) the owner is entitled to vote on the 183-8 plan; or 183-9 (ii) the ownership interest of the owner 183-10 is converted or exchanged; and 183-11 (2) subject to compliance with the procedures set 183-12 forth in this subchapter, obtain the fair value of that ownership 183-13 interest through an appraisal. 183-14 (b) Notwithstanding Subsection (a), an owner may not dissent 183-15 from a plan of merger or conversion in which there is a single 183-16 surviving or new domestic entity or non-code organization, or from 183-17 a plan of exchange, if: 183-18 (1) the ownership interest held by the owner is part 183-19 of a class or series of ownership interests that are on the record 183-20 date set for purposes of determining which owners are entitled to 183-21 vote on the plan of merger, conversion, or exchange, as 183-22 appropriate: 183-23 (A) listed on a national securities exchange or 183-24 a similar system; 183-25 (B) listed on the Nasdaq Stock Market or a 183-26 successor quotation system; 183-27 (C) designated as a national market security on 184-1 an interdealer quotation system by the National Association of 184-2 Securities Dealers, Inc., or a successor system; or 184-3 (D) held of record by at least 2,000 owners; 184-4 (2) the owner is not required by the terms of the plan 184-5 of merger, conversion, or exchange, as appropriate, to accept for 184-6 the owner's ownership interest any consideration that is different 184-7 from the consideration to be provided to any other holder of an 184-8 ownership interest of the same class or series as the ownership 184-9 interest held by the owner, other than cash instead of fractional 184-10 shares or interests the owner would otherwise be entitled to 184-11 receive; and 184-12 (3) the owner is not required by the terms of the plan 184-13 of merger, conversion, or exchange, as appropriate, to accept for 184-14 the owner's ownership interest any consideration other than: 184-15 (A) ownership interests of a domestic entity or 184-16 non-code organization of the same general organizational type that, 184-17 immediately after the effective date of the merger, conversion, or 184-18 exchange, as appropriate, will be part of a class or series of 184-19 ownership interests that are: 184-20 (i) listed on a national securities 184-21 exchange or authorized for listing on the exchange on official 184-22 notice of issuance; 184-23 (ii) approved for quotation as a national 184-24 market security on an interdealer quotation system by the National 184-25 Association of Securities Dealers, Inc., or a successor entity; or 184-26 (iii) held of record by at least 2,000 184-27 owners; 185-1 (B) cash instead of fractional ownership 185-2 interests the owner would otherwise be entitled to receive; or 185-3 (C) any combination of the ownership interests 185-4 and cash described by Paragraphs (A) and (B). 185-5 Sec. 10.355. NOTICE OF RIGHT OF DISSENT AND APPRAISAL. (a) 185-6 A domestic entity subject to dissenters' rights that takes or 185-7 proposes to take an action regarding which an owner has a right to 185-8 dissent and obtain an appraisal under Section 10.354 shall notify 185-9 each affected owner of the owner's rights under that section if: 185-10 (1) the action or proposed action is submitted to a 185-11 vote of the owners at a meeting; or 185-12 (2) approval of the action or proposed action is 185-13 obtained by written consent of the owners instead of being 185-14 submitted to a vote of the owners. 185-15 (b) If a domestic entity subject to dissenters' rights 185-16 effects or proposes to effect a merger under Section 10.006, the 185-17 responsible organization shall notify the owners who have a right 185-18 to dissent to the merger under Section 10.354 of their rights under 185-19 this subchapter not later than the 10th day after the effective 185-20 date of the merger. 185-21 (c) A notice required to be provided under Subsection (a) or 185-22 (b) must: 185-23 (1) be accompanied by a copy of this subchapter; and 185-24 (2) advise the owner of the location of the 185-25 responsible organization's principal executive offices to which a 185-26 notice required under Section 10.356(b)(2) may be provided. 185-27 (d) In addition to the requirements prescribed by Subsection 186-1 (c), a notice required to be provided under Subsection (a)(1) must 186-2 accompany the notice of the meeting to consider the action, and a 186-3 notice required under Subsection (a)(2) must be provided to: 186-4 (1) each owner who consents in writing to the action 186-5 before the owner delivers the written consent; and 186-6 (2) each owner who is entitled to vote on the action 186-7 and does not consent in writing to the action before the 11th day 186-8 after the date the action takes effect. 186-9 (e) Not later than the 10th day after the date an action 186-10 described by Subsection (a)(1) takes effect, the responsible 186-11 organization shall give notice that the action has been effected to 186-12 each owner who voted against the action and sent notice under 186-13 Section 10.356(b)(2). 186-14 Sec. 10.356. PROCEDURE FOR DISSENT BY OWNERS AS TO ACTIONS; 186-15 PERFECTION OF RIGHT OF DISSENT AND APPRAISAL. (a) An owner of an 186-16 ownership interest of a domestic entity subject to dissenters' 186-17 rights who has the right to dissent and appraisal from any of the 186-18 actions referred to in Section 10.354 may exercise that right to 186-19 dissent and appraisal only by complying with the procedures 186-20 specified in this subchapter. An owner's right of dissent and 186-21 appraisal under Section 10.354 may be exercised by an owner only 186-22 with respect to an ownership interest that is not voted in favor of 186-23 the action. 186-24 (b) To perfect the owner's rights of dissent and appraisal 186-25 under Section 10.354, an owner: 186-26 (1) with respect to the ownership interest for which 186-27 the rights of dissent and appraisal are sought: 187-1 (A) must vote against the action if the owner is 187-2 entitled to vote on the action and the action is approved at a 187-3 meeting of the owners; and 187-4 (B) may not consent to the action if the action 187-5 is approved by written consent; and 187-6 (2) must give to the responsible organization a notice 187-7 dissenting to the action that: 187-8 (A) is addressed to the president and secretary 187-9 of the responsible organization; 187-10 (B) demands payment of the fair value of the 187-11 ownership interests for which the rights of dissent and appraisal 187-12 are sought; 187-13 (C) provides to the responsible organization an 187-14 address to which a notice relating to the dissent and appraisal 187-15 procedures under this subchapter may be sent; 187-16 (D) states the number and class of the ownership 187-17 interests of the domestic entity owned by the owner and the fair 187-18 value of the ownership interests as estimated by the owner; and 187-19 (E) is delivered to the responsible organization 187-20 at its principal executive offices at the following time: 187-21 (i) before the action is considered for 187-22 approval, if the action is to be submitted to a vote of the owners 187-23 at a meeting; 187-24 (ii) not later than the 20th day after the 187-25 date the responsible organization gives to the owner a notice that 187-26 the action was approved by the requisite vote of the owners, if the 187-27 action is to be undertaken on the written consent of the owners; or 188-1 (iii) not later than the 20th day after 188-2 the date the responsible organization gives to the owner a notice 188-3 that the merger was effected, if the action is a merger effected 188-4 under Section 10.006. 188-5 (c) An owner who does not make a demand within the period 188-6 required by Subsection (b)(2)(E) is bound by the action and is not 188-7 entitled to exercise the rights of dissent and appraisal under 188-8 Section 10.354. 188-9 (d) Not later than the 20th day after the date an owner 188-10 makes a demand under this section, the owner must submit to the 188-11 responsible organization any certificates representing the 188-12 ownership interest to which the demand relates for purposes of 188-13 making a notation on the certificates that a demand for the payment 188-14 of the fair value of an ownership interest has been made under this 188-15 section. An owner's failure to submit the certificates within the 188-16 required period has the effect of terminating, at the option of the 188-17 responsible organization, the owner's rights to dissent and 188-18 appraisal under Section 10.354 unless a court, for good cause 188-19 shown, directs otherwise. 188-20 (e) If a domestic entity and responsible organization 188-21 satisfy the requirements of this subchapter relating to the rights 188-22 of owners of ownership interests in the entity to dissent to an 188-23 action and seek appraisal of those ownership interests, an owner of 188-24 an ownership interest who fails to perfect that owner's right of 188-25 dissent in accordance with this subchapter may not bring suit to 188-26 recover the value of the ownership interest or money damages 188-27 relating to the action. 189-1 Sec. 10.357. WITHDRAWAL OF DEMAND FOR FAIR VALUE OF 189-2 OWNERSHIP INTEREST. Unless the responsible organization consents 189-3 to the withdrawal of the demand, an owner may not withdraw a demand 189-4 for the payment of the fair value of an ownership interest made 189-5 under Section 10.356 before: 189-6 (1) payment for the ownership interest has been made 189-7 under Sections 10.358 and 10.361; or 189-8 (2) a petition has been filed under Section 10.361. 189-9 Sec. 10.358. RESPONSE BY ORGANIZATION TO NOTICE OF DISSENT 189-10 AND DEMAND FOR FAIR VALUE BY DISSENTING OWNER. (a) Not later than 189-11 the 20th day after the date a responsible organization receives a 189-12 demand for payment made by a dissenting owner in accordance with 189-13 Section 10.356, the responsible organization shall respond to the 189-14 dissenting owner in writing by: 189-15 (1) accepting the amount claimed in the demand as the 189-16 fair value of the ownership interests specified in the notice; or 189-17 (2) rejecting the demand and including in the response 189-18 the requirements prescribed by Subsection (c). 189-19 (b) If the responsible organization accepts the amount 189-20 claimed in the demand, the responsible organization shall pay the 189-21 amount not later than the 90th day after the date the action that 189-22 is the subject of the demand was effected if the owner delivers to 189-23 the responsible organization: 189-24 (1) endorsed certificates representing the ownership 189-25 interests if the ownership interests are certificated; or 189-26 (2) signed assignments of the ownership interests if 189-27 the ownership interests are uncertificated. 190-1 (c) If the responsible organization rejects the amount 190-2 claimed in the demand, the responsible organization shall provide 190-3 to the owner: 190-4 (1) an estimate by the responsible organization of the 190-5 fair value of the ownership interests; and 190-6 (2) an offer to pay the amount of the estimate 190-7 provided under Subdivision (1). 190-8 (d) An offer made under Subsection (c)(2) must remain open 190-9 for a period of at least 60 days from the date the offer is first 190-10 delivered to the dissenting owner. 190-11 (e) If a dissenting owner accepts an offer made by a 190-12 responsible organization under Subsection (c)(2) or if a dissenting 190-13 owner and a responsible organization reach an agreement on the fair 190-14 value of the ownership interests, the responsible organization 190-15 shall pay the agreed amount not later than the 60th day after the 190-16 date the offer is accepted or the agreement is reached, as 190-17 appropriate, if the dissenting owner delivers to the responsible 190-18 organization: 190-19 (1) endorsed certificates representing the ownership 190-20 interests if the ownership interests are certificated; or 190-21 (2) signed assignments of the ownership interests if 190-22 the ownership interests are uncertificated. 190-23 Sec. 10.359. RECORD OF DEMAND FOR FAIR VALUE OF OWNERSHIP 190-24 INTEREST. (a) A responsible organization shall note in the 190-25 organization's ownership interest records maintained under Section 190-26 3.151 the record receipt of a demand for payment from any 190-27 dissenting owner made under Section 10.356. 191-1 (b) If an ownership interest that is the subject of a demand 191-2 for payment made under Section 10.356 is transferred, a new 191-3 certificate representing that ownership interest must contain: 191-4 (1) a reference to the demand; and 191-5 (2) the name of the original dissenting owner of the 191-6 ownership interest. 191-7 Sec. 10.360. RIGHTS OF TRANSFEREE OF CERTAIN OWNERSHIP 191-8 INTEREST. A transferee of an ownership interest that is the 191-9 subject of a demand for payment made under Section 10.356 does not 191-10 acquire additional rights with respect to the responsible 191-11 organization following the transfer. The transferee has only the 191-12 rights the original dissenting owner had with respect to the 191-13 responsible organization after making the demand. 191-14 Sec. 10.361. PROCEEDING TO DETERMINE FAIR VALUE OF OWNERSHIP 191-15 INTEREST AND OWNERS ENTITLED TO PAYMENT; APPOINTMENT OF APPRAISERS. 191-16 (a) If a responsible organization rejects the amount demanded by a 191-17 dissenting owner under Section 10.358 and the dissenting owner and 191-18 responsible organization are unable to reach an agreement relating 191-19 to the fair value of the ownership interests within the period 191-20 prescribed by Section 10.358(d), the dissenting owner or 191-21 responsible organization may file a petition requesting a finding 191-22 and determination of the fair value of the owner's ownership 191-23 interests in a court in: 191-24 (1) the county in which the organization's principal 191-25 office is located in this state; or 191-26 (2) the county in which the organization's registered 191-27 office is located in this state, if the organization does not have 192-1 a business office in this state. 192-2 (b) A petition described by Subsection (a) must be filed not 192-3 later than the 60th day after the expiration of the period required 192-4 by Section 10.358(d). 192-5 (c) On the filing of a petition by an owner under Subsection 192-6 (a), service of a copy of the petition shall be made to the 192-7 responsible organization. Not later than the 10th day after the 192-8 date a responsible organization receives service under this 192-9 subsection, the responsible organization shall file with the clerk 192-10 of the court in which the petition was filed a list containing the 192-11 names and addresses of each owner of the organization who has 192-12 demanded payment for ownership interests under Section 10.356 and 192-13 with whom agreement as to the value of the ownership interests has 192-14 not been reached with the responsible organization. If the 192-15 responsible organization files a petition under Subsection (a), the 192-16 petition must be accompanied by this list. 192-17 (d) The clerk of the court in which a petition is filed 192-18 under this section shall provide by registered mail notice of the 192-19 time and place set for the hearing to: 192-20 (1) the responsible organization; and 192-21 (2) each owner named on the list described by 192-22 Subsection (c) at the address shown for the owner on the list. 192-23 (e) The court shall: 192-24 (1) determine which owners have: 192-25 (A) perfected their rights by complying with 192-26 this subchapter; and 192-27 (B) become subsequently entitled to receive 193-1 payment for the fair value of their ownership interests; and 193-2 (2) appoint one or more qualified appraisers to 193-3 determine the fair value of the ownership interests of the owners 193-4 described by Subdivision (1). 193-5 (f) The court shall approve the form of a notice required to 193-6 be provided under this section. The judgment of the court is final 193-7 and binding on the responsible organization, any other organization 193-8 obligated to make payment under this subchapter for an ownership 193-9 interest, and each owner who is notified as required by this 193-10 section. 193-11 Sec. 10.362. COMPUTATION AND DETERMINATION OF FAIR VALUE OF 193-12 OWNERSHIP INTEREST. (a) For purposes of this subchapter, the fair 193-13 value of an ownership interest of a domestic entity subject to 193-14 dissenters' rights is the value of the ownership interest on the 193-15 date preceding the date of the action that is the subject of the 193-16 appraisal. Any appreciation or depreciation in the value of the 193-17 ownership interest occurring in anticipation of the proposed action 193-18 or as a result of the action must be specifically excluded from the 193-19 computation of the fair value of the ownership interest. 193-20 (b) In computing the fair value of an ownership interest 193-21 under this subchapter, consideration must be given to the value of 193-22 the organization as a going concern without including in the 193-23 computation of value any: 193-24 (1) payment for a control premium or minority discount 193-25 other than a discount attributable to the type of ownership 193-26 interests held by the dissenting owner; and 193-27 (2) limitation placed on the rights and preferences of 194-1 those ownership interests. 194-2 (c) The determination of the fair value of an ownership 194-3 interest made for purposes of this subchapter may not be used for 194-4 purposes of making a determination of the fair value of that 194-5 ownership interest for another purpose or of the fair value of 194-6 another ownership interest, including for purposes of determining 194-7 any minority or liquidity discount that might apply to a sale of an 194-8 ownership interest. 194-9 Sec. 10.363. POWERS AND DUTIES OF APPRAISER; APPRAISAL 194-10 PROCEDURES. (a) An appraiser appointed under Section 10.361 has 194-11 the power and authority that: 194-12 (1) is granted by the court in the order appointing 194-13 the appraiser; and 194-14 (2) may be conferred by a court to a master in 194-15 chancery as provided by Rule 171, Texas Rules of Civil Procedure. 194-16 (b) The appraiser shall: 194-17 (1) determine the fair value of an ownership interest 194-18 of an owner adjudged by the court to be entitled to payment for the 194-19 ownership interest; and 194-20 (2) file with the court a report of that 194-21 determination. 194-22 (c) The appraiser is entitled to examine the books and 194-23 records of a responsible organization and may conduct 194-24 investigations as the appraiser considers appropriate. A 194-25 dissenting owner or responsible organization may submit to an 194-26 appraiser evidence or other information relevant to the 194-27 determination of the fair value of the ownership interest required 195-1 by Subsection (b)(1). 195-2 (d) The clerk of the court appointing the appraiser shall 195-3 provide notice of the filing of the report under Subsection (b) to 195-4 each dissenting owner named in the list filed under Section 10.361 195-5 and the responsible organization. 195-6 Sec. 10.364. OBJECTION TO APPRAISAL; HEARING. (a) A 195-7 dissenting owner or responsible organization may object, based on 195-8 the law or the facts, to all or part of an appraisal report 195-9 containing the fair value of an ownership interest determined under 195-10 Section 10.363(b). 195-11 (b) If an objection to a report is raised under Subsection 195-12 (a), the court shall hold a hearing to determine the fair value of 195-13 the ownership interest that is the subject of the report. After 195-14 the hearing, the court shall require the responsible organization 195-15 to pay to the holders of the ownership interest the amount of the 195-16 determined value with interest, accruing from the 91st day after 195-17 the date the applicable action for which the owner elected to 195-18 dissent was effected until the date of the judgment. 195-19 (c) Interest under Subsection (b) accrues at the same rate 195-20 as is provided for the accrual of prejudgment interest in civil 195-21 cases. 195-22 (d) The responsible organization shall: 195-23 (1) immediately pay the amount of the judgment to a 195-24 holder of an uncertificated ownership interest; and 195-25 (2) pay the amount of the judgment to a holder of a 195-26 certificated ownership interest immediately after the certificate 195-27 holder surrenders to the responsible organization an endorsed 196-1 certificate representing the ownership interest. 196-2 (e) On payment of the judgment, the dissenting owner does 196-3 not have an interest in the: 196-4 (1) ownership interest for which the payment is made; 196-5 or 196-6 (2) responsible organization with respect to that 196-7 ownership interest. 196-8 Sec. 10.365. COURT COSTS; COMPENSATION FOR APPRAISER. (a) 196-9 An appraiser appointed under Section 10.361 is entitled to a 196-10 reasonable fee payable from court costs. 196-11 (b) All court costs shall be allocated between the 196-12 responsible organization and the dissenting owners in the manner 196-13 that the court determines to be fair and equitable. 196-14 Sec. 10.366. STATUS OF OWNERSHIP INTEREST HELD OR FORMERLY 196-15 HELD BY DISSENTING OWNER. (a) An ownership interest of an 196-16 organization acquired by a responsible organization under this 196-17 subchapter: 196-18 (1) in the case of a merger, conversion, or interest 196-19 exchange, shall be held or disposed of as provided in the plan of 196-20 merger, conversion, or interest exchange; and 196-21 (2) in any other case, may be held or disposed of by 196-22 the responsible organization in the same manner as other ownership 196-23 interests acquired by the organization or held in its treasury. 196-24 (b) An owner who has demanded payment for the owner's 196-25 ownership interest under Section 10.356 is not entitled to vote or 196-26 exercise any other rights of another owner with respect to the 196-27 ownership interest except the right to: 197-1 (1) receive payment for the ownership interest under 197-2 this subchapter; and 197-3 (2) bring an appropriate action to obtain relief on 197-4 the ground that the action to which the demand relates would be or 197-5 was fraudulent. 197-6 (c) An ownership interest for which payment has been 197-7 demanded under Section 10.356 may not be considered outstanding for 197-8 purposes of any subsequent vote or action. 197-9 Sec. 10.367. RIGHTS OF OWNERS FOLLOWING TERMINATION OF RIGHT 197-10 OF DISSENT. (a) The rights of a dissenting owner terminate if: 197-11 (1) the owner withdraws the demand under Section 197-12 10.356; 197-13 (2) the owner's right of dissent is terminated under 197-14 Section 10.356; 197-15 (3) a petition is not filed within the period required 197-16 by Section 10.361; or 197-17 (4) after a hearing held under Section 10.361, the 197-18 court adjudges that the owner is not entitled to elect to dissent 197-19 from an action under this subchapter. 197-20 (b) On termination of the right of dissent under this 197-21 section: 197-22 (1) the dissenting owner and all persons claiming a 197-23 right under the owner are conclusively presumed to have approved 197-24 and ratified the action to which the owner dissented and are bound 197-25 by that action; 197-26 (2) the owner's right to be paid the fair value of the 197-27 owner's ownership interests ceases and the owner's status as an 198-1 owner of those ownership interests is restored without prejudice in 198-2 any interim proceeding if the owner's ownership interests were not 198-3 canceled, converted, or exchanged as a result of the action or a 198-4 subsequent fundamental business transaction; and 198-5 (3) the dissenting owner is entitled to receive 198-6 dividends or other distributions made in the interim to owners of 198-7 the same class and series of ownership interests held by the owner 198-8 as if a demand for the payment of the ownership interests had not 198-9 been made under Section 10.356, subject to any change in or 198-10 adjustment to ownership interests because of the cancellation or 198-11 exchange of the ownership interests after the date a demand under 198-12 Section 10.356 was made pursuant to a fundamental business 198-13 transaction. 198-14 Sec. 10.368. EXCLUSIVITY OF REMEDY OF DISSENT AND APPRAISAL. 198-15 In the absence of fraud in the transaction, any right of an owner 198-16 of an ownership interest to dissent from an action and obtain the 198-17 fair value of the ownership interest under this subchapter is the 198-18 exclusive remedy for recovery of: 198-19 (1) the value of the ownership interest or money 198-20 damages to the owner with respect to the ownership interest; and 198-21 (2) the owner's right in the organization with respect 198-22 to a fundamental business transaction. 198-23 (Sections 10.369-10.900 reserved for expansion) 198-24 SUBCHAPTER Z. MISCELLANEOUS PROVISIONS 198-25 Sec. 10.901. CREDITORS; ANTITRUST. This code does not 198-26 affect, nullify, or repeal the antitrust laws or abridge any right 198-27 or rights of any creditor under existing laws. 199-1 Sec. 10.902. NONEXCLUSIVITY. This chapter does not limit 199-2 the power of a domestic entity or non-code organization to acquire 199-3 all or part of the ownership or membership interests of one or more 199-4 classes or series of a domestic entity through a voluntary exchange 199-5 or otherwise. 199-6 CHAPTER 11. WINDING UP AND TERMINATION OF DOMESTIC ENTITY 199-7 SUBCHAPTER A. GENERAL PROVISIONS 199-8 Sec. 11.001. DEFINITIONS. In this chapter: 199-9 (1) "Claim" means a right to payment, damages, or 199-10 property, whether liquidated or unliquidated, accrued or 199-11 contingent, matured or unmatured. 199-12 (2) "Event requiring a winding up" means an event 199-13 specified by Section 11.051. 199-14 (3) "Existing claim" with respect to an entity means: 199-15 (A) a claim against the entity that existed 199-16 before the entity's termination and is not barred by limitations; 199-17 or 199-18 (B) a contractual obligation incurred after 199-19 termination. 199-20 (4) "Terminated entity" means a domestic entity the 199-21 existence of which has been: 199-22 (A) terminated in a manner authorized or 199-23 required by this code, unless the entity has been reinstated in the 199-24 manner provided by this code; or 199-25 (B) forfeited pursuant to the Tax Code, unless 199-26 the forfeiture has been set aside. 199-27 (5) "Voluntary decision to wind up" means the 200-1 determination to wind up a domestic entity made by the domestic 200-2 entity or the owners, members, or governing authority of the 200-3 domestic entity in the manner specified by the title of this code 200-4 governing the domestic entity. 200-5 (6) "Voluntary winding up" means winding up as a 200-6 result of a voluntary decision to wind up. 200-7 (7) "Winding up" means the process of winding up the 200-8 business and affairs of a domestic entity as a result of the 200-9 occurrence of an event requiring winding up. 200-10 (Sections 11.002-11.050 reserved for expansion) 200-11 SUBCHAPTER B. WINDING UP OF DOMESTIC ENTITY 200-12 Sec. 11.051. EVENT REQUIRING WINDING UP OF DOMESTIC ENTITY. 200-13 Winding up of a domestic entity is required on: 200-14 (1) the expiration of the domestic entity's period of 200-15 duration, if not perpetual; 200-16 (2) a voluntary decision to wind up the domestic 200-17 entity; 200-18 (3) an event specified in the governing documents of 200-19 the domestic entity requiring the winding up, dissolution, or 200-20 termination of the domestic entity; 200-21 (4) an event specified in this code requiring the 200-22 winding up or termination of the domestic entity; and 200-23 (5) a decree by a court requiring the winding up or 200-24 dissolution of the domestic entity, rendered under this code or 200-25 other law. 200-26 Sec. 11.052. WINDING UP PROCEDURES. Except as provided by 200-27 the title of this code governing the domestic entity, on the 201-1 occurrence of an event requiring winding up of a domestic entity, 201-2 unless the event requiring winding up is revoked under Section 201-3 11.151 or canceled under Section 11.152, the owners, members, 201-4 managerial officials, or other persons specified in the title of 201-5 this code governing the domestic entity shall, as soon as 201-6 reasonably practicable, wind up the business and affairs of the 201-7 domestic entity. The domestic entity shall: 201-8 (1) cease to carry on its business, except to the 201-9 extent necessary to wind up its business; 201-10 (2) mail a written notice of the winding up to each 201-11 known claimant against the domestic entity; 201-12 (3) collect and sell its property to the extent the 201-13 property is not to be distributed in kind to the domestic entity's 201-14 owners or members; and 201-15 (4) perform any other act required to wind up its 201-16 business and affairs. 201-17 Sec. 11.053. PROPERTY APPLIED TO DISCHARGE LIABILITIES AND 201-18 OBLIGATIONS. (a) Except as provided by Subsection (b) and the 201-19 title of this code governing the domestic entity, a domestic entity 201-20 in the process of winding up shall apply and distribute its 201-21 property to discharge, or make adequate provision for the discharge 201-22 of, all of the domestic entity's liabilities and obligations. 201-23 (b) Except as provided by the title of this code governing 201-24 the domestic entity, if the property of a domestic entity is not 201-25 sufficient to discharge all of the domestic entity's liabilities 201-26 and obligations, the domestic entity shall: 201-27 (1) apply its property, to the extent possible, to the 202-1 just and equitable discharge of its liabilities and obligations, 202-2 including liabilities and obligations owed to owners or members, 202-3 other than for distributions; or 202-4 (2) make adequate provision for the application of the 202-5 property described by Subdivision (1). 202-6 (c) Except as provided by the title of this code governing 202-7 the domestic entity, after a domestic entity has discharged, or 202-8 made adequate provision for the discharge of, all of its 202-9 liabilities and obligations, the domestic entity shall distribute 202-10 the remainder of its property, in cash or in kind, to the domestic 202-11 entity's owners according to their respective rights and interests. 202-12 (d) A domestic entity may continue its business wholly or 202-13 partly, including delaying the disposition of property of the 202-14 domestic entity, only for the limited period necessary to avoid 202-15 unreasonable loss of the entity's property or business. 202-16 Sec. 11.054. COURT SUPERVISION OF WINDING UP PROCESS. On 202-17 application of a domestic entity or an owner or member of a 202-18 domestic entity, a court may: 202-19 (1) supervise the winding up of the domestic entity; 202-20 (2) appoint a person to carry out the winding up of 202-21 the domestic entity; and 202-22 (3) make any other order, direction, or inquiry that 202-23 the circumstances may require. 202-24 Sec. 11.055. COURT ACTION OR PROCEEDING DURING WINDING UP. 202-25 During the winding up process, a domestic entity may continue 202-26 prosecuting or defending a court action or proceeding by or against 202-27 the domestic entity. 203-1 (Sections 11.056-11.100 reserved for expansion) 203-2 SUBCHAPTER C. TERMINATION OF DOMESTIC ENTITY 203-3 Sec. 11.101. CERTIFICATE OF TERMINATION FOR FILING ENTITY. 203-4 (a) On completion of the winding up process under Subchapter B, a 203-5 filing entity must file a certificate of termination in accordance 203-6 with Chapter 4. 203-7 (b) A certificate from the comptroller that all taxes 203-8 administered by the comptroller under Title 2, Tax Code, have been 203-9 paid must be filed with the certificate of termination in 203-10 accordance with Chapter 4 if the filing entity is a professional 203-11 corporation, for-profit corporation, or limited liability company. 203-12 (c) The certificate of termination must contain: 203-13 (1) the name of the filing entity; 203-14 (2) the name and address of each of the filing 203-15 entity's governing persons; 203-16 (3) the entity's file number assigned by the secretary 203-17 of state, unless the entity is a real estate investment trust; 203-18 (4) the nature of the event requiring winding up; and 203-19 (5) a statement that the filing entity has complied 203-20 with the provisions of this code governing its winding up. 203-21 Sec. 11.102. EFFECTIVENESS OF TERMINATION OF FILING ENTITY. 203-22 Except as otherwise provided by this chapter, the existence of a 203-23 filing entity terminates on the filing of a certificate of 203-24 termination with the filing officer. 203-25 Sec. 11.103. NOTICE OF TERMINATION TO OWNERS OR MEMBERS OF 203-26 NONFILING ENTITY. (a) On completion of the winding up process 203-27 under Subchapter B, a nonfiling entity shall send written notice of 204-1 the termination by mail to each of its owners or members. 204-2 (b) The notice required under Subsection (a) must contain: 204-3 (1) the name of the nonfiling entity; 204-4 (2) the name and address of each of the nonfiling 204-5 entity's governing persons; 204-6 (3) the nature of the event requiring winding up; 204-7 (4) a statement that the nonfiling entity has complied 204-8 with the provisions of this code governing its winding up; and 204-9 (5) a statement that the existence of the nonfiling 204-10 entity is terminated. 204-11 Sec. 11.104. EFFECTIVENESS OF TERMINATION OF NONFILING 204-12 ENTITY. Except as otherwise provided by this chapter, the 204-13 existence of a nonfiling entity terminates on the mailing of the 204-14 written notice required by Section 11.103. 204-15 (Sections 11.105-11.150 reserved for expansion) 204-16 SUBCHAPTER D. REVOCATION AND CONTINUATION 204-17 Sec. 11.151. REVOCATION OF VOLUNTARY WINDING UP. (a) Before 204-18 the termination of the existence of a domestic entity takes effect, 204-19 the domestic entity may revoke a voluntary decision to wind up the 204-20 entity by approval of the revocation in the manner specified in the 204-21 title of this code governing the entity. 204-22 (b) A domestic entity may continue its business following 204-23 the revocation of a voluntary decision to wind up under Subsection 204-24 (a). 204-25 Sec. 11.152. CONTINUATION OF BUSINESS WITHOUT WINDING UP. 204-26 (a) Subject to Subsections (c) and (d), a domestic entity to which 204-27 an event requiring the winding up of the entity occurs as specified 205-1 by Section 11.051(3) or (4) may cancel the event requiring winding 205-2 up in the manner specified in the title of this code governing the 205-3 domestic entity not later than the first anniversary of the date of 205-4 the event requiring winding up or an earlier period prescribed by 205-5 the title of this code governing the domestic entity. 205-6 (b) A domestic entity to which an event requiring winding up 205-7 as specified in Section 11.051(1) occurs may cancel the event 205-8 requiring winding up by amending its governing documents to extend 205-9 the period of its duration in perpetuity, for a definite time in 205-10 the manner provided by this code not later than the third 205-11 anniversary of the date of the event requiring winding up, or for 205-12 an earlier period prescribed by the title of this code governing 205-13 the domestic entity. The expiration of the period of its duration 205-14 does not by itself create a vested right on the part of an owner, 205-15 member, or creditor of the entity to prevent the extension of its 205-16 existence. An act undertaken or a contract entered into by a 205-17 terminated entity during a period in which the entity could have 205-18 extended its existence under this section is not invalidated by the 205-19 expiration of the period of the entity's duration, regardless of 205-20 whether the entity has taken any action to extend its existence. 205-21 (c) A domestic entity may not cancel an event requiring 205-22 winding up specified in Section 11.051(3) and continue its business 205-23 if the action is prohibited by the entity's governing documents or 205-24 the title of this code governing the entity. 205-25 (d) A domestic entity may cancel an event requiring winding 205-26 up specified in Section 11.051(4) and continue its business only if 205-27 the action: 206-1 (1) is not prohibited by the entity's governing 206-2 documents; and 206-3 (2) is expressly authorized by the title of this code 206-4 governing the entity. 206-5 (e) On cancellation of an event requiring winding up under 206-6 this section, the domestic entity may continue its business. 206-7 (Sections 11.153-11.200 reserved for expansion) 206-8 SUBCHAPTER E. REINSTATEMENT OF TERMINATED ENTITY 206-9 Sec. 11.201. CONDITIONS FOR REINSTATEMENT. (a) A 206-10 terminated entity may be reinstated under this subchapter if: 206-11 (1) the termination was by mistake or inadvertent; 206-12 (2) the termination occurred without the knowledge of 206-13 the entity's governing persons to the extent their knowledge is 206-14 required by the title of this code governing the terminated entity; 206-15 (3) the process of winding up before termination had 206-16 not been completed by the entity; or 206-17 (4) the legal existence of the entity is necessary to: 206-18 (A) convey or assign property; 206-19 (B) settle or release a claim or liability; 206-20 (C) take an action; or 206-21 (D) sign an instrument or agreement. 206-22 (b) A terminated entity may not be reinstated under this 206-23 section if the termination occurred as a result of: 206-24 (1) an order of a court or the secretary of state; 206-25 (2) an event requiring winding up that is specified in 206-26 the title of this code governing the terminated entity, if that 206-27 title prohibits reinstatement; or 207-1 (3) forfeiture under the Tax Code. 207-2 Sec. 11.202. PROCEDURES FOR REINSTATEMENT. (a) To the 207-3 extent applicable, a terminated entity, to be reinstated, must 207-4 complete the requirements of this section not later than the third 207-5 anniversary of the date the termination of the terminated entity's 207-6 existence took effect. 207-7 (b) The owners, members, governing persons, or other persons 207-8 must approve the reinstatement of the domestic entity in the manner 207-9 provided by the title of this code governing the domestic entity. 207-10 (c) After approval of the reinstatement of a filing entity 207-11 that was terminated, and not later than the third anniversary of 207-12 the date of the filing of the entity's certificate of termination, 207-13 the filing entity shall file a certificate of reinstatement in 207-14 accordance with Chapter 4. 207-15 (d) A certificate of reinstatement filed under Subsection 207-16 (c) must contain: 207-17 (1) the name of the filing entity; 207-18 (2) the file number assigned by the secretary of state 207-19 to the entity if the entity is not a real estate investment trust; 207-20 (3) the effective date of the entity's termination; 207-21 (4) a statement that the reinstatement of the filing 207-22 entity has been approved in the manner required by this code; and 207-23 (5) the name of the entity's registered agent and the 207-24 address of the entity's registered office. 207-25 Sec. 11.203. USE OF NAME SIMILAR TO PREVIOUSLY REGISTERED 207-26 NAME. If the secretary of state determines that a filing entity's 207-27 name contained in a certificate of reinstatement filed under 208-1 Section 11.202 is the same as or deceptively similar to a name of a 208-2 filing entity or foreign entity on file as provided by or reserved 208-3 or registered under this code, the secretary of state may not 208-4 accept for filing the certificate of reinstatement unless the 208-5 filing entity contemporaneously amends its certificate of formation 208-6 to change its name or obtains consent for the use of the similar 208-7 name. 208-8 Sec. 11.204. EFFECTIVENESS OF REINSTATEMENT OF NONFILING 208-9 ENTITY. The reinstatement of a terminated nonfiling entity takes 208-10 effect on the approval required by Section 11.202(b). 208-11 Sec. 11.205. EFFECTIVENESS OF REINSTATEMENT OF FILING 208-12 ENTITY. The reinstatement of a terminated filing entity that 208-13 previously filed a certificate of termination takes effect on the 208-14 filing of the entity's certificate of reinstatement. 208-15 Sec. 11.206. EFFECT OF REINSTATEMENT. (a) A terminated 208-16 entity the existence of which is reinstated under this subchapter 208-17 is subject to the provisions of this chapter requiring winding up 208-18 and termination. Reinstatement does not revoke or cancel a prior 208-19 event requiring winding up. 208-20 (b) When the reinstatement of a terminated entity takes 208-21 effect: 208-22 (1) the existence of the terminated entity is 208-23 considered to have continued without interruption from the date of 208-24 termination; and 208-25 (2) the terminated entity may carry on its business as 208-26 if the termination of its existence had not occurred. 208-27 (Sections 11.207-11.250 reserved for expansion) 209-1 SUBCHAPTER F. INVOLUNTARY TERMINATION OF FILING 209-2 ENTITY BY SECRETARY OF STATE 209-3 Sec. 11.251. TERMINATION OF FILING ENTITY BY SECRETARY OF 209-4 STATE. (a) If it appears to the secretary of state that, with 209-5 respect to a filing entity, a circumstance described by 209-6 Subsection (b) exists, the secretary of state may notify the entity 209-7 of the circumstance by regular or certified mail addressed to the 209-8 entity at the entity's registered office or principal place of 209-9 business as shown on the records of the secretary of state. 209-10 (b) The secretary of state may terminate a filing entity's 209-11 existence if the secretary finds that the entity has failed to, 209-12 and, before the 91st day after the date notice was mailed has not 209-13 corrected the entity's failure to: 209-14 (1) file a report within the period required by law or 209-15 to pay a fee or penalty prescribed by law when due and payable; 209-16 (2) maintain a registered agent or registered office 209-17 in this state as required by law; or 209-18 (3) pay a fee required in connection with a filing, or 209-19 payment of the fee was dishonored when presented by the state for 209-20 payment. 209-21 Sec. 11.252. CERTIFICATE OF TERMINATION. (a) The secretary 209-22 of state may terminate a filing entity's existence by issuing and 209-23 delivering to the filing entity at its registered office or 209-24 principal place of business a certificate of termination. The 209-25 certificate must state that the filing entity has been 209-26 involuntarily terminated and the date and cause of the termination. 209-27 (b) Except as otherwise provided by this chapter, the 210-1 existence of the filing entity is terminated on the issuance of the 210-2 certificate of termination by the secretary of state. 210-3 Sec. 11.253. REINSTATEMENT AFTER INVOLUNTARY TERMINATION. 210-4 (a) The secretary of state shall reinstate a filing entity that 210-5 has been involuntarily terminated under this subchapter if the 210-6 entity: 210-7 (1) files an application for reinstatement accompanied 210-8 by each amendment to the entity's certificate of formation that is 210-9 required by intervening events, including circumstances requiring 210-10 an amendment to the filing entity's name; and 210-11 (2) has corrected the circumstances that led to the 210-12 involuntary termination and any other circumstances that may exist 210-13 of the types described by Section 11.251(b), including the payment 210-14 of fees, interest, or penalties. 210-15 (b) If a filing entity is reinstated before the third 210-16 anniversary of the date of its involuntary termination, the entity 210-17 is considered to have continued in existence without interruption 210-18 from the date of termination. 210-19 (Sections 11.254-11.300 reserved for expansion) 210-20 SUBCHAPTER G. JUDICIAL WINDING UP AND TERMINATION 210-21 Sec. 11.301. GROUNDS CONSTITUTING INVOLUNTARY WINDING UP AND 210-22 TERMINATION OF FILING ENTITY BY STATE ACTION. A court may enter a 210-23 decree requiring winding up of a filing entity's business and 210-24 termination of the filing entity's existence if, as the result of 210-25 an action brought under this subchapter, the court finds that one 210-26 or more of the following problems exist: 210-27 (1) the filing entity or its organizers did not comply 211-1 with a condition precedent to its formation; 211-2 (2) the certificate of formation of the filing entity 211-3 or any amendment to the certificate of formation was fraudulently 211-4 filed; 211-5 (3) the filing entity has continued to transact 211-6 business beyond the scope of the purpose of the filing entity as 211-7 expressed in its certificate of formation; 211-8 (4) a misrepresentation of a material matter has been 211-9 made in an application, report, affidavit, or other document 211-10 submitted by the filing entity under this code; or 211-11 (5) public interest requires winding up and 211-12 termination of the filing entity because: 211-13 (A) the filing entity has been convicted of a 211-14 felony or a high managerial agent of the filing entity has been 211-15 convicted of a felony committed in the conduct of the filing 211-16 entity's affairs; and 211-17 (B) the filing entity or high managerial agent 211-18 has engaged in a persistent course of felonious conduct and 211-19 termination is necessary to prevent future felonious conduct of the 211-20 same character. 211-21 Sec. 11.302. NOTIFICATION OF CAUSE OF ACTION BY SECRETARY OF 211-22 STATE. (a) The secretary of state shall provide to the attorney 211-23 general: 211-24 (1) the name of a filing entity that has given cause 211-25 under Section 11.301 for involuntary winding up of the entity's 211-26 business and termination of the entity's existence; and 211-27 (2) the facts relating to the cause for the winding up 212-1 and termination. 212-2 (b) When notice is provided under Subsection (a), the 212-3 secretary of state shall notify the filing entity of the 212-4 circumstances by mail addressed to the entity at its registered 212-5 office in this state. The notice must state that the secretary of 212-6 state has given notice under Subsection (a) and the grounds for the 212-7 notification. The secretary of state must record the date a notice 212-8 required by this subsection is mailed. 212-9 (c) A court shall accept a certificate issued by the 212-10 secretary of state as to the facts relating to the cause for the 212-11 winding up and termination and the mailing of a notice under 212-12 Subsection (b) as prima facie evidence of the facts stated in the 212-13 certificate and the mailing of the notice. 212-14 Sec. 11.303. FILING OF ACTION BY ATTORNEY GENERAL. If the 212-15 attorney general determines that cause exists for the involuntary 212-16 winding up of a filing entity's business and termination of the 212-17 entity's existence under Section 11.301 and the filing entity has 212-18 not cured the problems for which winding up and termination is 212-19 sought before the 31st day after the date the notice under Section 212-20 11.302(b) is mailed to the filing entity, the attorney general 212-21 shall file an action against the filing entity in the name of the 212-22 state seeking the winding up and termination. 212-23 Sec. 11.304. CURE BEFORE FINAL JUDGMENT. An action filed by 212-24 the attorney general under Section 11.303 shall be abated if, 212-25 before a district court renders judgment on the action, the filing 212-26 entity: 212-27 (1) cures the problems for which winding up and 213-1 termination is sought; and 213-2 (2) pays the costs of the action. 213-3 Sec. 11.305. JUDGMENT REQUIRING WINDING UP AND TERMINATION. 213-4 If a district court finds in an action brought under this 213-5 subchapter that proper grounds exist under Sections 11.301(1)-(4) 213-6 for a winding up of a filing entity's business and termination of 213-7 the filing entity's existence, the court shall: 213-8 (1) make findings to that effect; and 213-9 (2) subject to Section 11.306, enter a judgment not 213-10 earlier than the fifth day after the date the court makes its 213-11 findings. 213-12 Sec. 11.306. APPLICATION FOR STAY OF JUDGMENT. (a) If, in 213-13 an action brought under this subchapter, a filing entity has proved 213-14 by a preponderance of the evidence and obtained a finding that the 213-15 problems for which the filing entity has been found guilty were not 213-16 wilful or the result of a failure to take reasonable precautions, 213-17 the entity may make a sworn application to the court for a stay of 213-18 entry of the judgment to allow the filing entity a reasonable 213-19 opportunity to cure the problems for which it has been found 213-20 guilty. An application made under this subsection must be made not 213-21 later than the fifth day after the date the court makes its 213-22 findings under Section 11.305. 213-23 (b) After a filing entity has made an application under 213-24 Subsection (a), a court shall stay the entry of the judgment if the 213-25 court is reasonably satisfied after considering the application and 213-26 evidence offered with respect to the application that the filing 213-27 entity: 214-1 (1) is able and intends in good faith to cure the 214-2 problems for which it has been found guilty; and 214-3 (2) has not applied for the stay without just cause. 214-4 (c) A court shall stay an entry of judgment under Subsection 214-5 (b) for the period the court determines is reasonably necessary to 214-6 afford the filing entity the opportunity to cure its problems if 214-7 the entity acts with reasonable diligence. The court may not stay 214-8 the entry of the judgment for longer than 60 days after the date 214-9 the court's findings are made. 214-10 (d) The court shall dismiss an action against a filing 214-11 entity that, during the period the action is stayed by the court 214-12 under this section, cures the problems for which winding up and 214-13 termination is sought and pays all costs accrued in the action. 214-14 (e) If a court finds that a filing entity has not cured the 214-15 problems for which winding up and termination is sought within the 214-16 period prescribed by Subsection (c), the court shall enter final 214-17 judgment requiring a winding up of the filing entity's business. 214-18 Sec. 11.307. OPPORTUNITY FOR CURE AFTER AFFIRMATION OF 214-19 FINDINGS BY APPEALS COURT. (a) An appellate court that affirms a 214-20 trial court's findings against a filing entity under this 214-21 subchapter shall remand the case to the trial court with 214-22 instructions to grant the filing entity an opportunity to cure the 214-23 problems for which the entity has been found guilty if: 214-24 (1) the filing entity did not make an application to 214-25 the trial court for stay of the entry of the judgment; 214-26 (2) the appellate court is satisfied that the appeal 214-27 was taken in good faith and not for purpose of delay or with no 215-1 sufficient cause; 215-2 (3) the appellate court finds that the problems for 215-3 which the filing entity has been found guilty are capable of being 215-4 cured; and 215-5 (4) the filing entity has prayed for the opportunity 215-6 to cure its problems in the appeal. 215-7 (b) The appellate court shall determine the period, which 215-8 may not be longer than 60 days after the date the case is remanded 215-9 to the trial court, to be afforded to a filing entity to enable the 215-10 filing entity to cure its problems under Subsection (a). 215-11 (c) The trial court to which an action against a filing 215-12 entity has been remanded under this section shall dismiss the 215-13 action if, during the period prescribed by the appellate court for 215-14 that conduct, the filing entity cures the problems for which 215-15 winding up and termination is sought and pays all costs accrued in 215-16 the action. 215-17 (d) If a filing entity has not cured the problems for which 215-18 winding up and termination is sought within the period prescribed 215-19 by the appellate court under Subsection (b), the judgment requiring 215-20 winding up and termination shall become final. 215-21 Sec. 11.308. JURISDICTION AND VENUE. (a) The attorney 215-22 general shall bring an action for the involuntary winding up and 215-23 termination of a filing entity under this subchapter in: 215-24 (1) a district court of the county in which the 215-25 registered office or principal place of business of the filing 215-26 entity in this state is located; or 215-27 (2) a district court of Travis County. 216-1 (b) A district court described by Subsection (a) has 216-2 jurisdiction of the action for involuntary winding up and 216-3 termination. 216-4 Sec. 11.309. PROCESS IN STATE ACTION. Citation in an action 216-5 for the involuntary winding up and termination of a filing entity 216-6 under this subchapter shall be issued and served as provided by 216-7 law. 216-8 Sec. 11.310. PUBLICATION OF NOTICE. (a) If process in an 216-9 action under this subchapter is returned not found, the attorney 216-10 general shall publish notice in a newspaper in the county in which 216-11 the registered office of the filing entity in this state is 216-12 located. The notice must contain: 216-13 (1) a statement of the pendency of the action; 216-14 (2) the title of the court; 216-15 (3) the title of the action; and 216-16 (4) the earliest date on which default judgment may be 216-17 entered by the court. 216-18 (b) Notice under this section must be published at least 216-19 once a week for two consecutive weeks beginning at any time after 216-20 the citation has been returned. 216-21 (c) The attorney general may include in one published notice 216-22 the name of each filing entity against which an action for 216-23 involuntary winding up and termination is pending in the same 216-24 court. 216-25 (d) Not later than the 10th day after the date notice under 216-26 this section is first published, the attorney general shall mail a 216-27 copy of the notice to the filing entity at the filing entity's 217-1 registered office in this state. A certificate from the attorney 217-2 general regarding the mailing of the notice is prima facie evidence 217-3 that notice was mailed under this section. 217-4 (e) Unless a filing entity has been served with citation, a 217-5 default judgment may not be taken against the entity before the 217-6 31st day after the date the notice is first published. 217-7 Sec. 11.311. ACTION ALLOWED AFTER EXPIRATION OF FILING 217-8 ENTITY'S DURATION. The expiration of a filing entity's period of 217-9 duration does not, by itself, create a vested right on the part of 217-10 an owner or creditor of the filing entity to prevent an action by 217-11 the attorney general for the involuntary winding up of the filing 217-12 entity's business and termination of the filing entity's existence. 217-13 Sec. 11.312. COMPLIANCE BY TERMINATED ENTITY. On the decree 217-14 of a court requiring winding up of a filing entity's business, the 217-15 filing entity shall comply with: 217-16 (1) the requirements of the decree concerning the 217-17 winding up process; and 217-18 (2) Subchapter B to the extent it does not conflict 217-19 with the decree. 217-20 Sec. 11.313. TIMING OF TERMINATION. A court may enter a 217-21 decree under Section 11.301 terminating the existence of a filing 217-22 entity: 217-23 (1) when the court considers it necessary or 217-24 advisable; or 217-25 (2) on completion of the winding up process. 217-26 Sec. 11.314. INVOLUNTARY WINDING UP AND TERMINATION IN 217-27 PRIVATE ACTIONS. (a) Subject to Subsection (b), a district court 218-1 in the county in which the registered office or principal place of 218-2 a domestic partnership or limited liability company is located has 218-3 jurisdiction to order the winding up and termination of the 218-4 domestic partnership or limited liability company on application 218-5 by: 218-6 (1) a partner in the partnership if the court 218-7 determines that: 218-8 (A) the economic purpose of the partnership is 218-9 likely to be unreasonably frustrated; or 218-10 (B) another partner has engaged in conduct 218-11 relating to the partnership's business that makes it not reasonably 218-12 practicable to carry on the business in partnership with that 218-13 partner; or 218-14 (2) an owner of the partnership or limited liability 218-15 company if the court determines that it is not reasonably 218-16 practicable to carry on the entity's business in conformity with 218-17 its governing documents. 218-18 Sec. 11.315. FILING OF DECREE OF TERMINATION AGAINST FILING 218-19 ENTITY. (a) The clerk of a court that enters a decree terminating 218-20 the existence of a filing entity shall file in accordance with 218-21 Chapter 4 a certified copy of the decree. 218-22 (b) A fee may not be charged for the filing of a decree 218-23 under this section. 218-24 (Sections 11.316-11.350 reserved for expansion) 218-25 SUBCHAPTER H. CLAIMS RESOLUTION ON TERMINATION 218-26 Sec. 11.351. LIABILITY OF TERMINATED ENTITY. A terminated 218-27 entity is liable only for an existing claim. 219-1 Sec. 11.352. DEPOSIT WITH COMPTROLLER OF AMOUNT DUE OWNERS 219-2 AND CREDITORS WHO ARE UNKNOWN OR CANNOT BE LOCATED. (a) On the 219-3 voluntary or involuntary termination of a domestic entity, the 219-4 portion of the entity's assets distributable to creditors or owners 219-5 who are unknown or cannot be found after the exercise of reasonable 219-6 diligence by a person responsible for the distribution in 219-7 liquidation of the domestic entity's assets must be reduced to cash 219-8 and deposited as provided by Subsection (b). 219-9 (b) Money from assets liquidated under Subsection (a) shall 219-10 be deposited with the comptroller in a special account to be 219-11 maintained by the comptroller. The money must be accompanied by a 219-12 statement to the comptroller containing: 219-13 (1) the name and last known address of each person who 219-14 is known to be entitled to all or part of the account; 219-15 (2) the amount of each entitled person's distributive 219-16 portion of the money; and 219-17 (3) other information about each person who is 219-18 entitled to all or part of the money as the comptroller may 219-19 reasonably require. 219-20 (c) The comptroller shall issue a receipt for money received 219-21 under this section. 219-22 Sec. 11.353. DISCHARGE OF LIABILITY OF PERSON RESPONSIBLE 219-23 FOR LIQUIDATION. A person responsible for the distribution in 219-24 liquidation of a filing entity's assets will be released and 219-25 discharged from further liability with respect to money received 219-26 from the liquidation when the person deposits the money with the 219-27 comptroller under Section 11.352. 220-1 Sec. 11.354. PAYMENT FROM ACCOUNT BY COMPTROLLER. (a) To 220-2 claim money deposited in an account under Section 11.352, a person 220-3 must submit to the comptroller satisfactory written proof of the 220-4 person's right to the money not later than the seventh anniversary 220-5 of the date the money was deposited with the comptroller. 220-6 (b) The comptroller shall issue a warrant drawn on the 220-7 account created under Section 11.352 in favor of a person who meets 220-8 the requirements for making a claim under Subsection (a) and in the 220-9 amount to which the person is entitled. 220-10 Sec. 11.355. NOTICE OF ESCHEAT; ESCHEAT. (a) If no 220-11 claimant has made satisfactory proof of a right to the money within 220-12 the period prescribed by Section 11.354(a), the comptroller shall 220-13 publish in one issue of a newspaper of general circulation in 220-14 Travis County a notice of the proposed escheat of the money. 220-15 (b) A notice published under Subsection (a) must contain: 220-16 (1) the name and last known address of any known 220-17 creditor or owner entitled to the money; 220-18 (2) the amount of money deposited with the 220-19 comptroller; and 220-20 (3) the name of the terminated filing entity from 220-21 whose assets the money was derived. 220-22 (c) If no claimant makes satisfactory proof to the 220-23 comptroller of a right to the money before the 61st day after the 220-24 date notice under this section is published, the money 220-25 automatically escheats to and becomes the property of the state and 220-26 shall be deposited in the general revenue fund. 220-27 Sec. 11.356. LIMITED SURVIVAL AFTER TERMINATION. (a) 221-1 Notwithstanding the termination of a domestic entity under this 221-2 chapter, a terminated entity continues in existence until the third 221-3 anniversary of the effective date of the entity's termination only 221-4 for purposes of: 221-5 (1) prosecuting or defending in the terminated 221-6 entity's name an action or proceeding brought by or against the 221-7 terminated entity; 221-8 (2) permitting the survival of an existing claim by or 221-9 against the terminated entity; 221-10 (3) holding title to and liquidating property that 221-11 remained with the terminated entity at the time of termination or 221-12 property that is collected by the terminated entity after 221-13 termination; 221-14 (4) applying or distributing property, or its 221-15 proceeds, as provided by Section 11.053; and 221-16 (5) settling affairs not completed before termination. 221-17 (b) A terminated entity may not continue its existence for 221-18 the purpose of continuing the business or affairs for which the 221-19 terminated entity was formed unless the terminated entity is 221-20 reinstated under Subchapter E. 221-21 (c) If an action on an existing claim by or against a 221-22 terminated entity has been brought before the expiration of the 221-23 three-year period after the date of the entity's termination and 221-24 the claim was not extinguished under Section 11.359, the terminated 221-25 entity continues to survive for purposes of: 221-26 (1) the action until all judgments, orders, and 221-27 decrees have been fully executed; and 222-1 (2) the application or distribution of any property of 222-2 the terminated entity as provided by Section 11.053 until the 222-3 property has been applied or distributed. 222-4 Sec. 11.357. GOVERNING PERSONS OF ENTITY DURING LIMITED 222-5 SURVIVAL. (a) During the three-year period that a terminated 222-6 entity's existence is continued under this section, the governing 222-7 persons of the terminated entity serving at the time of termination 222-8 shall continue to manage the affairs of the terminated entity for 222-9 the limited purposes specified by this section and have the powers 222-10 necessary to accomplish those purposes. The number of governing 222-11 persons: 222-12 (1) may be reduced because of the death of a governing 222-13 person; and 222-14 (2) may include successors to governing persons chosen 222-15 by the other governing persons. 222-16 (b) In exercising powers prescribed under Subsection (a), a 222-17 governing person: 222-18 (1) has the same duties to the terminated entity that 222-19 the person had immediately before the termination; and 222-20 (2) is liable to the terminated entity for the 222-21 person's actions taken after the entity's termination to the same 222-22 extent that the person would have been liable had the person taken 222-23 those actions before the termination. 222-24 Sec. 11.358. ACCELERATED PROCEDURE FOR EXISTING CLAIM 222-25 RESOLUTION. (a) A terminated entity may shorten the period for 222-26 resolving a person's existing claim against the entity by giving 222-27 notice by registered or certified mail, return receipt requested, 223-1 to the claimant at the claimant's last known address that the claim 223-2 must be resolved under this section. 223-3 (b) The notice required under Subsection (a) must: 223-4 (1) state the requirements of Subsections (c) and (d) 223-5 for presenting a claim; 223-6 (2) provide the mailing address to which the person's 223-7 claim against the terminated entity must be sent; 223-8 (3) state that the claim will be extinguished if 223-9 written presentation of the claim is not received at the address 223-10 given on or before the date specified in the notice, which may not 223-11 be earlier than the 120th day after the date the notice is mailed 223-12 to the person by the terminated entity; and 223-13 (4) be accompanied by a copy of this section of the 223-14 code. 223-15 (c) To assert a claim, a person who is notified by a 223-16 terminated entity that the person's claim must be resolved under 223-17 this section must present the claim in writing to the terminated 223-18 entity at the address given by the entity in the notice. 223-19 (d) A claim presented under Subsection (c) must: 223-20 (1) contain the: 223-21 (A) identity of the claimant; and 223-22 (B) nature and amount of the claim; and 223-23 (2) be received by the terminated entity not later 223-24 than the date specified in the notice under Subsection (b)(3). 223-25 (e) If a person presents a claim that meets the requirements 223-26 of this section, the terminated entity to whom the claim is 223-27 presented may give written notice to the person that the claim is 224-1 rejected by the terminated entity. 224-2 (f) Notice under Subsection (e) must: 224-3 (1) be sent by registered or certified mail, return 224-4 receipt requested, and addressed to the last known address of the 224-5 person presenting the claim; 224-6 (2) state that the claim has been rejected by the 224-7 terminated entity; 224-8 (3) state that the claim will be extinguished unless 224-9 an action on the claim is brought: 224-10 (A) not later than the 180th day after the date 224-11 the notice of rejection of the claim was mailed to the person; and 224-12 (B) not later than the third anniversary of the 224-13 effective date of the entity's termination; and 224-14 (4) state the date on which notice of the claim's 224-15 rejection was mailed and the effective date of the entity's 224-16 termination. 224-17 Sec. 11.359. EXTINGUISHMENT OF AN EXISTING CLAIM. 224-18 (a) Except as provided by Subsection (b), an existing claim by or 224-19 against a terminated entity is extinguished unless an action or 224-20 proceeding is brought on the claim not later than the third 224-21 anniversary of: 224-22 (1) the date of the filing of the entity's certificate 224-23 of termination, if the terminated entity is a filing entity; or 224-24 (2) the date notice is provided to the claimant under 224-25 Section 11.103. 224-26 (b) A person's claim against a terminated entity may be 224-27 extinguished before the period prescribed by Subsection (a) if the 225-1 person is notified under Section 11.358(a) that the claim will be 225-2 resolved under Section 11.358 and the person: 225-3 (1) fails to properly present the claim in writing 225-4 under Sections 11.358(c) and (d); or 225-5 (2) fails to bring an action on a claim rejected under 225-6 Section 11.358(e) before: 225-7 (A) the 180th day after the date the notice 225-8 rejecting the claim was mailed to the person; and 225-9 (B) the third anniversary of the effective date 225-10 of the entity's termination. 225-11 (Sections 11.360-11.400 reserved for expansion) 225-12 SUBCHAPTER I. RECEIVERSHIP 225-13 Sec. 11.401. CODE GOVERNS. A receiver may be appointed for 225-14 a domestic entity or for a domestic entity's property or business 225-15 only as provided for and on the conditions set forth in this code. 225-16 Sec. 11.402. JURISDICTION TO APPOINT RECEIVER. (a) A court 225-17 that has subject matter jurisdiction over specific property of a 225-18 domestic or foreign entity that is located in this state and is 225-19 involved in litigation has jurisdiction to appoint a receiver for 225-20 that property. 225-21 (b) A district court in the county in which the registered 225-22 office or principal place of business of a domestic entity is 225-23 located has jurisdiction to: 225-24 (1) appoint a receiver for the property and business 225-25 of a domestic entity for the purpose of rehabilitating the entity; 225-26 or 225-27 (2) order the liquidation of the property and business 226-1 of a domestic entity and appoint a receiver to effect that 226-2 liquidation. 226-3 Sec. 11.403. APPOINTMENT OF RECEIVER FOR SPECIFIC PROPERTY. 226-4 (a) Subject to Subsection (b), and on the application of a person 226-5 whose right to or interest in any property or fund or the proceeds 226-6 from the property or fund is probable, a court that has 226-7 jurisdiction over specific property of a domestic or foreign entity 226-8 may appoint a receiver in an action: 226-9 (1) by a vendor to vacate a fraudulent purchase of the 226-10 property; 226-11 (2) by a creditor to subject the property or fund to 226-12 the creditor's claim; 226-13 (3) between partners or others jointly owning or 226-14 interested in the property or fund; 226-15 (4) by a mortgagee of the property for the foreclosure 226-16 of the mortgage and sale of the property, when: 226-17 (A) it appears that the mortgaged property is in 226-18 danger of being lost, removed, or materially injured; or 226-19 (B) it appears that the condition of the 226-20 mortgage has not been performed and that the property is probably 226-21 insufficient to discharge the mortgage debt; or 226-22 (5) in which receivers for specific property have been 226-23 previously appointed by courts of equity. 226-24 (b) A court may appoint a receiver for the property or fund 226-25 under Subsection (a) only if: 226-26 (1) with respect to an action brought under Subsection 226-27 (a)(1), (2), or (3), it is shown that the property or fund is in 227-1 danger of being lost, removed, or materially injured; 227-2 (2) circumstances exist that are considered by the 227-3 court to necessitate the appointment of a receiver to conserve the 227-4 property or fund and avoid damage to interested parties; 227-5 (3) all other requirements of law are complied with; 227-6 and 227-7 (4) the court determines that other available legal 227-8 and equitable remedies are inadequate. 227-9 (c) The court appointing a receiver under this section has 227-10 and shall retain exclusive jurisdiction over the specific property 227-11 placed in receivership. The court shall determine the rights of the 227-12 parties in the property or its proceeds. 227-13 (d) If the condition necessitating the appointment of a 227-14 receiver under this section is remedied, the receivership shall be 227-15 terminated immediately, the management of the domestic entity shall 227-16 be restored to its managerial officials, and the receiver shall 227-17 redeliver to the domestic entity all of the property remaining in 227-18 receivership. 227-19 Sec. 11.404. APPOINTMENT OF RECEIVER TO REHABILITATE 227-20 DOMESTIC ENTITY. (a) Subject to Subsection (b), a court that has 227-21 jurisdiction over the property and business of a domestic entity 227-22 under Section 11.402(b) may appoint a receiver for the entity's 227-23 property and business if: 227-24 (1) in an action by an owner or member of the domestic 227-25 entity, it is established that: 227-26 (A) the entity is insolvent or in imminent 227-27 danger of insolvency; 228-1 (B) the governing persons of the entity are 228-2 deadlocked in the management of the entity's affairs, the owners or 228-3 members of the entity are unable to break the deadlock, and 228-4 irreparable injury to the entity is being suffered or is threatened 228-5 because of the deadlock; 228-6 (C) the actions of the governing persons of the 228-7 entity are illegal, oppressive, or fraudulent; 228-8 (D) the property of the entity is being 228-9 misapplied or wasted; or 228-10 (E) with respect to a for-profit corporation, 228-11 the shareholders of the entity are deadlocked in voting power and 228-12 have failed, for a period of at least two years, to elect 228-13 successors to the governing persons of the entity whose terms have 228-14 expired or would have expired on the election and qualification of 228-15 their successors; 228-16 (2) in an action by a creditor of the domestic entity, 228-17 it is established that: 228-18 (A) the entity is insolvent, the claim of the 228-19 creditor has been reduced to judgment, and an execution on the 228-20 judgment was returned unsatisfied; or 228-21 (B) the entity is insolvent and has admitted in 228-22 writing that the claim of the creditor is due and owing; or 228-23 (3) in an action other than an action described by 228-24 Subdivision (1) or (2), courts of equity have previously appointed 228-25 a receiver. 228-26 (b) A court may appoint a receiver under Subsection (a) only 228-27 if: 229-1 (1) circumstances exist that are considered by the 229-2 court to necessitate the appointment of a receiver to conserve the 229-3 property and business of the domestic entity and avoid damage to 229-4 interested parties; 229-5 (2) all other requirements of law are complied with; 229-6 and 229-7 (3) the court determines that all other available 229-8 legal and equitable remedies, including the appointment of a 229-9 receiver for specific property of the domestic entity under Section 229-10 11.402, are inadequate. 229-11 (c) If the condition necessitating the appointment of a 229-12 receiver under this section is remedied, the receivership shall be 229-13 terminated immediately, the management of the domestic entity shall 229-14 be restored to its managerial officials, and the receiver shall 229-15 redeliver to the domestic entity all of its property remaining in 229-16 receivership. 229-17 Sec. 11.405. APPOINTMENT OF RECEIVER TO LIQUIDATE DOMESTIC 229-18 ENTITY; LIQUIDATION. (a) Subject to Subsection (b), a court that 229-19 has jurisdiction over the property and business of a domestic 229-20 entity under Section 11.402(b) may order the liquidation of the 229-21 property and business of the domestic entity and may appoint a 229-22 receiver to effect the liquidation: 229-23 (1) when an action has been filed by the attorney 229-24 general under this chapter to terminate the existence of the entity 229-25 and it is established that liquidation of the entity's business and 229-26 affairs should precede the entry of a decree of termination; 229-27 (2) on application of the entity to have its 230-1 liquidation continued under the supervision of the court; 230-2 (3) if the entity is in receivership and the court 230-3 does not find that any plan presented before the first anniversary 230-4 of the date the receiver was appointed is feasible for remedying 230-5 the condition requiring appointment of the receiver; 230-6 (4) on application of a creditor of the entity if it 230-7 is established that irreparable damage will ensue to the unsecured 230-8 creditors of the domestic entity as a class, generally, unless 230-9 there is an immediate liquidation of the property of the domestic 230-10 entity; or 230-11 (5) on application of an owner, member, or governing 230-12 person of the entity if it is not a for-profit corporation and it 230-13 appears the entity is unable to carry on its business in conformity 230-14 with its governing documents. 230-15 (b) A court may order a liquidation and appoint a receiver 230-16 under Subsection (a) only if: 230-17 (1) the circumstances demand liquidation to avoid 230-18 damage to interested persons; 230-19 (2) all other requirements of law are complied with; 230-20 and 230-21 (3) the court determines that all other available 230-22 legal and equitable remedies, including the appointment of a 230-23 receiver for specific property of the domestic entity and 230-24 appointment of a receiver to rehabilitate the domestic entity, are 230-25 inadequate. 230-26 (c) If the condition necessitating the appointment of a 230-27 receiver under this section is remedied, the receivership shall be 231-1 terminated immediately, the management of the domestic entity shall 231-2 be restored to its managerial officials, and the receiver shall 231-3 redeliver to the domestic entity all of its property remaining in 231-4 receivership. 231-5 Sec. 11.406. RECEIVERS: QUALIFICATIONS, POWERS, AND DUTIES. 231-6 (a) A receiver appointed under this chapter: 231-7 (1) must be an individual citizen of the United States 231-8 or an entity authorized to act as receiver; 231-9 (2) shall give a bond in the amount required by the 231-10 court and with any sureties as may be required by the court; 231-11 (3) may sue and be sued in the receiver's name in any 231-12 court; 231-13 (4) has the powers and duties provided by other laws 231-14 applicable to receivers; and 231-15 (5) has the powers and duties that are stated in the 231-16 order appointing the receiver or that the appointing court: 231-17 (A) considers appropriate to accomplish the 231-18 objectives for which the receiver was appointed; and 231-19 (B) may increase or diminish at any time during 231-20 the proceedings. 231-21 (b) To be appointed a receiver under this chapter, a foreign 231-22 entity must be registered to transact business in this state. 231-23 Sec. 11.407. COURT-ORDERED FILING OF CLAIMS. (a) In a 231-24 proceeding involving a receivership of the property or business of 231-25 a domestic entity, the court may require all claimants of the 231-26 domestic entity to file with the clerk of the court or the 231-27 receiver, in the form provided by the court, proof of their 232-1 respective claims under oath. 232-2 (b) A court that orders the filing of claims under 232-3 Subsection (a) shall: 232-4 (1) set a date, which may not be earlier than four 232-5 months after the date of the order, as the last day for the filing 232-6 of those claims; and 232-7 (2) prescribe the notice that shall be given to 232-8 claimants of the date set under Subdivision (1). 232-9 (c) Before the expiration of the period under Subsection (b) 232-10 for the filing of claims, a court may extend the period for the 232-11 filing of claims to a later date. 232-12 (d) A court may bar a claimant who fails to file a proof of 232-13 claim during the period authorized by the court from participating 232-14 in the distribution of the property of the domestic entity unless 232-15 the claimant presents to the court a justifiable excuse for its 232-16 delay in filing. A court may not order or effect a discharge of a 232-17 claim or claimant described by this subsection. 232-18 Sec. 11.408. SUPERVISING COURT; JURISDICTION; AUTHORITY. 232-19 (a) A court supervising a receivership under this subchapter may, 232-20 from time to time: 232-21 (1) make allowances to a receiver or attorney in the 232-22 proceeding; and 232-23 (2) direct the payment of a receiver or attorney from 232-24 the property of the domestic entity that is within the scope of the 232-25 receivership or the proceeds of any sale or disposition of that 232-26 property. 232-27 (b) A court that appoints a receiver under this subchapter 233-1 for the property or business of a domestic entity has exclusive 233-2 jurisdiction over the domestic entity and all of its property, 233-3 regardless of where the property is located. 233-4 Sec. 11.409. ANCILLARY RECEIVERSHIPS OF FOREIGN ENTITIES. 233-5 (a) Notwithstanding any provision of this code to the contrary, a 233-6 district court in the county in which the registered office of a 233-7 foreign entity doing business in this state is located has 233-8 jurisdiction to appoint an ancillary receiver for the property and 233-9 business of that entity when the court determines that 233-10 circumstances exist to require the appointment of an ancillary 233-11 receiver. 233-12 (b) A receiver appointed under Subsection (a) serves 233-13 ancillary to a receiver acting under orders of an out-of-state 233-14 court that has jurisdiction to appoint a receiver for the entity. 233-15 Sec. 11.410. RECEIVERSHIP FOR ALL PROPERTY AND BUSINESS OF 233-16 FOREIGN ENTITY. (a) A district court may appoint a receiver for 233-17 all of the property, in and outside this state, of a foreign entity 233-18 doing business in this state and its business if the court 233-19 determines, in accordance with the ordinary usages of equity, that 233-20 circumstances exist that necessitate the appointment of a receiver 233-21 even if a receiver has not been appointed by another court. 233-22 (b) The appointing court shall convert a receivership 233-23 created under Subsection (a) into an ancillary receivership if the 233-24 appointing court determines an ancillary receivership is 233-25 appropriate because a court in another state has ordered a 233-26 receivership of all property and business of the entity. 233-27 Sec. 11.411. GOVERNING PERSONS AND OWNERS NOT NECESSARY 234-1 PARTIES DEFENDANT. Governing persons and owners or members of a 234-2 domestic entity are not necessary parties to an action for a 234-3 receivership or liquidation of the property and business of a 234-4 domestic entity unless relief is sought against those persons 234-5 individually. 234-6 Sec. 11.412. DECREE OF INVOLUNTARY TERMINATION. In an 234-7 action to liquidate the property and business of a domestic entity, 234-8 the court shall enter a decree terminating the entity and the 234-9 existence of the entity shall cease: 234-10 (1) when the costs and expenses of the action and all 234-11 obligations and liabilities of the domestic entity have been paid 234-12 and discharged or adequately provided for and all of the entity's 234-13 remaining property has been distributed to its owners and members; 234-14 or 234-15 (2) if the entity's property is not sufficient to 234-16 discharge the costs and other expenses of the action and all 234-17 obligations and liabilities of the entity, when all the property of 234-18 the entity has been applied toward their payment. 234-19 CHAPTER 12. ADMINISTRATIVE POWERS 234-20 SUBCHAPTER A. SECRETARY OF STATE 234-21 Sec. 12.001. AUTHORITY OF SECRETARY OF STATE. (a) The 234-22 secretary of state may adopt procedural rules for the filing of 234-23 instruments, including the filing of instruments by electronic or 234-24 other means, authorized to be filed with the secretary of state 234-25 under this code. 234-26 (b) The secretary of state has the power and authority 234-27 reasonably necessary to enable the secretary to perform the duties 235-1 imposed on the secretary under this code. 235-2 Sec. 12.002. INTERROGATORIES BY SECRETARY OF STATE. (a) As 235-3 necessary and proper for the secretary of state to determine 235-4 whether a filing entity or a foreign filing entity has complied 235-5 with this code, the secretary of state may serve by mail 235-6 interrogatories on the entity or a managerial official. 235-7 (b) An entity or individual to whom an interrogatory is sent 235-8 by the secretary of state shall answer the interrogatory before the 235-9 later of the 31st day after the date the interrogatory is mailed or 235-10 a date set by the secretary of state. Each answer to an 235-11 interrogatory must be complete, in writing, and under oath. An 235-12 interrogatory directed to an individual shall be answered by the 235-13 individual, and an interrogatory directed to an entity shall be 235-14 answered by a managerial official. 235-15 (c) The secretary of state is not required to file any 235-16 instrument to which an interrogatory relates until the 235-17 interrogatory is answered as provided by this section and only if 235-18 the instrument conforms to the requirements of this code. The 235-19 secretary of state shall certify to the attorney general for action 235-20 as the attorney general may consider appropriate an interrogatory 235-21 and answer to the interrogatory that disclose a violation of this 235-22 code. 235-23 Sec. 12.003. INFORMATION DISCLOSED BY INTERROGATORIES. An 235-24 interrogatory sent by the secretary of state and the answer to the 235-25 interrogatory are subject to Chapter 552, Government Code. 235-26 Sec. 12.004. APPEALS FROM SECRETARY OF STATE. (a) If the 235-27 secretary of state does not approve the filing of a filing 236-1 instrument, the secretary of state shall, before the 11th day after 236-2 the date of the delivery of the filing instrument to the secretary 236-3 of state, notify the person delivering the filing instrument of the 236-4 disapproval and specifying each reason for the disapproval. The 236-5 disapproval of a filing instrument by the secretary of state may be 236-6 appealed only to a district court of Travis County by filing with 236-7 the court clerk a petition, a copy of the filing instrument sought 236-8 to be filed, and a copy of any written disapproval by the secretary 236-9 of state of the filing instrument. The court shall try the appeal 236-10 de novo and shall sustain the action of the secretary of state or 236-11 direct the secretary to take any action the court considers to be 236-12 proper. 236-13 (b) A final order or judgment entered by the district court 236-14 under this section in review of any ruling or decision of the 236-15 secretary of state may be appealed as in other civil actions. 236-16 (Sections 12.005-12.150 reserved for expansion) 236-17 SUBCHAPTER B. ATTORNEY GENERAL 236-18 Sec. 12.151. AUTHORITY OF ATTORNEY GENERAL TO EXAMINE BOOKS 236-19 AND RECORDS. Each filing entity and foreign filing entity shall 236-20 permit the attorney general to inspect, examine, and make copies, 236-21 as the attorney general considers necessary in the performance of a 236-22 power or duty of the attorney general, of any record of the entity. 236-23 A record of the entity includes minutes and a book, account, 236-24 letter, memorandum, document, check, voucher, telegram, 236-25 constitution, and bylaw. 236-26 Sec. 12.152. REQUEST TO EXAMINE. To examine the business of 236-27 a filing entity or foreign filing entity, the attorney general 237-1 shall make a written request to a managerial official, who shall 237-2 immediately permit the attorney general to inspect, examine, and 237-3 make copies of the records of the entity. 237-4 Sec. 12.153. AUTHORITY TO EXAMINE MANAGEMENT OF ENTITY. The 237-5 attorney general may investigate the organization, conduct, and 237-6 management of a filing entity or foreign filing entity and 237-7 determine if the entity has been or is engaged in acts or conduct 237-8 in violation of: 237-9 (1) its governing documents; or 237-10 (2) any law of this state. 237-11 Sec. 12.154. AUTHORITY TO DISCLOSE INFORMATION. Information 237-12 held by the attorney general and derived in the course of an 237-13 examination of an entity's records or documents is not public 237-14 information and is not subject to Chapter 552, Government Code, and 237-15 may not be disclosed except in the course of an administrative or 237-16 judicial proceeding in which the state is a party or in a suit by 237-17 the state to: 237-18 (1) revoke the registration of the foreign filing 237-19 entity or terminate the certificate of formation of the filing 237-20 entity; 237-21 (2) collect penalties for a violation of the law of 237-22 this state; or 237-23 (3) seek information from any officer of this state 237-24 charged with the enforcement of its laws. 237-25 Sec. 12.155. FORFEITURE OF BUSINESS PRIVILEGES. A foreign 237-26 filing entity or a filing entity that fails or refuses to permit 237-27 the attorney general to examine or make copies of a record, without 238-1 regard to whether the record is located in this or another state, 238-2 forfeits the right of the entity to do business in this state, and 238-3 the entity's registration or certificate of formation shall be 238-4 revoked or terminated. 238-5 Sec. 12.156. CRIMINAL PENALTY. (a) A managerial official 238-6 or other individual having the authority to manage the affairs of a 238-7 filing entity or foreign filing entity commits an offense if the 238-8 official or individual fails or refuses to permit the attorney 238-9 general to make an investigation of the entity or to examine or to 238-10 make copies of a record of the entity. 238-11 (b) An offense under this section is a Class B misdemeanor. 238-12 (Sections 12.157-12.200 reserved for expansion) 238-13 SUBCHAPTER C. ENFORCEMENT LIEN 238-14 Sec. 12.201. LIEN FOR LAW VIOLATIONS. (a) If a filing 238-15 entity or foreign filing entity violates a law of this state, 238-16 including the law against trusts, monopolies, and conspiracies, or 238-17 combinations or contracts in restraint of trade, for the violation 238-18 of which a fine, penalties, or forfeiture is provided, all of the 238-19 entity's property in this state at the time of the violation or 238-20 that after the violation comes into this state is, because of the 238-21 violation, liable for any fine or penalty under this chapter and 238-22 for costs of suit and costs of collection. 238-23 (b) The state has a lien on all property of a filing entity 238-24 or foreign filing entity in this state on the date a suit is 238-25 instituted by or under the direction of the attorney general in a 238-26 court of this state for the purpose of forfeiting the certificate 238-27 of formation or revoking the registration of the entity or for the 239-1 collection of a fine or penalty due to the state. 239-2 (c) The filing of a suit for a fine, penalties, or 239-3 forfeiture is notice of the lien. 239-4 (Sections 12.202-12.250 reserved for expansion) 239-5 SUBCHAPTER D. ENFORCEMENT PROCEEDINGS 239-6 Sec. 12.251. RECEIVER. In a suit filed by this state 239-7 against a filing entity or foreign filing entity for the 239-8 termination of the entity's certificate of formation or 239-9 registration or for a fine or penalty, the court in this state in 239-10 which the suit is pending: 239-11 (1) shall appoint a receiver for the property and 239-12 business of the entity in this state or that subsequently comes 239-13 into this state during the receivership if the filing entity or 239-14 foreign filing entity commences the process of winding up its 239-15 business in this or another state or a judgment is rendered against 239-16 it in this or another state for the termination of the entity's 239-17 certificate of formation or registration; and 239-18 (2) may appoint a receiver for the entity if the 239-19 interest of the state requires the appointment. 239-20 Sec. 12.252. FORECLOSURE. (a) The attorney general may 239-21 bring suit to foreclose a lien created by this chapter. 239-22 (b) If a filing entity or a foreign filing entity subject to 239-23 this code has commenced the winding up process or has had the 239-24 entity's certificate of formation or registration terminated by a 239-25 judgment, citation in a suit for foreclosure may be served on any 239-26 person in this state who acted and was acting as agent of the 239-27 entity in this state when the entity commenced the winding up 240-1 process or the entity's certificate of formation or registration 240-2 was terminated. 240-3 Sec. 12.253. ACTION AGAINST INSOLVENT ENTITY. When the 240-4 attorney general is convinced that a filing entity or foreign 240-5 filing entity is insolvent, the attorney general shall institute 240-6 quo warranto or other appropriate proceedings to terminate the 240-7 certificate of formation or registration of the filing entity or 240-8 foreign filing entity that is insolvent. 240-9 Sec. 12.254. SUITS BY DISTRICT OR COUNTY ATTORNEY. A 240-10 district or county attorney shall bring and prosecute a proceeding 240-11 under Section 12.252 or 12.253 when directed to do so by the 240-12 attorney general. 240-13 Sec. 12.255. PERMISSION TO SUE. Before a petition may be 240-14 filed by the attorney general or by a district or county attorney 240-15 in a suit authorized by Section 12.252 or 12.253, leave must be 240-16 granted by the judge of the court in which the proceeding is to be 240-17 filed. 240-18 Sec. 12.256. EXAMINATION AND NOTICE. (a) The judge of a 240-19 court in which a proceeding under Section 12.252 or 12.253 is to be 240-20 filed shall carefully examine the petition before granting leave to 240-21 sue. The judge may also require an examination into the facts. If 240-22 it appears with reasonable certainty from the petition or from the 240-23 petition and facts that there is a prima facie showing for the 240-24 relief sought, the judge may grant leave to file. 240-25 (b) On an application for the appointment of a receiver, the 240-26 entity proceeded against is entitled to 10 days' notice before the 240-27 day set for the hearing. 241-1 Sec. 12.257. DISMISSAL OF ACTION. (a) A suit authorized by 241-2 Section 12.253 or 12.258 may not be filed or, if filed, shall be 241-3 dismissed if the entity, through its owners or members, reduces its 241-4 indebtedness so that it is not insolvent. 241-5 (b) The respondent shall pay the costs of a dismissed suit 241-6 under this section. 241-7 Sec. 12.258. LIQUIDATION OF INSOLVENT ENTITY. (a) A court 241-8 hearing a proceeding under Section 12.253 against an insolvent 241-9 entity may, after the entity has been shown to be insolvent, 241-10 appoint one or more receivers for the entity and its property. The 241-11 receiver may settle the affairs of the entity, collect outstanding 241-12 debts, and divide the money and property belonging to the entity 241-13 among its owners after paying the debts of the entity and all 241-14 expenses incidental to the judicial proceedings and receivership. 241-15 (b) The court may continue the existence of the entity for 241-16 three years, and for additional reasonable time as necessary to 241-17 accomplish the purposes of this subchapter. 241-18 Sec. 12.259. EXTRAORDINARY REMEDIES; BOND. The state has a 241-19 right to a writ of attachment, garnishment, sequestration, or 241-20 injunction, without bond, to aid in the enforcement of the state's 241-21 rights created by this chapter. 241-22 Sec. 12.260. ABATEMENT OF SUIT. An action or cause of 241-23 action for a fine, penalty, or forfeiture that this state has or 241-24 may have against a filing entity or foreign filing entity does not 241-25 abate because the entity dissolves, voluntarily or otherwise, or 241-26 the entity's certificate of formation is terminated or the entity's 241-27 registration is revoked. 242-1 Sec. 12.261. PROVISIONS CUMULATIVE. Each right or remedy 242-2 provided by this chapter is cumulative and does not affect any 242-3 other right or remedy for the enforcement, payment, or collection 242-4 of a fine, forfeiture, or penalty or any other means provided by 242-5 law for securing or preserving testimony or inquiring into the 242-6 rights or privileges of an entity. 242-7 TITLE 2. CORPORATIONS 242-8 CHAPTER 20. GENERAL PROVISIONS 242-9 Sec. 20.001. REQUIREMENT THAT FILING INSTRUMENT BE SIGNED BY 242-10 OFFICER. Unless otherwise provided by this title, a filing 242-11 instrument of a corporation must be signed by an officer of the 242-12 corporation. 242-13 Sec. 20.002. ULTRA VIRES ACTS. (a) Lack of capacity of a 242-14 corporation may not be the basis of any claim or defense at law or 242-15 in equity. 242-16 (b) An act of a corporation or a transfer of property by or 242-17 to a corporation is not invalid because the act or transfer was: 242-18 (1) beyond the scope of the purpose or purposes of the 242-19 corporation as expressed in the corporation's certificate of 242-20 formation; or 242-21 (2) inconsistent with a limitation on the authority of 242-22 an officer or director to exercise a statutory power of the 242-23 corporation, as that limitation is expressed in the corporation's 242-24 certificate of formation. 242-25 (c) The fact that an act or transfer is beyond the scope of 242-26 the expressed purpose or purposes of the corporation or is 242-27 inconsistent with an expressed limitation on the authority of an 243-1 officer or director may be asserted in a proceeding: 243-2 (1) by a shareholder or member against the corporation 243-3 to enjoin the performance of an act or the transfer of property by 243-4 or to the corporation; 243-5 (2) by the corporation, acting directly or through a 243-6 receiver, trustee, or other legal representative, or through 243-7 members in a representative suit, against an officer or director or 243-8 former officer or director of the corporation for exceeding that 243-9 person's authority; or 243-10 (3) by the attorney general to: 243-11 (A) terminate the corporation; 243-12 (B) enjoin the corporation from performing an 243-13 unauthorized act; or 243-14 (C) enforce divestment of real property acquired 243-15 or held contrary to the laws of this state. 243-16 (d) If the unauthorized act or transfer sought to be 243-17 enjoined under Subsection (c)(1) is being or is to be performed or 243-18 made under a contract to which the corporation is a party and if 243-19 each party to the contract is a party to the proceeding, the court 243-20 may set aside and enjoin the performance of the contract. The 243-21 court may award to the corporation or to another party to the 243-22 contract, as appropriate, compensation for loss or damage resulting 243-23 from the action of the court in setting aside and enjoining the 243-24 performance of the contract, excluding loss of anticipated profits. 243-25 CHAPTER 21. FOR-PROFIT CORPORATIONS 243-26 SUBCHAPTER A. GENERAL PROVISIONS 243-27 Sec. 21.001. APPLICABILITY OF CHAPTER. This chapter applies 244-1 only to a: 244-2 (1) domestic for-profit corporation formed under this 244-3 code; and 244-4 (2) foreign for-profit corporation that is transacting 244-5 business in this state, regardless of whether the foreign 244-6 corporation is registered to transact business in this state. 244-7 Sec. 21.002. DEFINITIONS. In this chapter: 244-8 (1) "Authorized share" means a share of any class the 244-9 corporation is authorized to issue. 244-10 (2) "Board of directors" includes each person who is 244-11 authorized to perform the functions of the board of directors under 244-12 a shareholders' agreement as authorized by this chapter. 244-13 (3) "Cancel," with respect to an authorized share of a 244-14 corporation, means the restoration of an issued share to the status 244-15 of an authorized but unissued share. 244-16 (4) "Consuming assets corporation" means a corporation 244-17 that: 244-18 (A) is engaged in the business of exploiting 244-19 assets subject to depletion or amortization; 244-20 (B) states in its certificate of formation that 244-21 it is a consuming assets corporation; 244-22 (C) includes the phrase "a consuming assets 244-23 corporation" as part of its official corporate name and gives the 244-24 phrase equal prominence with the rest of the corporate name on the 244-25 financial statements and certificates of ownership of the 244-26 corporation; and 244-27 (D) includes in each of the certificates of 245-1 ownership of the corporation the sentence, "This corporation is 245-2 permitted by law to pay dividends out of reserves that may impair 245-3 its stated capital." 245-4 (5) "Corporation" or "domestic corporation" means a 245-5 domestic for-profit corporation subject to this chapter. 245-6 (6) "Distribution" does not include: 245-7 (A) an amendment to the corporation's 245-8 certificate of formation to change the shares of a class or series, 245-9 with or without par value, into the same or a different number of 245-10 shares of the same or a different class or series, with or without 245-11 par value; or 245-12 (B) a split-up or division of the issued shares 245-13 of a class of a corporation into a larger number of shares within 245-14 the same class that does not increase the stated capital of the 245-15 corporation. 245-16 (7) "Foreign corporation" means a for-profit 245-17 corporation formed under the laws of a jurisdiction other than this 245-18 state. 245-19 (8) "Investment Company Act" means the Investment 245-20 Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended. 245-21 (9) "Net assets" means the amount by which the total 245-22 assets of a corporation exceed the total debts of the corporation. 245-23 (10) "Share distribution" means a distribution by a 245-24 corporation that is payable in authorized but unissued shares or 245-25 treasury shares of the corporation. 245-26 (11) "Stated capital" means the sum of: 245-27 (A) the par value of all shares of the 246-1 corporation with par value that have been issued; 246-2 (B) the consideration, as expressed in terms of 246-3 United States dollars, determined by the corporation in the manner 246-4 provided by Section 21.160 for all shares of the corporation 246-5 without par value that have been issued, except the part of the 246-6 consideration that: 246-7 (i) has been actually received; 246-8 (ii) is less than all of that 246-9 consideration; and 246-10 (iii) the board, by resolution adopted not 246-11 later than the 60th day after the date of issuance of those shares, 246-12 has allocated to surplus; and 246-13 (C) an amount not included in Paragraphs (A) and 246-14 (B) that has been transferred to stated capital of the corporation, 246-15 on the payment of a share distribution or on adoption by the board 246-16 of directors of a resolution directing that all or part of surplus 246-17 be transferred to stated capital, minus each reduction made as 246-18 permitted by law. 246-19 (12) "Surplus" means the amount by which the net 246-20 assets of a corporation exceed the stated capital of the 246-21 corporation. 246-22 (13) "Treasury shares" means shares of a corporation 246-23 that have been issued, and subsequently acquired by the 246-24 corporation, that belong to the corporation and that have not been 246-25 canceled. The term does not include shares held by a corporation 246-26 in a fiduciary capacity, whether directly or through a trust or 246-27 similar arrangement. 247-1 Sec. 21.003. PERMISSIBLE PURPOSE OF CORPORATION RELATED TO 247-2 RAILROADS. Notwithstanding Section 2.003(2)(E), a corporation may: 247-3 (1) construct, acquire, maintain, and operate street 247-4 railways, suburban railways, and belt lines of railways in or near 247-5 municipalities to transport freight and passengers; 247-6 (2) construct, own, and operate union depots; 247-7 (3) buy, sell, and convey rights-of-way on which to 247-8 construct railroads; 247-9 (4) construct, acquire, maintain, and operate lines of 247-10 electric, gas, or gasoline, denatured alcohol, or naphtha motor 247-11 railways in and between municipalities, and interurban railways in 247-12 and between municipalities in this state to transport freight or 247-13 passengers; 247-14 (5) build, maintain, and operate a line of railroads 247-15 to mines, gins, quarries, manufacturing plants, or mills; 247-16 (6) construct, maintain, and operate terminal 247-17 railways; or 247-18 (7) operate a railroad passenger service by 247-19 contracting with a railroad corporation or other company that does 247-20 not construct, own, or maintain a railroad track. 247-21 Sec. 21.004. PROHIBITED ACTIVITIES. A corporation may not: 247-22 (1) operate a cooperative association, limited 247-23 cooperative association, or labor union; or 247-24 (2) transact a combination of the businesses of: 247-25 (A) raising cattle and owning land for the 247-26 raising of cattle, other than operating and owning feed lots and 247-27 feeding cattle; and 248-1 (B) operating stockyards and slaughtering, 248-2 refrigerating, canning, curing, or packing meat. 248-3 Sec. 21.005. NONPROFIT CORPORATIONS. A corporation formed 248-4 for the purpose of operating a nonprofit institution, including an 248-5 institution devoted to a charitable, benevolent, religious, 248-6 patriotic, civic, cultural, missionary, educational, scientific, 248-7 social, fraternal, athletic, or esthetic purpose, may be formed and 248-8 governed only as a nonprofit corporation under this code and not as 248-9 a for-profit corporation under this title. 248-10 Sec. 21.006. ADDITIONAL POWERS OF CERTAIN PIPELINE 248-11 BUSINESSES. In addition to the powers provided by Subchapter B, 248-12 Chapter 2, a corporation or a partnership or other combination of 248-13 corporations engaged as a common carrier in the pipeline business 248-14 for the purpose of transporting oil, oil products, gas, carbon 248-15 dioxide, salt brine, fuller's earth, sand, clay, liquefied 248-16 minerals, or other mineral solutions has all the rights and powers 248-17 conferred on a common carrier by Sections 111.019-111.022, Natural 248-18 Resources Code. 248-19 (Sections 21.007-21.050 reserved for expansion) 248-20 SUBCHAPTER B. FORMATION AND GOVERNING DOCUMENTS 248-21 Sec. 21.051. SUPPLEMENTAL PROVISIONS FOR CERTIFICATE OF 248-22 FORMATION. (a) In addition to the information required by Section 248-23 3.005, the certificate of formation of a corporation must: 248-24 (1) state the aggregate number of shares the 248-25 corporation is authorized to issue; 248-26 (2) if the shares the corporation is authorized to 248-27 issue consist of one class of shares only, state the par value of 249-1 each share or a statement that each share is without par value; 249-2 (3) if the corporation is to be managed by a board of 249-3 directors, state the number of directors constituting the initial 249-4 board of directors and the name and address of each person who will 249-5 serve as director until the first annual meeting of shareholders 249-6 and until a successor is elected and qualified; and 249-7 (4) if the corporation is to be managed pursuant to a 249-8 shareholders' agreement in a manner other than by a board of 249-9 directors, state the name and address of each person who will 249-10 perform the functions required by this code to be performed by the 249-11 initial board of directors. 249-12 (b) If the shares the corporation is authorized to issue 249-13 consist of more than one class of shares, the certificate of 249-14 formation of a corporation must, with respect to each class, state: 249-15 (1) the designation of the class; 249-16 (2) the aggregate number of shares in the class; 249-17 (3) the par value of each share or a statement that 249-18 each share is without par value; 249-19 (4) the preferences, limitations, and relative rights 249-20 of the shares; and 249-21 (5) if the shares in a class the corporation is 249-22 authorized to issue consist of more than one series, the following 249-23 with respect to each series: 249-24 (A) the designation of the series; 249-25 (B) the aggregate number of shares in the 249-26 series; 249-27 (C) any preferences, limitations, and relative 250-1 rights of the shares to the extent provided in the certificate of 250-2 formation; and 250-3 (D) any authority vested in the board of 250-4 directors to establish the series and set and determine the 250-5 preferences, limitations, and relative rights of the series. 250-6 (c) If a corporation elects to become a close corporation in 250-7 accordance with Subchapter O, the certificate of formation of the 250-8 corporation: 250-9 (1) must contain a provision required by that 250-10 subchapter to be contained in the certificate of formation of a 250-11 close corporation and not in the certificate of formation of an 250-12 ordinary corporation; and 250-13 (2) may contain: 250-14 (A) a provision contained or permitted to be 250-15 contained in a shareholders' agreement conforming to that 250-16 subchapter that the organizers elect to include in the certificate 250-17 of formation; or 250-18 (B) a copy of a shareholders' agreement that 250-19 conforms to Subchapter O and that may be filed or amended in the 250-20 manner provided by Section 21.212. 250-21 (d) A provision contained in the certificate of formation 250-22 under Subsection (c), other than the statement required by Section 250-23 21.704, must be preceded by a statement that the provision is 250-24 subject to the corporation remaining a close corporation. 250-25 (e) If a corporation elects to have preemptive rights under 250-26 Subchapter E or cumulative voting, the certificate of formation of 250-27 the corporation must comply with Section 21.203 or 21.360, as 251-1 appropriate. 251-2 Sec. 21.052. NO PROPERTY RIGHT IN CERTIFICATE OF FORMATION. 251-3 A shareholder of a corporation does not have a vested property 251-4 right resulting from the certificate of formation, including a 251-5 provision in the certificate of formation relating to the 251-6 management, control, capital structure, dividend entitlement, 251-7 purpose, or duration of the corporation. 251-8 Sec. 21.053. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF 251-9 FORMATION. (a) To adopt an amendment to the certificate of 251-10 formation of a corporation as provided by Subchapter B, Chapter 3, 251-11 the board of directors of the corporation shall: 251-12 (1) adopt a resolution stating the proposed amendment; 251-13 and 251-14 (2) follow the procedures prescribed by this section 251-15 and Sections 21.054-21.057. 251-16 (b) The resolution may incorporate the proposed amendment in 251-17 a restated certificate of formation that complies with Section 251-18 3.057. 251-19 Sec. 21.054. ADOPTION OF AMENDMENT BY BOARD OF DIRECTORS. 251-20 If a corporation does not have any issued and outstanding shares, 251-21 the board of directors may adopt a proposed amendment to the 251-22 corporation's certificate of formation by resolution without 251-23 shareholder approval. 251-24 Sec. 21.055. ADOPTION OF AMENDMENT BY SHAREHOLDERS. If a 251-25 corporation has issued shares, a resolution described by Section 251-26 21.053 must also direct that: 251-27 (1) the proposed amendment be submitted to a vote of 252-1 the shareholders at a meeting; and 252-2 (2) the shareholders approve the proposed amendment in 252-3 the manner provided by Section 21.056. 252-4 Sec. 21.056. NOTICE OF AND MEETING TO CONSIDER PROPOSED 252-5 AMENDMENT. (a) Each shareholder of record entitled to vote shall 252-6 be given written notice containing the proposed amendment or a 252-7 summary of the changes to be effected within the time and in the 252-8 manner provided by this code for giving notice of meetings to 252-9 shareholders. The proposed amendment or summary may be included in 252-10 the notice required to be provided for an annual meeting. 252-11 (b) At the meeting, the proposed amendment shall be adopted 252-12 only on receiving the affirmative vote of shareholders entitled to 252-13 vote required by Section 21.364. 252-14 (c) An unlimited number of amendments may be submitted for 252-15 adoption by the shareholders at a meeting. 252-16 Sec. 21.057. SUPPLEMENTAL PROVISIONS FOR CERTIFICATE OF 252-17 AMENDMENT. (a) In addition to the statements required by Section 252-18 3.053, a certificate of amendment for a corporation must state: 252-19 (1) if the amendment provides for an exchange, 252-20 reclassification, or cancellation of issued shares, the manner in 252-21 which the exchange, reclassification, or cancellation of the issued 252-22 shares will be effected if the manner is not specified in the 252-23 amendment; and 252-24 (2) if the amendment effects a change in the amount of 252-25 stated capital, the manner in which the change in the amount of 252-26 stated capital is effected and the amount of stated capital 252-27 expressed in dollar terms as changed by the amendment. 253-1 (b) An officer shall sign the certificate of amendment on 253-2 behalf of the corporation. If shares of the corporation have not 253-3 been issued and the certificate of amendment is adopted by the 253-4 board of directors, a majority of the directors may sign the 253-5 certificate of amendment on behalf of the corporation. 253-6 (c) The certificate of amendment shall be filed in 253-7 accordance with Chapter 4 and takes effect as provided by 253-8 Subchapter B, Chapter 3. 253-9 Sec. 21.058. RESTATED CERTIFICATE OF FORMATION. (a) A 253-10 corporation may adopt a restated certificate of formation as 253-11 provided by Subchapter B, Chapter 3, by following the same 253-12 procedures to amend its certificate of formation under Sections 253-13 21.053-21.057, except that shareholder approval is not required if 253-14 an amendment is not adopted. 253-15 (b) An officer shall sign the restated certificate of 253-16 formation on behalf of the corporation. If shares of the 253-17 corporation have not been issued and the restated certificate of 253-18 formation is adopted by the board of directors, the majority of the 253-19 directors may sign the restated certificate of formation on behalf 253-20 of the corporation. 253-21 (c) In addition to the provisions authorized or required by 253-22 Section 3.057, a restated certificate of formation may update the 253-23 current number of directors and the names and addresses of the 253-24 persons serving as directors. 253-25 (d) The restated certificate of formation shall be filed in 253-26 accordance with Chapter 4 and takes effect as provided by 253-27 Subchapter B, Chapter 3. 254-1 Sec. 21.059. BYLAWS. (a) The board of directors of a 254-2 corporation shall adopt initial bylaws. 254-3 (b) The bylaws may contain provisions for the regulation and 254-4 management of the affairs of the corporation that are consistent 254-5 with law and the corporation's certificate of formation. 254-6 (c) A corporation's board of directors may amend or repeal 254-7 bylaws or adopt new bylaws unless: 254-8 (1) the corporation's certificate of formation or this 254-9 code wholly or partly reserves the power exclusively to the 254-10 corporation's shareholders; or 254-11 (2) in amending, repealing, or adopting a bylaw, the 254-12 shareholders expressly provide that the board of directors may not 254-13 amend, repeal, or readopt that bylaw. 254-14 Sec. 21.060. DUAL AUTHORITY. Unless the certificate of 254-15 formation or a bylaw adopted by the shareholders provides otherwise 254-16 as to all or a part of a corporation's bylaws, a corporation's 254-17 shareholders may amend, repeal, or adopt the corporation's bylaws 254-18 regardless of whether the bylaws may also be amended, repealed, or 254-19 adopted by the corporation's board of directors. 254-20 Sec. 21.061. ORGANIZATION MEETING. (a) This section does 254-21 not apply to a corporation created as a result of a conversion or 254-22 merger the plan of which states the bylaws and names the officers 254-23 of the corporation. 254-24 (b) After the filing of a certificate of formation takes 254-25 effect, an organization meeting shall be held at the call of the 254-26 majority of the initial board of directors or the persons named in 254-27 the certificate of formation under Section 21.051(a)(4) for the 255-1 purpose of adopting bylaws, electing officers, and transacting 255-2 other business. 255-3 (c) Not later than the fourth day before the date of the 255-4 meeting, the directors or other persons calling the meeting shall 255-5 mail notice of the time and place of the meeting to each other 255-6 director or person named in the certificate of formation. 255-7 (Sections 21.062-21.100 reserved for expansion) 255-8 SUBCHAPTER C. SHAREHOLDERS' AGREEMENTS 255-9 Sec. 21.101. SHAREHOLDERS' AGREEMENT. (a) The shareholders 255-10 of a corporation may enter into an agreement that: 255-11 (1) restricts the discretion or powers of the board of 255-12 directors; 255-13 (2) eliminates the board of directors and authorizes 255-14 the business and affairs of the corporation to be managed, wholly 255-15 or partly, by one or more of its shareholders or other persons; 255-16 (3) establishes the individuals who shall serve as 255-17 directors or officers of the corporation; 255-18 (4) determines the term of office, manner of selection 255-19 or removal, or terms or conditions of employment of a director, 255-20 officer, or other employee of the corporation, regardless of the 255-21 length of employment; 255-22 (5) governs the authorization or making of 255-23 distributions whether in proportion to ownership of shares, subject 255-24 to Section 21.303; 255-25 (6) determines the manner in which profits and losses 255-26 will be apportioned; 255-27 (7) governs, in general or with regard to specific 256-1 matters, the exercise or division of voting power by and between 256-2 the shareholders, directors, or other persons, including use of 256-3 disproportionate voting rights or director proxies; 256-4 (8) establishes the terms of an agreement for the 256-5 transfer or use of property or for the provision of services 256-6 between the corporation and another person, including a 256-7 shareholder, director, officer, or employee of the corporation; 256-8 (9) authorizes arbitration or grant authority to a 256-9 shareholder or other person to resolve any issue about which there 256-10 is a deadlock among the directors, shareholders, or other persons 256-11 authorized to manage the corporation; 256-12 (10) requires winding up and termination of the 256-13 corporation at the request of one or more shareholders or on the 256-14 occurrence of a specified event or contingency, in which case the 256-15 winding up and termination of the corporation will proceed as if 256-16 all of the shareholders had consented in writing to the winding up 256-17 and termination as provided by Subchapter K; or 256-18 (11) otherwise governs the exercise of corporate 256-19 powers, the management of the business and affairs of the 256-20 corporation, or the relationship among the shareholders, the 256-21 directors, and the corporation as if the corporation were a 256-22 partnership or in a manner that would otherwise be appropriate only 256-23 among partners and not contrary to public policy. 256-24 (b) A shareholders' agreement authorized by this section 256-25 must be: 256-26 (1) contained in: 256-27 (A) the certificate of formation or bylaws if 257-1 approved by all of the shareholders at the time of the agreement; 257-2 or 257-3 (B) a written agreement that is: 257-4 (i) signed by all of the shareholders at 257-5 the time of the agreement; and 257-6 (ii) made known to the corporation; and 257-7 (2) amended only by all of the shareholders at the 257-8 time of the amendment, unless the agreement provides otherwise. 257-9 Sec. 21.102. TERM OF AGREEMENT. A shareholders' agreement 257-10 under this subchapter is valid for 10 years, unless the agreement 257-11 provides otherwise. 257-12 Sec. 21.103. DISCLOSURE OF AGREEMENT; RECALL OF CERTAIN 257-13 CERTIFICATES. (a) The existence of an agreement authorized by 257-14 this subchapter shall be noted conspicuously on the front or back 257-15 of each certificate for outstanding shares or on the information 257-16 statement required for uncertificated shares by Section 3.205. 257-17 (b) The disclosure required by this section must include the 257-18 sentence, "These shares are subject to the provisions of a 257-19 shareholders' agreement that may provide for management of the 257-20 corporation in a manner different than in other corporations and 257-21 may subject a shareholder to certain obligations or liabilities not 257-22 otherwise imposed on shareholders in other corporations." 257-23 (c) A corporation that has outstanding shares represented by 257-24 certificates at the time the shareholders of the corporation enter 257-25 into an agreement under this subchapter shall recall the 257-26 outstanding certificates and issue substitute certificates that 257-27 comply with this subchapter. 258-1 (d) The failure to note the existence of the agreement on 258-2 the certificate or information statement does not affect the 258-3 validity of the agreement or an action taken pursuant to the 258-4 agreement. 258-5 Sec. 21.104. EFFECT OF SHAREHOLDERS' AGREEMENT. A 258-6 shareholders' agreement that complies with this subchapter is 258-7 effective among the shareholders and between the shareholders and 258-8 the corporation even if the terms of the agreement are inconsistent 258-9 with this code. 258-10 Sec. 21.105. KNOWLEDGE OF PURCHASER OF SHARES. (a) A 258-11 purchaser of shares who does not have knowledge at the time of 258-12 purchase of the existence of a shareholders' agreement authorized 258-13 by this subchapter is entitled to rescind the purchase. 258-14 (b) A purchaser is considered to have knowledge of the 258-15 existence of the shareholders' agreement for purposes of this 258-16 section if: 258-17 (1) the existence of the agreement is noted on the 258-18 certificate or information statement for the shares as required by 258-19 Section 21.103; and 258-20 (2) with respect to shares that are not represented by 258-21 a certificate, the information statement noting existence of the 258-22 agreement is delivered to the purchaser not later than the time the 258-23 shares are purchased. 258-24 (c) An action to enforce the right of rescission authorized 258-25 by this section must be commenced not later than the earlier of: 258-26 (1) the 90th day after the date the existence of the 258-27 shareholder agreement is discovered; or 259-1 (2) the second anniversary of the purchase date of the 259-2 shares. 259-3 Sec. 21.106. AGREEMENT LIMITING AUTHORITY OF AND SUPPLANTING 259-4 BOARD OF DIRECTORS; LIABILITY. (a) A shareholders' agreement 259-5 authorized by this subchapter that limits the discretion or powers 259-6 of the board of directors or supplants the board of directors 259-7 relieves the directors of, and imposes on a person in whom the 259-8 discretion or powers of the board of directors or the management of 259-9 the business and affairs of the corporation is vested, liability 259-10 for an act or omission of the person. 259-11 (b) A person on whom liability for an act or omission is 259-12 imposed under this section is liable in the same manner and to the 259-13 same extent as a director on whom liability for an act or omission 259-14 is imposed by this code or other law. 259-15 Sec. 21.107. LIABILITY OF SHAREHOLDER. The existence of or 259-16 a performance under a shareholders' agreement authorized by this 259-17 subchapter is not a ground for imposing personal liability on a 259-18 shareholder for an act or obligation of the corporation by 259-19 disregarding the separate existence of the corporation or 259-20 otherwise, even if the agreement or a performance under the 259-21 agreement: 259-22 (1) treats the corporation as if the corporation were 259-23 a partnership or in a manner that otherwise is appropriate only 259-24 among partners; 259-25 (2) results in the corporation being considered a 259-26 partnership for purposes of taxation; or 259-27 (3) results in failure to observe the corporate 260-1 formalities otherwise applicable to the matters governed by the 260-2 agreement. 260-3 Sec. 21.108. PERSONS ACTING IN PLACE OF SHAREHOLDERS. An 260-4 organizer or a subscriber for shares may act as a shareholder with 260-5 respect to a shareholders' agreement authorized by this subchapter 260-6 if no shares have been issued when the agreement is signed. 260-7 Sec. 21.109. AGREEMENT NOT EFFECTIVE. (a) A shareholders' 260-8 agreement authorized by this subchapter ceases to be effective when 260-9 shares of the corporation are: 260-10 (1) listed on a national securities exchange or 260-11 similar system; 260-12 (2) quoted on an interdealer quotation system of a 260-13 national securities association or successor system; or 260-14 (3) regularly traded in a market maintained by one or 260-15 more members of a national or affiliated securities association. 260-16 (b) If a corporation does not have a board of directors and 260-17 an agreement of the shareholders of the corporation entered into 260-18 under this subchapter ceases to be effective, a board of directors 260-19 shall be instituted or reinstated to govern the corporation in the 260-20 manner provided by Section 21.710(c). 260-21 (c) If a shareholders' agreement that ceases to be effective 260-22 is contained in or referred to by the certificate of formation or 260-23 bylaws of a corporation, the board of directors of the corporation 260-24 may adopt an amendment to the certificate of formation or bylaws, 260-25 without shareholder action, to delete the agreement and any 260-26 references to the agreement. 260-27 (Sections 21.110-21.150 reserved for expansion) 261-1 SUBCHAPTER D. SHARES, OPTIONS, AND CONVERTIBLE SECURITIES 261-2 Sec. 21.151. NUMBER OF AUTHORIZED SHARES. A corporation may 261-3 issue the number of shares stated in the corporation's certificate 261-4 of formation. 261-5 Sec. 21.152. CLASSES AND SERIES OF SHARES. (a) A 261-6 corporation's certificate of formation may divide the corporation's 261-7 authorized shares into one or more classes and may divide one or 261-8 more classes into one or more series. The certificate of formation 261-9 must designate each class and series of authorized shares to 261-10 distinguish that class and series from any other class or series. 261-11 (b) Shares of the same class must be of the same par value 261-12 or be without par value, as stated in the certificate of formation. 261-13 (c) Shares of the same class must be identical in all 261-14 respects unless the shares have been divided into one or more 261-15 series. If the shares of a class have been divided into one or 261-16 more series, the shares may vary between series, but all shares of 261-17 the same series will be identical in all respects. 261-18 Sec. 21.153. DESIGNATIONS, PREFERENCES, LIMITATIONS, AND 261-19 RIGHTS OF A CLASS OR SERIES. (a) Each class or series of 261-20 authorized shares of a corporation must have the designations, 261-21 preferences, limitations, and relative rights, including voting 261-22 rights, stated in the corporation's certificate of formation. 261-23 (b) The certificate of formation may limit or deny the 261-24 voting rights of, or provide special voting rights for, the shares 261-25 of a class or series or the shares of a class or series held by a 261-26 person or class of persons to the extent the limitation, denial, or 261-27 provision is not inconsistent with this code. 262-1 (c) A designation, preference, limitation, or relative 262-2 right, including voting right, of a class or series of shares of a 262-3 corporation may be made dependent on facts not contained in the 262-4 certificate of formation, including future acts of the corporation, 262-5 if the manner in which those facts will operate on the designation, 262-6 preference, limitation, or right is clearly and expressly stated in 262-7 the certificate of formation. 262-8 Sec. 21.154. CERTAIN OPTIONAL CHARACTERISTICS OF SHARES. 262-9 (a) Subject to Section 21.153, if authorized by the corporation's 262-10 certificate of formation, a corporation may issue shares that: 262-11 (1) are redeemable, subject to Sections 21.303 and 262-12 21.304; 262-13 (2) entitle the holders of the shares to cumulative, 262-14 noncumulative, or partially cumulative distributions; 262-15 (3) have preferences over any or all other classes or 262-16 series of shares with respect to payment of distributions; 262-17 (4) have preferences over any or all other classes or 262-18 series of shares with respect to the assets of the corporation on 262-19 the voluntary or involuntary winding up and termination of the 262-20 corporation; 262-21 (5) are exchangeable for shares, obligations, 262-22 indebtedness, evidence of ownership, rights to purchase securities 262-23 of the corporation or one or more other entities, or other property 262-24 or for a combination of those rights, assets, or obligations 262-25 subject to Section 21.303; and 262-26 (6) are convertible into shares of any other class or 262-27 series. 263-1 (b) Shares without par value may not be converted into 263-2 shares with par value unless: 263-3 (1) at the time of conversion, the part of the 263-4 corporation's stated capital represented by the shares without par 263-5 value is at least equal to the aggregate par value of the shares to 263-6 be converted; or 263-7 (2) the amount of any deficiency computed under 263-8 Subdivision (1) is transferred from surplus to stated capital. 263-9 (c) Shares of a corporation may be redeemed, exchanged, or 263-10 converted at the option of the corporation, shareholder, or other 263-11 person or on the occurrence of a designated event. 263-12 Sec. 21.155. SERIES OF SHARES ESTABLISHED BY BOARD OF 263-13 DIRECTORS. (a) If expressly authorized by the corporation's 263-14 certificate of formation and subject to the certificate of 263-15 formation, the board of directors of a corporation may establish 263-16 series of unissued shares of any class by setting and determining 263-17 the designations, preferences, limitations, and relative rights, 263-18 including voting rights, of the shares of the series to be 263-19 established to the same extent that the designations, preferences, 263-20 limitations, or relative rights could be stated if fully specified 263-21 in the certificate of formation. 263-22 (b) To establish a series if authorized by the certificate 263-23 of formation, the board of directors must adopt a resolution 263-24 specifying the designations, preferences, limitations, and relative 263-25 rights, including voting rights, of the series to be established or 263-26 specifying any designation, preference, limitation, or relative 263-27 right that is not set and determined by the certificate of 264-1 formation. 264-2 (c) If the certificate of formation does not expressly 264-3 restrict the board of directors from increasing or decreasing the 264-4 number of unissued shares of a series to be established under 264-5 Subsection (a), the board of directors may increase or decrease the 264-6 number of shares in each series to be established, except that the 264-7 board of directors may not decrease the number of shares in a 264-8 particular series to a number that is less than the number of 264-9 shares in that series that are issued at the time of the decrease. 264-10 (d) To increase or decrease the number of shares of a series 264-11 under Subsection (c), the board of directors must adopt a 264-12 resolution setting and determining the new number of shares of each 264-13 series in which the number of shares is increased or decreased. If 264-14 the number of shares of a series is decreased, the shares by which 264-15 the series is decreased will resume the status of authorized but 264-16 unissued shares of the class of shares from which the series was 264-17 established, unless otherwise provided by the certificate of 264-18 formation or the terms of the class or series. 264-19 (e) If no shares of a series established by board resolution 264-20 under Subsection (b) are outstanding because no shares of that 264-21 series have been issued or no issued shares of that series remain 264-22 outstanding, the board of directors by resolution may delete the 264-23 series from the certificate of formation and delete any reference 264-24 to the series contained in the certificate of formation. Unless 264-25 otherwise provided by the certificate of formation, the shares of 264-26 any series deleted from the certificate of formation under this 264-27 section shall resume the status of authorized but unissued shares 265-1 of the class of shares from which the series was established. 265-2 (f) If no shares of a series established by resolution of 265-3 the board of directors under Subsection (b) are outstanding because 265-4 no shares of that series have been issued, the board of directors 265-5 may amend the designations, preferences, limitations, and relative 265-6 rights, including voting rights, of the series or amend any 265-7 designation, preference, limitation, or relative right that is not 265-8 set and determined by the certificate of formation. 265-9 Sec. 21.156. ACTIONS WITH RESPECT TO SERIES OF SHARES. (a) 265-10 To effect an action authorized under Section 21.155, the 265-11 corporation must file with the secretary of state a statement that 265-12 contains: 265-13 (1) the name of the corporation; 265-14 (2) if the statement relates to the establishment of a 265-15 series of shares, a copy of the resolution establishing and 265-16 designating the series and setting and determining the 265-17 designations, preferences, limitations, and relative rights of the 265-18 series; 265-19 (3) if the statement relates to an increase or 265-20 decrease in the number of shares of a series, a copy of the 265-21 resolution setting and determining the new number of shares of each 265-22 series in which the number of shares is increased or decreased; 265-23 (4) if the statement relates to the deletion of a 265-24 series of shares and all references to the series from the 265-25 certificate of formation, a copy of the resolution deleting the 265-26 series and all references to the series from the certificate of 265-27 formation; 266-1 (5) if the statement relates to the amendment of 266-2 designations, preferences, limitations, or relative rights of 266-3 shares of a series that was previously established by resolution of 266-4 the board of directors, a copy of the resolution in which the 266-5 amendment is specified; 266-6 (6) the date of the adoption of the resolution; and 266-7 (7) a statement that the resolution was adopted by all 266-8 necessary action on the part of the corporation. 266-9 (b) On the filing of a statement described by Subsection 266-10 (a), the following resolutions will become an amendment of the 266-11 certificate of formation, as appropriate: 266-12 (1) the resolution establishing and designating the 266-13 series and setting and determining the designations, preferences, 266-14 limitations, and relative rights of the series; 266-15 (2) the resolution setting the new number of shares of 266-16 each series in which the number of shares is increased or 266-17 decreased; 266-18 (3) the resolution deleting a series and all 266-19 references to the series from the certificate of formation; or 266-20 (4) the resolution amending the designations, 266-21 preferences, limitations, and relative rights of a series. 266-22 (c) An amendment of the certificate of formation under this 266-23 section is not subject to the procedure to amend the certificate of 266-24 formation contained in Subchapter B. 266-25 Sec. 21.157. ISSUANCE OF SHARES. (a) Except as provided by 266-26 Section 21.158, a corporation may issue shares for consideration if 266-27 authorized by the board of directors of the corporation. 267-1 (b) Shares may not be issued until the consideration, 267-2 determined in accordance with this subchapter, has been received by 267-3 the corporation. When the consideration is received: 267-4 (1) the shares are issued; 267-5 (2) the subscriber or other person entitled to receive 267-6 the shares is a shareholder with respect to the shares; and 267-7 (3) the shares are considered fully paid and 267-8 nonassessable. 267-9 Sec. 21.158. ISSUANCE OF SHARES UNDER PLAN OF MERGER OR 267-10 CONVERSION. (a) A converted corporation under a plan of 267-11 conversion or a corporation created by a plan of merger may issue 267-12 shares for consideration if authorized by the plan of conversion or 267-13 plan of merger, as appropriate. 267-14 (b) A corporation may issue shares in the manner provided by 267-15 and for consideration specified under a plan of merger or plan of 267-16 conversion. 267-17 Sec. 21.159. TYPES OF CONSIDERATION FOR SHARES. Shares with 267-18 or without par value may be issued for the following types of 267-19 consideration: 267-20 (1) a tangible or intangible benefit to the 267-21 corporation; 267-22 (2) cash; 267-23 (3) a promissory note; 267-24 (4) services performed or a contract for services to 267-25 be performed; 267-26 (5) a security of the corporation or any other 267-27 organization; and 268-1 (6) any other property of any kind or nature. 268-2 Sec. 21.160. DETERMINATION OF CONSIDERATION FOR SHARES. (a) 268-3 Subject to Subsection (b), consideration to be received for shares 268-4 must be determined: 268-5 (1) by the board of directors; 268-6 (2) by a plan of conversion, if the shares are to be 268-7 issued by a converted corporation under the plan; or 268-8 (3) by a plan of merger, if the shares are to be 268-9 issued under the plan by a corporation created under the plan. 268-10 (b) If the corporation's certificate of formation reserves 268-11 to the shareholders the right to determine the consideration to be 268-12 received for shares without par value, the shareholders shall 268-13 determine the consideration for those shares before the shares are 268-14 issued. The board of directors may not determine the consideration 268-15 for shares under this subsection. 268-16 (c) A corporation may dispose of treasury shares for 268-17 consideration that may be determined by the board of directors. 268-18 Sec. 21.161. AMOUNT OF CONSIDERATION FOR ISSUANCE OF CERTAIN 268-19 SHARES. (a) Consideration to be received by a corporation for the 268-20 issuance of shares with par value may not be less than the par 268-21 value of the shares. 268-22 (b) The part of the surplus of a corporation that is 268-23 transferred to stated capital on the issuance of shares as a share 268-24 distribution is considered to be the consideration for the issuance 268-25 of those shares. 268-26 (c) The consideration received by a corporation for the 268-27 issuance of shares on the conversion or exchange of its 269-1 indebtedness or shares is: 269-2 (1) the principal of, and accrued interest on, the 269-3 indebtedness exchanged or converted, or the stated capital on the 269-4 issuance of the shares; 269-5 (2) the part of surplus, if any, transferred to stated 269-6 capital on the issuance of the shares; and 269-7 (3) any additional consideration paid to the 269-8 corporation on the issuance of the shares. 269-9 (d) The consideration received by a corporation for the 269-10 issuance of shares on the exercise of rights or options is: 269-11 (1) any consideration received by the corporation for 269-12 the rights or options; and 269-13 (2) any consideration received by the corporation for 269-14 the issuance of shares on the exercise of the rights or options. 269-15 Sec. 21.162. VALUE AND SUFFICIENCY OF CONSIDERATION. In the 269-16 absence of fraud in the transaction, the judgment of the board of 269-17 directors, the shareholders, or the party approving the plan of 269-18 conversion or the plan of merger, as appropriate, is conclusive in 269-19 determining the value and sufficiency of the consideration received 269-20 for the shares. 269-21 Sec. 21.163. ISSUANCE AND DISPOSITION OF FRACTIONAL SHARES 269-22 OR SCRIP. (a) A corporation may: 269-23 (1) issue fractions of a share, either certificated or 269-24 uncertificated; 269-25 (2) arrange for the disposition of fractional 269-26 interests by persons entitled to the interests; 269-27 (3) pay cash for the fair value of fractions of a 270-1 share determined when the shareholders entitled to receive the 270-2 fractions are determined; or 270-3 (4) subject to Subsection (b), issue scrip in 270-4 registered or bearer form that entitles the holder to receive a 270-5 certificate for a full share or an uncertificated full share on the 270-6 surrender of the scrip aggregating a full share. 270-7 (b) The board of directors may issue scrip: 270-8 (1) on the condition that the scrip will become void 270-9 if not exchanged for certificated or uncertificated full shares 270-10 before a specified date; 270-11 (2) on the condition that the shares for which the 270-12 scrip is exchangeable may be sold by the corporation and the 270-13 proceeds from the sale of the shares may be distributed to the 270-14 holders of scrip; or 270-15 (3) subject to any other condition the board of 270-16 directors may determine advisable. 270-17 Sec. 21.164. RIGHTS OF HOLDERS OF FRACTIONAL SHARES OR 270-18 SCRIP. (a) A holder of a certificated or uncertificated 270-19 fractional share is entitled to exercise voting rights, receive 270-20 distributions, and make a claim with respect to the assets of the 270-21 corporation in the event of winding up and termination. 270-22 (b) A holder of a certificate for scrip is not entitled to 270-23 exercise voting rights, receive distributions, or make a claim with 270-24 respect to the assets of the corporation in the event of winding up 270-25 and termination unless the scrip provides for those rights. 270-26 Sec. 21.165. SUBSCRIPTIONS. (a) A corporation may accept a 270-27 subscription by notifying the subscriber in writing. 271-1 (b) A subscription to purchase shares in a corporation in 271-2 the process of being formed is irrevocable for six months if the 271-3 subscription is in writing and signed by the subscriber, unless the 271-4 subscription provides for a longer or shorter period or all of the 271-5 other subscribers agree to the revocation of the subscription. 271-6 (c) A written subscription entered into after the 271-7 corporation is formed is a contract between the subscriber and the 271-8 corporation. 271-9 Sec. 21.166. PREFORMATION SUBSCRIPTION. (a) The 271-10 corporation may determine the payment terms of a preformation 271-11 subscription unless the payment terms are specified by the 271-12 subscription. The payment terms may authorize payment in full on 271-13 acceptance or by installments. 271-14 (b) Unless the subscription provides otherwise, a 271-15 corporation shall make calls placed to all subscribers of similar 271-16 interests for payment on preformation subscriptions uniform as far 271-17 as practicable. 271-18 (c) After the corporation is formed, a corporation may: 271-19 (1) collect in the same manner as any other debt the 271-20 amount due on any unpaid preformation subscription; or 271-21 (2) forfeit the subscription on 20 days' written 271-22 notice to the subscriber. 271-23 (d) Although the forfeiture of a subscription terminates all 271-24 the rights and obligations of the subscriber, the corporation may 271-25 retain any amount previously paid on the subscription. 271-26 Sec. 21.167. COMMITMENT TO PURCHASE SHARES. (a) A person 271-27 who contemplates the acquisition of shares in a corporation may 272-1 commit to act in a specified manner with respect to the shares 272-2 after the acquisition, including the voting of the shares or the 272-3 retention or disposition of the shares. To be binding, the 272-4 commitment must be in writing and be signed by the person acquiring 272-5 the shares. The commitment continues for a six-month period unless 272-6 the commitment provides for a longer or shorter period. 272-7 (b) A written commitment entered into under Subsection (a) 272-8 is a contract between the shareholder and the corporation. 272-9 Sec. 21.168. STOCK RIGHTS, OPTIONS, AND CONVERTIBLE 272-10 INDEBTEDNESS. (a) Except as provided by the corporation's 272-11 certificate of formation and regardless of whether done in 272-12 connection with the issuance and sale of any other share or 272-13 security of the corporation, a corporation may create and issue: 272-14 (1) rights or options that entitle the holders to 272-15 purchase or receive from the corporation shares of any class or 272-16 series or other securities; and 272-17 (2) indebtedness convertible into shares of any class 272-18 or series of the corporation or other securities of the 272-19 corporation. 272-20 (b) A right, option, or indebtedness described by this 272-21 section shall be evidenced in the manner approved by the board of 272-22 directors. 272-23 (c) Subject to the certificate of formation, a right or 272-24 option described by this section must state the terms on which, the 272-25 time within which, and any consideration for which the shares may 272-26 be purchased or received from the corporation on the exercise of 272-27 the right or option. 273-1 (d) Subject to the certificate of formation, convertible 273-2 indebtedness described by this section must state the terms and 273-3 conditions on which, the time within which, and the conversion 273-4 ratio at which the indebtedness may be converted into shares. 273-5 Sec. 21.169. TERMS AND CONDITIONS OF RIGHTS AND OPTIONS. 273-6 (a) The terms and conditions of rights or options may include 273-7 restrictions or conditions that: 273-8 (1) prohibit or limit the exercise, transfer, or 273-9 receipt of the rights or options by certain persons or classes of 273-10 persons, including: 273-11 (A) a person who beneficially owns or offers to 273-12 acquire a specified number or percentage of the outstanding common 273-13 shares, voting power, or other securities of the corporation; or 273-14 (B) a transferee of a person described by 273-15 Paragraph (A); or 273-16 (2) invalidate or void the rights or options held by a 273-17 person or transferee described by Subdivision (1). 273-18 (b) Rights or options created or issued before the effective 273-19 date of this code that comply with this section and are not in 273-20 conflict with other provisions of this code are ratified. 273-21 (c) Unless otherwise provided under the terms of rights or 273-22 options or the agreement or plan under which the rights or options 273-23 are issued, the authority to grant, amend, redeem, extend, or 273-24 replace the rights or options on behalf of a corporation is vested 273-25 exclusively in the board of directors of the corporation, except 273-26 that a bylaw may not require the board to grant, amend, redeem, 273-27 extend, or replace the rights or options. 274-1 Sec. 21.170. CONSIDERATION FOR RIGHTS, OPTIONS, AND 274-2 CONVERTIBLE INDEBTEDNESS. (a) In the absence of fraud in the 274-3 transaction, the judgment of the board of directors of a 274-4 corporation as to the adequacy of the consideration received for 274-5 rights, options, or convertible indebtedness is conclusive. 274-6 (b) A corporation may issue rights or options to its 274-7 shareholders, officers, consultants, independent contractors, 274-8 employees, or directors without consideration if, in the judgment 274-9 of the board of directors, the issuance of the rights or options is 274-10 in the interests of the corporation. 274-11 (c) The consideration for shares having a par value, other 274-12 than treasury shares, and issued on the exercise of the rights or 274-13 options may not be less than the par value of the shares. 274-14 (d) A privilege of conversion may not be conferred on, or 274-15 altered with respect to, any indebtedness that would result in the 274-16 corporation receiving less than the minimum consideration required 274-17 to be received on issuance of the shares. 274-18 (e) The consideration for shares issued on the exercise of 274-19 rights, options, or convertible indebtedness shall be determined as 274-20 provided by Section 21.161. 274-21 Sec. 21.171. TREASURY SHARES. (a) Treasury shares are 274-22 considered to be issued shares and not outstanding shares. 274-23 (b) Treasury shares may not be included in the total assets 274-24 of a corporation for purposes of determining the net assets of a 274-25 corporation. 274-26 Sec. 21.172. EXPENSES OF ORGANIZATION, REORGANIZATION, AND 274-27 FINANCING OF CORPORATION. A corporation may pay or authorize to be 275-1 paid from the consideration received by the corporation as payment 275-2 for the corporation's shares the reasonable charges and expenses of 275-3 the organization or reorganization of the corporation and the sale 275-4 or underwriting of the shares without rendering the shares not 275-5 fully paid and nonassessable. 275-6 (Sections 21.173-21.200 reserved for expansion) 275-7 SUBCHAPTER E. SHAREHOLDER RIGHTS AND RESTRICTIONS 275-8 Sec. 21.201. REGISTERED HOLDERS AS OWNERS. Except as 275-9 otherwise provided by this code and subject to Chapter 8, Business 275-10 & Commerce Code, a corporation may consider the person registered 275-11 as the owner of a share in the share transfer records of the 275-12 corporation at a particular time, including a record date set under 275-13 Section 6.101 or 6.102, as the owner of that share at that time for 275-14 purposes of: 275-15 (1) voting the share; 275-16 (2) receiving distributions on the share; 275-17 (3) transferring the share; 275-18 (4) receiving notice, exercising rights of dissent, 275-19 exercising or waiving a preemptive right, or giving proxies with 275-20 respect to that share; 275-21 (5) entering into agreements with respect to that 275-22 share in accordance with Section 6.251, 6.252, or 21.210; or 275-23 (6) any other shareholder action. 275-24 Sec. 21.202. DEFINITION OF SHARES. In Sections 275-25 21.203-21.207, "shares" includes a security: 275-26 (1) that is convertible into shares; or 275-27 (2) that carries a right to subscribe for or acquire 276-1 shares. 276-2 Sec. 21.203. NO STATUTORY PREEMPTIVE RIGHT UNLESS PROVIDED 276-3 BY CERTIFICATE OF FORMATION. (a) Except as provided by Section 276-4 21.208, a shareholder of a corporation does not have a preemptive 276-5 right under this subchapter to acquire the corporation's unissued 276-6 or treasury shares except to the extent provided by the 276-7 corporation's certificate of formation. 276-8 (b) If the certificate of formation includes a statement 276-9 that the corporation "elects to have a preemptive right" or a 276-10 similar statement, Section 21.204 applies to a shareholder except 276-11 to the extent the certificate of formation expressly provides 276-12 otherwise. 276-13 Sec. 21.204. STATUTORY PREEMPTIVE RIGHTS. (a) If the 276-14 shareholders of a corporation have a preemptive right under this 276-15 subchapter, the shareholders have a preemptive right to acquire 276-16 proportional amounts of the corporation's unissued or treasury 276-17 shares on the decision of the corporation's board of directors to 276-18 issue the shares. The preemptive right granted under this 276-19 subsection is subject to uniform terms and conditions prescribed by 276-20 the board of directors to provide a fair and reasonable opportunity 276-21 to exercise the preemptive right. 276-22 (b) No preemptive right exists with respect to: 276-23 (1) shares issued or granted as compensation to a 276-24 director, officer, agent, or employee of the corporation or a 276-25 subsidiary or affiliate of the corporation; 276-26 (2) shares issued or granted to satisfy conversion or 276-27 option rights created to provide compensation to a director, 277-1 officer, agent, or employee of the corporation or a subsidiary or 277-2 affiliate of the corporation; 277-3 (3) shares authorized in the corporation's certificate 277-4 of formation that are issued not later than the 180th day after the 277-5 effective date of the corporation's formation; or 277-6 (4) shares sold, issued, or granted by the corporation 277-7 for consideration other than money. 277-8 (c) A holder of a share of a class without general voting 277-9 rights but with a preferential right to distributions of profits, 277-10 income, or assets does not have a preemptive right with respect to 277-11 shares of any class. 277-12 (d) A holder of a share of a class with general voting 277-13 rights but without preferential rights to distributions of profits, 277-14 income, or assets does not have a preemptive right with respect to 277-15 shares of any class with preferential rights to distributions of 277-16 profits, income, or assets unless the shares with preferential 277-17 rights are convertible into or carry a right to subscribe for or 277-18 acquire shares without preferential rights. 277-19 (e) For a one-year period after the date the shares have 277-20 been offered to shareholders, shares subject to preemptive rights 277-21 that are not acquired by a shareholder may be issued to a person at 277-22 a consideration set by the corporation's board of directors that is 277-23 not lower than the consideration set for the exercise of preemptive 277-24 rights. An offer at a lower consideration or after the expiration 277-25 of the period prescribed by this subsection is subject to the 277-26 shareholder's preemptive rights. 277-27 Sec. 21.205. WAIVER OF PREEMPTIVE RIGHT. (a) A shareholder 278-1 may waive a preemptive right granted to the shareholder. 278-2 (b) A written waiver of a preemptive right is irrevocable 278-3 regardless of whether the waiver is supported by consideration. 278-4 Sec. 21.206. LIMITATION ON ACTION TO ENFORCE PREEMPTIVE 278-5 RIGHT. (a) An action brought against a corporation, the board of 278-6 directors or an officer, shareholder, or agent of the corporation, 278-7 or an owner of a beneficial interest in shares of the corporation 278-8 for the violation of a preemptive right of a shareholder must be 278-9 brought not later than the earlier of: 278-10 (1) the first anniversary of the date written notice 278-11 is given to each shareholder whose preemptive right was violated; 278-12 or 278-13 (2) the fourth anniversary of the latest of: 278-14 (A) the date the corporation issued the shares, 278-15 securities, or rights; 278-16 (B) the date the corporation sold the shares, 278-17 securities, or rights; or 278-18 (C) the date the corporation otherwise 278-19 distributed the shares, securities, or rights. 278-20 (b) The notice required by Subsection (a)(1) must: 278-21 (1) be given to the holder at the address for the 278-22 holder as shown on the appropriate records of the corporation; and 278-23 (2) inform the holder that the issuance, sale, or 278-24 other distribution of shares, securities, or rights violated the 278-25 holder's preemptive right. 278-26 Sec. 21.207. DISPOSITION OF SHARES HAVING PREEMPTIVE RIGHTS. 278-27 The transferee or successor of a share that has been transferred or 279-1 otherwise disposed of by a shareholder of a corporation whose 279-2 preemptive right to acquire shares in the corporation has been 279-3 violated does not acquire the preemptive right, or any right or 279-4 claim based on the violation, unless the previous shareholder has 279-5 assigned the preemptive right to the transferee or successor. 279-6 Sec. 21.208. PREEMPTIVE RIGHT IN EXISTING CORPORATION. 279-7 Subject to the certificate of formation, a shareholder of a 279-8 corporation incorporated before the effective date of this code has 279-9 a preemptive right to acquire unissued or treasury shares of the 279-10 corporation to the extent provided by Sections 21.204, 21.206, and 279-11 21.207. After the effective date of this code, a corporation may 279-12 limit or deny the preemptive right of the shareholders of the 279-13 corporation by amending the corporation's certificate of formation. 279-14 Sec. 21.209. TRANSFER OF SHARES AND OTHER SECURITIES. 279-15 Except as otherwise provided by this code, the shares and other 279-16 securities of a corporation are transferable in accordance with 279-17 Chapter 8, Business & Commerce Code. 279-18 Sec. 21.210. RESTRICTION ON TRANSFER OF SHARES AND OTHER 279-19 SECURITIES. (a) A restriction on the transfer or registration of 279-20 transfer of a security may be imposed by: 279-21 (1) the corporation's certificate of formation; 279-22 (2) the corporation's bylaws; 279-23 (3) a written agreement among two or more holders of 279-24 the securities; or 279-25 (4) a written agreement among one or more holders of 279-26 the securities and the corporation if: 279-27 (A) the corporation files a copy of the 280-1 agreement at the principal place of business or registered office 280-2 of the corporation; and 280-3 (B) the copy of the agreement is subject to the 280-4 same right of examination by a shareholder of the corporation, in 280-5 person or by agent, attorney, or accountant, as the books and 280-6 records of the corporation. 280-7 (b) A restriction imposed under Subsection (a) is not valid 280-8 with respect to a security issued before the restriction has been 280-9 adopted, unless the holder of the security voted in favor of the 280-10 restriction or is a party to the agreement imposing the 280-11 restriction. 280-12 Sec. 21.211. VALID RESTRICTIONS ON TRANSFER. 280-13 Notwithstanding Sections 21.210 and 21.213, a restriction placed on 280-14 the transfer or registration of transfer of a security of a 280-15 corporation is valid if the restriction reasonably: 280-16 (1) obligates the holder of the restricted security to 280-17 offer a person, including the corporation or other holders of 280-18 securities of the corporation, an opportunity to acquire the 280-19 restricted security within a reasonable time before the transfer; 280-20 (2) obligates the corporation, to the extent provided 280-21 by this code, or another person to purchase securities that are the 280-22 subject of an agreement relating to the purchase and sale of the 280-23 restricted security; 280-24 (3) requires the corporation or the holders of a class 280-25 of the corporation's securities to consent to a proposed transfer 280-26 of the restricted security or to approve the proposed transferee of 280-27 the restricted security for the purpose of preventing a violation 281-1 of law; 281-2 (4) prohibits the transfer of the restricted security 281-3 to a designated person or group of persons and the designation is 281-4 not manifestly unreasonable; 281-5 (5) maintains the status of the corporation as an 281-6 electing small business corporation under Subchapter S of the 281-7 Internal Revenue Code; 281-8 (6) maintains a tax advantage to the corporation; or 281-9 (7) maintains the status of the corporation as a close 281-10 corporation under Subchapter O. 281-11 Sec. 21.212. BYLAW OR AGREEMENT RESTRICTING TRANSFER OF 281-12 SHARES OR OTHER SECURITIES. (a) A corporation that has adopted a 281-13 bylaw or is a party to an agreement that restricts the transfer of 281-14 the shares or other securities of the corporation may file with the 281-15 secretary of state, in accordance with Chapter 4, a copy of the 281-16 bylaw or agreement and a statement attached to the copy that: 281-17 (1) contains the name of the corporation; 281-18 (2) states that the attached copy of the bylaw or 281-19 agreement is a true and correct copy of the bylaw or agreement; and 281-20 (3) states that the filing has been authorized by the 281-21 board of directors or, in the case of a corporation that is managed 281-22 in some other manner under a shareholders' agreement, by the person 281-23 empowered by the agreement to manage the corporation's business and 281-24 affairs. 281-25 (b) After a statement described by Subsection (a) is filed 281-26 with the secretary of state, the bylaws or agreement restricting 281-27 the transfer of shares or other securities is a public record, and 282-1 the fact that the statement has been filed may be stated on a 282-2 certificate representing the restricted shares or securities if 282-3 required by Section 3.202. 282-4 (c) A corporation that is a party to an agreement 282-5 restricting the transfer of the shares or other securities of the 282-6 corporation may make the agreement part of the corporation's 282-7 certificate of formation without restating the provisions of the 282-8 agreement in the certificate of formation by amending the 282-9 certificate of formation. If the agreement alters any provision of 282-10 the certificate of formation, the certificate of amendment shall 282-11 identify the altered provision by reference or description. If the 282-12 agreement is an addition to the certificate of formation, the 282-13 certificate of amendment must state that fact. 282-14 (d) The certificate of amendment must: 282-15 (1) include a copy of the agreement restricting the 282-16 transfer of shares or other securities; 282-17 (2) state that the attached copy of the agreement is a 282-18 true and correct copy of the agreement; and 282-19 (3) state that inclusion of the certificate of 282-20 amendment as part of the certificate of formation has been 282-21 authorized in the manner required by this code to amend the 282-22 certificate of formation. 282-23 Sec. 21.213. ENFORCEABILITY OF RESTRICTION ON TRANSFER OF 282-24 CERTAIN SECURITIES. (a) A restriction placed on the transfer or 282-25 registration of the transfer of a security of a corporation is 282-26 specifically enforceable against the holder, or a successor or 282-27 transferee of the holder, if: 283-1 (1) the restriction is reasonable and noted 283-2 conspicuously on the certificate or other instrument representing 283-3 the security; or 283-4 (2) with respect to an uncertificated security, the 283-5 restriction is reasonable and a notation of the restriction is 283-6 contained in the notice sent with respect to the security under 283-7 Section 3.205. 283-8 (b) Unless noted in the manner specified by Subsection (a) 283-9 with respect to a certificate or other instrument or an 283-10 uncertificated security, an otherwise enforceable restriction is 283-11 ineffective against a transferee for value without actual knowledge 283-12 of the restriction at the time of the transfer or against a 283-13 subsequent transferee, regardless of whether the transfer is for 283-14 value. A restriction is specifically enforceable against a person 283-15 other than a transferee for value from the time the person acquires 283-16 actual knowledge of the restriction's existence. 283-17 Sec. 21.214. JOINT OWNERSHIP OF SHARES. (a) If shares are 283-18 registered on the books of a corporation in the names of two or 283-19 more persons as joint owners with the right of survivorship and one 283-20 of the owners dies, the corporation may record on its books and 283-21 effect the transfer of the shares to a person, including the 283-22 surviving joint owner, and pay any distributions made with respect 283-23 to the shares, as if the surviving joint owner was the absolute 283-24 owner of the shares. The recording and distribution authorized by 283-25 this subsection must be made after the death of a joint owner and 283-26 before the corporation receives actual written notice that a party 283-27 other than a surviving joint owner is claiming an interest in the 284-1 shares or distribution. 284-2 (b) The discharge of a corporation from liability under 284-3 Section 21.216 and the transfer of full legal and equitable title 284-4 of the shares does not affect, reduce, or limit any cause of action 284-5 existing in favor of an owner of an interest in the shares or 284-6 distributions against the surviving owner. 284-7 Sec. 21.215. LIABILITY FOR DESIGNATING OWNER OF SHARES. A 284-8 corporation or an officer, director, employee, or agent of the 284-9 corporation may not be held liable for considering a person to be 284-10 the owner of a share for a purpose described by Section 21.201, 284-11 regardless of whether the person possesses a certificate for that 284-12 share. 284-13 Sec. 21.216. LIABILITY REGARDING JOINT OWNERSHIP OF SHARES. 284-14 A corporation that transfers shares or makes a distribution to a 284-15 surviving joint owner under Section 21.214 before the corporation 284-16 has received a written claim for the shares or distribution from 284-17 another person is discharged from liability for the transfer or 284-18 payment. 284-19 Sec. 21.217. LIABILITY OF ASSIGNEE OR TRANSFEREE. An 284-20 assignee or transferee of certificated shares, uncertificated 284-21 shares, or a subscription for shares in good faith and without 284-22 knowledge that full consideration for the shares or subscription 284-23 has not been paid may not be held personally liable to the 284-24 corporation or a creditor of the corporation for an unpaid portion 284-25 of the consideration. 284-26 Sec. 21.218. EXAMINATION OF RECORDS. (a) In this section, 284-27 a holder of a beneficial interest in a voting trust entered into 285-1 under Section 6.251 is a holder of the shares represented by the 285-2 beneficial interest. 285-3 (b) Subject to the governing documents and on written demand 285-4 stating a proper purpose, an owner of outstanding shares of a 285-5 corporation for at least six months immediately preceding the 285-6 owner's demand, or a holder of at least five percent of all of the 285-7 outstanding shares of a corporation, is entitled to examine and 285-8 copy, at a reasonable time, the corporation's relevant books, 285-9 records of account, minutes, and share transfer records. The 285-10 examination may be conducted in person or through an agent, 285-11 accountant, or attorney. 285-12 (c) This section does not impair the power of a court, on 285-13 the presentation of proof of proper purpose by a beneficial or 285-14 record holder of shares, to compel the production for examination 285-15 by the holder of the books and records of accounts, minutes, and 285-16 share transfer records of a corporation, regardless of the period 285-17 during which the holder was a beneficial holder or record holder 285-18 and regardless of the number of shares held by the person. 285-19 Sec. 21.219. ANNUAL AND INTERIM STATEMENTS OF CORPORATION. 285-20 (a) On written request of a shareholder of the corporation, a 285-21 corporation shall mail to the shareholder: 285-22 (1) the annual statements of the corporation for the 285-23 last fiscal year that contain in reasonable detail the 285-24 corporation's assets and liabilities and the results of the 285-25 corporation's operations; and 285-26 (2) the most recent interim statements, if any, that 285-27 have been filed in a public record or other publication. 286-1 (b) The corporation shall be allowed a reasonable time to 286-2 prepare the annual statements. 286-3 Sec. 21.220. PENALTY FOR FAILURE TO PREPARE VOTING LIST. An 286-4 officer or agent of a corporation who is in charge of the 286-5 corporation's share transfer records and who does not prepare the 286-6 list of owners, keep the list on file for a 10-day period, or 286-7 produce and keep the list available for inspection at the annual 286-8 meeting as required by Sections 6.004 and 21.354 is liable to an 286-9 owner who suffers damages because of the failure for the damage 286-10 caused by the failure. 286-11 Sec. 21.221. PENALTY FOR FAILURE TO PROVIDE NOTICE OF 286-12 MEETING. If an officer or agent of a corporation is unable to 286-13 comply with the duties prescribed by Sections 6.004 and 21.354 286-14 because the officer or agent did not receive notice of a meeting of 286-15 owners within a sufficient time before the date of the meeting, the 286-16 corporation, rather than the officer or agent, is liable to an 286-17 owner who suffers damages because of the failure for the extent of 286-18 the damage caused by the failure. 286-19 Sec. 21.222. PENALTY FOR REFUSAL TO PERMIT EXAMINATION OF 286-20 CERTAIN RECORDS. (a) A corporation that refuses to allow a person 286-21 to examine and make copies of account records, minutes, and share 286-22 transfer records under Section 21.218 is liable to the owner for 286-23 any cost or expense, including attorney's fees, incurred in 286-24 enforcing the owner's rights under Section 21.218. The liability 286-25 imposed on a corporation under this subsection is in addition to 286-26 any other damages or remedy afforded to the owner by law. 286-27 (b) It is a defense to an action brought under this section 287-1 that the person suing has within the two years preceding the date 287-2 the action is brought: 287-3 (1) sold or offered for sale a list of owners or of 287-4 holders of voting trust certificates in consideration for shares of 287-5 the corporation or any other corporation; 287-6 (2) aided or abetted a person in procuring a list of 287-7 owners or of holders of voting trust certificates for the purpose 287-8 described by Subdivision (1); or 287-9 (3) improperly used in making its request for 287-10 examination information obtained through a prior examination of the 287-11 books and account records, minutes, or share transfer records of 287-12 the corporation or any other corporation that was not acting in 287-13 good faith or for a proper purpose in making its request for 287-14 examination. 287-15 (Sections 21.223-21.250 reserved for expansion) 287-16 SUBCHAPTER F. REDUCTIONS IN STATED CAPITAL; CANCELLATION 287-17 OF TREASURY SHARES 287-18 Sec. 21.251. REDUCTION OF STATED CAPITAL BY REDEMPTION OR 287-19 PURCHASE OF REDEEMABLE SHARES. (a) At the time a corporation 287-20 redeems or purchases the redeemable shares of the corporation, the 287-21 redemption or purchase has the effect of: 287-22 (1) canceling the shares, so a statement of 287-23 cancellation must be filed in accordance with Chapter 4 and Section 287-24 21.252; and 287-25 (2) restoring the shares to the status of authorized 287-26 but unissued shares, unless the corporation's certificate of 287-27 formation provides that shares may not be reissued after the shares 288-1 are redeemed or purchased by the corporation. 288-2 (b) If the corporation is prohibited from reissuing the 288-3 shares by the certificate of formation following a redemption or 288-4 purchase under Subsection (a), the filing of the statement of 288-5 cancellation operates as an amendment to the certificate of 288-6 formation and reduces the number of shares of the class that the 288-7 corporation is authorized to issue by the number of shares 288-8 canceled. 288-9 (c) If shares redeemed or purchased by a corporation under 288-10 Subsection (a) constitute all of the outstanding shares of a 288-11 particular class of shares and the certificate of formation 288-12 provides that the shares of the class, when redeemed and 288-13 repurchased, may not be reissued, the filing of the statement of 288-14 cancellation operates as an amendment to the certificate of 288-15 formation by deleting all references to the class of shares and 288-16 reduces the classes of shares the corporation is authorized to 288-17 issue accordingly. 288-18 Sec. 21.252. CONTENTS AND FILING OF STATEMENT OF 288-19 CANCELLATION OF CERTAIN REDEEMABLE SHARES. (a) The statement of 288-20 cancellation required by Section 21.251 must state: 288-21 (1) the name of the corporation; 288-22 (2) the number of redeemable shares canceled through 288-23 the redemption or purchase, itemized by class and series; 288-24 (3) the aggregate number of issued shares after the 288-25 cancellation takes effect, itemized by class and series; 288-26 (4) the dollar amount of the stated capital of the 288-27 corporation after the cancellation takes effect; and 289-1 (5) if the corporation's certificate of formation 289-2 provides that the corporation may not reissue canceled shares, the 289-3 number of shares the corporation is authorized to issue after the 289-4 cancellation takes effect, itemized by class and series. 289-5 (b) The filing of the statement of cancellation has the 289-6 effect of reducing the stated capital of the corporation by an 289-7 amount equal to that part of the stated capital that was, at the 289-8 time of the cancellation, represented by the canceled shares. 289-9 (c) This section does not prohibit a cancellation of shares 289-10 or a reduction of stated capital in any other manner permitted by 289-11 law. 289-12 Sec. 21.253. CANCELLATION OF TREASURY SHARES. (a) A 289-13 corporation, by resolution of the board of directors of the 289-14 corporation, may cancel all or part of the corporation's treasury 289-15 shares at any time. 289-16 (b) A corporation that cancels all or part of the treasury 289-17 shares of the corporation must file a statement of cancellation in 289-18 accordance with Chapter 4 that states: 289-19 (1) the name of the corporation; 289-20 (2) that a resolution authorizing the cancellation was 289-21 adopted by all necessary action on the part of the corporation; 289-22 (3) the date of adoption of the resolution authorizing 289-23 the cancellation and a summary of the resolution's contents, 289-24 including a statement of: 289-25 (A) the number of treasury shares to be 289-26 canceled, itemized by class and series; and 289-27 (B) the amount of stated capital represented by 290-1 the shares to be canceled; 290-2 (4) the aggregate number of shares that are to retain 290-3 the status of issued shares after the cancellation takes effect, 290-4 itemized by class and series and par value, if any; and 290-5 (5) the dollar amount of the stated capital of the 290-6 corporation after the cancellation takes effect. 290-7 (c) On the filing of a statement of cancellation, the stated 290-8 capital of the corporation shall be reduced by that part of the 290-9 stated capital that was, at the time of the cancellation, 290-10 represented by the canceled shares, and the canceled shares shall 290-11 be restored to the status of authorized but unissued shares. 290-12 (d) This section does not prohibit a cancellation of shares 290-13 or a reduction of stated capital in any other manner permitted by 290-14 law. 290-15 Sec. 21.254. PROCEDURES FOR REDUCTION OF STATED CAPITAL BY 290-16 BOARD OF DIRECTORS. (a) If all or part of the stated capital of a 290-17 corporation is represented by shares without par value, the stated 290-18 capital of the corporation may be reduced in the manner provided by 290-19 this section. 290-20 (b) The board of directors shall adopt a resolution that: 290-21 (1) states the amount of the proposed reduction of the 290-22 stated capital and the manner in which the reduction will be 290-23 effected; and 290-24 (2) directs that the proposed reduction be submitted 290-25 to a vote of the shareholders at an annual or special meeting. 290-26 (c) Each shareholder of record entitled to vote on the 290-27 reduction of stated capital shall be given written notice stating 291-1 that the purpose or one of the purposes of the meeting is to 291-2 consider the matter of reducing the stated capital of the 291-3 corporation in the amount and manner proposed by the board of 291-4 directors. The notice shall be given in the time and manner 291-5 provided by this code for giving notice of shareholders' meetings. 291-6 (d) The affirmative vote of the holders of at least the 291-7 majority of the shares entitled to vote on the matter is required 291-8 for approval of the resolution proposing the reduction of stated 291-9 capital. 291-10 Sec. 21.255. STATEMENT OF REDUCTION OF STATED CAPITAL BY 291-11 BOARD. (a) When a reduction of the stated capital of a 291-12 corporation has been approved by the shareholders under Section 291-13 21.254, a statement on behalf of the corporation must be filed in 291-14 accordance with Chapter 4 that: 291-15 (1) states the name of the corporation; 291-16 (2) contains a copy of the resolution of the 291-17 shareholders approving the reduction; 291-18 (3) states the date of the resolution's adoption; 291-19 (4) states the number of shares outstanding and the 291-20 number of shares entitled to vote on the resolution; 291-21 (5) states the number of shares that voted for and 291-22 against the reduction; and 291-23 (6) states the manner in which the reduction is 291-24 effected and the dollar amount of the stated capital of the 291-25 corporation after the reduction takes effect. 291-26 (b) On the filing of the statement, the stated capital of 291-27 the corporation shall be reduced in the manner provided by the 292-1 statement. 292-2 Sec. 21.256. RESTRICTION ON REDUCTION OF STATED CAPITAL. 292-3 The stated capital of a corporation may not be reduced under this 292-4 subchapter if the amount of the aggregate stated capital of the 292-5 corporation would be reduced to an amount equal to or less than the 292-6 sum of the: 292-7 (1) aggregate preferential amounts payable on all 292-8 issued shares with a preferential right to the assets of the 292-9 corporation in the event of voluntary winding up and termination; 292-10 and 292-11 (2) aggregate par value of all issued shares with par 292-12 value but no preferential right to the assets of the corporation in 292-13 the event of voluntary winding up and termination. 292-14 (Sections 21.257-21.300 reserved for expansion) 292-15 SUBCHAPTER G. DISTRIBUTIONS AND SHARE DIVIDENDS 292-16 Sec. 21.301. DEFINITIONS. In this subchapter: 292-17 (1) "Distribution limit," with respect to a 292-18 distribution made by a corporation, other than a distribution 292-19 described by Subdivision (2), means: 292-20 (A) the net assets of the corporation if the 292-21 distribution: 292-22 (i) is a purchase or redemption of its own 292-23 shares by a corporation that: 292-24 (a) is eliminating 292-25 fractional shares; 292-26 (b) is collecting or 292-27 compromising indebtedness owed by or to the corporation; or 293-1 (c) is paying dissenting 293-2 shareholders entitled to payment for their shares under this code; 293-3 or 293-4 (ii) is not the purchase or redemption of 293-5 its own shares by a consuming asset corporation; or 293-6 (B) the surplus of the corporation for a 293-7 distribution not described by Paragraph (A). 293-8 (2) "Distribution limit," with respect to a 293-9 distribution that is a purchase or redemption of its own shares by 293-10 an investment company the certificate of formation of which 293-11 provides that the company may purchase the company's own shares out 293-12 of stated capital, means the net assets of the investment company 293-13 rather than the surplus of the investment company. 293-14 (3) "Investment company" means a corporation 293-15 registered as an open-end company under the Investment Company Act. 293-16 Sec. 21.302. AUTHORITY FOR DISTRIBUTIONS. The board of 293-17 directors of a corporation may authorize a distribution and the 293-18 corporation may make a distribution, subject to Section 21.303. 293-19 Sec. 21.303. LIMITATIONS ON DISTRIBUTIONS. (a) A 293-20 corporation may not make a distribution that violates the 293-21 corporation's certificate of formation. 293-22 (b) Unless the distribution is made in compliance with 293-23 Chapter 11, a corporation may not make a distribution that: 293-24 (1) will cause the corporation to become insolvent; or 293-25 (2) exceeds the distribution limit. 293-26 Sec. 21.304. REDEMPTIONS. (a) A distribution by a 293-27 corporation that involves a redemption of outstanding redeemable 294-1 shares of the corporation subject to redemption may be related to 294-2 any or all of those shares. 294-3 (b) If less than all of the outstanding redeemable shares of 294-4 a corporation subject to redemption are to be redeemed, the shares 294-5 to be redeemed shall be selected for redemption: 294-6 (1) in accordance with the corporation's certificate 294-7 of formation; or 294-8 (2) ratably or by lot in the manner prescribed by 294-9 resolution of the corporation's board of directors, if the 294-10 certificate of formation does not specify how shares are to be 294-11 selected for redemption. 294-12 (c) A redemption of redeemable shares takes effect by call 294-13 and written notice of the redemption of the shares. 294-14 Sec. 21.305. NOTICE OF REDEMPTION. (a) A notice of 294-15 redemption of redeemable shares of a corporation must state: 294-16 (1) the class or series of shares or part of the class 294-17 or series of shares to be redeemed; 294-18 (2) the date set for redemption; 294-19 (3) the redemptive price; and 294-20 (4) the place at which the shareholders may obtain 294-21 payment of the redemptive price. 294-22 (b) The notice of redemption shall be given to each holder 294-23 of redeemable shares being called not later than the 21st day or 294-24 earlier than the 60th day before the date set for redemption. 294-25 (c) A notice that is mailed is considered to have been given 294-26 when the notice is deposited in the United States mail, with 294-27 postage prepaid, addressed to the shareholder at the shareholder's 295-1 address as it appears on the share transfer records of the 295-2 corporation. 295-3 (d) A corporation may give the transfer agent described by 295-4 Section 21.306 irrevocable instructions to give or complete the 295-5 notice of redemption. 295-6 Sec. 21.306. DEPOSIT OF MONEY FOR REDEMPTION. (a) After 295-7 the date the notice of redemption required by Section 21.305 is 295-8 sent and before the day after the date set for redemption of 295-9 redeemable shares of the corporation, a corporation may deposit 295-10 with a bank or trust company in this or another state of the United 295-11 States appointed and acting as transfer agent for the corporation 295-12 an amount sufficient to redeem the shares called for redemption. 295-13 The amount must be deposited as a trust fund. 295-14 (b) Unless the corporation's certificate of formation 295-15 provides otherwise, if a corporation deposits money and gives 295-16 payment instructions in accordance with Subsection (a) and Section 295-17 21.307(b): 295-18 (1) the shares called for redemption are considered 295-19 redeemed, and distributions on those shares cease to accrue on and 295-20 after the date set for redemption; and 295-21 (2) the deposit constitutes full payment of the shares 295-22 called for redemption to the holders of the shares on and after the 295-23 date set for redemption. 295-24 (c) Unless the certificate of formation provides otherwise, 295-25 after the date a deposit is made and instructions are given under 295-26 this section and Section 21.307(b), the shares called for 295-27 redemption are not considered outstanding, and the holders of the 296-1 shares cease to be shareholders of the shares and have no right 296-2 with respect to the shares other than: 296-3 (1) the right to receive payment of the redemptive 296-4 price of the shares without interest from the bank or trust 296-5 company; and 296-6 (2) any right to convert those shares. 296-7 (d) Unless the certificate of formation provides otherwise, 296-8 a bank or trust company receiving a deposit under this section 296-9 shall pay to the corporation on demand the balance of the amount 296-10 deposited if one or more holders of the shares called for 296-11 redemption do not claim for redemption the amount deposited on or 296-12 before the sixth anniversary of the date of the deposit. After 296-13 making a payment under this subsection, the bank or trust company 296-14 is relieved of all responsibility to the holders with respect to 296-15 the amount deposited. 296-16 Sec. 21.307. PAYMENT OF REDEEMED SHARES. (a) Payment of a 296-17 certificated share shall be made only on the surrender of the 296-18 respective share certificate. 296-19 (b) On or after the date set for redemption of redeemable 296-20 shares, a corporation may give a transfer agent described by 296-21 Section 21.306 irrevocable instructions to pay the redemptive price 296-22 to the respective holders of the shares as evidenced by a list of 296-23 shareholders certified by an officer of the corporation. 296-24 Sec. 21.308. PRIORITY OF DISTRIBUTIONS. (a) Except as 296-25 provided by Subsection (b) or (c), a corporation's indebtedness 296-26 that arises as a result of the declaration of a distribution and a 296-27 corporation's indebtedness issued in a distribution are at parity 297-1 with the corporation's indebtedness to its general, unsecured 297-2 creditors. 297-3 (b) The indebtedness described by Subsection (a) shall be 297-4 subordinated to the extent required by an agreement binding on the 297-5 corporation on the date the indebtedness arises or if agreed to by 297-6 the person to whom the indebtedness is owed or, with respect to 297-7 indebtedness issued in a distribution, as provided by the 297-8 corporation. 297-9 (c) The indebtedness described by Subsection (a) shall be 297-10 secured to the extent required by an agreement binding on the 297-11 corporation. 297-12 Sec. 21.309. RESERVES, DESIGNATIONS, AND ALLOCATIONS FROM 297-13 SURPLUS. (a) A corporation, by resolution of the board of 297-14 directors of the corporation, may: 297-15 (1) create a reserve out of the surplus of the 297-16 corporation; or 297-17 (2) designate or allocate in any manner a part or all 297-18 of the corporation's surplus for a proper purpose. 297-19 (b) A corporation may increase, decrease, or abolish a 297-20 reserve, designation, or allocation in the manner provided by 297-21 Subsection (a). 297-22 Sec. 21.310. AUTHORITY FOR SHARE DISTRIBUTIONS. The board 297-23 of directors of a corporation may authorize a share distribution 297-24 and the corporation may pay a share distribution subject to Section 297-25 21.311. 297-26 Sec. 21.311. LIMITATIONS ON SHARE DISTRIBUTIONS. A 297-27 corporation may not pay a share distribution in authorized but 298-1 unissued shares of any class if: 298-2 (1) the share distribution will violate the 298-3 corporation's certificate of formation; 298-4 (2) the surplus of the corporation is less than the 298-5 amount required by Section 21.313 to be transferred to stated 298-6 capital at the time the share distribution is paid; or 298-7 (3) the share distribution will be paid to a holder of 298-8 shares of any other class or series, unless the: 298-9 (A) corporation's certificate of formation 298-10 provides for the distribution; or 298-11 (B) payment is authorized by the holders of at 298-12 least a majority of the outstanding shares of the class or series 298-13 in which the payment is to be made. 298-14 Sec. 21.312. VALUE OF SHARES ISSUED AS SHARE DISTRIBUTIONS. 298-15 (a) A share distribution payable in authorized but unissued shares 298-16 with par value shall be issued at the par value of the respective 298-17 share. 298-18 (b) A share distribution payable in authorized but unissued 298-19 shares without par value shall be issued at the value set by the 298-20 board of directors on the date the share distribution is 298-21 authorized. 298-22 Sec. 21.313. TRANSFER OF SURPLUS FOR SHARE DISTRIBUTIONS. 298-23 (a) On the date a share distribution payable in authorized but 298-24 unissued shares with par value is paid by a corporation, an amount 298-25 of surplus designated by the corporation's board of directors that 298-26 is not less than the aggregate par value of the shares issued as a 298-27 share distribution shall be transferred to stated capital. 299-1 (b) On the date a share distribution payable in authorized 299-2 but unissued shares without par value is paid by a corporation, an 299-3 amount of surplus equal to the aggregate value set by the 299-4 corporation's board of directors with respect to shares under 299-5 Section 21.312(b) shall be transferred to stated capital. 299-6 Sec. 21.314. DETERMINATION OF SOLVENCY, NET ASSETS, STATED 299-7 CAPITAL, AND SURPLUS. (a) For purposes of this subchapter, the 299-8 determination of whether a corporation is or would be insolvent and 299-9 the determination of the value of a corporation's net assets, 299-10 stated capital, or surplus and each of the components of net 299-11 assets, stated capital, or surplus may be based on: 299-12 (1) financial statements of the corporation, including 299-13 financial statements that: 299-14 (A) include subsidiary corporations or other 299-15 corporations accounted for on a consolidated basis or on the equity 299-16 method of accounting; or 299-17 (B) present the financial condition of the 299-18 corporation in accordance with generally accepted accounting 299-19 principles; 299-20 (2) financial statements prepared using the method of 299-21 accounting used to file the corporation's federal income tax return 299-22 or using any other accounting practices and principles that are 299-23 reasonable under the circumstances; 299-24 (3) financial information, including condensed or 299-25 summary financial statements, that is prepared on the same basis as 299-26 financial statements described by Subdivision (1) or (2); 299-27 (4) projection, forecast, or other forward-looking 300-1 information relating to the future economic performance, financial 300-2 condition, or liquidity of the corporation that is reasonable under 300-3 the circumstances; 300-4 (5) a fair valuation or information from any other 300-5 method that is reasonable under the circumstances; or 300-6 (6) a combination of a statement, valuation, or 300-7 information authorized by this section. 300-8 (b) Subsection (a) does not apply to the computation of the 300-9 Texas franchise tax or any other tax imposed on a corporation under 300-10 the laws of this state. 300-11 Sec. 21.315. DATE OF DETERMINATION OF SOLVENCY, NET ASSETS, 300-12 STATED CAPITAL, AND SURPLUS. (a) For purposes of this subchapter, 300-13 a determination of whether a corporation is or would be made 300-14 insolvent by a distribution or share distribution or a 300-15 determination of the value of a corporation's net assets, stated 300-16 capital, or surplus, or each component of net assets, stated 300-17 capital, or surplus, shall be made: 300-18 (1) on the date the distribution or share distribution 300-19 is authorized by the corporation's board of directors if the 300-20 distribution or share distribution is made not later than the 120th 300-21 day after the date of authorization; 300-22 (2) on the date designated by the corporation's board 300-23 of directors for the determination to be made if: 300-24 (A) the distribution or share distribution is 300-25 made more than 120 days after the date of authorization; and 300-26 (B) the date designated by the corporation's 300-27 board of directors is not later than the 121st day before the date 301-1 the distribution or share distribution is made; or 301-2 (3) on the date the distribution or share distribution 301-3 is made if: 301-4 (A) the distribution or share distribution is 301-5 made more than 120 days after the date of authorization; and 301-6 (B) the corporation's board of directors does 301-7 not make the designation described by Subdivision (2). 301-8 (b) For purposes of this section, a distribution that 301-9 involves the incurrence by a corporation of indebtedness or a 301-10 deferred payment obligation or that involves a requirement in the 301-11 corporation's certificate of formation or other contract of the 301-12 corporation to redeem, exchange, or otherwise acquire any of its 301-13 own shares is considered to have been made, at the option of the 301-14 corporation, on the date: 301-15 (1) the indebtedness or obligation is incurred or the 301-16 provision or other contract is made or takes effect, as 301-17 appropriate; 301-18 (2) the indebtedness or obligation is paid; or 301-19 (3) the shares are redeemed, exchanged, or acquired. 301-20 Sec. 21.316. LIABILITY OF DIRECTORS FOR WRONGFUL 301-21 DISTRIBUTIONS. (a) Subject to Subsection (c), the directors of a 301-22 corporation who vote for or assent to a distribution by the 301-23 corporation that is prohibited by Section 21.303 are jointly and 301-24 severally liable to the corporation for the amount by which the 301-25 distribution exceeds the amount permitted by that section to be 301-26 distributed. 301-27 (b) A director is not liable for all or part of the excess 302-1 amount if a distribution of that amount would have been permitted 302-2 by Section 21.303 after the date the director authorized the 302-3 distribution. 302-4 (c) A director is not jointly and severally liable under 302-5 Subsection (a) if, in voting for or assenting to the distribution, 302-6 the director: 302-7 (1) relied in good faith and with ordinary care on: 302-8 (A) the statements, valuations, or information 302-9 described by Section 21.314; or 302-10 (B) other information, opinions, reports, or 302-11 statements, including financial statements and other financial 302-12 data, concerning the corporation or another person that were 302-13 prepared or presented by: 302-14 (i) one or more officers or employees of 302-15 the corporation; 302-16 (ii) a legal counsel, public accountant, 302-17 investment banker, or other person relating to a matter the 302-18 director reasonably believes is within the person's professional or 302-19 expert competence; or 302-20 (iii) a committee of the board of 302-21 directors of which the director is not a member; 302-22 (2) acting in good faith and with ordinary care, 302-23 considered the assets of the corporation to be valued at least at 302-24 their book value; or 302-25 (3) in determining whether the corporation made 302-26 adequate provision for payment, satisfaction, or discharge of all 302-27 of the corporation's liabilities and obligations, as provided by 303-1 Sections 11.053 and 11.356, relied in good faith and with ordinary 303-2 care on financial statements of, or other information concerning, a 303-3 person who was or became contractually obligated to pay, satisfy, 303-4 or discharge some or all of the corporation's liabilities or 303-5 obligations. 303-6 (d) The liability imposed under Subsection (a) is the only 303-7 liability of a director to the corporation or its creditors for 303-8 authorizing a distribution that is prohibited by Section 21.303. 303-9 (e) This section and Section 21.317 do not limit any 303-10 liability imposed under Chapter 24, Business & Commerce Code, or 303-11 the United States Bankruptcy Code. 303-12 Sec. 21.317. STATUTE OF LIMITATIONS ON ACTION FOR WRONGFUL 303-13 DISTRIBUTION. An action may not be brought against a director of a 303-14 corporation under Section 21.316 after the second anniversary of 303-15 the date the alleged act giving rise to the liability occurred. 303-16 Sec. 21.318. CONTRIBUTION FROM CERTAIN SHAREHOLDERS AND 303-17 DIRECTORS. (a) A director who is held liable for a claim asserted 303-18 under Section 21.316 is entitled to receive contributions from 303-19 shareholders who accepted or received the wrongful distribution 303-20 knowing that it was prohibited by Section 21.303 in proportion to 303-21 the amount received by the shareholders. 303-22 (b) A director who is liable for a claim asserted under 303-23 Section 21.316 is entitled to receive contributions from each of 303-24 the other directors who are liable with respect to that claim in an 303-25 amount appropriate to achieve equity. 303-26 (c) The liability provided by Subsection (a) is the only 303-27 liability of a shareholder to the corporation or a creditor of the 304-1 corporation for accepting or receiving a distribution by the 304-2 corporation that is prohibited by Section 21.303. 304-3 (Sections 21.319-21.350 reserved for expansion) 304-4 SUBCHAPTER H. SHAREHOLDER MEETINGS; VOTING AND QUORUM 304-5 Sec. 21.351. ANNUAL MEETING. (a) An annual meeting of the 304-6 shareholders of a corporation shall be held at a time that is 304-7 stated in or set in accordance with the corporation's bylaws. 304-8 (b) On the application of a shareholder who has previously 304-9 submitted a written request to the corporation that an annual 304-10 meeting be held, a court in the county in which the principal 304-11 executive office of the corporation is located may order a meeting 304-12 to be held if the annual meeting is not held or written consent 304-13 instead of the annual meeting is not executed within any 13-month 304-14 period, unless the meeting is not required to be held under Section 304-15 21.655. 304-16 (c) The failure to hold an annual meeting at the designated 304-17 time does not result in the winding up or termination of the 304-18 corporation. 304-19 Sec. 21.352. SPECIAL MEETINGS. (a) A special meeting of 304-20 the shareholders of a corporation may be called by: 304-21 (1) the president, the board of directors, or any 304-22 other person authorized to call special meetings by the certificate 304-23 of formation or bylaws of the corporation; or 304-24 (2) the holders of at least 10 percent of all of the 304-25 shares of the corporation entitled to vote at the proposed special 304-26 meeting or the percentage of shares specified in the certificate of 304-27 formation, not to exceed 50 percent of the shares entitled to vote. 305-1 (b) Unless stated in or set in accordance with the bylaws, 305-2 the record date for determining which shareholders of the 305-3 corporation are entitled to call a special meeting is the date the 305-4 first shareholder signs the notice of that meeting. 305-5 (c) Other than procedural matters, the only business that 305-6 may be conducted at a special meeting of the shareholders is 305-7 business that is within the purposes described in the notice 305-8 required by Section 21.353. 305-9 Sec. 21.353. NOTICE OF MEETING. (a) Except as provided by 305-10 Section 21.456, written notice of a meeting in accordance with 305-11 Section 6.051 shall be given to each shareholder entitled to vote 305-12 at the meeting not later than the 10th day and not earlier than the 305-13 60th day before the date of the meeting. Notice shall be given at 305-14 the direction of the president, secretary, or other person calling 305-15 the meeting. 305-16 (b) The notice of a special meeting must contain a statement 305-17 regarding the purpose or purposes of the meeting. 305-18 Sec. 21.354. INSPECTION OF VOTING LIST. (a) Subject to the 305-19 corporation's governing documents, the list of shareholders 305-20 entitled to vote at the meeting prepared under Section 6.004 shall 305-21 be: 305-22 (1) subject to inspection by a shareholder during 305-23 regular business hours; and 305-24 (2) produced and kept open at the meeting. 305-25 (b) The original share transfer records are prima facie 305-26 evidence of which shareholders are entitled to inspect the list. 305-27 Sec. 21.355. CLOSING OF SHARE TRANSFER RECORDS. Share 306-1 transfer records that are closed in accordance with Section 6.101 306-2 for the purpose of determining which shareholders are entitled to 306-3 receive notice of a meeting of shareholders shall remain closed for 306-4 at least 10 days immediately preceding the date of the meeting. 306-5 Sec. 21.356. RECORD DATE FOR WRITTEN CONSENT TO ACTION. The 306-6 record date provided in accordance with Section 6.102(a) may not be 306-7 more than 10 days after the date on which the board of directors 306-8 adopts the resolution setting the record date. 306-9 Sec. 21.357. RECORD DATE FOR PURPOSE OTHER THAN WRITTEN 306-10 CONSENT TO ACTION. The record date provided by the directors in 306-11 accordance with Section 6.101 must be at least 10 days before the 306-12 date on which the particular action requiring the determination of 306-13 shareholders is to be taken. 306-14 Sec. 21.358. QUORUM. (a) Subject to Subsection (b), the 306-15 holders of the majority of the shares entitled to vote at a meeting 306-16 of the shareholders of a corporation that are present or 306-17 represented by proxy at the meeting are a quorum for the 306-18 consideration of a matter to be presented at that meeting. 306-19 (b) The certificate of formation of a corporation may 306-20 provide that a quorum is present only if: 306-21 (1) the holders of a specified portion of the shares 306-22 that is greater than the majority of the shares entitled to vote 306-23 are represented at the meeting in person or by proxy; or 306-24 (2) the holders of a specified portion of the shares 306-25 that is less than the majority but not less than one-third of the 306-26 shares entitled to vote are represented at the meeting in person or 306-27 by proxy. 307-1 (c) Unless provided by the certificate of formation or 307-2 bylaws of the corporation, after a quorum is present at a meeting 307-3 of shareholders, the shareholders may conduct business properly 307-4 brought before the meeting until the meeting is adjourned. The 307-5 subsequent withdrawal from the meeting of a shareholder or the 307-6 refusal of a shareholder present at or represented by proxy at the 307-7 meeting to vote does not negate the presence of a quorum at the 307-8 meeting. 307-9 (d) Unless provided by the certificate of formation or 307-10 bylaws, the shareholders of the corporation at a meeting at which a 307-11 quorum is not present may adjourn the meeting until the time and to 307-12 the place as may be determined by a vote of the holders of the 307-13 majority of the shares who are present or represented by proxy at 307-14 the meeting. 307-15 Sec. 21.359. VOTING IN ELECTION OF DIRECTORS. (a) Subject 307-16 to Subsection (b), directors of a corporation shall be elected by a 307-17 plurality of the votes cast by the holders of shares entitled to 307-18 vote in the election of directors at a meeting of shareholders at 307-19 which a quorum is present. 307-20 (b) The certificate of formation or bylaws of a corporation 307-21 may provide that a director of a corporation shall be elected only 307-22 if the director receives: 307-23 (1) the vote of the holders of a specified portion, 307-24 but not less than the majority, of the shares entitled to vote in 307-25 the election of directors; 307-26 (2) the vote of the holders of a specified portion, 307-27 but not less than the majority, of the shares entitled to vote in 308-1 the election of directors and represented in person or by proxy at 308-2 a meeting of shareholders at which a quorum is present; or 308-3 (3) the vote of the holders of a specified portion, 308-4 but not less than the majority, of the votes cast by the holders of 308-5 shares entitled to vote in the election of directors at a meeting 308-6 of shareholders at which a quorum is present. 308-7 Sec. 21.360. NO CUMULATIVE VOTING RIGHT UNLESS AUTHORIZED. 308-8 Except as provided by Section 21.361 or 21.362, a shareholder does 308-9 not have the right to cumulate the shareholder's vote in the 308-10 election of directors. 308-11 Sec. 21.361. CUMULATIVE VOTING IN ELECTION OF DIRECTORS. 308-12 (a) If expressly authorized by a corporation's certificate of 308-13 formation in general or with respect to a specified class or series 308-14 of shares or group of classes or series of shares and subject to 308-15 Subsections (b) and (c), at each election of directors of the 308-16 corporation each shareholder entitled to vote at the election is 308-17 entitled to: 308-18 (1) vote the number of shares owned by the shareholder 308-19 for as many candidates as there are directors to be elected and for 308-20 whose election the shareholder is entitled to vote; or 308-21 (2) cumulate votes by: 308-22 (A) giving one candidate as many votes as the 308-23 total of the number of the directors multiplied by the 308-24 shareholder's shares; or 308-25 (B) distributing the votes among one or more 308-26 candidates using the same principle. 308-27 (b) Cumulative voting permitted by the certificate of 309-1 formation is permitted only in an election of directors in which a 309-2 shareholder who intends to cumulate votes has given written notice 309-3 of that intention to the secretary of the corporation on or before 309-4 the day preceding the date of the election at which the shareholder 309-5 intends to cumulate votes. 309-6 (c) All shareholders entitled to vote cumulatively may 309-7 cumulate their votes if a shareholder gives the notice required by 309-8 Subsection (b). 309-9 Sec. 21.362. CUMULATIVE VOTING RIGHT IN CERTAIN 309-10 CORPORATIONS. Except as provided by the corporation's certificate 309-11 of formation, a shareholder of a corporation incorporated before 309-12 the effective date of this code has the right to cumulatively vote 309-13 the number of shares the shareholder owns in the election of 309-14 directors to the extent permitted and in the manner provided by 309-15 Section 21.361. A corporation may limit or deny a shareholder's 309-16 right to cumulatively vote shares at any time after the effective 309-17 date of this code by amending its certificate of formation. 309-18 Sec. 21.363. VOTING ON MATTERS OTHER THAN ELECTION OF 309-19 DIRECTORS. (a) Subject to Subsection (b), with respect to a 309-20 matter other than the election of directors or a matter for which 309-21 the affirmative vote of the holders of a specified portion of the 309-22 shares entitled to vote is required by this code, the affirmative 309-23 vote of the holders of the majority of the shares entitled to vote 309-24 on, and who voted for, against, or expressly abstained with respect 309-25 to, the matter at a shareholders' meeting of a corporation at which 309-26 a quorum is present is the act of the shareholders. 309-27 (b) With respect to a matter other than the election of 310-1 directors or a matter for which the affirmative vote of the holders 310-2 of a specified portion of the shares entitled to vote is required 310-3 by this code, the certificate of formation or bylaws of a 310-4 corporation may provide that the act of the shareholders of the 310-5 corporation is: 310-6 (1) the affirmative vote of the holders of a specified 310-7 portion, but not less than the majority, of the shares entitled to 310-8 vote on that matter; 310-9 (2) the affirmative vote of the holders of a specified 310-10 portion, but not less than the majority, of the shares entitled to 310-11 vote on that matter and represented in person or by proxy at a 310-12 shareholders' meeting at which a quorum is present; 310-13 (3) the affirmative vote of the holders of a specified 310-14 portion, but not less than the majority, of the shares entitled to 310-15 vote on, and who voted for or against, the matter at a 310-16 shareholders' meeting at which a quorum is present; or 310-17 (4) the affirmative vote of the holders of a specified 310-18 portion, but not less than the majority, of the shares entitled to 310-19 vote on, and who voted for, against, or expressly abstained with 310-20 respect to, the matter at a shareholders' meeting at which a quorum 310-21 is present. 310-22 Sec. 21.364. VOTE REQUIRED TO APPROVE FUNDAMENTAL ACTION. 310-23 (a) In this section, a "fundamental action" means: 310-24 (1) an amendment of a certificate of formation; 310-25 (2) voluntary winding up and termination; or 310-26 (3) revocation of voluntary winding up and 310-27 termination. 311-1 (b) Except as otherwise provided by this code or the 311-2 certificate of formation or bylaws of a corporation in accordance 311-3 with Section 21.363, the vote required for approval of a 311-4 fundamental action by the shareholders is the affirmative vote of 311-5 the holders of at least two-thirds of the outstanding shares 311-6 entitled to vote on the fundamental action. 311-7 (c) If a class or series of shares is entitled to vote as a 311-8 class on a fundamental action, the vote required for approval of 311-9 the action by the shareholders is the affirmative vote of the 311-10 holders of at least two-thirds of the outstanding shares in each 311-11 class or series of shares entitled to vote on the action as a class 311-12 and at least two-thirds of the outstanding shares otherwise 311-13 entitled to vote on the action. Shares entitled to vote as a class 311-14 shall be entitled to vote only as a class unless otherwise entitled 311-15 to vote on each matter submitted to the shareholders generally or 311-16 otherwise provided by the certificate of formation. 311-17 (d) Unless an amendment to the certificate of formation is 311-18 undertaken by the board of directors under Section 21.155, separate 311-19 voting by a class or series of shares of a corporation is required 311-20 for approval of an amendment to the certificate of formation that 311-21 would result in: 311-22 (1) the increase or decrease of the aggregate number 311-23 of authorized shares of the class or series; 311-24 (2) the increase or decrease of the par value of the 311-25 shares of the class, including changing shares with par value into 311-26 shares without par value or changing shares without par value into 311-27 shares with par value; 312-1 (3) effecting an exchange, reclassification, or 312-2 cancellation of all or part of the shares of the class or series; 312-3 (4) effecting an exchange or creating a right of 312-4 exchange of all or part of the shares of another class or series 312-5 into the shares of the class or series; 312-6 (5) the change of the designations, preferences, 312-7 limitations, or relative rights of the shares of the class or 312-8 series; 312-9 (6) the change of the shares of the class or series, 312-10 with or without par value, into the same or a different number of 312-11 shares, with or without par value, of the same class or series or 312-12 another class or series; 312-13 (7) the creation of a new class or series of shares 312-14 with rights and preferences equal, prior, or superior to the shares 312-15 of the class or series; 312-16 (8) increasing the rights and preferences of a class 312-17 or series with rights and preferences equal, prior, or superior to 312-18 the shares of the class or series; 312-19 (9) increasing the rights and preferences of a class 312-20 or series with rights or preferences later or inferior to the 312-21 shares of the class or series in such a manner that the rights or 312-22 preferences will be equal, prior, or superior to the shares of the 312-23 class or series; 312-24 (10) dividing the shares of the class into series and 312-25 setting and determining the designation of the series and the 312-26 variations in the relative rights and preferences between the 312-27 shares of the series; 313-1 (11) the limitation or denial of existing preemptive 313-2 or cumulative rights of the shares of the class or series; 313-3 (12) canceling or otherwise affecting the dividends on 313-4 the shares of the class or series that have accrued but have not 313-5 been declared; or 313-6 (13) the inclusion or deletion from the certificate of 313-7 formation of provisions required or permitted to be included in the 313-8 certificate of formation of a close corporation under Subchapter O. 313-9 (e) Unless otherwise provided by the certificate of 313-10 formation, if the holders of the outstanding shares of a class that 313-11 is divided into series are entitled to vote as a class on a 313-12 proposed amendment that would affect equally all series of the 313-13 class, other than a series in which no shares are outstanding or a 313-14 series that is not affected by the amendment, the holders of the 313-15 separate series are not entitled to separate class votes. 313-16 (f) Unless otherwise provided by the certificate of 313-17 formation, the adoption of a proposed amendment to the certificate 313-18 of formation that would solely effect changes in the designations, 313-19 preferences, limitations, or relative rights, including voting 313-20 rights, of one or more series of shares of the corporation that 313-21 have been established under the authority granted to the board of 313-22 directors in the certificate of formation in accordance with 313-23 Section 21.155 does not require the approval of the holders of the 313-24 outstanding shares of a class or series other than the affected 313-25 series if, after giving effect to the amendment: 313-26 (1) the preferences, limitations, or relative rights 313-27 of the affected series may be set and determined by the board of 314-1 directors with respect to the establishment of a new series of 314-2 shares under the authority granted to the board of directors in the 314-3 certificate of formation in accordance with Section 21.155; or 314-4 (2) any new series established as a result of a 314-5 reclassification of the affected series are within the preferences, 314-6 limitations, and relative rights that are described by Subdivision 314-7 (1). 314-8 Sec. 21.365. CHANGES IN VOTE REQUIRED FOR CERTAIN MATTERS. 314-9 (a) With respect to a matter for which the affirmative vote of the 314-10 holders of a specified portion of the shares entitled to vote is 314-11 required by this code, the certificate of formation of a 314-12 corporation may provide that the affirmative vote of the holders of 314-13 a specified portion, but not less than the majority, of the shares 314-14 entitled to vote on that matter is required for shareholder action 314-15 on that matter. 314-16 (b) With respect to a matter for which the affirmative vote 314-17 of the holders of a specified portion of the shares of a class or 314-18 series is required by this code, the certificate of formation may 314-19 provide that the affirmative vote of the holders of a specified 314-20 portion, but not less than the majority, of the shares of that 314-21 class or series is required for action of the holders of shares of 314-22 that class or series on that matter. 314-23 (c) If a provision of the certificate of formation provides 314-24 that the affirmative vote of the holders of a specified portion 314-25 that is greater than the majority of the shares entitled to vote on 314-26 a matter is required for shareholder action on that matter, the 314-27 provision may not be amended, directly or indirectly, without the 315-1 same affirmative vote unless otherwise provided by the certificate 315-2 of formation. 315-3 (d) If a provision of the certificate of formation provides 315-4 that the affirmative vote of the holders of a specified portion 315-5 that is greater than the majority of the shares of a class or 315-6 series is required for shareholder action on a matter, the 315-7 provision may not be amended, directly or indirectly, without the 315-8 same affirmative vote unless otherwise provided by the certificate 315-9 of formation. 315-10 Sec. 21.366. NUMBER OF VOTES PER SHARE. (a) Except as 315-11 provided by the certificate of formation of a corporation or this 315-12 code, each outstanding share, regardless of class, shall be 315-13 entitled to one vote on each matter submitted to a vote at a 315-14 shareholders' meeting. 315-15 (b) If the certificate of formation provides for more or 315-16 less than one vote per share on a matter for all of the outstanding 315-17 shares or for the shares of a class or series, each reference in 315-18 this code or in the certificate of formation or bylaws, unless 315-19 expressly stated otherwise, to a specified portion of the shares 315-20 with respect to that matter refers to the portion of the votes 315-21 entitled to be cast with respect to the shares under the 315-22 certificate of formation. 315-23 Sec. 21.367. VOTING IN PERSON OR BY PROXY. (a) A 315-24 shareholder may vote in person or by proxy executed in writing by 315-25 the shareholder. 315-26 (b) A telegram, telex, cablegram, electronic message, or 315-27 similar transmission by the shareholder, or a photographic, 316-1 photostatic, facsimile, or similar reproduction of a writing 316-2 executed by the shareholder, is considered an execution in writing 316-3 for purposes of this section. 316-4 Sec. 21.368. TERM OF PROXY. A proxy is not valid after 11 316-5 months after the date the proxy is executed unless otherwise 316-6 provided by the proxy. 316-7 Sec. 21.369. REVOCABILITY OF PROXY. (a) In this section, a 316-8 "proxy coupled with an interest" includes the appointment as proxy 316-9 of: 316-10 (1) a pledgee; 316-11 (2) a person who purchased or agreed to purchase the 316-12 shares subject to the proxy; 316-13 (3) a person who owns or holds an option to purchase 316-14 the shares subject to the proxy; 316-15 (4) a creditor of the corporation who extended the 316-16 corporation credit under terms requiring the appointment; 316-17 (5) an employee of the corporation whose employment 316-18 contract requires the appointment; or 316-19 (6) a party to a voting agreement created under 316-20 Section 6.252 or a shareholders' agreement created under Section 316-21 21.101. 316-22 (b) A proxy is revocable unless: 316-23 (1) the proxy form conspicuously states that the proxy 316-24 is irrevocable; and 316-25 (2) the proxy is coupled with an interest. 316-26 Sec. 21.370. ENFORCEABILITY OF PROXY. (a) An irrevocable 316-27 proxy is specifically enforceable against the holder of shares or 317-1 any successor or transferee of the holder if: 317-2 (1) the proxy is noted conspicuously on the 317-3 certificate representing the shares subject to the proxy; or 317-4 (2) in the case of uncertificated shares, notation of 317-5 the proxy is contained in the notice sent under Section 3.205 with 317-6 respect to the shares subject to the proxy. 317-7 (b) An irrevocable proxy that is otherwise enforceable is 317-8 ineffective against a transferee for value without actual knowledge 317-9 of the existence of the irrevocable proxy at the time of the 317-10 transfer or against a subsequent transferee, regardless of whether 317-11 the transfer is for value, unless the proxy is: 317-12 (1) noted conspicuously on the certificate 317-13 representing the shares subject to the proxy; or 317-14 (2) in the case of uncertificated shares, notation of 317-15 the proxy is contained in the notice sent under Section 3.205 with 317-16 respect to the shares subject to the proxy. 317-17 (c) An irrevocable proxy shall be specifically enforceable 317-18 against a person who is not a transferee for value from the time 317-19 the person acquires actual knowledge of the existence of the 317-20 irrevocable proxy. 317-21 Sec. 21.371. PROCEDURES IN BYLAWS RELATING TO PROXIES. A 317-22 corporation may establish in the corporation's bylaws procedures 317-23 consistent with this code for determining the validity of proxies 317-24 and determining whether shares that are held of record by a bank, 317-25 broker, or other nominee are represented at a meeting of 317-26 shareholders. The procedures may incorporate rules of and 317-27 determinations made by a stock exchange or self-regulatory 318-1 organization regulating the corporation or that bank, broker, or 318-2 other nominee. 318-3 Sec. 21.372. ACTION BY LESS THAN UNANIMOUS WRITTEN CONSENT. 318-4 The shareholders of a corporation may act with less than unanimous 318-5 written consent in the manner provided by Section 6.202 if action 318-6 by less than unanimous written consent is authorized by the 318-7 corporation's certificate of formation or a bylaw adopted by the 318-8 corporation's shareholders. 318-9 (Sections 21.373-21.400 reserved for expansion) 318-10 SUBCHAPTER I. BOARD OF DIRECTORS 318-11 Sec. 21.401. MANAGEMENT BY BOARD OF DIRECTORS. (a) Except 318-12 as provided by Section 21.101 or Subchapter O, the board of 318-13 directors of a corporation shall: 318-14 (1) exercise or authorize the exercise of the powers 318-15 of the corporation; and 318-16 (2) manage the business and affairs of the 318-17 corporation. 318-18 (b) In discharging the duties of director under this code or 318-19 otherwise and in considering the best interests of the corporation, 318-20 a director may consider the long-term and short-term interests of 318-21 the corporation and the shareholders of the corporation, including 318-22 the possibility that those interests may be best served by the 318-23 continued independence of the corporation. 318-24 Sec. 21.402. BOARD MEMBER ELIGIBILITY REQUIREMENTS. Unless 318-25 the certificate of formation or bylaws of a corporation provide 318-26 otherwise, a person is not required to be a resident of this state 318-27 or a shareholder of the corporation to serve as a director. The 319-1 certificate of formation or bylaws may prescribe other 319-2 qualifications for directors. 319-3 Sec. 21.403. NUMBER OF DIRECTORS. (a) The board of 319-4 directors of a corporation may consist of one or more directors. 319-5 (b) The corporation's certificate of formation shall set the 319-6 number constituting the initial board of directors. The 319-7 certificate of formation or bylaws of the corporation shall set the 319-8 number constituting each subsequent board of directors or provide 319-9 for the manner in which the number of directors is determined. 319-10 (c) The number of directors may be increased or decreased by 319-11 amendment to, or as provided by, the certificate of formation or 319-12 bylaws. A decrease in the number of directors may not shorten the 319-13 term of an incumbent director. 319-14 (d) If the certificate of formation or bylaws do not set the 319-15 number constituting the board of directors or provide for the 319-16 manner in which the number of directors must be determined, the 319-17 number of directors will be the same as the number constituting the 319-18 initial board of directors as set by the certificate of formation. 319-19 Sec. 21.404. DESIGNATION OF INITIAL BOARD OF DIRECTORS. The 319-20 certificate of formation of a corporation must state the names and 319-21 addresses of the members of the initial board of directors of the 319-22 corporation. 319-23 Sec. 21.405. ELECTION OF BOARD OF DIRECTORS. (a) At the 319-24 first annual meeting of shareholders of a corporation and at each 319-25 subsequent annual meeting of shareholders, the holders of shares 319-26 entitled to vote in the election of directors shall elect directors 319-27 for the term provided under Section 21.407, except as provided by 320-1 Section 21.408. 320-2 (b) A corporation's certificate of formation may provide 320-3 that the holders of a class or series of shares or a group of 320-4 classes or series of shares are entitled to elect one or more 320-5 directors of the corporation. 320-6 Sec. 21.406. VOTING BY DIRECTORS. (a) The certificate of 320-7 formation of a corporation may provide that directors elected by 320-8 the holders of a class or series of shares or by a group of classes 320-9 or series of shares entitled to elect one or more directors, as 320-10 provided by Section 21.405, are entitled to cast more or less than 320-11 one vote on specified matters. 320-12 (b) Unless expressly stated otherwise, each reference in 320-13 this code or in a corporation's certificate of formation or bylaws 320-14 to a specified portion of the directors means the portion of the 320-15 votes entitled to be cast by the directors to which the reference 320-16 applies. 320-17 Sec. 21.407. TERM OF OFFICE. Unless otherwise provided by 320-18 this subchapter, a director shall hold office from the date the 320-19 director is elected and qualified or named in the corporation's 320-20 certificate of formation until the next annual meeting of 320-21 shareholders and until the director's successor is elected and 320-22 qualified. 320-23 Sec. 21.408. SPECIAL TERMS OF OFFICE. (a) The certificate 320-24 of formation or bylaws of a corporation may provide that all or 320-25 some of the board of directors may be divided into two or three 320-26 classes that shall include the same or a similar number of 320-27 directors as each other class. 321-1 (b) The terms of office of directors constituting the first 321-2 class expire at the first annual meeting of shareholders after the 321-3 election of those directors. The terms of office of directors 321-4 constituting the second class expire at the second annual meeting 321-5 of shareholders after election of those directors. The terms of 321-6 office of directors constituting the third class, if any, expire at 321-7 the third annual meeting of shareholders after election of those 321-8 directors. 321-9 (c) If the certificate of formation or bylaws provide for 321-10 staggered terms of directors, the shareholders, at each annual 321-11 meeting, shall elect a number of directors equal to the number of 321-12 the class of directors whose terms expire at the time of the 321-13 meeting. The directors elected at an annual meeting shall hold 321-14 office until the second succeeding annual meeting, if there are two 321-15 classes, or until the third succeeding annual meeting, if there are 321-16 three classes. 321-17 (d) Unless provided by the certificate of formation or a 321-18 bylaw adopted by the shareholders, staggered terms for directors 321-19 must be effected at a meeting of shareholders at which directors 321-20 are elected. Staggered terms for directors may not be effected if 321-21 any shareholder has the right to cumulate votes for the election of 321-22 directors and the board of directors consists of fewer than nine 321-23 members. 321-24 (e) Directors elected by the holders of a class or series of 321-25 shares or a group of classes or series of shares in accordance with 321-26 the certificate of formation shall hold office for the terms 321-27 specified by the certificate of formation. 322-1 Sec. 21.409. REMOVAL OF DIRECTORS. (a) Except as otherwise 322-2 provided by the certificate of formation or bylaws of a corporation 322-3 or this subchapter, the shareholders of the corporation may remove 322-4 a director or the entire board of directors of the corporation, 322-5 with or without cause, at a meeting called for that purpose, by a 322-6 vote of the holders of a specified portion, but not less than the 322-7 majority, of the shares entitled to vote at an election of 322-8 directors. 322-9 (b) If the certificate of formation entitles the holders of 322-10 a class or series of shares or a group of classes or series of 322-11 shares to elect one or more directors, only the holders of shares 322-12 of that class, series, or group may vote on the removal of a 322-13 director elected by the holders of shares of that class, series, or 322-14 group. 322-15 (c) If the certificate of formation permits cumulative 322-16 voting and less than the entire board is to be removed, a director 322-17 may not be removed if the votes cast against the removal would be 322-18 sufficient to elect the director if cumulatively voted at an 322-19 election of the entire board of directors, or if there are classes 322-20 of directors, at an election of the class of directors of which the 322-21 director is a part. 322-22 (d) In the case of a corporation the directors of which 322-23 serve staggered terms, a director may not be removed except for 322-24 cause unless the certificate of formation provides otherwise. 322-25 Sec. 21.410. VACANCY. (a) A vacancy occurring in the 322-26 initial board of directors before the issuance of shares may be 322-27 filled by the affirmative vote or written consent of the majority 323-1 of the incorporators or by the affirmative vote of the majority of 323-2 the remaining directors, even if the majority of the remaining 323-3 directors constitutes less than a quorum of the board of directors. 323-4 (b) Except as provided by Subsection (e), a vacancy 323-5 occurring in the board of directors after the issuance of shares 323-6 may be filled by election at an annual or special meeting of 323-7 shareholders called for that purpose or by the affirmative vote of 323-8 the majority of the remaining directors, even if the majority of 323-9 directors constitutes less than a quorum of the board of directors. 323-10 (c) The term of a director elected to fill a vacancy 323-11 occurring in the board of directors, including the initial 323-12 directors, is the unexpired term of the director's predecessor in 323-13 office. 323-14 (d) Except as provided by Subsection (e), a vacancy to be 323-15 filled because of an increase in the number of directors may be 323-16 filled by election at an annual or special meeting of shareholders 323-17 called for that purpose or by the board of directors for a term of 323-18 office continuing only until the next election of one or more 323-19 directors by the shareholders. During a period between two 323-20 successive annual meetings of shareholders, the board of directors 323-21 may not fill more than two vacancies created by an increase in the 323-22 number of directors. 323-23 (e) Unless otherwise authorized by a corporation's 323-24 certificate of formation, a vacancy in the board of directors of 323-25 the corporation or a newly created vacancy in the board of 323-26 directors that the certificate of formation entitles the holders of 323-27 a class or series of shares or group of classes or series of shares 324-1 to elect may be filled only by the affirmative vote of the majority 324-2 of the directors then in office elected by the class, series, or 324-3 group, by the sole remaining director elected in that manner, or by 324-4 the affirmative vote of the holders of the outstanding shares of 324-5 the class, series, or group. 324-6 Sec. 21.411. NOTICE OF MEETING. (a) Regular meetings of 324-7 the board of directors of a corporation may be held with or without 324-8 notice as prescribed by the corporation's bylaws. 324-9 (b) Special meetings of the board of directors shall be held 324-10 with notice as prescribed by the bylaws. 324-11 (c) A notice of a board meeting is not required to specify 324-12 the business to be transacted at the meeting or the purpose of the 324-13 meeting, unless required by the bylaws. 324-14 Sec. 21.412. WAIVER OF NOTICE. (a) If the bylaws of a 324-15 corporation require notice of a meeting to be given to a director, 324-16 a written waiver of the notice signed by the director entitled to 324-17 the notice, before or after the meeting, is equivalent to the 324-18 giving of the notice. 324-19 (b) The attendance of a director at a board meeting 324-20 constitutes a waiver of notice of the meeting, unless the director 324-21 attends the meeting for the express purpose of objecting to the 324-22 transaction of business at the meeting because the meeting has not 324-23 been lawfully called or convened. 324-24 (c) A waiver of notice of a board meeting is not required to 324-25 specify the business to be transacted at the meeting or the purpose 324-26 of the meeting unless required by the bylaws. 324-27 Sec. 21.413. QUORUM. (a) A quorum of the board of 325-1 directors is the majority of the number of directors set or 325-2 established in the manner provided by the certificate of formation 325-3 or bylaws of a corporation unless the laws of this state, the 325-4 certificate of formation, or the bylaws require a different number 325-5 or portion. 325-6 (b) Neither the certificate of formation nor the bylaws may 325-7 provide that less than one-third of the number of directors 325-8 constitutes a quorum. 325-9 Sec. 21.414. DISSENT TO ACTION. (a) A director of a 325-10 corporation who is present at a meeting of the board of directors 325-11 at which action has been taken is presumed to have assented to the 325-12 action taken unless: 325-13 (1) the director's dissent has been entered in the 325-14 minutes of the meeting; 325-15 (2) the director has filed a written dissent to the 325-16 action with the person acting as the secretary of the meeting 325-17 before the meeting is adjourned; or 325-18 (3) the director has sent a written dissent by 325-19 registered mail to the secretary of the corporation immediately 325-20 after the meeting has been adjourned. 325-21 (b) A director who voted in favor of an action may not 325-22 dissent to the action. 325-23 Sec. 21.415. ACTION BY DIRECTORS. (a) The act of a 325-24 majority of the directors present at a meeting at which a quorum is 325-25 present is the act of the board of directors of a corporation, 325-26 unless the act of a greater number is required by the certificate 325-27 of formation or bylaws of the corporation or by this code. 326-1 (b) Unless otherwise provided by the certificate of 326-2 formation or bylaws, a written consent stating the action taken and 326-3 signed by all members of the board of directors also is an act of 326-4 the board of directors. 326-5 Sec. 21.416. COMMITTEES OF BOARD OF DIRECTORS. (a) If 326-6 authorized by the certificate of formation or bylaws of a 326-7 corporation, the board of directors of the corporation, by 326-8 resolution adopted by the majority of the entire board of 326-9 directors, may designate: 326-10 (1) committees composed of one or more directors; or 326-11 (2) directors as alternate members of committees to 326-12 replace absent or disqualified committee members at a committee 326-13 meeting, subject to any limitations imposed by the board of 326-14 directors. 326-15 (b) To the extent provided by the resolution designating a 326-16 committee or the certificate of formation or bylaws and subject to 326-17 Subsection (c), the committee has the authority of the board of 326-18 directors. 326-19 (c) A committee of the board of directors may not: 326-20 (1) amend the certificate of formation, except to: 326-21 (A) establish series of shares; 326-22 (B) increase or decrease the number of shares in 326-23 a series; or 326-24 (C) eliminate a series of shares as authorized 326-25 by Section 21.155; 326-26 (2) propose a reduction of stated capital under 326-27 Sections 21.254-21.256; 327-1 (3) approve a plan of merger, share exchange, or 327-2 conversion of the corporation; 327-3 (4) recommend to shareholders the sale, lease, or 327-4 exchange of all or substantially all of the property and assets of 327-5 the corporation not made in the usual and regular course of its 327-6 business; 327-7 (5) recommend to the shareholders a voluntary winding 327-8 up and termination or a revocation of a voluntary winding up and 327-9 termination; 327-10 (6) amend, alter, or repeal the bylaws or adopt new 327-11 bylaws; 327-12 (7) fill vacancies on the board of directors; 327-13 (8) fill vacancies on or designate alternate members 327-14 of a committee of the board of directors; 327-15 (9) fill a vacancy to be filled because of an increase 327-16 in the number of directors; 327-17 (10) elect or remove officers of the corporation or 327-18 members or alternate members of a committee of the board of 327-19 directors; 327-20 (11) set the compensation of the members or alternate 327-21 members of a committee of the board of directors; or 327-22 (12) alter or repeal a resolution of the board of 327-23 directors that states that it may not be amended or repealed by a 327-24 committee of the board of directors. 327-25 (d) A committee of the board of directors may authorize a 327-26 distribution or the issuance of shares if authorized by the 327-27 resolution designating the committee or the certificate of 328-1 formation or bylaws. 328-2 (e) The board of directors may remove a member of a 328-3 committee appointed by the board if the board determines the 328-4 removal is in the best interests of the corporation. The removal 328-5 of the member will be without prejudice to any contract rights of 328-6 the person removed. Appointment of a member of a committee does 328-7 not create contract rights. 328-8 (f) The designation and delegation of authority to a 328-9 committee of the board of directors does not relieve the board of 328-10 directors or a director of responsibility imposed by law. 328-11 Sec. 21.417. ELECTION OF OFFICERS. The board of directors 328-12 of a corporation shall elect a president and a secretary at the 328-13 time and in the manner prescribed by the corporation's bylaws. 328-14 Other officers of the board of directors shall be elected in 328-15 accordance with Section 3.102. 328-16 Sec. 21.418. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED 328-17 DIRECTORS AND OFFICERS. (a) This section applies only to a 328-18 contract or transaction between a corporation and: 328-19 (1) one or more of the corporation's directors or 328-20 officers; or 328-21 (2) an entity or other organization in which one or 328-22 more of the corporation's directors or officers: 328-23 (A) is a managerial official; or 328-24 (B) has a financial interest. 328-25 (b) An otherwise valid contract or transaction is valid 328-26 notwithstanding that a director or officer of the corporation is 328-27 present at or participates in the meeting of the board of 329-1 directors, or of a committee of the board that authorizes the 329-2 contract or transaction, or votes to authorize the contract or 329-3 transaction, if: 329-4 (1) the material facts as to the relationship or 329-5 interest and as to the contract or transaction are disclosed to or 329-6 known by: 329-7 (A) the corporation's board of directors or a 329-8 committee of the board of directors and the board of directors or 329-9 committee in good faith authorizes the contract or transaction by 329-10 the affirmative vote of the majority of the disinterested directors 329-11 of the corporation, regardless of whether the disinterested 329-12 directors constitute a quorum; or 329-13 (B) the shareholders entitled to vote on the 329-14 authorization of the contract or transaction, and the contract or 329-15 transaction is specifically approved in good faith by a vote of the 329-16 shareholders; or 329-17 (2) the contract or transaction is fair to the 329-18 corporation when the contract or transaction is authorized, 329-19 approved, or ratified by the board of directors, a committee of the 329-20 board of directors, or the shareholders. 329-21 (c) Common or interested directors of a corporation may be 329-22 included in determining the presence of a quorum at a meeting of 329-23 the corporation's board of directors, or a committee of the board 329-24 of directors, that authorizes the contract or transaction. 329-25 (Sections 21.419-21.450 reserved for expansion) 329-26 SUBCHAPTER J. FUNDAMENTAL BUSINESS TRANSACTIONS 329-27 Sec. 21.451. DEFINITIONS. In this subchapter: 330-1 (1) "Participating shares" means shares that entitle 330-2 the holders of the shares to participate without limitation in 330-3 distributions. 330-4 (2) "Shares" includes a receipt or other instrument 330-5 issued by a depository representing an interest in one or more 330-6 shares or fractions of shares of a domestic or foreign corporation 330-7 that are deposited with the depository. 330-8 (3) "Voting shares" means shares that entitle the 330-9 holders of the shares to vote unconditionally in elections of 330-10 directors. 330-11 Sec. 21.452. APPROVAL OF MERGER. (a) A corporation that 330-12 is a party to the merger under Chapter 10 must approve the merger 330-13 by complying with this section. 330-14 (b) The board of directors of the corporation shall adopt a 330-15 resolution that: 330-16 (1) approves the plan of merger; and 330-17 (2) if shareholder approval of the merger is required 330-18 by this subchapter: 330-19 (A) recommends that the plan of merger be 330-20 approved by the shareholders of the corporation; or 330-21 (B) directs that the plan of merger be submitted 330-22 to the shareholders for approval without recommendation if the 330-23 board of directors determines for any reason not to recommend 330-24 approval of the plan of merger. 330-25 (c) Except as otherwise provided by this subchapter or 330-26 Chapter 10, the plan of merger shall be submitted to the 330-27 shareholders of the corporation for approval as provided by this 331-1 subchapter. The board of directors may place conditions on the 331-2 submission of the plan of merger to the shareholders. 331-3 (d) If the board of directors approves a plan of merger 331-4 required to be approved by the shareholders of the corporation but 331-5 does not adopt a resolution recommending that the plan of merger be 331-6 approved by the shareholders, the board of directors shall 331-7 communicate to the shareholders the reason for the board's 331-8 determination to submit the plan of merger without a 331-9 recommendation. 331-10 (e) Except as provided by Chapter 10 or Sections 331-11 21.457-21.459, the shareholders of the corporation shall approve 331-12 the plan of merger as provided by this subchapter. 331-13 Sec. 21.453. APPROVAL OF CONVERSION. (a) A corporation 331-14 must approve a conversion under Chapter 10 by complying with this 331-15 section. 331-16 (b) The board of directors of the corporation shall adopt a 331-17 resolution that approves the plan of conversion and: 331-18 (1) recommends that the plan of conversion be approved 331-19 by the shareholders of the corporation; or 331-20 (2) directs that the plan of conversion be submitted 331-21 to the shareholders for approval without recommendation if the 331-22 board of directors determines for any reason not to recommend 331-23 approval of the plan of conversion. 331-24 (c) The plan of conversion shall be submitted to the 331-25 shareholders of the corporation for approval as provided by this 331-26 subchapter. The board of directors may place conditions on the 331-27 submission of the plan of conversion to the shareholders. 332-1 (d) If the board of directors approves a plan of conversion 332-2 but does not adopt a resolution recommending that the plan of 332-3 conversion be approved by the shareholders of the corporation, the 332-4 board of directors shall communicate to the shareholders the reason 332-5 for the board's determination to submit the plan of conversion 332-6 without a recommendation. 332-7 (e) Except as provided by Sections 21.457-21.459, the 332-8 shareholders of the corporation shall approve the plan of 332-9 conversion as provided by this subchapter. 332-10 Sec. 21.454. APPROVAL OF INTEREST EXCHANGE. (a) A 332-11 corporation the shares of which are to be acquired in an interest 332-12 exchange under Chapter 10 must approve the interest exchange by 332-13 complying with this section. 332-14 (b) The board of directors shall adopt a resolution that 332-15 approves the plan of exchange and: 332-16 (1) recommends that the plan of exchange be approved 332-17 by the shareholders of the corporation; or 332-18 (2) directs that the plan of exchange be submitted to 332-19 the shareholders for approval without recommendation if the board 332-20 of directors determines for any reason not to recommend approval of 332-21 the plan of exchange. 332-22 (c) The plan of exchange shall be submitted to the 332-23 shareholders of the corporation for approval as provided by this 332-24 subchapter. The board of directors may place conditions on the 332-25 submission of the plan of exchange to the shareholders. 332-26 (d) If the board of directors approves a plan of exchange 332-27 but does not adopt a resolution recommending that the plan of 333-1 exchange be approved by the shareholders of the corporation, the 333-2 board of directors shall communicate to the shareholders the reason 333-3 for the board's determination to submit the plan of exchange to 333-4 shareholders without a recommendation. 333-5 (e) Except as provided by Sections 21.457-21.459, the 333-6 shareholders of the corporation shall approve the plan of exchange 333-7 as provided by this subchapter. 333-8 Sec. 21.455. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF 333-9 ASSETS. (a) Except as provided by the certificate of formation of 333-10 a domestic corporation, a sale, lease, pledge, mortgage, 333-11 assignment, transfer, or other conveyance of an interest in real 333-12 property or other assets of the corporation does not require the 333-13 approval or consent of the shareholders of the corporation unless 333-14 the transaction constitutes a sale of all or substantially all of 333-15 the assets of the corporation. 333-16 (b) A corporation must approve the sale of all or 333-17 substantially all of its assets by complying with this section. 333-18 (c) The board of directors of the corporation shall adopt a 333-19 resolution that approves the sale of all or substantially all of 333-20 the assets of the corporation and: 333-21 (1) recommends that the sale of all or substantially 333-22 all of the assets of the corporation be approved by the 333-23 shareholders of the corporation; or 333-24 (2) directs that the sale of all or substantially all 333-25 of the assets of the corporation be submitted to the shareholders 333-26 for approval without recommendation if the board of directors 333-27 determines for any reason not to recommend approval of the sale. 334-1 (d) The resolution proposing the sale of all or 334-2 substantially all of the assets of the corporation shall be 334-3 submitted to the shareholders of the corporation for approval as 334-4 provided by this subchapter. The board of directors may place 334-5 conditions on the submission of the proposed sale to the 334-6 shareholders. 334-7 (e) If the board of directors approves the sale of all or 334-8 substantially all of the assets of the corporation but does not 334-9 adopt a resolution recommending that the proposed sale be approved 334-10 by the shareholders of the corporation, the board of directors 334-11 shall communicate to the shareholders the reason for the board's 334-12 determination to submit the proposed sale to shareholders without a 334-13 recommendation. 334-14 (f) The shareholders of the corporation shall approve the 334-15 sale of all or substantially all of the assets of the corporation 334-16 as provided by this subchapter. After the approval of the sale by 334-17 the shareholders, the board of directors may abandon the sale of 334-18 all or substantially all of the assets of the corporation, subject 334-19 to the rights of a third party under a contract relating to the 334-20 assets, without further action or approval by the shareholders. 334-21 Sec. 21.456. GENERAL PROCEDURE FOR SUBMISSION TO 334-22 SHAREHOLDERS OF FUNDAMENTAL BUSINESS TRANSACTION. (a) If a 334-23 fundamental business transaction involving a corporation is 334-24 required to be submitted to the shareholders of the corporation 334-25 under this subchapter, the corporation shall notify each 334-26 shareholder of the corporation that the fundamental business 334-27 transaction is being submitted to the shareholders for approval as 335-1 required by this subchapter, regardless of whether the shareholder 335-2 is entitled to vote on the matter. 335-3 (b) If the fundamental business transaction is a merger, 335-4 conversion, or interest exchange, the notice required by Subsection 335-5 (a) shall contain or be accompanied by a copy or summary of the 335-6 plan of merger, conversion, or interest exchange, as appropriate. 335-7 (c) If the fundamental business transaction is to be 335-8 considered at a meeting of the shareholders of the corporation, the 335-9 notice of the meeting must: 335-10 (1) be given not later than the 21st day before the 335-11 date of the meeting; and 335-12 (2) state that the purpose, or one of the purposes, of 335-13 the meeting is to consider the fundamental business transaction. 335-14 (d) If the fundamental business transaction is being 335-15 submitted to shareholders by written consent, the notice required 335-16 by Subsection (a) must: 335-17 (1) be given not later than the 21st day before the 335-18 date the fundamental business transaction takes effect; and 335-19 (2) state that the purpose, or one of the purposes, of 335-20 the solicitation of written consents from the shareholders is to 335-21 receive approval for the fundamental business transaction. 335-22 Sec. 21.457. GENERAL VOTE REQUIREMENT FOR APPROVAL OF 335-23 FUNDAMENTAL BUSINESS TRANSACTION. (a) Except as provided by this 335-24 code or the certificate of formation or bylaws of a corporation in 335-25 accordance with Section 21.363, the affirmative vote of the holders 335-26 of at least two-thirds of the outstanding shares of the corporation 335-27 entitled to vote on a fundamental business transaction is required 336-1 to approve the transaction. 336-2 (b) Unless provided by the certificate of formation or 336-3 Section 21.458, shares of a class or series that are not otherwise 336-4 entitled to vote on matters submitted to shareholders generally 336-5 will not be entitled to vote for the approval of a fundamental 336-6 business transaction. 336-7 (c) Except as provided by this code, if a class or series of 336-8 shares of a corporation is entitled to vote on a fundamental 336-9 business transaction as a class or series, in addition to the vote 336-10 required under Subsection (a), the affirmative vote of the holders 336-11 of at least two-thirds of the outstanding shares in each class or 336-12 series of shares entitled to vote on the fundamental business 336-13 transaction as a class or series is required to approve the 336-14 transaction. 336-15 (d) Unless required by the certificate of formation, 336-16 approval of a merger by shareholders is not required under this 336-17 code for a corporation that is a party to the plan of merger unless 336-18 that corporation is also a party to the merger. 336-19 Sec. 21.458. CLASS VOTING REQUIREMENTS FOR CERTAIN 336-20 FUNDAMENTAL BUSINESS TRANSACTIONS. (a) Separate voting by a class 336-21 or series of shares of a corporation is required for approval of a 336-22 plan of merger or conversion if: 336-23 (1) the plan of merger or conversion contains a 336-24 provision that would require approval by that class or series of 336-25 shares under Section 21.364 if the provision was contained in a 336-26 proposed amendment to the corporation's certificate of formation; 336-27 or 337-1 (2) that class or series of shares is entitled under 337-2 the certificate of formation to vote as a class on the plan of 337-3 merger or conversion. 337-4 (b) Separate voting by a class or series of shares of a 337-5 corporation is required for approval of a plan of exchange if: 337-6 (1) shares of that class or series are to be exchanged 337-7 under the terms of the plan of exchange; or 337-8 (2) that class or series is entitled under the 337-9 certificate of formation to vote as a class on the plan of 337-10 exchange. 337-11 (c) Separate voting by a class or series of shares of a 337-12 corporation is required for approval of a sale of all or 337-13 substantially all of the assets of a corporation if that class or 337-14 series of shares is entitled under the certificate of formation to 337-15 vote as a class on the sale of the corporation's assets. 337-16 Sec. 21.459. NO SHAREHOLDER VOTE REQUIREMENT FOR CERTAIN 337-17 FUNDAMENTAL BUSINESS TRANSACTIONS. (a) Unless required by the 337-18 corporation's certificate of formation, a plan of merger is not 337-19 required to be approved by the shareholders of a corporation if: 337-20 (1) the corporation is the sole surviving corporation 337-21 in the merger; 337-22 (2) the certificate of formation of the corporation 337-23 following the merger will not differ from the corporation's 337-24 certificate of formation before the merger; 337-25 (3) immediately after the effective date of the 337-26 merger, each shareholder of the corporation whose shares were 337-27 outstanding immediately before the effective date of the merger 338-1 will hold the same number of shares, with identical designations, 338-2 preferences, limitations, and relative rights; 338-3 (4) the sum of the voting power of the number of 338-4 voting shares outstanding immediately after the merger and the 338-5 voting power of securities that may be acquired on the conversion 338-6 or exercise of securities issued under the merger does not exceed 338-7 by more than 20 percent the voting power of the total number of 338-8 voting shares of the corporation that are outstanding immediately 338-9 before the merger; and 338-10 (5) the sum of the number of participating shares that 338-11 are outstanding immediately after the merger and the number of 338-12 participating shares that may be acquired on the conversion or 338-13 exercise of securities issued under the merger does not exceed by 338-14 more than 20 percent the total number of participating shares of 338-15 the corporation that are outstanding immediately before the merger. 338-16 (b) Unless required by the certificate of formation, a plan 338-17 of merger effected under Section 10.005 or 10.006 does not require 338-18 the approval of the shareholders of the corporation. 338-19 Sec. 21.460. RIGHTS OF DISSENT AND APPRAISAL. A shareholder 338-20 of a domestic corporation has the rights of dissent and appraisal 338-21 under Subchapter H, Chapter 10, with respect to a fundamental 338-22 business transaction. 338-23 (Sections 21.461-21.500 reserved for expansion) 338-24 SUBCHAPTER K. WINDING UP AND TERMINATION 338-25 Sec. 21.501. APPROVAL OF VOLUNTARY WINDING UP AND 338-26 REINSTATEMENT OR REVOCATION OF VOLUNTARY WINDING UP. A corporation 338-27 must approve a voluntary winding up in accordance with Chapter 11, 339-1 a reinstatement in accordance with Section 11.202, or revocation of 339-2 a voluntary winding up in accordance with Section 11.151 by 339-3 complying with one of the procedures prescribed by this subchapter. 339-4 Sec. 21.502. CERTAIN PROCEDURES RELATING TO WINDING UP. To 339-5 approve a voluntary winding up, a reinstatement, or a revocation of 339-6 a voluntary winding up, a corporation must follow one of the 339-7 following procedures: 339-8 (1) all shareholders of the corporation must consent 339-9 in writing to the winding up, the reinstatement, or the revocation 339-10 of voluntary winding up of the corporation; 339-11 (2) if the corporation has not commenced business and 339-12 has not issued any shares, a majority of the incorporators or the 339-13 board of directors of the corporation must adopt a resolution to 339-14 wind up or to revoke a voluntary winding up; or 339-15 (3)(A) the board of directors of the corporation must 339-16 adopt a resolution: 339-17 (i) recommending the winding up, 339-18 reinstatement, or revocation of a voluntary winding up of the 339-19 corporation; and 339-20 (ii) directing that the winding up, 339-21 reinstatement, or revocation of a voluntary winding up of the 339-22 corporation be submitted to the shareholders for approval at an 339-23 annual or special meeting of shareholders; and 339-24 (B) the shareholders must approve the action 339-25 described by Paragraph (A) in accordance with Section 21.503. 339-26 Sec. 21.503. MEETING OF SHAREHOLDERS; NOTICE. (a) Each 339-27 shareholder of record entitled to vote at a meeting described by 340-1 Section 21.502(3)(A)(ii) shall be given written notice stating that 340-2 the purpose or one of the purposes of the meeting is to consider 340-3 the winding up, reinstatement, or revocation of the voluntary 340-4 winding up of the corporation. The notice shall be given in the 340-5 time and manner provided by this code for the giving of notice of 340-6 shareholders' meetings. 340-7 (b) A vote of shareholders entitled to vote at the meeting 340-8 shall be taken on the resolution to wind up, reinstate, or revoke 340-9 the winding up of the corporation. The resolution must be approved 340-10 on receipt of the affirmative vote required by Section 21.364. 340-11 (Sections 21.504-21.550 reserved for expansion) 340-12 SUBCHAPTER L. DERIVATIVE PROCEEDINGS 340-13 Sec. 21.551. DEFINITIONS. In this subchapter: 340-14 (1) "Derivative proceeding" means a civil suit in the 340-15 right of a domestic corporation or, to the extent provided by 340-16 Section 21.562, in the right of a foreign corporation. 340-17 (2) "Shareholder" includes a beneficial owner whose 340-18 shares are held in a voting trust or by a nominee on the beneficial 340-19 owner's behalf. 340-20 Sec. 21.552. STANDING TO BRING PROCEEDING. A shareholder 340-21 may not institute or maintain a derivative proceeding unless: 340-22 (1) the shareholder: 340-23 (A) was a shareholder of the corporation at the 340-24 time of the act or omission complained of; or 340-25 (B) became a shareholder by operation of law 340-26 from a person that was a shareholder at the time of the act or 340-27 omission complained of; and 341-1 (2) the shareholder fairly and adequately represents 341-2 the interests of the corporation in enforcing the right of the 341-3 corporation. 341-4 Sec. 21.553. DEMAND. (a) A shareholder may not institute a 341-5 derivative proceeding until the 91st day after the date a written 341-6 demand is filed with the corporation stating with particularity the 341-7 act, omission, or other matter that is the subject of the claim or 341-8 challenge and requesting that the corporation take suitable action. 341-9 (b) The waiting period required by Subsection (a) before a 341-10 derivative proceeding may be instituted is not required if: 341-11 (1) the shareholder has been previously notified that 341-12 the demand has been rejected by the corporation; 341-13 (2) the corporation is suffering irreparable injury; 341-14 or 341-15 (3) irreparable injury to the corporation would result 341-16 by waiting for the expiration of the 90-day period. 341-17 Sec. 21.554. DETERMINATION BY DIRECTORS OR INDEPENDENT 341-18 PERSONS. (a) A determination of how to proceed on allegations 341-19 made in a demand or petition relating to a derivative proceeding 341-20 must be made by: 341-21 (1) an affirmative vote of the majority of the 341-22 independent and disinterested directors of the corporation present 341-23 at a meeting of the board of directors of the corporation at which 341-24 interested directors are not present at the time of the vote if the 341-25 independent and disinterested directors constitute a quorum of the 341-26 board of directors; 341-27 (2) an affirmative vote of the majority of a committee 342-1 consisting of two or more independent and disinterested directors 342-2 appointed by an affirmative vote of the majority of one or more 342-3 independent and disinterested directors present at a meeting of the 342-4 board of directors, regardless of whether the independent and 342-5 disinterested directors constitute a quorum of the board of 342-6 directors; or 342-7 (3) a panel of one or more independent and 342-8 disinterested persons appointed by the court on a motion by the 342-9 corporation listing the names of the persons to be appointed and 342-10 stating that, to the best of the corporation's knowledge, the 342-11 persons to be appointed are disinterested and qualified to make the 342-12 determinations contemplated by Section 21.558. 342-13 (b) The court shall appoint a panel under Subsection (a)(3) 342-14 if the court finds that the persons recommended by the corporation 342-15 are independent and disinterested and are otherwise qualified with 342-16 respect to expertise, experience, independent judgment, and other 342-17 factors considered appropriate by the court under the circumstances 342-18 to make the determinations. A person appointed by the court to a 342-19 panel under this section may not be held liable to the corporation 342-20 or the corporation's shareholders for an action taken or omission 342-21 made by the person in that capacity, except for an act or omission 342-22 constituting fraud or wilful misconduct. 342-23 Sec. 21.555. STAY OF PROCEEDING. (a) If the domestic or 342-24 foreign corporation that is the subject of a derivative proceeding 342-25 commences an inquiry into the allegations made in a demand or 342-26 petition and the person or group of persons described by Section 342-27 21.554 is conducting an active review of the allegations in good 343-1 faith, the court shall stay a derivative proceeding until the 343-2 review is completed and a determination is made by the person or 343-3 group regarding what further action, if any, should be taken. 343-4 (b) To obtain a stay, the domestic or foreign corporation 343-5 shall provide the court with a written statement agreeing to advise 343-6 the court and the shareholder making the demand of the 343-7 determination promptly on the completion of the review of the 343-8 matter. A stay, on application, may be reviewed every 60 days for 343-9 the continued necessity of the stay. 343-10 (c) If the review and determination made by the person or 343-11 group is not completed before the 61st day after the day the stay 343-12 is ordered by the court, the stay may be renewed for one or more 343-13 additional 60-day periods if the domestic or foreign corporation 343-14 provides the court and the shareholder with a written statement of 343-15 the status of the review and the reasons why a continued extension 343-16 of the stay is necessary. 343-17 Sec. 21.556. DISCOVERY. (a) If a domestic or foreign 343-18 corporation proposes to dismiss a derivative proceeding under 343-19 Section 21.558, discovery by a shareholder after the filing of the 343-20 derivative proceeding in accordance with this subchapter shall be 343-21 limited to: 343-22 (1) facts relating to whether the person or group of 343-23 persons described by Section 21.558 is independent and 343-24 disinterested; 343-25 (2) the good faith of the inquiry and review by the 343-26 person or group; and 343-27 (3) the reasonableness of the procedures followed by 344-1 the person or group in conducting the review. 344-2 (b) Discovery described by Subsection (a) may not be 344-3 expanded to include a fact or substantive matter regarding the act, 344-4 omission, or other matter that is the subject matter of the 344-5 derivative proceeding. The scope of discovery may be expanded if 344-6 the court determines after notice and hearing that a good faith 344-7 review of the allegations for purposes of Section 21.558 has not 344-8 been made by an independent and disinterested person or group in 344-9 accordance with that section. 344-10 Sec. 21.557. TOLLING OF STATUTE OF LIMITATIONS. A written 344-11 demand filed with the corporation under Section 21.553 tolls the 344-12 statute of limitations on the claim on which demand is made until 344-13 the earlier of: 344-14 (1) the 91st day after the date of the demand; or 344-15 (2) the 31st day after the date the corporation 344-16 advises the shareholder that the demand has been rejected or the 344-17 review has been completed. 344-18 Sec. 21.558. DISMISSAL OF DERIVATIVE PROCEEDING. (a) A 344-19 court shall dismiss a derivative proceeding on a motion by the 344-20 corporation if the person or group of persons described by Section 344-21 21.554 determines in good faith, after conducting a reasonable 344-22 inquiry and based on factors the person or group considers 344-23 appropriate under the circumstances, that continuation of the 344-24 derivative proceeding is not in the best interests of the 344-25 corporation. 344-26 (b) In determining whether the requirements of Subsection 344-27 (a) have been met, the burden of proof shall be on: 345-1 (1) the plaintiff shareholder if: 345-2 (A) the majority of the board of directors 345-3 consists of independent and disinterested directors at the time the 345-4 determination is made; 345-5 (B) the determination is made by a panel of one 345-6 or more independent and disinterested persons appointed under 345-7 Section 21.554; or 345-8 (C) the corporation presents prima facie 345-9 evidence that demonstrates that the directors appointed under 345-10 Section 21.554 are independent and disinterested; or 345-11 (2) the corporation in any other circumstance. 345-12 Sec. 21.559. PROCEEDING INSTITUTED AFTER DEMAND REJECTED. 345-13 If a derivative proceeding is instituted after a demand is 345-14 rejected, the petition must allege with particularity facts that 345-15 establish that the rejection was not made in accordance with the 345-16 requirements of Sections 21.554 and 21.558. 345-17 Sec. 21.560. DISCONTINUANCE OR SETTLEMENT. (a) A 345-18 derivative proceeding may not be discontinued or settled without 345-19 court approval. 345-20 (b) The court shall direct that notice be given to the 345-21 affected shareholders if the court determines that a proposed 345-22 discontinuance or settlement may substantially affect the interests 345-23 of other shareholders. 345-24 Sec. 21.561. PAYMENT OF EXPENSES. (a) In this section, 345-25 "expenses" means reasonable expenses incurred by a party in a 345-26 derivative proceeding, including: 345-27 (1) attorney's fees; 346-1 (2) costs in pursuing an investigation of the matter 346-2 that was the subject of the derivative proceeding; or 346-3 (3) expenses for which the domestic or foreign 346-4 corporation or a corporate defendant may be required to indemnify 346-5 another person. 346-6 (b) On termination of a derivative proceeding, the court may 346-7 order: 346-8 (1) the domestic or foreign corporation to pay the 346-9 expenses the plaintiff incurred in the proceeding if the court 346-10 finds the proceeding has resulted in a substantial benefit to the 346-11 domestic or foreign corporation; 346-12 (2) the plaintiff to pay the expenses the domestic or 346-13 foreign corporation or other defendant incurred in investigating 346-14 and defending the proceeding if the court finds the proceeding has 346-15 been instituted or maintained without reasonable cause or for an 346-16 improper purpose; or 346-17 (3) a party to pay the expenses incurred by another 346-18 party relating to the filing of a pleading, motion, or other paper 346-19 if the court finds the pleading, motion, or other paper: 346-20 (A) was not well grounded in fact after 346-21 reasonable inquiry; 346-22 (B) was not warranted by existing law or a good 346-23 faith argument for the extension, modification, or reversal of 346-24 existing law; or 346-25 (C) was interposed for an improper purpose, such 346-26 as to harass, cause unnecessary delay, or cause a needless increase 346-27 in the cost of litigation. 347-1 Sec. 21.562. APPLICATION TO FOREIGN CORPORATIONS. (a) In a 347-2 derivative proceeding brought in the right of a foreign 347-3 corporation, the matters covered by this subchapter are governed by 347-4 the laws of the jurisdiction of incorporation of the foreign 347-5 corporation, except for Sections 21.555, 21.560, and 21.561, which 347-6 are procedural provisions and do not relate to the internal affairs 347-7 of the foreign corporation. 347-8 (b) In the case of matters relating to a foreign corporation 347-9 under Section 21.554, a reference to a person or group of persons 347-10 described by that section refers to a person or group entitled 347-11 under the laws of the jurisdiction of incorporation of the foreign 347-12 corporation to review and dispose of a derivative proceeding. The 347-13 standard of review of a decision made by the person or group to 347-14 dismiss the derivative proceeding shall be governed by the laws of 347-15 the jurisdiction of incorporation of the foreign corporation. 347-16 Sec. 21.563. CLOSELY HELD CORPORATION. (a) In this 347-17 section, "closely held corporation" means a corporation that has: 347-18 (1) fewer than 35 shareholders; and 347-19 (2) no shares listed on a national securities exchange 347-20 or regularly quoted in an over-the-counter market by one or more 347-21 members of a national securities association. 347-22 (b) Subject to Subsection (c), Sections 21.552-21.559 do not 347-23 apply to a closely held corporation. 347-24 (c) If justice requires: 347-25 (1) a derivative proceeding brought by a shareholder 347-26 of a closely held corporation may be treated by a court as a direct 347-27 action brought by the shareholder for the shareholder's own 348-1 benefit; and 348-2 (2) a recovery in a direct or derivative proceeding by 348-3 a shareholder may be paid directly to the plaintiff or to the 348-4 corporation if necessary to protect the interests of creditors or 348-5 other shareholders of the corporation. 348-6 (Sections 21.564-21.600 reserved for expansion) 348-7 SUBCHAPTER M. AFFILIATED BUSINESS COMBINATIONS 348-8 Sec. 21.601. DEFINITIONS. In this subchapter: 348-9 (1) "Issuing public corporation" means a domestic 348-10 corporation that has: 348-11 (A) 100 or more shareholders of record as shown 348-12 by the share transfer records of the corporation; 348-13 (B) a class or series of the corporation's 348-14 voting shares registered under the Securities Exchange Act of 1934 348-15 (15 U.S.C. Section 77b et seq.), as amended; or 348-16 (C) a class or series of the corporation's 348-17 voting shares qualified for trading in a national market system. 348-18 (2) "Person" includes two or more persons acting as a 348-19 partnership, limited partnership, syndicate, or other group under 348-20 an agreement, arrangement, or understanding, regardless of whether 348-21 in writing, to acquire, hold, vote, or dispose of a corporation's 348-22 shares. 348-23 (3) "Share acquisition date" means the date a person 348-24 initially becomes an affiliated shareholder of an issuing public 348-25 corporation. 348-26 (4) "Subsidiary" means a domestic or foreign 348-27 corporation or other entity of which a majority of the outstanding 349-1 voting shares are owned, directly or indirectly, by an issuing 349-2 public corporation. 349-3 (5) "Voting share" means a share of capital stock of a 349-4 corporation that entitles the holder of the share to vote generally 349-5 in the election of directors. 349-6 Sec. 21.602. AFFILIATED SHAREHOLDER. (a) For purposes of 349-7 this subchapter, a person, other than the issuing public 349-8 corporation or a wholly owned subsidiary of the issuing public 349-9 corporation, is an affiliated shareholder if the person: 349-10 (1) is the beneficial owner of 20 percent or more of 349-11 the outstanding voting shares of the issuing public corporation; or 349-12 (2) during the preceding three-year period, was the 349-13 beneficial owner of 20 percent or more of the outstanding voting 349-14 shares of the issuing public corporation. 349-15 (b) To determine whether a person is an affiliated 349-16 shareholder, the number of voting shares of the issuing public 349-17 corporation considered outstanding includes shares considered 349-18 beneficially owned by that person under Section 21.603, but does 349-19 not include other unissued voting shares of the issuing public 349-20 corporation that may be issuable under an agreement, arrangement, 349-21 or understanding, or on exercise of conversion rights, warrants, or 349-22 options. 349-23 Sec. 21.603. BENEFICIAL OWNER OF SHARES OR SIMILAR 349-24 SECURITIES. (a) For purposes of this subchapter, a person is a 349-25 beneficial owner of shares or similar securities if the person 349-26 individually, or through an affiliate or associate, beneficially 349-27 owns, directly or indirectly, shares or similar securities. 350-1 (b) A beneficial owner of shares or similar securities is 350-2 entitled, individually or through an affiliate or associate, to: 350-3 (1) acquire shares or similar securities that may be 350-4 exercised immediately or after the passage of a certain amount of 350-5 time according to an oral or written agreement, arrangement, or 350-6 understanding, or on the exercise of conversion rights, exchange 350-7 rights, warrants, or options; 350-8 (2) vote the shares or similar securities according to 350-9 an oral or written agreement, arrangement, or understanding; or 350-10 (3) subject to Subsection (c), acquire, hold or 350-11 dispose of, or vote shares or similar securities with another 350-12 person who individually, or through an affiliate or associate, 350-13 beneficially owns, directly or indirectly, the shares or similar 350-14 securities. 350-15 (c) A person is not considered a beneficial owner of shares 350-16 or similar securities if: 350-17 (1) the shares or similar securities are: 350-18 (A) tendered under a tender or exchange offer 350-19 made by the person or an affiliate or associate of the person 350-20 before the tendered shares or securities are accepted for purchase 350-21 or exchange; or 350-22 (B) subject to an agreement, arrangement, or 350-23 understanding that expressly conditions the acquisition or purchase 350-24 of shares or securities on the approval of the acquisition or 350-25 purchase under Section 21.606 if the person has no direct or 350-26 indirect rights of ownership or voting with respect to the shares 350-27 or securities until the time the approval is obtained; or 351-1 (2) the agreement, arrangement, or understanding to 351-2 vote the shares: 351-3 (A) arises solely from an immediately revocable 351-4 proxy that authorizes the person named in the proxy to vote at a 351-5 meeting of the shareholders that has been called when the proxy is 351-6 delivered or at an adjournment of the meeting; and 351-7 (B) is not reportable on a Schedule 13D under 351-8 the Securities Exchange Act of 1934 (15 U.S.C. Section 77b et 351-9 seq.), as amended, or a comparable or successor report. 351-10 Sec. 21.604. BUSINESS COMBINATION. A business combination 351-11 is: 351-12 (1) a merger, share exchange, or conversion of an 351-13 issuing public corporation or a subsidiary with: 351-14 (A) an affiliated shareholder; 351-15 (B) a foreign or domestic corporation or other 351-16 entity that is, or after the merger, share exchange, or conversion 351-17 would be, an affiliate or associate of the affiliated shareholder; 351-18 or 351-19 (C) another domestic or foreign corporation or 351-20 other entity, if the merger, share exchange, or conversion is 351-21 caused by an affiliated shareholder, or an affiliate or associate 351-22 of an affiliated shareholder, and as a result of the merger, share 351-23 exchange, or conversion this subchapter does not apply to the 351-24 surviving corporation or other entity; 351-25 (2) a sale, lease, exchange, mortgage, pledge, 351-26 transfer, or other disposition, in one transaction or a series of 351-27 transactions, including an allocation of assets under a merger, to 352-1 or with the affiliated shareholder, or an affiliate or associate of 352-2 the affiliated shareholder, of assets of the issuing public 352-3 corporation or a subsidiary that: 352-4 (A) has an aggregate market value equal to 10 352-5 percent or more of the aggregate market value of all of the assets, 352-6 determined on a consolidated basis, of the issuing public 352-7 corporation; 352-8 (B) has an aggregate market value equal to 10 352-9 percent or more of the aggregate market value of all of the 352-10 outstanding common stock of the issuing public corporation; or 352-11 (C) represents 10 percent or more of the earning 352-12 power or net income, determined on a consolidated basis, of the 352-13 issuing public corporation; 352-14 (3) the issuance or transfer by an issuing public 352-15 corporation or a subsidiary to an affiliated shareholder or an 352-16 affiliate or associate of the affiliated shareholder, in one 352-17 transaction or a series of transactions, of shares of the issuing 352-18 public corporation or a subsidiary, except by the exercise of 352-19 warrants or rights to purchase shares of the issuing public 352-20 corporation offered, or a share dividend paid, pro rata to all 352-21 shareholders of the issuing public corporation after the affiliated 352-22 shareholder's share acquisition date; 352-23 (4) the adoption of a plan or proposal for the 352-24 liquidation or dissolution of an issuing public corporation 352-25 proposed by or under any agreement, arrangement, or understanding, 352-26 regardless of whether in writing, with an affiliated shareholder or 352-27 an affiliate or associate of the affiliated shareholder; 353-1 (5) a reclassification of securities, including a 353-2 reverse share split or a share split-up, share dividend, or other 353-3 distribution of shares, a recapitalization of the issuing public 353-4 corporation, a merger of the issuing public corporation with a 353-5 subsidiary or pursuant to which the assets and liabilities of the 353-6 issuing public corporation are allocated among two or more 353-7 surviving or new domestic or foreign corporations or other 353-8 entities, or any other transaction proposed by or under an 353-9 agreement, arrangement, or understanding, regardless of whether in 353-10 writing, with an affiliated shareholder or an affiliate or 353-11 associate of the affiliated shareholder that has the effect, 353-12 directly or indirectly, of increasing the proportionate ownership 353-13 percentage of the outstanding shares of a class or series of voting 353-14 shares or securities convertible into voting shares of the issuing 353-15 public corporation that is beneficially owned by the affiliated 353-16 shareholder or an affiliate or associate of the affiliated 353-17 shareholder, except as a result of immaterial changes due to 353-18 fractional share adjustments; or 353-19 (6) the direct or indirect receipt by an affiliated 353-20 shareholder or an affiliate or associate of the affiliated 353-21 shareholder of the benefit of a loan, advance, guarantee, pledge, 353-22 or other financial assistance or a tax credit or other tax 353-23 advantage provided by or through the issuing public corporation, 353-24 except proportionately as a shareholder of the issuing public 353-25 corporation. 353-26 Sec. 21.605. CONTROL. (a) For purposes of this subchapter, 353-27 a person has control of another person if the person has 354-1 possession, directly or indirectly, of the power to direct or cause 354-2 the direction of the management and policies of the other person, 354-3 through the ownership of equity securities, by contract, or in 354-4 another manner. 354-5 (b) A person's beneficial ownership of 10 percent or more of 354-6 a person's outstanding voting shares or similar interests creates a 354-7 presumption that the person has control of the other person, but a 354-8 person is not considered to have control of another person who 354-9 holds the voting shares or similar interests in good faith and not 354-10 to circumvent this part, as an agent, bank, broker, nominee, 354-11 custodian, or trustee for one or more beneficial owners who do not 354-12 individually or as a group have control of the person. 354-13 Sec. 21.606. THREE-YEAR MORATORIUM ON CERTAIN BUSINESS 354-14 COMBINATIONS. An issuing public corporation may not, directly or 354-15 indirectly, enter into or engage in a business combination with an 354-16 affiliated shareholder, or any affiliate or associate of the 354-17 affiliated shareholder, during the three-year period immediately 354-18 following the affiliated shareholder's share acquisition date 354-19 unless: 354-20 (1) the business combination or the purchase or 354-21 acquisition of shares made by the affiliated shareholder on the 354-22 affiliated shareholder's share acquisition date is approved by the 354-23 board of directors of the issuing public corporation before the 354-24 affiliated shareholder's share acquisition date; or 354-25 (2) the business combination is approved, by the 354-26 affirmative vote of the holders of at least two-thirds of the 354-27 outstanding voting shares of the issuing public corporation not 355-1 beneficially owned by the affiliated shareholder or an affiliate or 355-2 associate of the affiliated shareholder, at a meeting of 355-3 shareholders called for that purpose not less than six months after 355-4 the affiliated shareholder's share acquisition date. Approval may 355-5 not be by written consent. 355-6 Sec. 21.607. APPLICATION OF MORATORIUM. Section 21.606 does 355-7 not apply to: 355-8 (1) a business combination of an issuing public 355-9 corporation if: 355-10 (A) the original articles of incorporation or 355-11 original bylaws of the corporation contain a provision expressly 355-12 electing not to be governed by this subchapter; 355-13 (B) before December 31, 1997, the corporation 355-14 adopted an amendment to the articles of incorporation or bylaws of 355-15 the corporation expressly electing not to be governed by this 355-16 subchapter; or 355-17 (C) after December 31, 1997, the corporation 355-18 adopts an amendment to the articles of incorporation or bylaws of 355-19 the corporation, approved by the affirmative vote of the holders, 355-20 other than an affiliated shareholder or an affiliate or associate 355-21 of the affiliated shareholder, of at least two-thirds of the 355-22 outstanding voting shares of the issuing public corporation, 355-23 expressly electing not to be governed by this subchapter, except 355-24 that the amendment to the articles of incorporation or bylaws takes 355-25 effect 18 months after the date of the vote and does not apply to a 355-26 business combination of the issuing public corporation with an 355-27 affiliated shareholder whose share acquisition date is on or before 356-1 the effective date of the amendment; 356-2 (2) a business combination of an issuing public 356-3 corporation with an affiliated shareholder who became an affiliated 356-4 shareholder inadvertently, if the affiliated shareholder: 356-5 (A) as soon as practicable divests itself of a 356-6 sufficient number of the voting shares of the issuing public 356-7 corporation so that the affiliated shareholder no longer is the 356-8 beneficial owner, directly or indirectly, of 20 percent or more of 356-9 the outstanding voting shares of the issuing public corporation; 356-10 and 356-11 (B) would not at any time within the three-year 356-12 period preceding the announcement date of the business combination 356-13 have been an affiliated shareholder except for the inadvertent 356-14 acquisition; 356-15 (3) a business combination with an affiliated 356-16 shareholder who was the beneficial owner of 20 percent or more of 356-17 the outstanding voting shares of the issuing public corporation on 356-18 December 31, 1996, and continuously until the announcement date of 356-19 the business combination; 356-20 (4) a business combination with an affiliated 356-21 shareholder who became an affiliated shareholder through a transfer 356-22 of shares of the issuing public corporation by will or intestate 356-23 succession and continuously was an affiliated shareholder until the 356-24 announcement date of the business combination; or 356-25 (5) a business combination of an issuing public 356-26 corporation with a domestic wholly owned subsidiary if the domestic 356-27 subsidiary is not an affiliate or associate of the affiliated 357-1 shareholder for a reason other than the affiliated shareholder's 357-2 beneficial ownership of voting shares in the issuing public 357-3 corporation. 357-4 Sec. 21.608. EFFECT ON OTHER ACTIONS. (a) This subchapter 357-5 does not affect, directly or indirectly, the validity of another 357-6 action by the board of directors of an issuing public corporation. 357-7 (b) This subchapter does not preclude the board of directors 357-8 of an issuing public corporation from taking other action in 357-9 accordance with law. 357-10 (c) The board of directors of an issuing public corporation 357-11 does not incur liability for an election made or not made under 357-12 this subchapter. 357-13 Sec. 21.609. CONFLICTING PROVISIONS. If this subchapter 357-14 conflicts with another provision of this code, this subchapter 357-15 controls. 357-16 Sec. 21.610. CHANGE IN VOTING REQUIREMENTS. The affirmative 357-17 vote or concurrence of shareholders required for approval of an 357-18 action that is required to be submitted to a vote of the 357-19 shareholders under this subchapter may be increased but not 357-20 decreased under Section 21.365. 357-21 (Sections 21.611-21.650 reserved for expansion) 357-22 SUBCHAPTER N. PROVISIONS RELATING TO INVESTMENT COMPANIES 357-23 Sec. 21.651. DEFINITION. In this subchapter, "investment 357-24 company" means a corporation registered as an open-end company 357-25 under the Investment Company Act. 357-26 Sec. 21.652. ESTABLISHING CLASS OR SERIES OF SHARES; CHANGE 357-27 IN NUMBER OF SHARES. (a) In addition to the actions the board may 358-1 undertake under Subchapters D, E, and F, the board of directors of 358-2 an investment company may: 358-3 (1) establish classes of shares and series of unissued 358-4 shares of a class by setting and determining the designations, 358-5 preferences, limitations, and relative rights, including voting 358-6 rights, of the shares of the class or series established under this 358-7 subdivision to the same extent that the designations, preferences, 358-8 limitations, and relative rights could be stated if fully stated in 358-9 the certificate of formation; and 358-10 (2) increase or decrease the aggregate number of 358-11 shares or the number of shares of, or delete from the investment 358-12 company's certificate of formation, a class or series of shares the 358-13 corporation has authority to issue, unless a provision has been 358-14 included in the certificate of formation of the corporation after 358-15 September 1, 1993, expressly prohibiting those actions by the board 358-16 of directors. 358-17 (b) The board of directors of an investment company may not: 358-18 (1) decrease the number of shares in a class or series 358-19 to a number that is less than the number of shares of that class or 358-20 series that are outstanding at the time; or 358-21 (2) delete from the certificate of formation a 358-22 reference to a class or series that has shares outstanding at the 358-23 time. 358-24 (c) To establish a class or series under this section, the 358-25 board of directors must adopt a resolution stating the designation 358-26 of the class or series and setting and determining the 358-27 designations, preferences, limitations, and relative rights, 359-1 including voting rights, of the class or series. 359-2 (d) To increase or decrease the number of shares of a class 359-3 or series of shares or to delete from the certificate of formation 359-4 a reference to a class or series of shares, the board of directors 359-5 of an investment company must adopt a resolution setting and 359-6 determining the new number of shares of each class or series in 359-7 which the number of shares is increased or decreased or deleting 359-8 the class or series and any reference to the class or series from 359-9 the certificate of formation. The shares of a series removed from 359-10 the certificate of formation shall resume the status of authorized 359-11 but unissued shares of the class of shares from which the series 359-12 was established unless otherwise provided by the resolution or the 359-13 certificate of formation of the investment company. 359-14 Sec. 21.653. REQUIRED STATEMENT RELATING TO SHARES. (a) 359-15 Before the first issuance of shares of a class or series 359-16 established or increased or decreased by resolution adopted by the 359-17 board of directors of an investment company under Section 21.652, 359-18 and to delete from the investment company's certificate of 359-19 formation a class or series of shares and all references to the 359-20 class or series contained in the certificate of formation, the 359-21 investment company shall file with the secretary of state a 359-22 statement that contains: 359-23 (1) the name of the investment company; 359-24 (2) if the statement relates to the establishment of a 359-25 class or series of shares, a copy of the resolution establishing 359-26 and designating the class or series or establishing and designating 359-27 the class or series and setting and determining the preferences, 360-1 limitations, and relative rights of the class or series; 360-2 (3) if the statement relates to an increase or 360-3 decrease in the number of shares of a class or series, a copy of 360-4 the resolution setting and determining the new number of shares of 360-5 each class or series in which the number of shares is increased or 360-6 decreased; 360-7 (4) if the statement relates to the deletion of a 360-8 class or series of shares and all references to the class or series 360-9 from the certificate of formation, a copy of the resolution 360-10 deleting the class or series and all references to the class or 360-11 series from the certificate of formation; 360-12 (5) the date of adoption of the resolution; and 360-13 (6) a statement that the resolution was adopted by all 360-14 necessary action on the part of the investment company. 360-15 (b) After the statement described by Subsection (a) is 360-16 filed, a resolution adopted under Section 21.652 becomes an 360-17 amendment of the certificate of formation. An amendment of the 360-18 certificate of formation described under this section is not 360-19 subject to the procedure to amend the certificate of formation 360-20 contained in Subchapter B. 360-21 Sec. 21.654. TERM OF OFFICE OF DIRECTORS. Unless removed in 360-22 accordance with the certificate of formation or bylaws of the 360-23 investment company, a director of an investment company shall serve 360-24 as director for the term for which the director is elected and 360-25 holds office until a successor is elected and qualifies. 360-26 Sec. 21.655. MEETINGS OF SHAREHOLDERS. (a) If provided by 360-27 the certificate of formation or bylaws of an investment company, 361-1 the investment company is not required to hold an annual meeting of 361-2 shareholders or elect directors in a year in which an election of 361-3 directors is not required under the Investment Company Act. 361-4 (b) If an investment company is required to hold a meeting 361-5 of shareholders to elect directors under the Investment Company 361-6 Act, the meeting shall be designated as the annual meeting of 361-7 shareholders for that year. 361-8 (Sections 21.656-21.700 reserved for expansion) 361-9 SUBCHAPTER O. CLOSE CORPORATION 361-10 Sec. 21.701. DEFINITIONS. In this subchapter: 361-11 (1) "Close corporation" means a domestic corporation 361-12 formed under this subchapter. 361-13 (2) "Close corporation provision" means a provision in 361-14 the certificate of formation of a close corporation or in a 361-15 shareholders' agreement of a close corporation. 361-16 (3) "Ordinary corporation" means a domestic 361-17 corporation that is not a close corporation. 361-18 (4) "Shareholders' agreement" means a written 361-19 agreement regulating an aspect of the business and affairs of or 361-20 the relationship among the shareholders of a close corporation that 361-21 has been executed under this subchapter. 361-22 Sec. 21.702. APPLICABILITY OF SUBCHAPTER. (a) This 361-23 subchapter applies only to a close corporation. 361-24 (b) This chapter applies to a close corporation to the 361-25 extent not inconsistent with this subchapter. 361-26 Sec. 21.703. FORMATION OF CLOSE CORPORATION. A close 361-27 corporation shall be formed in accordance with Chapter 3 and 362-1 Sections 21.051 and 21.704. 362-2 Sec. 21.704. SUPPLEMENTAL PROVISION FOR CERTIFICATE OF 362-3 FORMATION. In addition to a provision required or permitted to be 362-4 stated in the certificate of formation by Section 21.051, the 362-5 certificate of formation of a close corporation, whether original, 362-6 amended, or restated, must include the sentence, "This corporation 362-7 is a close corporation." 362-8 Sec. 21.705. ADOPTION OF AMENDMENT FOR CLOSE CORPORATION 362-9 STATUS. (a) An ordinary corporation may become a close 362-10 corporation by amending its certificate of formation in accordance 362-11 with Chapter 3 and Section 21.704. 362-12 (b) An amendment adopting close corporation status must be 362-13 approved by the affirmative vote of the holders of all of the 362-14 outstanding shares of each class established by the close 362-15 corporation, regardless of whether a class is entitled to vote on 362-16 the amendment by the certificate of formation of the ordinary 362-17 corporation. 362-18 Sec. 21.706. ADOPTION OF CLOSE CORPORATION STATUS THROUGH 362-19 MERGER, SHARE EXCHANGE, OR CONVERSION. (a) A surviving or new 362-20 corporation resulting from a merger or conversion or a corporation 362-21 that acquires a corporation under an interest exchange under 362-22 Chapter 10 may become a close corporation if, as part of the plan 362-23 of merger, exchange, or conversion, the articles of incorporation 362-24 conform with Section 21.704. 362-25 (b) A plan of merger, exchange, or conversion adopting close 362-26 corporation status must be approved by the affirmative vote of the 362-27 holders of all of the outstanding shares, and of each class or 363-1 series of shares, of each corporation that is party to the merger, 363-2 interest, exchange, or conversion, regardless of whether a class or 363-3 series of shares is entitled to vote on the plan by the certificate 363-4 of formation of the corporation. 363-5 Sec. 21.707. EXISTING CLOSE CORPORATION. (a) This section 363-6 applies to an existing corporation that elected to become a close 363-7 corporation before the effective date of this code and has not 363-8 terminated that status. 363-9 (b) A close corporation existing before the effective date 363-10 of this code is considered to be a close corporation under this 363-11 code. 363-12 (c) A provision in the articles of incorporation of a close 363-13 corporation authorized under former law is valid and enforceable if 363-14 the corporation's status as a close corporation has not been 363-15 terminated. 363-16 (d) An agreement among the shareholders of a close 363-17 corporation in conformance with former law and Sections 363-18 21.714-21.725 before the effective date of this code is considered 363-19 to be a shareholders' agreement. 363-20 (e) A certificate representing the shares issued or 363-21 delivered by the close corporation after the effective date of this 363-22 code, whether in connection with the original issue of shares or a 363-23 transfer of shares, must conform with Section 21.732. 363-24 Sec. 21.708. TERMINATION OF CLOSE CORPORATION STATUS. A 363-25 close corporation may terminate its status as a close corporation 363-26 by: 363-27 (1) filing a statement terminating close corporation 364-1 status under Section 21.709; 364-2 (2) amending the close corporation's certificate of 364-3 formation under Chapter 3 by deleting from the certificate of 364-4 formation the statement that it is a close corporation; 364-5 (3) engaging in a merger, interest exchange, or 364-6 conversion under Chapter 10, unless the plan of merger, exchange, 364-7 or conversion provides that the surviving or new corporation will 364-8 continue as or become a close corporation and the plan has been 364-9 approved by the affirmative vote or consent of the holders of all 364-10 of the outstanding shares, and of each class and series of shares, 364-11 of the close corporation, regardless of whether a class or series 364-12 of shares is entitled to vote on the plan by the certificate of 364-13 formation; or 364-14 (4) instituting a judicial proceeding to enforce a 364-15 close corporation provision providing for the termination. 364-16 Sec. 21.709. STATEMENT TERMINATING CLOSE CORPORATION STATUS; 364-17 FILING; NOTICE. (a) If a close corporation provision specifies a 364-18 time or event requiring the termination of close corporation 364-19 status, regardless of whether the provision is identifiable by a 364-20 person dealing with the close corporation, the termination of the 364-21 close corporation takes effect on the occurrence of the specified 364-22 time or event and the filing of a statement terminating close 364-23 corporation status under this section. 364-24 (b) Promptly after the time or occurrence of an event 364-25 requiring termination of close corporation status, a statement 364-26 terminating close corporation status shall be signed by an officer 364-27 on behalf of the close corporation. A copy of the applicable close 365-1 corporation provision must be included in or attached to the 365-2 statement. The statement and any attachment shall be filed with 365-3 the secretary of state in accordance with Chapter 4. 365-4 (c) The statement terminating close corporation status must 365-5 contain: 365-6 (1) the name of the corporation; 365-7 (2) a statement that the corporation has terminated 365-8 its status as a close corporation in accordance with the included 365-9 or attached close corporation provision; and 365-10 (3) the time or event that caused the termination and, 365-11 in the case of an event, the approximate date of the event. 365-12 (d) After a statement terminating close corporation status 365-13 has been filed under this section, the certificate of formation of 365-14 the close corporation is considered to be amended to delete from 365-15 the certificate the statement that the corporation is a close 365-16 corporation, and the corporation's status as a close corporation is 365-17 terminated. 365-18 (e) The corporation shall personally deliver or mail a copy 365-19 of the statement to each shareholder of the corporation. A copy of 365-20 the statement is considered to have been delivered by mail under 365-21 this section when the copy is deposited in the United States mail, 365-22 with postage prepaid, addressed to the shareholder at the 365-23 shareholder's address as it appears on the share transfer records 365-24 of the corporation. The failure to deliver the copy of the 365-25 statement does not affect the validity of the termination. 365-26 Sec. 21.710. EFFECT OF TERMINATION OF CLOSE CORPORATION 365-27 STATUS. (a) A close corporation that terminates its status as a 366-1 close corporation and becomes an ordinary corporation is subject to 366-2 this chapter as if the corporation had not elected close 366-3 corporation status under this subchapter. 366-4 (b) The effect of termination of close corporation status on 366-5 a shareholders' agreement is governed by Section 21.724. 366-6 (c) When the termination of close corporation status takes 366-7 effect, if the close corporation's business and affairs have been 366-8 managed by an entity other than a board of directors as provided by 366-9 Section 21.725, governance by a board of directors is instituted or 366-10 reinstated: 366-11 (1) if provided by a shareholders' agreement, in the 366-12 manner stated in the agreement or by the persons named in the 366-13 agreement to serve as the interim board of directors; or 366-14 (2) if each party to a shareholders' agreement agrees 366-15 to elect a board of directors at a shareholders' meeting. 366-16 Sec. 21.711. SHAREHOLDERS' MEETING TO ELECT DIRECTORS. A 366-17 shareholders' meeting required by Section 21.710(c)(2) shall be 366-18 promptly called after the termination of close corporation status 366-19 takes effect. If a meeting is not called before the 31st day after 366-20 the date the termination takes effect, a shareholder may call a 366-21 shareholders' meeting on the provision of notice required by 366-22 Section 21.353, regardless of whether the shareholder is entitled 366-23 to call a shareholders' meeting or vote at the meeting. At the 366-24 meeting, the shareholders shall elect the number of directors 366-25 specified in the certificate of formation or bylaws of the 366-26 corporation or, in the absence of any specification, three 366-27 directors. 367-1 Sec. 21.712. TERM OF DIRECTORS. A director succeeding to 367-2 the management of the corporation under Section 21.710(c) shall 367-3 serve until the next annual meeting of shareholders and until a 367-4 successor is elected and qualifies. Until a board of directors is 367-5 elected, the shareholders of the corporation shall act as the 367-6 corporation's board of directors, and the business and affairs of 367-7 the corporation shall be conducted under Section 21.726. 367-8 Sec. 21.713. MANAGEMENT. A close corporation shall be 367-9 managed: 367-10 (1) by a board of directors in the same manner an 367-11 ordinary corporation would be managed under this chapter; or 367-12 (2) in the manner provided by the close corporation's 367-13 certificate of formation or by a shareholders' agreement of the 367-14 close corporation. 367-15 Sec. 21.714. SHAREHOLDERS' AGREEMENT. (a) The shareholders 367-16 of a close corporation may enter into one or more shareholders' 367-17 agreements. 367-18 (b) The business and affairs of a close corporation or the 367-19 relationships among the shareholders that may be regulated by a 367-20 shareholders' agreement include: 367-21 (1) the management of the business and affairs of the 367-22 close corporation by its shareholders, with or without a board of 367-23 directors; 367-24 (2) the management of the business and affairs of the 367-25 close corporation wholly or partly by one or more of its 367-26 shareholders or other persons; 367-27 (3) buy-sell, first option, first refusal, or similar 368-1 arrangements with respect to the close corporation's shares or 368-2 other securities, and restrictions on the transfer of the shares or 368-3 other securities, including more restrictions than those permitted 368-4 by Section 21.211; 368-5 (4) the declaration and payment of dividends or other 368-6 distributions in amounts authorized by Subchapter G, regardless of 368-7 whether the distribution is in proportion to ownership of shares; 368-8 (5) the manner in which profits or losses shall be 368-9 apportioned; 368-10 (6) restrictions placed on the rights of a transferee 368-11 or assignee of shares to participate in the management or 368-12 administration of the close corporation's business and affairs 368-13 during the term of the shareholders' agreement; 368-14 (7) the right of one or more shareholders to cause the 368-15 winding up and termination of the close corporation at will or on 368-16 the occurrence of a specified event or contingency, in which case 368-17 the winding up and termination of the close corporation shall 368-18 proceed as if all of the shareholders of the close corporation had 368-19 consented in writing to winding up and termination as provided by 368-20 Chapter 11; 368-21 (8) the exercise or division of voting power either in 368-22 general or with regard to specified matters by or among the 368-23 shareholders of the close corporation or other persons, including: 368-24 (A) voting agreements and voting trusts that do 368-25 not conform with Section 6.251 or 6.252; 368-26 (B) requiring the vote or consent of the holders 368-27 of a larger or smaller number of shares than is otherwise required 369-1 by this chapter or other law, including an action for termination 369-2 of close corporation status; 369-3 (C) granting one or some other specified number 369-4 of votes for each shareholder; and 369-5 (D) permitting an action for which this chapter 369-6 requires approval by the vote of the board of directors or the 369-7 shareholders of an ordinary corporation, or both, to be taken 369-8 without a vote, in the manner provided by the shareholders' 369-9 agreement; 369-10 (9) the terms and conditions of employment of a 369-11 shareholder, director, officer, or other employee of the close 369-12 corporation, regardless of the length of the period of employment; 369-13 (10) the individuals who will serve as directors, if 369-14 any, and officers of the close corporation; 369-15 (11) the arbitration or mediation of issues about 369-16 which the shareholders may become deadlocked in voting or about 369-17 which the directors or those empowered to manage the close 369-18 corporation may become deadlocked and the shareholders are unable 369-19 to break the deadlock; 369-20 (12) the termination of close corporation status, 369-21 including a right of dissent or other rights that may be granted to 369-22 shareholders who object to the termination; 369-23 (13) qualifications of persons who are or are not 369-24 entitled to be shareholders of the close corporation; 369-25 (14) amendments to or termination of the shareholders' 369-26 agreement; and 369-27 (15) any provision required or permitted to be 370-1 contained in the bylaws by this chapter. 370-2 Sec. 21.715. EXECUTION OF SHAREHOLDERS' AGREEMENT. A 370-3 shareholders' agreement shall be executed: 370-4 (1) in the case of an existing close corporation, by 370-5 each shareholder at the time of execution, regardless of whether 370-6 the shareholder has voting power; 370-7 (2) in the case of an existing ordinary corporation 370-8 that will adopt close corporation status under Section 21.705, by 370-9 each shareholder at the time of execution, regardless of whether 370-10 the shareholder has voting power; or 370-11 (3) in the case of a close corporation that is being 370-12 formed under Section 21.703, by each person who is a subscriber to 370-13 the corporation's shares or agrees to become a holder of the 370-14 corporation's shares under the shareholders' agreement of the close 370-15 corporation. 370-16 Sec. 21.716. ADOPTION OF AMENDMENT OF SHAREHOLDERS' 370-17 AGREEMENT. Unless otherwise provided by a shareholders' agreement, 370-18 an amendment to the shareholders' agreement of a close corporation 370-19 may be adopted only by the written consent of each person who would 370-20 be required to execute the shareholders' agreement if it were being 370-21 executed originally at the time of adoption of the amendment, 370-22 regardless of whether the person has voting power in the close 370-23 corporation. 370-24 Sec. 21.717. DELIVERY OF SHAREHOLDERS' AGREEMENT. (a) The 370-25 close corporation shall deliver a complete copy of a shareholders' 370-26 agreement to: 370-27 (1) each person who is bound by the shareholders' 371-1 agreement; 371-2 (2) each person who is or will become a shareholder in 371-3 the close corporation as provided by Section 21.715 when a 371-4 certificate representing shares in the close corporation is 371-5 delivered to the person; and 371-6 (3) each person to whom a certificate representing 371-7 shares is issued and who has not received a complete copy of the 371-8 agreement. 371-9 (b) The failure to deliver a complete copy of a 371-10 shareholders' agreement as required by this section does not affect 371-11 the validity or enforceability of the shareholders' agreement. 371-12 Sec. 21.718. STATEMENT OF OPERATION AS CLOSE CORPORATION. 371-13 (a) On or after the formation of a close corporation or adoption 371-14 of close corporation status, a close corporation that begins to 371-15 conduct its business and affairs under a shareholders' agreement 371-16 that has become effective shall promptly execute and file with the 371-17 secretary of state a statement of operation as a close corporation 371-18 in accordance with Chapter 4. 371-19 (b) The statement required by Subsection (a) must: 371-20 (1) contain the name of the close corporation; 371-21 (2) state that the close corporation is being operated 371-22 and its business and affairs are being conducted under the terms of 371-23 a shareholders' agreement under this subchapter; and 371-24 (3) contain the date the operation of the corporation 371-25 began. 371-26 (c) A statement of operation as a close corporation shall be 371-27 executed by an officer on behalf of the corporation. 372-1 (d) On the filing of the statement of operation as a close 372-2 corporation, the fact that the close corporation is being operated 372-3 and its business and affairs are being conducted under the terms of 372-4 a shareholders' agreement becomes a matter of public record. 372-5 Sec. 21.719. VALIDITY AND ENFORCEABILITY OF SHAREHOLDERS' 372-6 AGREEMENT. (a) A shareholders' agreement executed in accordance 372-7 with Section 21.715 is valid and enforceable notwithstanding: 372-8 (1) the elimination of a board of directors; 372-9 (2) any restriction imposed on the discretion or 372-10 powers of the board of directors or other person empowered to 372-11 manage the close corporation; and 372-12 (3) that the effect of the shareholders' agreement is 372-13 to treat the business and affairs of the close corporation as if 372-14 the close corporation were a partnership or in a manner that would 372-15 otherwise be appropriate only among partners. 372-16 (b) A close corporation, a shareholder of the close 372-17 corporation, or a party to a shareholders' agreement may initiate a 372-18 proceeding to enforce the shareholders' agreement in accordance 372-19 with Section 21.756. 372-20 Sec. 21.720. PERSONS BOUND BY SHAREHOLDERS' AGREEMENT. (a) 372-21 A shareholders' agreement executed in accordance with Section 372-22 21.715 is: 372-23 (1) considered to be an agreement among all of the 372-24 shareholders of the close corporation; and 372-25 (2) binding on and enforceable against each 372-26 shareholder of the close corporation, regardless of whether: 372-27 (A) a particular shareholder acquired shares in 373-1 the close corporation by purchase, gift, bequest, or otherwise; or 373-2 (B) the shareholder had actual knowledge of the 373-3 existence of the shareholders' agreement at the time of acquiring 373-4 shares. 373-5 (b) A transferee or assignee of shares of a close 373-6 corporation in which there is a shareholders' agreement is bound by 373-7 the agreement for all purposes, regardless of whether the 373-8 transferee or assignee executed or was aware of the agreement. 373-9 Sec. 21.721. DELIVERY OF COPY OF SHAREHOLDERS' AGREEMENT TO 373-10 TRANSFEREE. (a) Before the transfer of shares of a close 373-11 corporation in which there is a shareholders' agreement, the 373-12 transferor shall deliver a complete copy of the shareholders' 373-13 agreement to the transferee. 373-14 (b) If the transferor fails to deliver a complete copy of 373-15 the shareholders' agreement: 373-16 (1) the validity and enforceability of the 373-17 shareholders' agreement against each shareholder of the 373-18 corporation, including the transferee, is not affected; 373-19 (2) the right, title, or interest of the transferee in 373-20 the transferred shares is not adversely affected; and 373-21 (3) the transferee is entitled to obtain on demand 373-22 from the transferor or from the close corporation a complete copy 373-23 of the shareholders' agreement at the transferor's expense. 373-24 Sec. 21.722. EFFECT OF REQUIRED STATEMENT ON SHARE 373-25 CERTIFICATE AND DELIVERY OF SHAREHOLDERS' AGREEMENT. If a 373-26 certificate representing shares of a close corporation contains the 373-27 statement required by Section 21.732, and a complete copy of each 374-1 shareholders' agreement has been delivered as required by Section 374-2 21.717, each holder, transferee, or other person claiming an 374-3 interest in the shares of the close corporation is conclusively 374-4 presumed to have knowledge of a close corporation provision in 374-5 effect at the time of the transfer. 374-6 Sec. 21.723. PARTY NOT BOUND BY SHAREHOLDERS' AGREEMENT ON 374-7 CESSATION; LIABILITY. (a) Notwithstanding the person's signature, 374-8 a person ceases to be a party to, and bound by, a shareholders' 374-9 agreement when the person ceases to be a shareholder of the close 374-10 corporation unless: 374-11 (1) the person's attempted cessation was in violation 374-12 of Section 21.721 or the shareholders' agreement; or 374-13 (2) the shareholders' agreement provides to the 374-14 contrary. 374-15 (b) Cessation as a party to a shareholders' agreement or as 374-16 a shareholder does not relieve a person of liability the person may 374-17 have incurred for breach of the shareholders' agreement. 374-18 Sec. 21.724. TERMINATION OF SHAREHOLDERS' AGREEMENT. (a) 374-19 Except as provided by Subsection (b), a shareholders' agreement 374-20 terminates when the close corporation terminates its status as a 374-21 close corporation. 374-22 (b) If provided by the shareholders' agreement, all or part 374-23 of the agreement is valid and enforceable to the extent permitted 374-24 for an ordinary corporation by this chapter or other law. 374-25 Sec. 21.725. CONSEQUENCES OF MANAGEMENT BY PERSONS OTHER 374-26 THAN BOARD OF DIRECTORS. Sections 21.726-21.729 apply only to a 374-27 close corporation the business and affairs of which are managed 375-1 wholly or partly by the shareholders of the close corporation or 375-2 any other person as provided by a shareholders' agreement rather 375-3 than solely by a board of directors. 375-4 Sec. 21.726. SHAREHOLDERS CONSIDERED DIRECTORS. (a) When 375-5 required by the context of this chapter, the shareholders of a 375-6 close corporation described by Section 21.725 are considered to be 375-7 directors of the close corporation for purposes of applying a 375-8 provision of this chapter, other than a provision relating to the 375-9 election and removal of directors. 375-10 (b) A requirement that an instrument filed with a 375-11 governmental agency contain a statement that a specified action has 375-12 been taken by the board of directors is satisfied by a statement 375-13 that: 375-14 (1) the corporation is a close corporation with no 375-15 board of directors; and 375-16 (2) the action was approved by the shareholders of the 375-17 close corporation or the persons empowered to manage the business 375-18 and affairs of the close corporation under a shareholders' 375-19 agreement. 375-20 Sec. 21.727. LIABILITY OF SHAREHOLDERS. The shareholders of 375-21 a close corporation described by Section 21.725 are subject to any 375-22 liability imposed on a director of a corporation by this chapter or 375-23 other law for a managerial act of or omission made by the 375-24 shareholders or any other person empowered to manage the business 375-25 and affairs of the close corporation under a shareholders' 375-26 agreement and relating to the business and affairs of the close 375-27 corporation, if the action is required by law to be undertaken by 376-1 the board of directors. 376-2 Sec. 21.728. MODE AND EFFECT OF TAKING ACTION BY 376-3 SHAREHOLDERS AND OTHERS. (a) An action that shall or may be taken 376-4 by the board of directors of an ordinary corporation as required or 376-5 authorized by this chapter shall or may be taken by action of the 376-6 shareholders of a close corporation described by Section 21.725 at 376-7 a meeting of the shareholders or, in the manner permitted by a 376-8 shareholders' agreement, this subchapter, or this chapter, without 376-9 a meeting. 376-10 (b) Unless otherwise provided by the certificate of 376-11 formation of the close corporation or a shareholders' agreement of 376-12 the close corporation, an action is binding on a close corporation 376-13 if the action is taken after: 376-14 (1) the affirmative vote of the holders of the 376-15 majority of all outstanding shares entitled to vote on the action; 376-16 or 376-17 (2) the consent of all of the shareholders of the 376-18 close corporation, which may be proven by: 376-19 (A) the full knowledge of the action by all of 376-20 the shareholders and the shareholders' failure to object to the 376-21 action in a timely manner; 376-22 (B) written consent to the action in accordance 376-23 with Section 6.201 or this chapter or any other writing executed by 376-24 or on behalf of all of the shareholders reasonably evidencing the 376-25 consent; or 376-26 (C) any other means reasonably evidencing the 376-27 consent. 377-1 Sec. 21.729. LIMITATION OF SHAREHOLDER'S LIABILITY. (a) A 377-2 shareholder of a close corporation described by Section 21.725 is 377-3 not liable because of a shareholders' vote or shareholder action 377-4 without a vote unless the shareholder had the right to vote or 377-5 consent to the action. 377-6 (b) A shareholder of a close corporation, without regard to 377-7 the right to vote or consent, may not be held liable for an action 377-8 taken by the shareholders or a person empowered to manage the 377-9 business and affairs of the close corporation under a shareholders' 377-10 agreement if the shareholder dissents from and has not voted for or 377-11 consented to the action. 377-12 (c) The dissent of a shareholder may be proven by: 377-13 (1) an entry in the minutes of the meeting of 377-14 shareholders; 377-15 (2) a written dissent filed with the secretary of the 377-16 meeting before the adjournment of the meeting; 377-17 (3) a written dissent sent by registered mail to the 377-18 secretary of the close corporation promptly after the meeting or 377-19 after a written consent was obtained from the other shareholders; 377-20 or 377-21 (4) any other means reasonably evidencing the dissent. 377-22 Sec. 21.730. LACK OF FORMALITIES; TREATMENT AS PARTNERSHIP. 377-23 The failure of a close corporation under this subchapter to observe 377-24 a usual formality or requirement prescribed for an ordinary 377-25 corporation by this chapter relating to the exercise of corporate 377-26 powers or the management of a corporation's business and affairs 377-27 and the performance of a shareholders' agreement that treats the 378-1 close corporation as if the corporation were a partnership or in a 378-2 manner that otherwise is appropriate only among partners may not: 378-3 (1) be a factor in determining whether to impose 378-4 personal liability on the shareholders for the close corporation's 378-5 obligations by disregarding the separate entity of the close 378-6 corporation or otherwise; 378-7 (2) be grounds for invalidating an otherwise valid 378-8 shareholders' agreement; or 378-9 (3) affect the status of the close corporation as a 378-10 corporation under this chapter or other law. 378-11 Sec. 21.731. OTHER AGREEMENTS AMONG SHAREHOLDERS PERMITTED. 378-12 Sections 21.713-21.730 do not prohibit or impair any other 378-13 agreement between two or more shareholders of an ordinary 378-14 corporation permitted by this chapter or other law. 378-15 Sec. 21.732. CLOSE CORPORATION SHARE CERTIFICATES. (a) In 378-16 addition to a matter required or authorized by law to be stated on 378-17 a certificate representing shares, each certificate representing 378-18 shares issued by a close corporation must conspicuously state on 378-19 the front or back of the certificate: "These shares are issued by 378-20 a close corporation as defined by the Texas Business Organizations 378-21 Code. Under Chapter 21 of that code, a shareholders' agreement may 378-22 provide for management of a close corporation by the shareholders 378-23 or in other ways different from an ordinary corporation. This may 378-24 subject the holder of this certificate to certain obligations and 378-25 liabilities not otherwise imposed on shareholders of an ordinary 378-26 corporation. On a sale or transfer of these shares, the transferor 378-27 is required to deliver to the transferee a complete copy of any 379-1 shareholders' agreement." 379-2 (b) Notwithstanding this chapter and Section 3.202, the 379-3 status of a corporation as a close corporation is not affected by 379-4 the failure of a share certificate to contain the statement 379-5 required by Subsection (a). 379-6 Sec. 21.733. BYLAWS OF CLOSE CORPORATION. (a) A close 379-7 corporation does not need to adopt bylaws if provisions required by 379-8 law to be contained in the bylaws are contained in the certificate 379-9 of formation or a shareholders' agreement. 379-10 (b) A close corporation that does not have bylaws when it 379-11 terminates its status as a close corporation under Section 21.708 379-12 shall immediately adopt bylaws that comply with Section 21.059. 379-13 (Sections 21.734-21.750 reserved for expansion) 379-14 SUBCHAPTER P. JUDICIAL PROCEEDINGS RELATING TO 379-15 CLOSE CORPORATION 379-16 Sec. 21.751. DEFINITIONS. In this subchapter: 379-17 (1) "Court" means a district court in the county in 379-18 which the principal office of the close corporation is located. 379-19 (2) "Custodian" means a person appointed by a court 379-20 under Section 21.761. 379-21 (3) "Provisional director" means a person appointed by 379-22 a court under Section 21.758. 379-23 (4) "Shareholder" means a record or beneficial owner 379-24 of shares in a close corporation, including: 379-25 (A) a person holding a beneficial interest in 379-26 the shares under an inter vivos, testamentary, or voting trust; or 379-27 (B) the personal representative, as defined by 380-1 the Texas Probate Code, of a record or beneficial owner. 380-2 Sec. 21.752. PROCEEDINGS AUTHORIZED. In addition to any 380-3 other judicial proceeding pertaining to an ordinary corporation 380-4 provided for by this chapter or other law, a close corporation or 380-5 shareholder may institute a proceeding in a district court in the 380-6 county in which the principal office of the close corporation is 380-7 located to: 380-8 (1) enforce a close corporation provision; 380-9 (2) appoint a provisional director; or 380-10 (3) appoint a custodian. 380-11 Sec. 21.753. NOTICE; INTERVENTION. (a) Notice of the 380-12 institution of a proceeding shall be given to the close 380-13 corporation, if the corporation is not a plaintiff, and to each 380-14 shareholder who is not a plaintiff in the manner prescribed by law 380-15 and consistent with due process of law as directed by the court. 380-16 (b) The close corporation or a shareholder of the close 380-17 corporation may intervene in the proceeding. 380-18 Sec. 21.754. PROCEEDING NONEXCLUSIVE. Except as provided by 380-19 Section 21.755, the right of a close corporation or a shareholder 380-20 to institute a proceeding under Section 21.752 is in addition to 380-21 another right or remedy the plaintiff is entitled to under law. 380-22 Sec. 21.755. UNAVAILABILITY OF JUDICIAL PROCEEDING. (a) A 380-23 shareholder may not institute a proceeding before exhausting any 380-24 nonjudicial remedy contained in a close corporation provision for 380-25 resolution of an issue that is in dispute unless the shareholder 380-26 proves that the close corporation, the shareholders as a whole, or 380-27 the shareholder will suffer irreparable harm before the nonjudicial 381-1 remedy is exhausted. 381-2 (b) A shareholder may not institute a proceeding to seek 381-3 damages or other monetary relief if the shareholder is entitled to 381-4 dissent from a proposed action and receive the fair value of the 381-5 shareholder's shares under this code or a shareholders' agreement. 381-6 Sec. 21.756. JUDICIAL PROCEEDING TO ENFORCE CLOSE 381-7 CORPORATION PROVISION. (a) In a judicial proceeding under this 381-8 section, a court shall enforce a close corporation provision 381-9 without regard to whether there is an adequate remedy at law. 381-10 (b) The court may enforce a close corporation provision by 381-11 injunction, specific performance, or other relief the court 381-12 determines to be fair and equitable under the circumstances, 381-13 including: 381-14 (1) damages instead of or in addition to specific 381-15 enforcement; 381-16 (2) the appointment of a provisional director or 381-17 custodian; 381-18 (3) the appointment of a receiver for specific assets 381-19 of the close corporation in accordance with Section 11.403; 381-20 (4) the appointment of a receiver to rehabilitate the 381-21 close corporation in accordance with Section 11.404; 381-22 (5) subject to Section 21.757, the liquidation of the 381-23 assets and business and involuntary termination of the close 381-24 corporation and appointment of a receiver to effect the liquidation 381-25 in accordance with Section 11.405; and 381-26 (6) the termination of close corporation status. 381-27 (c) The court may not order termination of close corporation 382-1 status under Subsection (b)(6) unless the court determines that: 382-2 (1) any other remedy in law or equity, including 382-3 appointment of a provisional director, custodian, or other type of 382-4 receiver, is inadequate; and 382-5 (2) the size, the nature of the business, or the 382-6 number of shareholders of the close corporation, or their 382-7 relationship to one another or other similar factors, make it 382-8 wholly impractical to continue close corporation status. 382-9 Sec. 21.757. LIQUIDATION; INVOLUNTARY WINDING UP AND 382-10 TERMINATION; RECEIVERSHIP. Except as provided by Section 21.756, in 382-11 a case in which a shareholder is entitled to wind up and terminate 382-12 a close corporation under a shareholders' agreement, a court may 382-13 not order liquidation, involuntary termination, or receivership 382-14 under that section unless the court determines that any other 382-15 remedy in law or equity, including appointment of a provisional 382-16 director, custodian, or other type of receiver, is inadequate. 382-17 Sec. 21.758. APPOINTMENT OF PROVISIONAL DIRECTOR. (a) In a 382-18 judicial proceeding under this section, a court shall appoint a 382-19 provisional director for a close corporation on presentation of 382-20 proof that the directors or the persons empowered to manage the 382-21 business and affairs of the close corporation under a shareholders' 382-22 agreement are so divided with respect to the management of the 382-23 business and affairs of the close corporation that the required 382-24 votes or consent to take action on behalf of the close corporation 382-25 cannot be obtained, resulting in the business and affairs being 382-26 conducted in a manner that is not to the general advantage of the 382-27 shareholders. 383-1 (b) The provisional director must be an impartial person who 383-2 is not a shareholder, a party to a shareholders' agreement, a 383-3 person empowered to manage the close corporation under a 383-4 shareholders' agreement, or a creditor of the close corporation or 383-5 of a subsidiary or affiliate of the close corporation. The court 383-6 shall determine any further qualifications. 383-7 (c) A provisional director shall serve until removed by 383-8 court order or by a vote of the majority of the directors or the 383-9 holders of the majority of the shares with voting power, or by a 383-10 vote of a different number, not fewer than the majority, of 383-11 shareholders or directors if a close corporation provision requires 383-12 the concurrence of a larger or different majority for action by the 383-13 directors or shareholders. 383-14 Sec. 21.759. RIGHTS AND POWERS OF PROVISIONAL DIRECTOR. A 383-15 provisional director has all the rights and powers of an elected 383-16 director of the close corporation, or the rights of vote or consent 383-17 of a shareholder and other rights and powers of shareholders or 383-18 other persons who have been empowered to manage the business and 383-19 affairs of the close corporation under a shareholders' agreement 383-20 with the voting power provided by court order, including the right 383-21 to notice of, and to vote at, meetings of directors or 383-22 shareholders. 383-23 Sec. 21.760. COMPENSATION OF PROVISIONAL DIRECTOR. (a) The 383-24 compensation of a provisional director shall be determined by an 383-25 agreement between the provisional director and the close 383-26 corporation, subject to court approval. 383-27 (b) The court may set the compensation in the absence of an 384-1 agreement or in the event of a disagreement between the provisional 384-2 director and the close corporation. 384-3 Sec. 21.761. APPOINTMENT OF CUSTODIAN. (a) In a judicial 384-4 proceeding under this section, a court shall appoint a custodian 384-5 for a close corporation on presentation of proof that: 384-6 (1) at a meeting held for the election of directors, 384-7 the shareholders are so divided that the shareholders have failed 384-8 to elect successors to directors whose terms have expired or would 384-9 have expired on qualification of a successor; 384-10 (2) the business of the close corporation is suffering 384-11 or is threatened with irreparable injury because the directors, or 384-12 the shareholders or the persons empowered to manage the business 384-13 and affairs of the close corporation under a shareholders' 384-14 agreement, are so divided with respect to the management of the 384-15 business and affairs of the close corporation that the required 384-16 vote or consent to take action on behalf of the close corporation 384-17 cannot be obtained and a remedy with respect to the deadlock in a 384-18 close corporation provision has failed; or 384-19 (3) the plaintiff or intervenor has the right to wind 384-20 up and terminate the close corporation under a shareholders' 384-21 agreement as provided by Section 21.714. 384-22 (b) To be eligible to serve as a custodian, a person must 384-23 comply with all the qualifications required to serve as a receiver 384-24 under Section 11.406. 384-25 Sec. 21.762. POWERS AND DUTIES OF CUSTODIAN. A person who 384-26 qualifies as a custodian has all of the powers and duties and the 384-27 title of a receiver appointed under Sections 11.404-11.406. The 385-1 custodian shall continue the business of the close corporation and 385-2 may not liquidate the affairs or distribute the assets of the close 385-3 corporation, except as provided by court order or Section 385-4 21.761(a)(3). 385-5 Sec. 21.763. TERMINATION OF CUSTODIANSHIP. If the condition 385-6 requiring the appointment of a custodian is remedied other than by 385-7 liquidation or winding up and termination, the court shall 385-8 terminate the custodianship immediately and management of the close 385-9 corporation shall be restored to the directors or shareholders of 385-10 the close corporation or to the persons empowered to manage the 385-11 business and affairs of the close corporation under a shareholders' 385-12 agreement. 385-13 (Sections 21.764-21.800 reserved for expansion) 385-14 SUBCHAPTER Q. MISCELLANEOUS PROVISIONS 385-15 Sec. 21.801. SHARES AND OTHER SECURITIES ARE PERSONAL 385-16 PROPERTY. Except as otherwise provided by this code, the shares 385-17 and other securities of a corporation are personal property. 385-18 Sec. 21.802. DELINQUENT TAX. A corporation that is 385-19 delinquent in the payment of any tax owed under Chapter 171, Tax 385-20 Code, may not be: 385-21 (1) awarded a contract by the state; or 385-22 (2) granted a license or permit by the state. 385-23 Sec. 21.803. SUPPLEMENTAL INFORMATION FOR APPLICATION FOR 385-24 REGISTRATION BY FOREIGN CORPORATIONS. In addition to the 385-25 information required by Section 9.004, a foreign corporation's 385-26 application for registration to be filed with the secretary of 385-27 state must state the: 386-1 (1) aggregate number of shares the corporation has 386-2 authority to issue, itemized by classes, par value of shares, 386-3 shares without par value, and any series in a class; 386-4 (2) aggregate number of shares issued by the 386-5 corporation, itemized by classes, par value of shares, shares 386-6 without par value, and any series in a class; and 386-7 (3) dollar amount of the stated capital of the 386-8 corporation. 386-9 CHAPTER 22. NONPROFIT CORPORATIONS 386-10 SUBCHAPTER A. GENERAL PROVISIONS 386-11 Sec. 22.001. DEFINITIONS. In this chapter: 386-12 (1) "Board of directors" means the group of persons 386-13 vested with the management of the affairs of the corporation, 386-14 regardless of the name used to designate the group. 386-15 (2) "Bylaws" means the rules adopted to regulate or 386-16 manage the corporation, regardless of the name used to designate 386-17 the rules. 386-18 (3) "Corporation" or "domestic corporation" means a 386-19 domestic nonprofit corporation subject to this chapter. 386-20 (4) "Foreign corporation" means a foreign nonprofit 386-21 corporation. 386-22 (5) "Nonprofit corporation" means a corporation no 386-23 part of the income of which is distributable to a member, director, 386-24 or officer of the corporation. 386-25 (6) "Ordinary care" means the care that an ordinarily 386-26 prudent person in a similar position would exercise under similar 386-27 circumstances. 387-1 Sec. 22.002. APPLICABILITY TO CERTAIN INSURANCE ASSOCIATIONS 387-2 AND COMPANIES. To the extent consistent with the Insurance Code, 387-3 this chapter applies to a local mutual aid association, statewide 387-4 mutual assessment company, burial association as defined by Article 387-5 14.37, Insurance Code, and county mutual insurance company, except 387-6 that: 387-7 (1) a mutual insurance association or company may pay 387-8 dividends to its members on advance approval of the commissioner of 387-9 insurance; and 387-10 (2) a power granted to or duty required of the 387-11 secretary of state under this chapter is, with respect to a mutual 387-12 insurance association or company, granted to or required of the 387-13 commissioner of insurance. 387-14 (Sections 22.003-22.050 reserved for expansion) 387-15 SUBCHAPTER B. PURPOSES AND POWERS 387-16 Sec. 22.051. GENERAL PURPOSES. A nonprofit corporation may 387-17 be formed for any lawful purpose or purposes not expressly 387-18 prohibited under this chapter, including any purpose described by 387-19 Section 2.002. 387-20 Sec. 22.052. ORGANIZED LABOR. Subject to Chapter 101, Labor 387-21 Code, a corporation may be organized under this chapter if a 387-22 purpose for the conduct of its affairs in this state is to organize 387-23 laborers, workers, or wage earners to protect themselves in their 387-24 various pursuits. 387-25 Sec. 22.053. DENTAL HEALTH SERVICE CORPORATION. (a) A 387-26 charitable corporation may be formed to operate a dental health 387-27 service corporation that manages and coordinates the relationship 388-1 between a dentist who contracts to perform dental services and a 388-2 patient who will receive the services as a member of a group that 388-3 contracted with the dental health service corporation to provide 388-4 dental care to group members. 388-5 (b) An application for a charter under this section must 388-6 have attached as an exhibit: 388-7 (1) an affidavit of the applicants stating: 388-8 (A) that not less than 30 percent of the 388-9 dentists legally engaged in the practice of dentistry in this state 388-10 have signed a contract to perform the required dental services for 388-11 a period of at least one year after incorporation; and 388-12 (B) the names and addresses of those dentists; 388-13 and 388-14 (2) a certification by the State Board of Dental 388-15 Examiners that: 388-16 (A) the applicants are reputable residents of 388-17 this state of good moral character; and 388-18 (B) the corporation will be in the best interest 388-19 of the public health. 388-20 (c) A corporation formed under this section must have at 388-21 least 12 directors, including 9 directors who are licensed to 388-22 practice dentistry in this state and are actively engaged in the 388-23 practice of dentistry in this state. 388-24 (d) A corporation formed under this section shall maintain 388-25 as participating or contracting dentists at least 30 percent of the 388-26 number of dentists actually engaged in the practice of dentistry in 388-27 this state. The corporation shall file annually in September with 389-1 the State Board of Dental Examiners the name and address of each 389-2 participating or contracting dentist. 389-3 (e) A corporation formed under this section may not: 389-4 (1) prevent a patient from selecting the licensed 389-5 dentist of the patient's choice to provide dental services to the 389-6 patient; 389-7 (2) deny a licensed dentist the right to participate 389-8 as a contracting dentist to perform the dental services contracted 389-9 for by the patient; 389-10 (3) discriminate among patients or licensed dentists 389-11 regarding payment or reimbursement for the cost of performing 389-12 dental services; or 389-13 (4) authorize any person to regulate, interfere with, 389-14 or intervene in any manner in the diagnosis or treatment provided 389-15 by a licensed dentist to a patient. 389-16 (f) A corporation formed under this section may require the 389-17 attending dentist to provide a narrative oral or written 389-18 description of the dental services provided to determine benefits 389-19 or provide proof of treatment. The corporation may request but may 389-20 not require diagnostic aids used in the course of treatment. 389-21 Sec. 22.054. PROHIBITED ACTIVITIES. A corporation may not 389-22 be organized or register under this chapter to conduct its affairs 389-23 in this state if a purpose for the conduct of its affairs in this 389-24 state is to: 389-25 (1) organize a group hospital service, rural credit 389-26 union, agricultural and livestock pool, mutual loan corporation, 389-27 cooperative association under Chapter 251, cooperative credit 390-1 association, farmers' cooperative society, Co-operative Marketing 390-2 Act corporation, rural electric cooperative corporation, telephone 390-3 cooperative corporation, or fraternal organization operating under 390-4 the lodge system and incorporated under Subchapter C, Chapter 23; 390-5 or 390-6 (2) engage in water supply or sewer service as an 390-7 entity incorporated under Chapter 67, Water Code. 390-8 Sec. 22.055. DIVIDENDS PROHIBITED. A dividend may not be 390-9 paid to, and no part of the income of a corporation may be 390-10 distributed to, the corporation's members, directors, or officers. 390-11 Sec. 22.056. AUTHORIZED BENEFITS AND DISTRIBUTIONS. A 390-12 corporation may: 390-13 (1) pay compensation in a reasonable amount to the 390-14 members, directors, or officers of the corporation for services 390-15 provided; 390-16 (2) confer benefits on the corporation's members in 390-17 conformity with the corporation's purposes; and 390-18 (3) make distributions to the corporation's members on 390-19 winding up and termination to the extent authorized by this 390-20 chapter. 390-21 Sec. 22.057. POWER TO ASSIST EMPLOYEE OR OFFICER. (a) A 390-22 corporation may lend money to or otherwise assist an employee or 390-23 officer of the corporation, but not a director, if the loan or 390-24 assistance may reasonably be expected to directly or indirectly 390-25 benefit the corporation. 390-26 (b) A loan made to an officer must be: 390-27 (1) made for the purpose of financing the officer's 391-1 principal residence; or 391-2 (2) set in an original principal amount that does not 391-3 exceed: 391-4 (A) 100 percent of the officer's annual salary, 391-5 if the loan is made before the first anniversary of the officer's 391-6 employment; or 391-7 (B) 50 percent of the officer's annual salary, 391-8 if the loan is made in any subsequent year. 391-9 Sec. 22.058. POWER OF CERTAIN CORPORATIONS TO SERVE AS 391-10 TRUSTEE. A corporation that is described by Section 170(c) or 391-11 501(c)(3), Internal Revenue Code, or by a corresponding provision 391-12 of a subsequent federal tax law, or that is listed by the Internal 391-13 Revenue Service in the Cumulative List of Organizations Described 391-14 in Section 170(c), Internal Revenue Code of 1986, I.R.S. 391-15 Publication 78, may serve as the trustee of a trust: 391-16 (1) naming the corporation as a beneficiary; or 391-17 (2) benefiting another organization described by this 391-18 section. 391-19 Sec. 22.059. STANDARD TAX PROVISIONS FOR CERTAIN CHARITABLE 391-20 CORPORATIONS; POWER TO EXCLUDE. (a) Notwithstanding any 391-21 conflicting provision of this chapter or the certificate of 391-22 formation and except as provided by Subsection (b), the certificate 391-23 of formation of each corporation that is a private foundation as 391-24 defined by Section 509, Internal Revenue Code, is considered to 391-25 contain the following provisions: "The corporation shall make 391-26 distributions at the time and in the manner as not to subject it to 391-27 tax under Section 4942 of the Internal Revenue Code of 1986; the 392-1 corporation shall not engage in any act of self-dealing which would 392-2 be subject to tax under Section 4941 of the Code; the corporation 392-3 shall not retain any excess business holdings which would subject 392-4 it to tax under Section 4943 of the Code; the corporation shall not 392-5 make any investments which would subject it to tax under Section 392-6 4944 of the Code; and the corporation shall not make any taxable 392-7 expenditures which would subject it to tax under Section 4945 of 392-8 the Code." 392-9 (b) A corporation described by Subsection (a) may amend the 392-10 certificate of formation of the corporation to expressly exclude 392-11 the application of Subsection (a). 392-12 (Sections 22.060-22.100 reserved for expansion) 392-13 SUBCHAPTER C. FORMATION AND GOVERNING DOCUMENTS 392-14 Sec. 22.101. INCORPORATION OF CERTAIN ORGANIZATIONS. A 392-15 religious society, a charitable, benevolent, literary, or social 392-16 association, or a church may incorporate under this chapter with 392-17 the consent of a majority of its members. Those members shall 392-18 authorize the organizers to execute the certificate of formation. 392-19 Sec. 22.102. SUPPLEMENTAL REQUIREMENTS FOR CERTIFICATE OF 392-20 FORMATION. In addition to the information required to be included 392-21 in the certificate of formation by Section 3.005, the certificate 392-22 of formation of a corporation must include: 392-23 (1) if the corporation is to have no members, a 392-24 statement to that effect; 392-25 (2) if management of the corporation's affairs is to 392-26 be vested in the corporation's members, a statement to that effect; 392-27 (3) the number of directors constituting the initial 393-1 board of directors and the names and addresses of those directors 393-2 or, if the management of the corporation is vested solely in the 393-3 corporation's members, a statement to that effect; and 393-4 (4) if the corporation is to be authorized on its 393-5 winding up to distribute the corporation's assets in a manner other 393-6 than as provided by Section 22.304, a statement describing the 393-7 manner of distribution. 393-8 Sec. 22.103. BYLAWS. (a) The initial bylaws of a 393-9 corporation shall be adopted by the corporation's board of 393-10 directors or, if the management of the corporation is vested in the 393-11 corporation's members, by the members. 393-12 (b) The bylaws may contain provisions for the regulation and 393-13 management of the affairs of the corporation that are consistent 393-14 with law and the certificate of formation. 393-15 (c) The board of directors may amend or repeal the bylaws, 393-16 or adopt new bylaws, unless: 393-17 (1) this chapter or the corporation's certificate of 393-18 formation wholly or partly reserves the power exclusively to the 393-19 corporation's members; 393-20 (2) the management of the corporation is vested in the 393-21 corporation's members; or 393-22 (3) in amending, repealing, or adopting a bylaw, the 393-23 members expressly provide that the board of directors may not amend 393-24 or repeal the bylaw. 393-25 Sec. 22.104. INCONSISTENCY BETWEEN CERTIFICATE OF FORMATION 393-26 AND BYLAW. (a) A provision of a certificate of formation of a 393-27 corporation that is inconsistent with a bylaw controls over the 394-1 bylaw, except as provided by Subsection (b). 394-2 (b) A change in the number of directors by amendment to the 394-3 bylaws controls over the number stated in the certificate of 394-4 formation, unless the certificate of formation provides that a 394-5 change in the number of directors may be made only by amendment to 394-6 the certificate. 394-7 Sec. 22.105. ORGANIZATION MEETING. (a) After the 394-8 certificate of formation is filed, the board of directors named in 394-9 the certificate of formation of a corporation shall hold an 394-10 organization meeting of the board, either in or out of this state, 394-11 at the call of the incorporators or a majority of the directors to 394-12 adopt bylaws and elect officers and for other purposes determined 394-13 by the board at the meeting. The incorporators or directors 394-14 calling the meeting shall mail notice of the time and place of the 394-15 meeting to each director named in the certificate of formation not 394-16 later than the fourth day before the date of the meeting. 394-17 (b) A first meeting of the members may be held at the call 394-18 of the majority of the directors on notice provided not later than 394-19 the fourth day before the date of the meeting. The notice must 394-20 state the purposes of the meeting. 394-21 (c) If the management of a corporation is vested in the 394-22 corporation's members, the members shall hold the organization 394-23 meeting on the call of an incorporator. An incorporator who calls 394-24 the meeting shall: 394-25 (1) mail notice of the time and place of the meeting 394-26 to each member not later than the fourth day before the date of the 394-27 meeting; 395-1 (2) if the corporation is a church, make an oral 395-2 announcement of the time and place of the meeting at a regularly 395-3 scheduled worship service before the meeting; or 395-4 (3) provide notice of the meeting in the manner 395-5 provided by the certificate of formation. 395-6 Sec. 22.106. DUTY OF CERTAIN CORPORATIONS TO AMEND 395-7 CERTIFICATE OF FORMATION. (a) A corporation that existed on May 395-8 12, 1959, for which the certificate of formation does not contain 395-9 information required by Section 3.005 or by Section 22.102 is not 395-10 required to amend its certificate of formation to include that 395-11 information. 395-12 (b) An amendment or restatement of the corporation's 395-13 certificate of formation that is filed after May 12, 1959, must 395-14 include the information required by Sections 3.005 and 22.102, 395-15 other than information relating to the organizers, the initial 395-16 directors, or the initial registered office. 395-17 Sec. 22.107. RESTATED CERTIFICATE OF FORMATION FOR CERTAIN 395-18 CHURCHES. If the management of a church is vested in the church's 395-19 members under Section 22.202, and the original certificate of 395-20 formation is not required to contain a statement to that effect, 395-21 any restated certificate of formation for the church must contain a 395-22 statement to that effect in addition to the information required by 395-23 Section 3.057. 395-24 Sec. 22.108. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF 395-25 FORMATION BY MEMBERS HAVING VOTING RIGHTS. (a) Except as provided 395-26 by Section 22.110(b), to amend the certificate of formation of a 395-27 corporation with members having voting rights, the board of 396-1 directors of the corporation must adopt a resolution specifying the 396-2 proposed amendment and directing that the amendment be submitted to 396-3 a vote at an annual or special meeting of the members having voting 396-4 rights. 396-5 (b) Written notice containing the proposed amendment or a 396-6 summary of the changes to be effected by the amendment shall be 396-7 given to each member entitled to vote at the meeting within the 396-8 time and in the manner provided by this chapter for giving notice 396-9 of a meeting of members. 396-10 (c) The proposed amendment shall be adopted on receiving at 396-11 least two-thirds of the votes that members present at the meeting 396-12 in person or by proxy are entitled to cast, except that if any 396-13 class of members is entitled to vote on the amendment as a class by 396-14 the terms of the certificate of formation or the bylaws, the 396-15 amendment may be adopted only on also receiving at least two-thirds 396-16 of the votes that the members of each class present at the meeting 396-17 in person or by proxy are entitled to cast. 396-18 Sec. 22.109. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF 396-19 FORMATION BY MANAGING MEMBERS. (a) To be approved, a proposed 396-20 amendment to the certificate of formation of a corporation the 396-21 management of the affairs of which is vested in the corporation's 396-22 members under Section 22.202 must be submitted to a vote at an 396-23 annual, regular, or special meeting of the members. 396-24 (b) Except as otherwise provided by the certificate of 396-25 formation or bylaws, notice containing the proposed amendment or a 396-26 summary of the changes to be effected by the amendment shall be 396-27 given to the members within the time and in the manner provided by 397-1 this chapter for giving notice of a meeting of members. 397-2 (c) The proposed amendment shall be adopted on receiving at 397-3 least two-thirds of the votes of members present at the meeting. 397-4 Sec. 22.110. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE OF 397-5 FORMATION BY BOARD OF DIRECTORS. (a) If a corporation has no 397-6 members or has no members with voting rights, or in the case of an 397-7 amendment under Subsection (b), an amendment to the corporation's 397-8 certificate of formation shall be adopted at a meeting of the board 397-9 of directors on receiving the affirmative vote of the majority of 397-10 the directors in office. 397-11 (b) Except as otherwise provided by the certificate of 397-12 formation, the board of directors of a corporation with members 397-13 having voting rights may, without member approval, adopt 397-14 amendments to the certificate of formation to: 397-15 (1) extend the duration of the corporation if the 397-16 corporation was incorporated when limited duration was required by 397-17 law; 397-18 (2) delete the names and addresses of the initial 397-19 directors; 397-20 (3) delete the name and address of the initial 397-21 registered agent or registered office, if a statement of change is 397-22 on file with the secretary of state; or 397-23 (4) change the corporate name by: 397-24 (A) substituting the word "corporation," 397-25 "incorporated," "company," or "limited," or the abbreviation 397-26 "corp.," "inc.," "co.," or "ltd.," for a similar word or 397-27 abbreviation in the name; or 398-1 (B) adding, deleting, or changing a geographical 398-2 attribution to the name. 398-3 Sec. 22.111. NUMBER OF AMENDMENTS SUBJECT TO VOTE AT 398-4 MEETING. Any number of amendments to the corporation's certificate 398-5 of formation may be submitted to and voted on by a corporation's 398-6 members at any one meeting of the members. 398-7 (Sections 22.112-22.150 reserved for expansion) 398-8 SUBCHAPTER D. MEMBERS 398-9 Sec. 22.151. MEMBERS. (a) A corporation may have one or 398-10 more classes of members or may have no members. 398-11 (b) If the corporation has one or more classes of members, 398-12 the corporation's certificate of formation or bylaws must include: 398-13 (1) a designation of each class; 398-14 (2) the manner of the election or appointment of the 398-15 members of each class; and 398-16 (3) the qualifications and rights of the members of 398-17 each class. 398-18 (c) A corporation may issue a certificate, card, or other 398-19 instrument evidencing membership rights, voting rights, or 398-20 ownership rights as authorized by the certificate of formation or 398-21 bylaws. 398-22 Sec. 22.152. IMMUNITY FROM LIABILITY. The members of a 398-23 corporation are not personally liable for a debt, liability, or 398-24 obligation of the corporation. 398-25 Sec. 22.153. ANNUAL MEETING. (a) Except as provided by 398-26 Subsection (b), a corporation shall hold an annual meeting of the 398-27 members at a time that is stated in or determined in accordance 399-1 with the corporation's bylaws. 399-2 (b) If the bylaws provide for more than one regular meeting 399-3 of members each year, an annual meeting is not required. If an 399-4 annual meeting is not required, directors may be elected at a 399-5 meeting as provided by the bylaws. 399-6 Sec. 22.154. FAILURE TO CALL ANNUAL MEETING. (a) If the 399-7 board of directors of a corporation fails to call the annual 399-8 meeting of members at the designated time, a member of the 399-9 corporation may demand that the meeting be held within a reasonable 399-10 time. The demand must be made in writing and sent to an officer of 399-11 the corporation by registered mail. 399-12 (b) If the annual meeting is not called before the 61st day 399-13 after the date of demand, a member of the corporation may compel 399-14 the holding of the meeting by legal action directed against the 399-15 board of directors, and each of the extraordinary writs of common 399-16 law and of courts of equity are available to the member to compel 399-17 the holding of the meeting. Each member has a justiciable interest 399-18 sufficient to enable the member to institute and prosecute the 399-19 legal proceedings. 399-20 (c) Failure to hold the annual meeting at the designated 399-21 time does not result in the winding up and termination of the 399-22 corporation. 399-23 Sec. 22.155. SPECIAL MEETING OF MEMBERS. A special meeting 399-24 of the members of a corporation may be called by: 399-25 (1) the president; 399-26 (2) the board of directors; 399-27 (3) members having not less than one-tenth of the 400-1 votes entitled to be cast at the meeting; or 400-2 (4) other officers or persons as provided by the 400-3 certificate of formation or bylaws of the corporation. 400-4 Sec. 22.156. NOTICE OF MEETING. (a) A corporation other 400-5 than a church shall provide written notice of the place, date, and 400-6 time of a meeting of the members of the corporation and, if the 400-7 meeting is a special meeting, the purpose or purposes for which the 400-8 meeting is called. The notice shall be delivered to each member 400-9 entitled to vote at the meeting not later than the 10th day and not 400-10 earlier than the 60th day before the date of the meeting. Notice 400-11 may be delivered personally, by facsimile transmission, or by mail, 400-12 at the direction of the president, secretary, officers, or other 400-13 persons calling the meeting. Notice is considered delivered if 400-14 mailed or transmitted by facsimile in accordance with Section 400-15 6.051. 400-16 (b) Notice of a meeting of the members of a corporation that 400-17 is a church is considered sufficient if given by oral announcement 400-18 at a regularly scheduled worship service before the meeting or as 400-19 otherwise provided by the certificate of formation or bylaws of the 400-20 corporation. 400-21 Sec. 22.157. SPECIAL BYLAWS AFFECTING NOTICE. (a) A 400-22 corporation may provide in the corporation's bylaws that notice of 400-23 an annual or regular meeting is not required. 400-24 (b) A corporation having more than 1,000 members at the time 400-25 a meeting is scheduled or called may provide notice of a meeting by 400-26 publication in a newspaper of general circulation in the community 400-27 in which the principal office of the corporation is located, if the 401-1 corporation provides for that notice in its bylaws. 401-2 Sec. 22.158. PREPARATION AND INSPECTION OF LIST OF VOTING 401-3 MEMBERS. (a) After setting a record date for the notice of a 401-4 meeting, a corporation shall prepare the list of voting members 401-5 required by Section 6.004. The list must identify the members who 401-6 are entitled to notice and the members who are not entitled to 401-7 notice of the meeting. 401-8 (b) Not later than the second business day after the date 401-9 notice is given of a meeting for which a list was prepared in 401-10 accordance with Section 6.004, and continuing through the meeting, 401-11 the list of voting members must be available at the corporation's 401-12 principal office or at a reasonable place in the municipality in 401-13 which the meeting will be held, as identified in the notice of the 401-14 meeting, for inspection by members entitled to vote at the meeting 401-15 for the purpose of communication with other members concerning the 401-16 meeting. 401-17 (c) A voting member or voting member's agent or attorney is 401-18 entitled on written demand to inspect and, at the member's expense 401-19 and subject to Section 22.401, copy the list at a reasonable time 401-20 during the period the list is available for inspection. 401-21 (d) The corporation shall make the list of voting members 401-22 available at the meeting. A voting member or voting member's agent 401-23 or attorney is entitled to inspect the list at any time during the 401-24 meeting or an adjournment of the meeting. 401-25 Sec. 22.159. QUORUM OF MEMBERS. (a) Unless otherwise 401-26 provided by the certificate of formation or bylaws of a 401-27 corporation, members of the corporation holding one-tenth of the 402-1 votes entitled to be cast, in person or by proxy, constitute a 402-2 quorum. 402-3 (b) The vote of the majority of the votes entitled to be 402-4 cast by the members present or represented by proxy at a meeting at 402-5 which a quorum is present is the act of the members meeting, unless 402-6 the vote of a greater number is required by law or the certificate 402-7 of formation or bylaws. 402-8 (c) Unless otherwise provided by the certificate of 402-9 formation or bylaws, a church incorporated before May 12, 1959, is 402-10 considered to have provided in the certificate of formation or 402-11 bylaws that members present at a meeting for which notice has been 402-12 given constitute a quorum. 402-13 Sec. 22.160. VOTING OF MEMBERS. (a) Each member of a 402-14 corporation, regardless of class, is entitled to one vote on each 402-15 matter submitted to a vote of the corporation's members, except to 402-16 the extent that the voting rights of members of a class are 402-17 limited, enlarged, or denied by the certificate of formation or 402-18 bylaws of the corporation. 402-19 (b) A member may vote in person or, unless otherwise 402-20 provided by the certificate of formation or bylaws, by proxy 402-21 executed in writing by the member or the member's attorney-in-fact. 402-22 (c) Unless otherwise provided by the proxy, a proxy is 402-23 revocable and expires 11 months after the date of its execution. A 402-24 proxy may not be irrevocable for longer than 11 months. 402-25 Sec. 22.161. ELECTION OF OFFICERS OR DIRECTORS. (a) If 402-26 directors or officers are to be elected by members of a 402-27 corporation, the corporation's bylaws may authorize the elections 403-1 to be conducted by mail, by facsimile transmission, or by any 403-2 combination of those two methods. 403-3 (b) A member entitled to vote at an election of directors is 403-4 entitled to vote, in person or by proxy, for as many persons as 403-5 there are directors to be elected and for whose election the member 403-6 has a right to vote. 403-7 (c) If expressly authorized by the corporation's certificate 403-8 of formation, the member may cumulate the member's vote by: 403-9 (1) giving one candidate a number of votes equal to 403-10 the number of the directors to be elected multiplied by the 403-11 member's vote; or 403-12 (2) distributing the votes on the same principle among 403-13 any number of the candidates. 403-14 (d) A member who intends to cumulate votes under Subsection 403-15 (c) shall give written notice of the member's intention to the 403-16 secretary of the corporation not later than the day preceding the 403-17 date of the election. 403-18 Sec. 22.162. GREATER VOTING REQUIREMENTS UNDER CERTIFICATE 403-19 OF FORMATION. If the corporation's certificate of formation 403-20 requires the vote or concurrence of a greater proportion of the 403-21 members of a corporation than is required by this chapter with 403-22 respect to an action to be taken by the members, the certificate of 403-23 formation controls. 403-24 Sec. 22.163. RECORD DATE FOR DETERMINATION OF MEMBERS. 403-25 (a) The record date for determining members of a corporation may 403-26 be set as provided by Section 6.101. 403-27 (b) If a record date is not set under Section 6.101: 404-1 (1) members on the date of the meeting who are 404-2 otherwise eligible to vote are entitled to vote at the meeting; 404-3 (2) members at the close of business on the business 404-4 day preceding the date notice is given, or if notice is waived, at 404-5 the close of business on the business day preceding the date of the 404-6 meeting, are entitled to notice of a meeting of members; 404-7 (3) members at the close of business on the later of 404-8 the day the board of directors adopts the resolution relating to 404-9 the action or the 60th day before the date of the action are 404-10 entitled to exercise any rights regarding any other lawful action. 404-11 (c) The board of directors of a corporation may set a new 404-12 date for determining the right to notice of or to vote at any 404-13 adjournment of a members' meeting. The board shall set a new date 404-14 if the meeting is adjourned to a date more than 90 days after the 404-15 record date for determining members entitled to notice of the 404-16 original meeting. 404-17 (Sections 22.164-22.200 reserved for expansion) 404-18 SUBCHAPTER E. MANAGEMENT 404-19 Sec. 22.201. MANAGEMENT BY BOARD OF DIRECTORS. The affairs 404-20 of a corporation are managed by a board of directors. The board of 404-21 directors may be designated by any name appropriate to the customs, 404-22 usages, or tenets of the corporation. 404-23 Sec. 22.202. MANAGEMENT BY MEMBERS. (a) The certificate of 404-24 formation of a corporation may vest the management of the affairs 404-25 of the corporation in the members of the corporation. If the 404-26 corporation has a board of directors, the corporation may limit the 404-27 authority of the board to the extent provided by the certificate of 405-1 formation or bylaws. 405-2 (b) A corporation is considered to have vested the 405-3 management of the corporation's affairs in the board of directors 405-4 of the corporation in the absence of a provision to the contrary in 405-5 the certificate of formation or bylaws, unless the corporation is a 405-6 church organized and operating under a congregational system that: 405-7 (1) was incorporated before January 1, 1994; and 405-8 (2) has the management of its affairs vested in the 405-9 corporation's members. 405-10 Sec. 22.203. BOARD MEMBER ELIGIBILITY REQUIREMENTS. A 405-11 director of a corporation is not required to be a resident of this 405-12 state or a member of the corporation unless the certificate of 405-13 formation or a bylaw of the corporation imposes that requirement. 405-14 The certificate of formation or bylaws may prescribe other 405-15 qualifications for directors. 405-16 Sec. 22.204. NUMBER OF DIRECTORS. (a) A corporation may 405-17 not have fewer than three directors. The number of directors shall 405-18 be set by, or in the manner provided by, the certificate of 405-19 formation or bylaws of the corporation, except that the number of 405-20 directors on the initial board of directors must be set by the 405-21 certificate of formation. 405-22 (b) The number of directors may be increased or decreased by 405-23 amendment to, or in the manner provided by, the certificate of 405-24 formation or bylaws. A decrease in the number of directors may not 405-25 shorten the term of an incumbent director. 405-26 (c) In the absence of a provision of the certificate of 405-27 formation or a bylaw setting the number of directors or providing 406-1 for the manner in which the number of directors shall be 406-2 determined, the number of directors is the same as the number 406-3 constituting the initial board of directors. 406-4 Sec. 22.205. DESIGNATION OF INITIAL BOARD OF DIRECTORS. The 406-5 certificate of formation of a corporation must state the names of 406-6 the members of the initial board of directors of the corporation. 406-7 Sec. 22.206. ELECTION OR APPOINTMENT OF BOARD OF DIRECTORS. 406-8 Directors other than the initial directors are elected, appointed, 406-9 or designated in the manner provided by the certificate of 406-10 formation or bylaws. If the method of election, designation, or 406-11 appointment is not provided by the certificate of formation or 406-12 bylaws, directors other than the initial directors are elected by 406-13 the board of directors. 406-14 Sec. 22.207. ELECTION AND CONTROL BY CERTAIN ENTITIES. 406-15 (a) The board of directors of a religious, charitable, 406-16 educational, or eleemosynary corporation may be affiliated with, 406-17 elected, and controlled by an incorporated or unincorporated 406-18 convention, conference, or association organized under the laws of 406-19 this or another state, the membership of which is composed of 406-20 representatives, delegates, or messengers from a church or other 406-21 religious association. 406-22 (b) The board of directors of a corporation may be wholly or 406-23 partly elected by one or more associations or corporations 406-24 organized under the laws of this or another state if: 406-25 (1) the certificate of formation or bylaws of the 406-26 corporation provide for that election; and 406-27 (2) the corporation has no members with voting rights. 407-1 Sec. 22.208. TERM OF OFFICE. (a) A director on the initial 407-2 board of directors of a corporation holds office until the first 407-3 annual election of directors or for the period specified in the 407-4 certificate of formation or bylaws of the corporation. Directors 407-5 other than the initial directors are elected, appointed, or 407-6 designated for the terms provided by the certificate of formation 407-7 or bylaws. 407-8 (b) In the absence of a provision in the certificate of 407-9 formation or bylaws setting the term of office for directors, a 407-10 director holds office until the next annual election of directors 407-11 and until a successor is elected, appointed, or designated and 407-12 qualified. 407-13 Sec. 22.209. CLASSIFICATION OF DIRECTORS. Directors may be 407-14 divided into classes. The terms of office of the several classes 407-15 are not required to be uniform. 407-16 Sec. 22.210. EX OFFICIO MEMBER OF BOARD. (a) The 407-17 certificate of formation or bylaws of a corporation may provide 407-18 that a person may be an ex officio member of the board of directors 407-19 of the corporation. 407-20 (b) A person designated as an ex officio member of the board 407-21 is entitled to receive notice of and to attend board meetings. 407-22 (c) An ex officio member is not entitled to vote unless the 407-23 certificate of formation or bylaws authorize the member to vote. 407-24 An ex officio member of the board who is not entitled to vote does 407-25 not have the duties or liabilities of a director provided by this 407-26 chapter. 407-27 Sec. 22.211. REMOVAL OF DIRECTOR. (a) A director of a 408-1 corporation may be removed from office under any procedure provided 408-2 by the certificate of formation or bylaws of the corporation. 408-3 (b) In the absence of a provision for removal in the 408-4 certificate of formation or bylaws, a director may be removed from 408-5 office, with or without cause, by the persons entitled to elect, 408-6 designate, or appoint the director. If the director was elected to 408-7 office, removal requires an affirmative vote equal to the vote 408-8 necessary to elect the director. 408-9 Sec. 22.212. VACANCY. (a) Unless otherwise provided by the 408-10 certificate of formation or bylaws of the corporation, a vacancy in 408-11 the board of directors of a corporation shall be filled by the 408-12 affirmative vote of the majority of the remaining directors, 408-13 regardless of whether that majority is less than a quorum. A 408-14 director elected to fill a vacancy is elected for the unexpired 408-15 term of the member's predecessor in office. 408-16 (b) A vacancy in the board occurring because of an increase 408-17 in the number of directors shall be filled by election at an annual 408-18 meeting or at a special meeting of members called for that purpose. 408-19 If a corporation has no members or has no members with the right to 408-20 vote on the vacancy, the vacancy shall be filled as provided by the 408-21 certificate of formation or bylaws. 408-22 Sec. 22.213. QUORUM. (a) A quorum for the transaction of 408-23 business by the board of directors of a corporation is the lesser 408-24 of: 408-25 (1) the majority of the number of directors set by the 408-26 corporation's bylaws or, in the absence of a bylaw setting the 408-27 number of directors, a majority of the number of directors stated 409-1 in the corporation's certificate of formation; or 409-2 (2) any number, not less than three, set as a quorum 409-3 by the certificate of formation or bylaws. 409-4 (b) A director present by proxy at a meeting may not be 409-5 counted toward a quorum. 409-6 Sec. 22.214. ACTION BY DIRECTORS. The act of a majority of 409-7 the directors present in person or by proxy at a meeting at which a 409-8 quorum is present is the act of the board of directors of a 409-9 corporation, unless the act of a greater number is required by the 409-10 certificate of formation or bylaws of the corporation. 409-11 Sec. 22.215. VOTING IN PERSON OR BY PROXY. A director of a 409-12 corporation may vote in person or, if authorized by the certificate 409-13 of formation or bylaws of the corporation, by proxy executed in 409-14 writing by the director. 409-15 Sec. 22.216. TERM AND REVOCABILITY OF PROXY. (a) A proxy 409-16 expires three months after the date the proxy is executed. 409-17 (b) A proxy is revocable unless otherwise provided by the 409-18 proxy or made irrevocable by law. 409-19 Sec. 22.217. VOTING REQUIREMENTS UNDER CERTIFICATE OF 409-20 FORMATION. If the certificate of formation of a corporation 409-21 requires the vote or concurrence of a greater proportion of the 409-22 directors of the corporation than is required by this chapter with 409-23 respect to the action, the certificate of formation controls. 409-24 Sec. 22.218. NOTICE OF MEETING; WAIVER OF NOTICE. (a) 409-25 Regular meetings of the board of directors of a corporation may be 409-26 held with or without notice as prescribed by the corporation's 409-27 bylaws. 410-1 (b) Special meetings of the board of directors shall be held 410-2 with notice as prescribed by the bylaws. Attendance of a director 410-3 at a meeting constitutes a waiver of notice, unless the director 410-4 attends a meeting for the express purpose of objecting to the 410-5 transaction of any business on the ground that the meeting is not 410-6 lawfully called or convened. 410-7 (c) Unless required by the bylaws, the business to be 410-8 transacted at, or the purpose of, a regular or special meeting of 410-9 the board of directors is not required to be specified in the 410-10 notice or waiver of notice of the meeting. 410-11 Sec. 22.219. MANAGEMENT COMMITTEE. (a) If authorized by 410-12 the certificate of formation or bylaws of the corporation, the 410-13 board of directors of a corporation, by resolution adopted by the 410-14 majority of the directors in office, may designate one or more 410-15 committees to have and exercise the authority of the board in the 410-16 management of the corporation to the extent provided by: 410-17 (1) the resolution; 410-18 (2) the certificate of formation; or 410-19 (3) the bylaws. 410-20 (b) A committee designated under this section must consist 410-21 of at least two persons. The majority of the persons on the 410-22 committee must be directors. If provided by the certificate of 410-23 formation or bylaws, the remaining persons on the committee are not 410-24 required to be directors. 410-25 (c) The designation of a committee and the delegation of 410-26 authority to the committee does not operate to relieve the board of 410-27 directors, or an individual director, of any responsibility imposed 411-1 on the board or director by law. A committee member who is not a 411-2 director has the same responsibility with respect to the committee 411-3 as a committee member who is a director. 411-4 Sec. 22.220. OTHER COMMITTEES. (a) The board of directors 411-5 of a corporation, by resolution adopted by the majority of the 411-6 directors at a meeting at which a quorum is present, or the 411-7 president, if authorized by a similar resolution of the board of 411-8 directors or by the certificate of formation or bylaws of the 411-9 corporation, may designate and appoint one or more committees that 411-10 do not have the authority of the board of directors in the 411-11 management of the corporation. 411-12 (b) The membership on a committee designated under this 411-13 section may be limited to directors. 411-14 Sec. 22.221. ACTION WITHOUT MEETING OF DIRECTORS OR 411-15 COMMITTEE. (a) The certificate of formation of a corporation may 411-16 provide that an action required by this chapter to be taken at a 411-17 meeting of the corporation's directors or an action that may be 411-18 taken at a meeting of the directors or a committee may be taken 411-19 without a meeting if a written consent, stating the action to be 411-20 taken, is signed by the number of directors or committee members 411-21 necessary to take that action at a meeting at which all of the 411-22 directors or committee members are present and voting. The consent 411-23 must state the date of each director's or committee member's 411-24 signature. 411-25 (b) A written consent signed by less than all of the 411-26 directors or committee members is not effective to take the action 411-27 that is the subject of the consent unless, not later than the 60th 412-1 day after the date of the earliest dated consent delivered to the 412-2 corporation in the manner required by this section, a consent or 412-3 consents signed by the required number of directors or committee 412-4 members are delivered to the corporation: 412-5 (1) at the registered office or principal place of 412-6 business of the corporation; or 412-7 (2) through the corporation's registered agent, 412-8 transfer agent, registrar, or exchange agent or an officer or agent 412-9 of the corporation having custody of the books in which proceedings 412-10 of meetings of directors or committees are recorded. 412-11 (c) Delivery under Subsection (b) must be by hand or by 412-12 certified or registered mail, return receipt requested. Delivery 412-13 to the corporation's principal place of business must be addressed 412-14 to the president or principal executive officer of the corporation. 412-15 (d) Prompt notice of the taking of an action by directors or 412-16 a committee without a meeting by less than unanimous written 412-17 consent shall be given to each director or committee member who did 412-18 not consent in writing to the action. 412-19 Sec. 22.222. GENERAL STANDARDS FOR DIRECTORS. (a) A 412-20 director shall discharge the director's duties, including duties as 412-21 a committee member, in good faith, with ordinary care, and in a 412-22 manner the director reasonably believes to be in the best interest 412-23 of the corporation. 412-24 (b) A director is not liable to the corporation, a member, 412-25 or another person for an action taken or not taken as a director if 412-26 the director acted in compliance with this section. A person 412-27 seeking to establish liability of a director must prove that the 413-1 director did not act: 413-2 (1) in good faith; 413-3 (2) with ordinary care; and 413-4 (3) in a manner the director reasonably believed to be 413-5 in the best interest of the corporation. 413-6 Sec. 22.223. DIRECTOR'S GOOD FAITH RELIANCE ON CERTAIN 413-7 INFORMATION. A director of a religious corporation, in the 413-8 discharge of a duty imposed or power conferred on the director, 413-9 including a duty imposed or power conferred as a committee member, 413-10 may rely in good faith on information or on an opinion, report, or 413-11 statement, including a financial statement or other financial data, 413-12 concerning the corporation or another person that was prepared or 413-13 presented by: 413-14 (1) a religious authority; or 413-15 (2) a minister, priest, rabbi, or other person whose 413-16 position or duties in the corporation the director believes justify 413-17 reliance and confidence and whom the director believes to be 413-18 reliable and competent in the matters presented. 413-19 Sec. 22.224. ROLE AS TRUSTEE. A director of a corporation 413-20 is not considered to have the duties of a trustee of a trust with 413-21 respect to the corporation or with respect to property held or 413-22 administered by the corporation, including property subject to 413-23 restrictions imposed by the donor or transferor of the property. 413-24 Sec. 22.225. DELEGATION OF INVESTMENT AUTHORITY. (a) The 413-25 board of directors of a corporation may: 413-26 (1) contract with an advisor who is an investment 413-27 counsel or a trust company, bank, investment advisor, or investment 414-1 manager; and 414-2 (2) confer on that advisor the authority to: 414-3 (A) purchase or otherwise acquire a stock, bond, 414-4 security, or other investment on behalf of the corporation; and 414-5 (B) sell, transfer, or otherwise dispose of an 414-6 asset or property of the corporation at a time and for a 414-7 consideration the advisor considers appropriate. 414-8 (b) The board of directors may: 414-9 (1) confer on an advisor described by Subsection (a) 414-10 other powers regarding the corporation's investments as the board 414-11 considers appropriate; and 414-12 (2) authorize the advisor to hold title to an asset or 414-13 property of the corporation, in the advisor's own name or in the 414-14 name of a nominee, for the benefit of the corporation. 414-15 (c) The board of directors is not liable for an action taken 414-16 or not taken by an advisor under this section if the board acted in 414-17 good faith and with ordinary care in selecting the advisor. The 414-18 board of directors may remove or replace the advisor, with or 414-19 without cause, if the board considers that action appropriate or 414-20 necessary. 414-21 Sec. 22.226. LOAN TO DIRECTOR PROHIBITED. (a) A 414-22 corporation may not make a loan to a director. 414-23 (b) The directors of a corporation who vote for or assent to 414-24 the making of a loan to a director, and any officer who 414-25 participates in making the loan, are jointly and severally liable 414-26 to the corporation for the amount of the loan until the loan is 414-27 repaid. 415-1 Sec. 22.227. DIRECTOR LIABILITY FOR CERTAIN DISTRIBUTIONS OF 415-2 ASSETS. (a) In addition to any other liability imposed by law on 415-3 the directors of a corporation, the directors who vote for or 415-4 assent to a distribution of assets other than in payment of the 415-5 corporation's debts, when the corporation is insolvent or when 415-6 distribution would render the corporation insolvent, or during the 415-7 liquidation of the corporation, without the payment and discharge 415-8 of or making adequate provisions for any known debt, obligation, or 415-9 liability of the corporation, are jointly and severally liable to 415-10 the corporation for the value of the assets distributed, to the 415-11 extent that the debt, obligation, or liability is not paid and 415-12 discharged. 415-13 (b) A director is not liable under this section if, in 415-14 voting for or assenting to a distribution, the director relied in 415-15 good faith and with ordinary care on information or an opinion, 415-16 report, or statement in accordance with Section 3.101. 415-17 Sec. 22.228. DISSENT TO ACTION. (a) A director of a 415-18 corporation who is present at a meeting of the board of directors 415-19 at which action is taken on a corporate matter described by Section 415-20 22.227(a) is presumed to have assented to the action unless: 415-21 (1) the director's dissent has been entered in the 415-22 minutes of the meeting; 415-23 (2) the director has filed a written dissent to the 415-24 action with the person acting as the secretary of the meeting 415-25 before the meeting is adjourned; or 415-26 (3) the director has sent a written dissent by 415-27 registered mail to the secretary of the corporation immediately 416-1 after the meeting has been adjourned. 416-2 (b) The right to dissent under this section does not apply 416-3 to a director who voted in favor of the action. 416-4 Sec. 22.229. RELIANCE ON WRITTEN OPINION OF ATTORNEY. A 416-5 director is not liable under Section 22.227 or 22.228 if, in the 416-6 exercise of ordinary care, the director acted in good faith and in 416-7 reliance on the written opinion of an attorney for the corporation. 416-8 Sec. 22.230. RIGHT TO CONTRIBUTION. A director against whom 416-9 a claim is asserted under Section 22.227 or 22.228 and who is held 416-10 liable on the claim is entitled to contribution from persons who 416-11 accepted or received the distribution knowing the distribution to 416-12 have been made in violation of that section, in proportion to the 416-13 amounts received by those persons. 416-14 Sec. 22.231. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED 416-15 DIRECTORS, OFFICERS, AND MEMBERS. (a) This section applies only 416-16 to a contract or transaction between a corporation and: 416-17 (1) one or more of the corporation's directors, 416-18 officers, or members; or 416-19 (2) an entity or other organization in which one or 416-20 more of the corporation's directors, officers, or members: 416-21 (A) is a managerial official or a member; or 416-22 (B) has a financial interest. 416-23 (b) An otherwise valid contract or transaction is valid 416-24 notwithstanding that a director, officer, or member of the 416-25 corporation is present at or participates in the meeting of the 416-26 board of directors, of a committee of the board, or of the members 416-27 that authorizes the contract or transaction, or votes to authorize 417-1 the contract or transaction, if: 417-2 (1) the material facts as to the relationship or 417-3 interest and as to the contract or transaction are disclosed to or 417-4 known by: 417-5 (A) the corporation's board of directors, a 417-6 committee of the board of directors, or the members, and the board, 417-7 the committee, or the members in good faith and with ordinary care 417-8 authorize the contract or transaction by the affirmative vote of 417-9 the majority of the disinterested directors of the corporation, 417-10 regardless of whether the disinterested directors constitute a 417-11 quorum; or 417-12 (B) the shareholders entitled to vote on the 417-13 authorization of the contract or transaction, and the contract or 417-14 transaction is specifically approved in good faith by a vote of the 417-15 shareholders; or 417-16 (2) the contract or transaction is fair to the 417-17 corporation when the contract or transaction is authorized, 417-18 approved, or ratified by the board of directors, a committee of the 417-19 board of directors, or the shareholders. 417-20 (c) Common or interested directors or members of a 417-21 corporation may be included in determining the presence of a quorum 417-22 at a meeting of the board, a committee of the board, or members 417-23 that authorizes the contract or transaction. 417-24 Sec. 22.232. OFFICERS. (a) The officers of a corporation 417-25 shall include a president and a secretary and may include one or 417-26 more vice presidents, a treasurer, and other officers and assistant 417-27 officers as considered necessary. Any two or more offices, other 418-1 than the offices of president and secretary, may be held by the 418-2 same person. 418-3 (b) A properly designated committee may perform the 418-4 functions of an officer. A single committee may perform the 418-5 functions of any two or more officers, including the functions of 418-6 president and secretary. 418-7 (c) The officers of a corporation may be designated by other 418-8 or additional titles as provided by the certificate of formation or 418-9 bylaws of the corporation. 418-10 Sec. 22.233. ELECTION OR APPOINTMENT OF OFFICERS. (a) An 418-11 officer of a corporation shall be elected or appointed at the time, 418-12 in the manner, and for the terms prescribed by the certificate of 418-13 formation or bylaws of the corporation. The term of an officer may 418-14 not exceed three years. 418-15 (b) If the certificate of formation or bylaws do not include 418-16 provisions for the election or appointment of officers, the 418-17 officers shall be elected or appointed annually by the board of 418-18 directors or, if the management of the corporation is vested in the 418-19 corporation's members, by the members. 418-20 Sec. 22.234. APPLICATION TO CHURCH. A corporation that is a 418-21 church is not required to have officers as provided by this 418-22 subchapter. The duties and responsibilities of the officers may be 418-23 vested in the corporation's board of directors or other designated 418-24 body in any manner provided for by the certificate of formation or 418-25 bylaws of the corporation. 418-26 Sec. 22.235. OFFICER'S GOOD FAITH RELIANCE ON CERTAIN 418-27 INFORMATION. An officer of a religious corporation, in the 419-1 discharge of a duty imposed or power conferred on the officer, may 419-2 rely in good faith and with ordinary care on information or on an 419-3 opinion, report, or statement concerning the corporation or another 419-4 person that was prepared or presented by: 419-5 (1) a religious authority or another religious 419-6 corporation; or 419-7 (2) a minister, priest, rabbi, or other person whose 419-8 position or duties in the religious authority or religious 419-9 corporation the officer believes justify reliance and confidence 419-10 and whom the officer believes to be reliable and competent in the 419-11 matters presented. 419-12 (Sections 22.236-22.250 reserved for expansion) 419-13 SUBCHAPTER F. FUNDAMENTAL BUSINESS TRANSACTIONS 419-14 Sec. 22.251. APPROVAL OF MERGER BY MEMBERS HAVING VOTING 419-15 RIGHTS. (a) To adopt a plan of merger of a domestic corporation 419-16 with members having voting rights, the board of directors must 419-17 adopt a resolution approving the proposed plan and directing that 419-18 the plan be submitted to a vote at an annual or special meeting of 419-19 the members having voting rights. 419-20 (b) Written notice stating the proposed plan or a summary of 419-21 the plan shall be given to each member entitled to vote at the 419-22 meeting within the time and in the manner provided by this chapter 419-23 for the giving of notice of a meeting of members. 419-24 (c) The proposed plan shall be adopted on receiving at least 419-25 two-thirds of the votes that members present at the meeting in 419-26 person or by proxy are entitled to cast, except that if any class 419-27 of members is entitled to vote on the plan as a class as provided 420-1 by the certificate of formation or bylaws of the domestic 420-2 corporation, the plan may be adopted only if it also receives at 420-3 least two-thirds of the votes that the members of each class 420-4 present at the meeting in person or by proxy are entitled to cast. 420-5 Sec. 22.252. APPROVAL OF MERGER BY MANAGING MEMBERS. (a) 420-6 To be adopted, a proposed plan of merger of a domestic corporation 420-7 the management of the affairs of which is vested in its members 420-8 under Section 22.202 must be submitted to a vote at an annual, 420-9 regular, or special meeting of the members. 420-10 (b) Except as otherwise provided by the certificate of 420-11 formation or bylaws of the domestic corporation, notice stating the 420-12 proposed plan or a summary of the plan shall be given to the 420-13 members within the time and in the manner provided by this chapter 420-14 for giving notice of a meeting to members. 420-15 (c) The proposed plan shall be adopted on receiving at least 420-16 two-thirds of the votes of members present at the meeting. 420-17 Sec. 22.253. APPROVAL OF MERGER BY BOARD OF DIRECTORS. If a 420-18 domestic corporation has no members or has no members with voting 420-19 rights, a plan of merger of the corporation shall be adopted at a 420-20 meeting of the board of directors of the corporation on receiving 420-21 the affirmative vote of the majority of the directors in office. 420-22 Sec. 22.254. SURVIVING FOREIGN CORPORATION IN MERGER. To 420-23 transact business in this state, a foreign corporation that is the 420-24 surviving or new corporation in a merger shall comply with the 420-25 provisions of this code applicable to foreign corporations and 420-26 shall file with the secretary of state: 420-27 (1) an agreement that the foreign corporation may be 421-1 served with process in this state in any proceeding to enforce an 421-2 obligation of a domestic corporation that was a party to the 421-3 merger; and 421-4 (2) an irrevocable appointment of the secretary of 421-5 state as the agent of the foreign corporation to accept service of 421-6 process in any proceeding of that nature. 421-7 Sec. 22.255. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF 421-8 ASSETS BY MEMBERS HAVING VOTING RIGHTS. (a) To approve a sale of 421-9 all or substantially all of the assets of a corporation with 421-10 members having voting rights, the board of directors of the 421-11 corporation must adopt a resolution recommending the sale and 421-12 directing that the resolution be submitted to a vote at an annual 421-13 or special meeting of the members having voting rights. 421-14 (b) Written notice stating that a purpose of the meeting is 421-15 to consider the sale of all or substantially all of the assets of 421-16 the corporation shall be given to each member entitled to vote at 421-17 the meeting within the time and in the manner provided by this 421-18 chapter for giving notice of a meeting to members. 421-19 (c) At the meeting, the members may authorize the sale and 421-20 may set, or authorize the board of directors to set, the terms and 421-21 conditions of the sale and the consideration to be received by the 421-22 corporation for the sale. The authorization requires at least 421-23 two-thirds of the votes that members present at the meeting in 421-24 person or by proxy are entitled to cast, except that if any class 421-25 of members is entitled to vote on the recommendation as a class as 421-26 provided by the certificate of formation or bylaws of the 421-27 corporation, the authorization also requires at least two-thirds of 422-1 the votes that the members of each class present at the meeting in 422-2 person or by proxy are entitled to cast. 422-3 (d) After the members authorize a sale under Subsection (c), 422-4 the board of directors may abandon the sale, subject to the rights 422-5 of third parties under any contracts relating to the sale, without 422-6 further action or approval by members. 422-7 Sec. 22.256. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF 422-8 ASSETS BY MANAGING MEMBERS. (a) To be adopted, a resolution 422-9 authorizing a sale of all or substantially all of the assets of a 422-10 corporation the management of the affairs of which is vested in the 422-11 corporation's members under Section 22.202 must be submitted to a 422-12 vote at an annual, regular, or special meeting of the members. 422-13 (b) Except as otherwise provided by the certificate of 422-14 formation or bylaws of the corporation, notice stating that a 422-15 purpose of the meeting is to consider the sale of all or 422-16 substantially all of the assets of the corporation shall be given 422-17 to the corporation's members within the time and in the manner 422-18 provided by this chapter for giving notice of a meeting to members. 422-19 (c) At the meeting, the members may authorize the sale and 422-20 may set, or authorize one or more members to set, the terms and 422-21 conditions of the sale and the consideration to be received by the 422-22 corporation for the transaction. The authorization requires at 422-23 least two-thirds of the votes of members present at the meeting. 422-24 Sec. 22.257. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL OF 422-25 ASSETS BY BOARD OF DIRECTORS. (a) Unless otherwise provided by 422-26 the corporation's certificate of formation, a sale of all or 422-27 substantially all of the assets of a corporation that has no 423-1 members or has no members with voting rights may be authorized on 423-2 receiving the affirmative vote of the majority of the directors in 423-3 office. 423-4 (b) Notwithstanding Section 22.255, if a corporation is 423-5 insolvent, a sale of all or substantially all of the assets of the 423-6 corporation may be authorized on receiving the affirmative vote of 423-7 the majority of the directors in office. 423-8 Sec. 22.258. PLEDGE, MORTGAGE, DEED OF TRUST, OR TRUST 423-9 INDENTURE. (a) Except as otherwise provided by Subsection (b) or 423-10 by the corporation's certificate of formation, the board of 423-11 directors of a corporation may authorize a pledge, mortgage, deed 423-12 of trust, or trust indenture, and an authorization or consent of 423-13 members is not required for the validity of the transaction or for 423-14 any sale under the terms of the transaction. 423-15 (b) If the management of the affairs of a corporation is 423-16 vested in the corporation's members under Section 22.202, the 423-17 members may authorize a pledge, mortgage, deed of trust, or trust 423-18 indenture in the manner provided by Section 22.256 for a sale of 423-19 all or substantially all of the assets of a corporation, and an 423-20 authorization by the board of directors is not required for the 423-21 validity of the transaction or for any sale under the terms of the 423-22 transaction. 423-23 (Sections 22.259-22.300 reserved for expansion) 423-24 SUBCHAPTER G. WINDING UP AND TERMINATION 423-25 Sec. 22.301. APPROVAL OF VOLUNTARY WINDING UP AND 423-26 TERMINATION BY MEMBERS HAVING VOTING RIGHTS. (a) To approve in 423-27 accordance with Chapter 11 a voluntary winding up and termination 424-1 of a corporation with members having voting rights, the 424-2 corporation's board of directors must adopt a resolution: 424-3 (1) recommending that the corporation be wound up and 424-4 terminated; and 424-5 (2) directing that the question be submitted to a vote 424-6 at an annual or special meeting of the members having voting 424-7 rights. 424-8 (b) Written notice stating that a purpose of the meeting is 424-9 to consider the advisability of winding up and terminating the 424-10 corporation shall be given to each member entitled to vote at the 424-11 meeting within the time and in the manner provided by this chapter 424-12 for giving notice of a meeting to members. 424-13 (c) A resolution to wind up and terminate the corporation 424-14 shall be adopted on receiving at least two-thirds of the votes that 424-15 members present at the meeting in person or by proxy are entitled 424-16 to cast, except that if any class of members is entitled to vote on 424-17 the resolution as a class by the certificate of formation or bylaws 424-18 of the corporation, the resolution may be adopted only on also 424-19 receiving at least two-thirds of the votes that the members of each 424-20 class present at the meeting in person or by proxy are entitled to 424-21 cast. 424-22 Sec. 22.302. APPROVAL OF VOLUNTARY WINDING UP AND 424-23 TERMINATION BY MANAGING MEMBERS. (a) To be approved, a resolution 424-24 to voluntarily wind up and terminate in accordance with Chapter 11 424-25 a corporation the management of the affairs of which is vested in 424-26 the corporation's members under Section 22.202 must be submitted to 424-27 a vote at an annual, regular, or special meeting of members. 425-1 (b) Except as otherwise provided by the certificate of 425-2 formation or bylaws of the corporation, notice stating that a 425-3 purpose of the meeting is to consider the advisability of winding 425-4 up and terminating the corporation shall be given to the members 425-5 within the time and in the manner provided by this chapter for 425-6 giving notice of a meeting to members. 425-7 (c) A resolution to wind up and terminate the corporation 425-8 shall be adopted on receiving at least two-thirds of the votes of 425-9 members present at the meeting. 425-10 Sec. 22.303. APPROVAL OF VOLUNTARY WINDING UP AND 425-11 TERMINATION BY BOARD OF DIRECTORS. If a corporation has no members 425-12 or has no members with voting rights, the winding up and 425-13 termination of the corporation shall be authorized at a meeting of 425-14 the corporation's board of directors on the adoption of a 425-15 resolution to wind up and terminate by the affirmative vote of the 425-16 majority of the directors in office. 425-17 Sec. 22.304. APPLICATION AND DISTRIBUTION OF PROPERTY. (a) 425-18 After all liabilities and obligations of a corporation in the 425-19 process of winding up are paid, satisfied, and discharged in 425-20 accordance with Section 11.053, the property of the corporation 425-21 shall be applied and distributed as follows: 425-22 (1) property held by the corporation on a condition 425-23 requiring return, transfer, or conveyance because of the winding up 425-24 or termination shall be returned, transferred, or conveyed in 425-25 accordance with that requirement; and 425-26 (2) unless otherwise provided by the corporation's 425-27 certificate of formation, the remaining property of the corporation 426-1 shall be distributed only for tax-exempt purposes to one or more 426-2 organizations that are exempt under Section 501(c)(3), Internal 426-3 Revenue Code, or described by Section 170(c)(1) or (2), Internal 426-4 Revenue Code, under a plan of distribution adopted under this 426-5 chapter. 426-6 (b) A district court of the county in which the 426-7 corporation's principal office is located shall distribute to one 426-8 or more organizations exempt under Section 501(c)(3), Internal 426-9 Revenue Code, or described by Section 170(c)(1) or (2), Internal 426-10 Revenue Code, the property of the corporation remaining after a 426-11 distribution of property under the plan of distribution. The court 426-12 shall make the distribution in the manner the court determines will 426-13 best accomplish the general purposes for which the corporation was 426-14 organized. 426-15 Sec. 22.305. DISTRIBUTION PLAN. A plan providing for the 426-16 distribution of property may be adopted by a corporation in the 426-17 process of winding up, and shall be adopted by a corporation to 426-18 authorize a transfer or conveyance of assets for which this chapter 426-19 requires a plan of distribution, in the manner provided by Section 426-20 22.306, 22.307, or 22.308. 426-21 Sec. 22.306. APPROVAL OF DISTRIBUTION PLAN BY MEMBERS HAVING 426-22 VOTING RIGHTS. (a) To adopt a plan providing for the distribution 426-23 of property of a corporation with members having voting rights, the 426-24 board of directors of the corporation must adopt a resolution 426-25 recommending a plan of distribution and directing that the proposed 426-26 plan be submitted to a vote at an annual or special meeting of the 426-27 members. 427-1 (b) Written notice stating the proposed plan of distribution 427-2 or a summary of the plan shall be given to each member entitled to 427-3 vote at the meeting at which the plan will be considered within the 427-4 time and in the manner provided by this chapter for giving notice 427-5 of a meeting to members. 427-6 (c) The proposed plan of distribution shall be adopted on 427-7 receiving at least two-thirds of the votes that members present at 427-8 the meeting in person or by proxy are entitled to cast, except that 427-9 if any class of members is entitled to vote on the plan as a class 427-10 by the certificate of formation or bylaws of the corporation, the 427-11 proposed plan may be adopted only on also receiving at least 427-12 two-thirds of the votes the members of each class present at the 427-13 meeting in person or by proxy are entitled to cast. 427-14 Sec. 22.307. APPROVAL OF DISTRIBUTION PLAN BY MANAGING 427-15 MEMBERS. (a) To be adopted, a proposed plan providing for the 427-16 distribution of property of a corporation the management of the 427-17 affairs of which is vested in the corporation's members under 427-18 Section 22.202 must be submitted to a vote at an annual, regular, 427-19 or special meeting of the members. 427-20 (b) Except as otherwise provided by the certificate of 427-21 formation or bylaws of the corporation, notice stating the proposed 427-22 plan of distribution or a summary of the plan shall be given to the 427-23 members within the time and in the manner provided by this chapter 427-24 for giving notice of a meeting to members. 427-25 (c) The proposed plan of distribution shall be adopted on 427-26 receiving at least two-thirds of the votes of the members present 427-27 at the meeting. 428-1 Sec. 22.308. APPROVAL OF DISTRIBUTION PLAN BY BOARD OF 428-2 DIRECTORS. If a corporation has no members or has no members with 428-3 voting rights, a plan of distribution may be adopted by the 428-4 corporation at a meeting of the corporation's board of directors 428-5 on receiving the affirmative vote of the majority of the directors 428-6 in office. 428-7 Sec. 22.309. APPROVAL OF REINSTATEMENT OR REVOCATION OF 428-8 VOLUNTARY WINDING UP BY MEMBERS HAVING VOTING RIGHTS. (a) To 428-9 approve a reinstatement or a revocation of the voluntary winding up 428-10 of a corporation with members having voting rights under Section 428-11 11.151 or 11.201, the board of directors of the corporation must 428-12 adopt a resolution recommending the reinstatement or the revocation 428-13 of the voluntary winding up and directing that the question be 428-14 submitted to a vote at an annual or special meeting of the members 428-15 of the corporation having voting rights. 428-16 (b) Written notice stating that a purpose of the meeting is 428-17 to consider the advisability of the reinstatement or the revocation 428-18 of the voluntary winding up shall be given to each member of the 428-19 corporation entitled to vote at the meeting within the time and in 428-20 the manner provided by this chapter for giving notice of a meeting 428-21 to members. 428-22 (c) A resolution to reinstate or to revoke the voluntary 428-23 winding up shall be adopted on receiving at least two-thirds of the 428-24 votes that members present at the meeting in person or by proxy are 428-25 entitled to cast, except that if any class of members is entitled 428-26 to vote on the resolution as a class by the certificate of 428-27 formation or bylaws of the corporation, the resolution may be 429-1 adopted only on also receiving at least two-thirds of the votes the 429-2 members of each class present at the meeting in person or by proxy 429-3 are entitled to cast. 429-4 Sec. 22.310. APPROVAL OF REINSTATEMENT OR REVOCATION OF 429-5 VOLUNTARY WINDING UP BY MANAGING MEMBERS. (a) To be adopted, a 429-6 resolution approving the reinstatement or the revocation of the 429-7 voluntary winding up of a corporation the management of the affairs 429-8 of which is vested in the corporation's members under Section 429-9 22.202 must be submitted to a vote at an annual, regular, or 429-10 special meeting of the members. 429-11 (b) Except as otherwise provided by the certificate of 429-12 formation or bylaws of the corporation, notice stating that a 429-13 purpose of the meeting is to consider the reinstatement or the 429-14 revocation of the voluntary winding up shall be given to the 429-15 members within the time and in the manner provided by this chapter 429-16 for giving notice of a meeting to members. 429-17 (c) The resolution shall be adopted on receiving at least 429-18 two-thirds of the votes of the members present at the meeting. 429-19 Sec. 22.311. APPROVAL OF REINSTATEMENT OR REVOCATION OF 429-20 VOLUNTARY WINDING UP BY BOARD OF DIRECTORS. If a corporation has 429-21 no members or has no members with voting rights, a resolution to 429-22 reinstate or to revoke the voluntary winding up of the corporation 429-23 may be adopted at a meeting of the board of directors on receiving 429-24 the affirmative vote of the majority of the directors in office. 429-25 Sec. 22.312. CERTIFICATE OF TERMINATION. (a) In addition 429-26 to the information required by Section 11.101, the certificate of 429-27 termination filed by a corporation that has completed its winding 430-1 up process must contain a statement that: 430-2 (1) no property remained available for distribution 430-3 among the members of the corporation; 430-4 (2) all remaining property of the corporation has been 430-5 transferred, conveyed, or distributed in accordance with this 430-6 chapter and Chapter 11; and 430-7 (3) there is no suit pending against the corporation 430-8 or adequate provision has been made for the satisfaction of any 430-9 judgment, order, or decree that may be entered against the 430-10 corporation in a pending suit. 430-11 (b) In addition to the statements required by Subsection 430-12 (a), if the corporation received and held property permitted to be 430-13 used only for charitable, religious, eleemosynary, benevolent, 430-14 educational, or similar purposes, but the corporation did not hold 430-15 the property on a condition requiring return, transfer, or 430-16 conveyance because of the winding up and termination, the 430-17 certificate of termination must include: 430-18 (1) a copy of the plan of distribution adopted under 430-19 this chapter; and 430-20 (2) a statement that distribution has been effected in 430-21 accordance with that plan. 430-22 Sec. 22.313. SUPPLEMENTAL PROVISIONS FOR JURISDICTION OF 430-23 COURT TO LIQUIDATE PROPERTY AND BUSINESS OF CORPORATION AND 430-24 RECEIVERSHIPS. (a) In proceedings under Section 11.405, the 430-25 property of the corporation or the proceeds resulting from a sale, 430-26 conveyance, or other disposition of the property shall be applied 430-27 to: 431-1 (1) pay, satisfy, and discharge all costs and expenses 431-2 of the court proceedings and all liabilities and obligations of the 431-3 corporation; or 431-4 (2) make adequate provision for the payment, 431-5 satisfaction, and discharge of the costs, expenses, liabilities, or 431-6 obligations described by Subdivision (1). 431-7 (b) Any property remaining after application is made under 431-8 this section must be applied and distributed in the manner provided 431-9 by Section 22.304. 431-10 Sec. 22.314. LIMITED SURVIVAL AFTER NATURAL EXPIRATION. (a) 431-11 A corporation that was terminated by the expiration of the period 431-12 of its duration may, during the three-year period following the 431-13 date of termination, amend the corporation's certificate of 431-14 formation by following the procedure prescribed by this chapter to 431-15 extend or perpetuate the corporation's period of duration. The 431-16 expiration of a corporation's period of duration does not give a 431-17 member or creditor of the corporation a vested right to prevent the 431-18 corporation from taking action under this subsection. 431-19 (b) An act or contract of a terminated corporation during a 431-20 period within which the corporation could have extended the 431-21 corporation's existence under this section, regardless of whether 431-22 the corporation has taken action to extend its existence, is not 431-23 invalidated by the expiration of the period of duration. 431-24 (Sections 22.315-22.350 reserved for expansion) 431-25 SUBCHAPTER H. FOREIGN CORPORATIONS 431-26 Sec. 22.351. SUPPLEMENTAL INFORMATION FOR APPLICATION FOR 431-27 REGISTRATION. In addition to the information required by Section 432-1 9.004, a foreign corporation's application for registration to be 432-2 filed with the secretary of state must state: 432-3 (1) the names and addresses of the corporation's 432-4 directors and officers; 432-5 (2) whether or not the corporation has members; and 432-6 (3) any additional information as necessary or 432-7 appropriate to enable the secretary of state to determine whether 432-8 the corporation is entitled to register to conduct affairs in this 432-9 state. 432-10 Sec. 22.352. SUPPLEMENTAL INFORMATION FOR WITHDRAWAL OF 432-11 REGISTRATION. In addition to the information required by Section 432-12 9.007, a foreign corporation's certificate of withdrawal must state 432-13 that: 432-14 (1) payment or provision for payment has been made to 432-15 any known creditor or claimant; and 432-16 (2) there is no suit pending or threatened against the 432-17 corporation in any court in this state or adequate provision has 432-18 been made for the satisfaction of any judgment, order, or decree 432-19 that may be entered against the corporation in a pending suit. 432-20 (Sections 22.353-22.400 reserved for expansion) 432-21 SUBCHAPTER I. RECORDS AND REPORTS 432-22 Sec. 22.401. MEMBER'S RIGHT TO INSPECT BOOKS AND RECORDS. A 432-23 member of a corporation, on written demand stating the purpose of 432-24 the demand, is entitled to examine and copy at the member's 432-25 expense, in person or by agent, accountant, or attorney, at any 432-26 reasonable time and for a proper purpose, the books and records of 432-27 the corporation relevant to that purpose. 433-1 Sec. 22.402. FINANCIAL RECORDS AND ANNUAL REPORTS. (a) A 433-2 corporation shall maintain current and accurate financial records 433-3 with complete entries as to each financial transaction of the 433-4 corporation, including income and expenditures, in accordance with 433-5 generally accepted accounting practices. 433-6 (b) Based on the records maintained under Subsection (a), 433-7 the board of directors of the corporation shall annually prepare or 433-8 approve a financial report for the corporation for the preceding 433-9 year. The report must conform to accounting standards as adopted 433-10 by the American Institute of Certified Public Accountants and must 433-11 include: 433-12 (1) a statement of support, revenue, and expenses; 433-13 (2) a statement of changes in fund balances; 433-14 (3) a statement of functional expenses; and 433-15 (4) a balance sheet for each fund. 433-16 Sec. 22.403. AVAILABILITY OF FINANCIAL INFORMATION FOR 433-17 PUBLIC INSPECTION. (a) A corporation shall keep records, books, 433-18 and annual reports of the corporation's financial activity at the 433-19 corporation's registered or principal office in this state for at 433-20 least three years after the close of the fiscal year. 433-21 (b) The corporation shall make the records, books, and 433-22 reports available to the public for inspection and copying at the 433-23 corporation's registered or principal office during regular 433-24 business hours. The corporation may charge a reasonable fee for 433-25 preparing a copy of a record or report. 433-26 Sec. 22.404. FAILURE TO MAINTAIN FINANCIAL RECORD OR PREPARE 433-27 ANNUAL REPORT; OFFENSE. (a) A corporation commits an offense if 434-1 the corporation fails to maintain a financial record, prepare an 434-2 annual report, or make the record or report available to the public 434-3 in the manner required by Section 22.403. 434-4 (b) An offense under this section is a Class B misdemeanor. 434-5 Sec. 22.405. EXEMPTIONS FROM CERTAIN REQUIREMENTS RELATING 434-6 TO FINANCIAL RECORDS AND ANNUAL REPORTS. Sections 22.402, 22.403, 434-7 and 22.404 do not apply to: 434-8 (1) a corporation that solicits funds only from 434-9 members of the corporation; 434-10 (2) a corporation that does not intend to solicit and 434-11 receive and does not actually raise or receive during a fiscal year 434-12 contributions in an amount exceeding $10,000 from a source other 434-13 than its own membership; 434-14 (3) a proprietary school that has received a 434-15 certificate of approval from the commissioner of education, a 434-16 public institution of higher education or a foundation chartered 434-17 for the benefit of the institution or any component part of the 434-18 institution, a private institution of higher education authorized 434-19 to grant degrees under a certificate of authority issued by the 434-20 Texas Higher Education Coordinating Board, or an elementary or 434-21 secondary school; 434-22 (4) a religious institution that is a church, an 434-23 ecclesiastical or denominational organization, or another 434-24 established physical place for worship at which religious services 434-25 are the primary activity and are regularly conducted; 434-26 (5) a trade association or professional society the 434-27 income of which is principally derived from membership dues and 435-1 assessments, sales, or services; 435-2 (6) an insurer licensed and regulated by the Texas 435-3 Department of Insurance; 435-4 (7) an organization the charitable activities of which 435-5 relate to public concern in the conservation and protection of 435-6 wildlife, fisheries, and allied natural resources; or 435-7 (8) an alumni association of a public or private 435-8 institution of higher education in this state that is recognized 435-9 and acknowledged as the official alumni association by the 435-10 institution. 435-11 Sec. 22.406. CORPORATIONS ASSISTING STATE AGENCIES. (a) In 435-12 this section, "state agency" means: 435-13 (1) a board, commission, department, office, or other 435-14 entity that is in the executive branch of state government and that 435-15 was created by the constitution or a statute of this state, 435-16 including an institution of higher education as defined by Section 435-17 61.003, Education Code; 435-18 (2) the legislature or a legislative agency; or 435-19 (3) the supreme court, the court of criminal appeals, 435-20 a court of appeals, the state bar, or another state judicial 435-21 agency. 435-22 (b) The books and records of a corporation other than a bona 435-23 fide alumni association are subject to audit at the discretion of 435-24 the state auditor if: 435-25 (1) the corporation's charter specifically dedicates 435-26 the corporation's activities to the benefit of a particular state 435-27 agency; and 436-1 (2) a board member, officer, or employee of that state 436-2 agency sits on the board of directors of the corporation in other 436-3 than an ex officio capacity. 436-4 (c) If the corporation's charter specifically dedicates the 436-5 corporation's activities to the benefit of a particular state 436-6 agency but the conditions described by Subsection (b)(2) do not 436-7 exist, a corporation shall file with the secretary of state a copy 436-8 of the report required by Section 22.402(b) for the preceding 436-9 fiscal year not later than the 89th day after the last day of the 436-10 corporation's fiscal year. 436-11 Sec. 22.407. REPORT OF DOMESTIC AND FOREIGN CORPORATIONS. 436-12 (a) The secretary of state may require a domestic corporation or a 436-13 foreign corporation registered to conduct affairs in this state to 436-14 file a report in accordance with Chapter 4 not more than once every 436-15 four years as required by this subchapter. The report must state: 436-16 (1) the name of the corporation; 436-17 (2) the state or country under the laws of which the 436-18 corporation is incorporated; 436-19 (3) the address of the registered office of the 436-20 corporation in this state and the name of the registered agent at 436-21 that address; 436-22 (4) if the corporation is a foreign corporation, the 436-23 address of the principal office of the corporation in the state or 436-24 country under the laws of which the corporation is incorporated; 436-25 and 436-26 (5) the names and addresses of the directors and 436-27 officers of the corporation. 437-1 (b) A corporation required to prepare a report under this 437-2 section shall prepare the report on a form adopted by the secretary 437-3 of state for that purpose and shall include in the report 437-4 information that is accurate as of the date the report is executed. 437-5 An officer or, if the corporation is in the hands of a receiver or 437-6 trustee, the receiver or trustee shall sign the report on behalf of 437-7 the corporation. 437-8 Sec. 22.408. NOTICE REGARDING REPORT. (a) The secretary of 437-9 state shall send written notice that the report required by Section 437-10 22.407 is due. The notice must be: 437-11 (1) addressed to the corporation; and 437-12 (2) mailed to the corporation's registered agent or to 437-13 the corporation at: 437-14 (A) the address of the principal place of 437-15 business of the corporation as it appears in the certificate of 437-16 formation; 437-17 (B) the last known address of the corporation as 437-18 it appears on record in the office of the secretary of state; or 437-19 (C) any other known place of business of the 437-20 corporation. 437-21 (b) The secretary of state shall include with the notice two 437-22 copies of a report form to be prepared and filed as provided by 437-23 this subchapter. 437-24 Sec. 22.409. DELIVERY AND FILING OF REPORT. A copy of the 437-25 report must be filed with the secretary of state in accordance with 437-26 Chapter 4 not later than the 30th day after the date notice is 437-27 mailed under Section 22.408. 438-1 Sec. 22.410. FAILURE TO FILE REPORT. (a) A domestic or 438-2 foreign corporation that fails to file a report under Sections 438-3 22.407 and 22.409 when the report is due forfeits the corporation's 438-4 right to conduct affairs in this state. 438-5 (b) The forfeiture takes effect, without judicial action, 438-6 when the secretary of state enters on the record of the corporation 438-7 kept in the office of the secretary of state: 438-8 (1) the words "right to conduct affairs forfeited"; 438-9 and 438-10 (2) the date of forfeiture. 438-11 Sec. 22.411. NOTICE OF FORFEITURE. Notice of forfeiture 438-12 under Section 22.410 shall be mailed to the corporation's 438-13 registered agent or to the corporation at: 438-14 (1) the address of the principal place of business of 438-15 the corporation as it appears in the certificate of formation; 438-16 (2) the last known address of the corporation as it 438-17 appears on record in the office of the secretary of state; or 438-18 (3) any other known place of business of the 438-19 corporation. 438-20 Sec. 22.412. EFFECT OF FORFEITURE. (a) Unless the right of 438-21 the corporation to conduct affairs in this state is revived under 438-22 Section 22.413: 438-23 (1) the corporation may not maintain an action, suit, 438-24 or proceeding in a court of this state; and 438-25 (2) a successor or assignee of the corporation may not 438-26 maintain an action, suit, or proceeding in a court of this state on 438-27 a right, claim, or demand arising from the conduct of affairs by 439-1 the corporation in this state. 439-2 (b) This section does not affect the right of an assignee of 439-3 the corporation as: 439-4 (1) the holder in due course of a negotiable 439-5 promissory note, check, or bill of exchange; or 439-6 (2) the bona fide purchaser for value of a warehouse 439-7 receipt, stock certificate, or other instrument negotiable by law. 439-8 (c) The forfeiture of the right to conduct affairs in this 439-9 state does not: 439-10 (1) impair the validity of a contract or act of the 439-11 corporation; or 439-12 (2) prevent the corporation from defending an action, 439-13 suit, or proceeding in a court of this state. 439-14 Sec. 22.413. REVIVAL OF RIGHT TO CONDUCT AFFAIRS. (a) A 439-15 corporation may be relieved from a forfeiture under Section 22.410 439-16 by filing the required report, accompanied by the revival fee, not 439-17 later than the 120th day after the date of mailing of the notice of 439-18 forfeiture under Section 22.408. 439-19 (b) If a corporation complies with Subsection (a), the 439-20 secretary of state shall: 439-21 (1) revive the right of the corporation to conduct 439-22 affairs in this state; 439-23 (2) cancel the words regarding the forfeiture on the 439-24 record of the corporation; and 439-25 (3) endorse on that record the word "revived" and the 439-26 date of revival. 439-27 Sec. 22.414. FAILURE TO REVIVE; TERMINATION OR REVOCATION. 440-1 (a) The failure of a corporation that has forfeited its right to 440-2 conduct affairs in this state to revive that right under Section 440-3 22.413 is grounds for: 440-4 (1) the involuntary termination of the domestic 440-5 corporation; or 440-6 (2) the revocation of the foreign corporation's 440-7 registration to transact business in this state. 440-8 (b) The termination or revocation takes effect, without 440-9 judicial action, when the secretary of state enters on the record 440-10 of the corporation filed in the office of the secretary of state 440-11 the word "forfeited" and the date of forfeiture and cites this 440-12 chapter as authority for that forfeiture. 440-13 Sec. 22.415. REINSTATEMENT. (a) A corporation that is 440-14 terminated or the registration of which has been revoked as 440-15 provided by Section 22.414 may be relieved of the termination or 440-16 revocation by filing the report required by Section 22.407, 440-17 accompanied by the filing fee for the report, if the corporation 440-18 has paid: 440-19 (1) all fees, taxes, penalties, and interest due and 440-20 accruing before the termination or revocation; and 440-21 (2) an amount equal to the total taxes from the date 440-22 of termination or revocation to the date of reinstatement that 440-23 would have been payable if the corporation had not been terminated 440-24 or had its registration revoked. 440-25 (b) When the report is filed and the filing fee is paid to 440-26 the secretary of state, the secretary of state shall: 440-27 (1) reinstate the certificate of formation or 441-1 registration without judicial action; 441-2 (2) cancel the word "forfeited" on the record; and 441-3 (3) endorse on the record kept in the secretary's 441-4 office relating to the corporation the words "set aside" and the 441-5 date of the reinstatement. 441-6 (c) If a termination or revocation is set aside under this 441-7 section, the corporation shall determine from the secretary of 441-8 state whether the name of the corporation is available. If the 441-9 name of the corporation is not available at the time of 441-10 reinstatement, the corporation shall amend its corporate name under 441-11 this code. 441-12 (Sections 22.416-22.450 reserved for expansion) 441-13 SUBCHAPTER J. CHURCH BENEFITS BOARDS 441-14 Sec. 22.451. DEFINITION. In this chapter, "church benefits 441-15 board" means an organization described by Section 414(e)(3)(A), 441-16 Internal Revenue Code, that: 441-17 (1) has the principal purpose or function of 441-18 administering or funding a plan or program to provide retirement 441-19 benefits, welfare benefits, or both for the ministers or employees 441-20 of a church or a conference, convention, or association of 441-21 churches; and 441-22 (2) is controlled by or affiliated with a church or a 441-23 conference, convention, or association of churches. 441-24 Sec. 22.452. PENSIONS AND BENEFITS. When authorized by the 441-25 corporation's members or as otherwise provided by law, a domestic 441-26 or foreign nonprofit corporation formed for a religious purpose may 441-27 provide, directly or through a separate church benefits board, for 442-1 the support and payment of benefits and pensions to: 442-2 (1) the ministers, teachers, employees, trustees, 442-3 directors, or other functionaries of the corporation; 442-4 (2) the ministers, teachers, employees, trustees, 442-5 directors, or other functionaries of organizations controlled by or 442-6 affiliated with a church or a conference, convention, or 442-7 association of churches under the jurisdiction and control of the 442-8 corporation; and 442-9 (3) the spouse, children, dependents, or other 442-10 beneficiaries of the persons described by Subdivisions (1) and (2). 442-11 Sec. 22.453. CONTRIBUTIONS. (a) A church benefits board 442-12 may provide for: 442-13 (1) the collection of contributions and other payments 442-14 to assist in providing pensions and benefits under this subchapter; 442-15 and 442-16 (2) the creation, maintenance, investment, management, 442-17 and disbursement of necessary annuities, endowments, reserves, or 442-18 other funds for a purpose under Subdivision (1). 442-19 (b) A church benefits board may receive payments from a 442-20 trust fund or corporation that funds a church plan as defined by 442-21 Section 414(e), Internal Revenue Code. 442-22 Sec. 22.454. POWER TO ACT AS TRUSTEE. A church benefits 442-23 board may act as: 442-24 (1) a trustee under a lawful trust committed to the 442-25 board by contract, will, or otherwise; and 442-26 (2) an agent for the performance of a lawful act 442-27 relating to the purposes of the trust. 443-1 Sec. 22.455. DOCUMENTS AND AGREEMENTS. A church benefits 443-2 board may provide to a program participant a certificate or 443-3 agreement of participation, a debenture, or an indemnification 443-4 agreement, as appropriate to accomplish the purposes of the board. 443-5 Sec. 22.456. INDEMNIFICATION. A church benefits board, or 443-6 an affiliate wholly owned by the board, may agree to indemnify 443-7 against damage or risk of loss: 443-8 (1) a minister, teacher, employee, trustee, 443-9 functionary, or director affiliated with the board or a family 443-10 member, dependent, or beneficiary of one of those persons; 443-11 (2) a church or a convention, conference, or 443-12 association of churches; or 443-13 (3) an organization that is controlled by or 443-14 affiliated with the board or with a church or a convention, 443-15 conference, or association of churches. 443-16 Sec. 22.457. PROTECTION OF BENEFITS. (a) Money or other 443-17 benefits that have been or will be provided to a participant or a 443-18 beneficiary under a plan or program provided by or through a church 443-19 benefits board under this subchapter are not subject to execution, 443-20 attachment, garnishment, or other process and may not be 443-21 appropriated or applied as part of a judicial, legal, or equitable 443-22 process or operation of a law other than a constitution to pay a 443-23 debt or liability of the participant or beneficiary. 443-24 (b) This section does not apply to a qualified domestic 443-25 relations order or an amount required by the church benefits board 443-26 to recover costs or expenses incurred in the plan or program. 443-27 Sec. 22.458. ASSIGNMENT OF BENEFITS. An assignment or 444-1 transfer or an attempt to make an assignment or transfer by a 444-2 beneficiary of money, benefits, or other rights under a plan or 444-3 program under this subchapter is void if: 444-4 (1) the plan or program contains a provision 444-5 prohibiting the assignment or other transfer without the written 444-6 consent of the church benefits board; and 444-7 (2) the beneficiary assigns or transfers or attempts 444-8 to make an assignment or transfer without that consent. 444-9 Sec. 22.459. INSURANCE CODE NOT APPLICABLE. The Insurance 444-10 Code does not apply to a church benefits board or a program, plan, 444-11 benefit, or activity of the board or a person affiliated with the 444-12 board. 444-13 CHAPTER 23. SPECIAL-PURPOSE CORPORATIONS 444-14 SUBCHAPTER A. GENERAL PROVISIONS 444-15 Sec. 23.001. DETERMINATION OF APPLICABLE LAW. (a) A 444-16 corporation created under this chapter or under a special statute 444-17 outside this code, to the extent not inconsistent with a special 444-18 statute regarding a particular corporation, is governed by: 444-19 (1) Title 1 and Chapter 21, if the corporation is 444-20 organized for profit; and 444-21 (2) Title 1 and Chapter 22, if the corporation is 444-22 organized not for profit. 444-23 (b) If a special statute does not contain any provision 444-24 regarding a matter provided for in Title 1 or Chapter 21 or 22, or 444-25 if the special statute specifically provides that the general laws 444-26 for corporations supplement the statute, to the extent consistent 444-27 with the special statute: 445-1 (1) Title 1 and Chapter 21 apply to a corporation 445-2 organized for profit; and 445-3 (2) Title 1 and Chapter 22 apply to a corporation 445-4 organized not for profit. 445-5 Sec. 23.002. APPLICABILITY OF FILING REQUIREMENTS. Except 445-6 as otherwise provided by the special statute, a document to be 445-7 filed with the secretary of state under a special statute shall be 445-8 executed and filed in accordance with Chapter 4. 445-9 Sec. 23.003. DOMESTIC CORPORATION ORGANIZED UNDER SPECIAL 445-10 STATUTE. A corporation organized under a special statute other 445-11 than this code is not considered a "domestic corporation" formed 445-12 under this code, although this code may apply to the corporation. 445-13 (Sections 23.004-23.050 reserved for expansion) 445-14 SUBCHAPTER B. BUSINESS DEVELOPMENT CORPORATIONS 445-15 Sec. 23.051. DEFINITIONS. In this subchapter: 445-16 (1) "Corporation" means a business development 445-17 corporation organized under this subchapter. 445-18 (2) "Financial institution" means a banking 445-19 corporation or trust company, savings and loan association, 445-20 governmental agency, insurance company, or related corporation, 445-21 partnership, foundation, or other institution engaged primarily in 445-22 lending or investing funds. 445-23 (3) "Loan limit" means the maximum amount permitted to 445-24 be outstanding at one time on loans made by a member to a 445-25 corporation. 445-26 (4) "Member" means a financial institution authorized 445-27 to do business in this state that undertakes to lend money to a 446-1 corporation. 446-2 Sec. 23.052. INCORPORATORS. Subject to The Securities Act 446-3 (Article 581-1 et seq., Vernon's Texas Civil Statutes), 25 or more 446-4 persons, the majority of whom must be residents of this state, may 446-5 form a business development corporation to promote, develop, and 446-6 advance the prosperity and economic welfare of this state. 446-7 Sec. 23.053. PURPOSES. (a) A business development 446-8 corporation may be organized as a: 446-9 (1) for-profit corporation under Chapter 21; or 446-10 (2) nonprofit corporation under Chapter 22. 446-11 (b) The business development corporation must be organized 446-12 to: 446-13 (1) promote, stimulate, develop, and advance the 446-14 business prosperity and economic welfare of this state and the 446-15 residents of this state; 446-16 (2) encourage and assist, through loans, investments, 446-17 or other business transactions, new business and industry in this 446-18 state; 446-19 (3) rehabilitate and assist existing industry in this 446-20 state; 446-21 (4) stimulate and assist in the expansion of business 446-22 activity that will tend to promote the business development and 446-23 maintain the economic stability of this state, provide maximum 446-24 opportunities for employment, encourage thrift, and improve the 446-25 standard of living of the residents of this state; 446-26 (5) cooperate and act in conjunction with other public 446-27 or private organizations in the promotion and advancement of 447-1 industrial, commercial, agricultural, and recreational developments 447-2 in this state; or 447-3 (6) provide financing for the promotion, development, 447-4 and conduct of business activity in this state. 447-5 Sec. 23.054. POWERS. (a) The powers of a corporation 447-6 include, in addition to the powers conferred on the corporation by 447-7 Chapter 21 or 22, as applicable, the power to: 447-8 (1) elect, appoint, and employ officers, agents, and 447-9 employees; 447-10 (2) make contracts and incur liabilities for a purpose 447-11 of the corporation; 447-12 (3) borrow money on a secured or unsecured basis to 447-13 carry out a purpose of the corporation; 447-14 (4) issue for the purpose of borrowing money a bond, 447-15 debenture, note, or other evidence of indebtedness, whether secured 447-16 or unsecured; 447-17 (5) secure an evidence of indebtedness by mortgage, 447-18 pledge, deed of trust, or other lien on a property, franchise, 447-19 right, or privilege of the corporation, or any part of or interest 447-20 in those items, without securing shareholder or member approval; 447-21 (6) make a secured or unsecured loan and establish and 447-22 regulate the terms and conditions of that loan and the charges for 447-23 interest or service connected with that loan; 447-24 (7) purchase, receive, hold, lease, or otherwise 447-25 acquire, and sell, convey, transfer, lease, or otherwise dispose 447-26 of, property and exercise those rights and privileges incidental 447-27 and appurtenant to the acquisition or disposal of the property and 448-1 to the use of the property, including any property acquired by the 448-2 corporation periodically in the satisfaction of a debt or 448-3 enforcement of an obligation; 448-4 (8) acquire improved or unimproved real property to 448-5 construct an industrial plant or other business establishment on 448-6 the property or dispose of the real property for the construction 448-7 of an industrial plant or other business establishment; 448-8 (9) acquire, construct or reconstruct, alter, repair, 448-9 maintain, operate, sell, convey, transfer, lease, or otherwise 448-10 dispose of an industrial plant or business establishment; 448-11 (10) protect the corporation's position as creditor by 448-12 acquiring the goodwill, business, rights, property, including a 448-13 share, bond, debenture, note, other evidence of indebtedness, other 448-14 asset, or any part of an asset or interest in an asset, of a person 448-15 to whom the corporation loaned money and assume, undertake, or pay 448-16 an obligation, debt, or liability of the person; 448-17 (11) mortgage, pledge, or otherwise encumber any 448-18 property, right, or thing of value, acquired under Subdivision (7), 448-19 (8), (9), or (10), as security for the payment of a part of the 448-20 purchase price; 448-21 (12) promote the establishment of local development 448-22 corporations in the various communities of this state, enter into 448-23 agreements with those local development corporations, and cooperate 448-24 with, assist, or otherwise encourage the local foundations; and 448-25 (13) participate with a properly authorized federal 448-26 lending agency in the making of loans. 448-27 (b) A corporation may approve an application for a loan 449-1 under Subsection (a)(6) only if the applicant demonstrates that: 449-2 (1) the applicant applied for the loan through 449-3 ordinary banking channels; and 449-4 (2) the loan has been refused by at least two banks or 449-5 other financial institutions. 449-6 Sec. 23.055. STATEWIDE OPERATION. A corporation organized 449-7 under this subchapter is a state development company as defined by 449-8 Section 103, Small Business Investment Act of 1958 (15 U.S.C. 449-9 Section 662), as amended, or similar federal legislation, and may 449-10 operate on a statewide basis. 449-11 Sec. 23.056. CERTIFICATE OF FORMATION. (a) The certificate 449-12 of formation of a corporation must state: 449-13 (1) the name of the corporation; 449-14 (2) the purpose or purposes for which the corporation 449-15 is organized as required by Section 23.053; and 449-16 (3) any other information required by: 449-17 (A) Chapter 4; and 449-18 (B) Chapter 21 or 22, as applicable. 449-19 (b) The name of a corporation must include the words 449-20 "Business Development Corporation." 449-21 Sec. 23.057. MANAGEMENT BY BOARD OF DIRECTORS; NUMBER OF 449-22 DIRECTORS. (a) The organization, control, and management of a 449-23 corporation are vested in a board of directors. The board must 449-24 consist of not fewer than 15 and not more than 21 directors. 449-25 (b) The board of directors may exercise any power of the 449-26 corporation not conferred on the shareholders or members by law or 449-27 by the corporation's bylaws. 450-1 Sec. 23.058. ELECTION OR APPOINTMENT OF DIRECTORS. (a) The 450-2 incorporators of a corporation shall name the directors 450-3 constituting the initial board of directors of the corporation. 450-4 Directors other than the initial directors shall be elected at each 450-5 annual meeting of the corporation. If an annual meeting is not 450-6 held at the time designated by the bylaws of the corporation, the 450-7 directors shall be elected at a special meeting held in lieu of the 450-8 annual meeting. 450-9 (b) At an annual meeting or special meeting held in lieu of 450-10 the annual meeting, the members of the corporation shall elect 450-11 two-thirds of the directors, and the shareholders of the 450-12 corporation shall elect the remaining directors. 450-13 Sec. 23.059. TERM OF OFFICE; VACANCY. (a) A director of a 450-14 corporation holds office until the next annual election of 450-15 directors and until a successor is elected and qualified, unless 450-16 the director is removed at an earlier date in accordance with the 450-17 corporation's bylaws. 450-18 (b) A vacancy in the office of a director elected by the 450-19 members shall be filled by the directors elected by the members, 450-20 and a vacancy in the office of a director elected by the 450-21 shareholders shall be filled by the directors elected by the 450-22 shareholders. 450-23 Sec. 23.060. OFFICERS. The board of directors of a 450-24 corporation shall appoint a president, a treasurer, and any other 450-25 agent or officer of the corporation and shall fill each vacancy 450-26 other than a vacancy on the board. 450-27 Sec. 23.061. PARTICIPATION AS OWNER. (a) An individual, 451-1 corporation, or other organization authorized to conduct business 451-2 in this state, including a public utility company, insurance and 451-3 casualty company, or foreign corporation licensed to do business in 451-4 this state, or a trust may acquire, purchase, hold, sell, assign, 451-5 transfer, mortgage, pledge, or otherwise dispose of a bond, 451-6 security, or other evidence of indebtedness created by, or shares 451-7 of, the corporation. 451-8 (b) An owner of shares of the corporation may exercise any 451-9 right, power, or privilege of that ownership, including the right 451-10 to vote. 451-11 Sec. 23.062. FINANCIAL INSTITUTION AS MEMBER OF CORPORATION. 451-12 (a) A financial institution may become a member of a corporation 451-13 and may make loans to the corporation as provided by this chapter. 451-14 (b) A financial institution may request membership in the 451-15 corporation by applying to the corporation's board of directors in 451-16 the manner prescribed by the board. Membership in the corporation 451-17 takes effect on the board's acceptance of the application. 451-18 (c) A financial institution that is a member of a 451-19 corporation may acquire, purchase, hold, sell, assign, transfer, 451-20 mortgage, pledge, or otherwise dispose of a bond, security, or 451-21 other evidence of indebtedness created by, or a share of, the 451-22 corporation. As owner of shares of the corporation, a financial 451-23 institution may exercise any right, power, or privilege of that 451-24 ownership, including the right to vote. A member of a corporation 451-25 may not acquire shares of the corporation in an amount greater than 451-26 10 percent of the member's loan limit. The amount of shares of the 451-27 corporation that a member may acquire is in addition to the amount 452-1 of shares of corporations that the member may otherwise acquire. 452-2 (d) A financial institution that is not a member of the 452-3 corporation may not acquire any shares of the corporation. 452-4 Sec. 23.063. WITHDRAWAL OF MEMBER. (a) On written notice 452-5 to the corporation's board of directors, a member may withdraw from 452-6 a corporation on the date stated in the notice. The date of a 452-7 member's withdrawal must be at least six months after the date 452-8 notice is given under this subsection. 452-9 (b) A member is not obligated to make a loan to the 452-10 corporation pursuant to a call made after the date of the member's 452-11 withdrawal from the corporation, but a member shall fulfill any 452-12 obligation that has accrued or for which a commitment has been made 452-13 before the withdrawal date. 452-14 Sec. 23.064. POWERS OF SHAREHOLDERS AND MEMBERS. The 452-15 shareholders and members of a corporation may: 452-16 (1) determine the number of directors and elect the 452-17 directors as provided by Section 23.058; 452-18 (2) make, amend, and repeal bylaws of the corporation; 452-19 or 452-20 (3) exercise any other power of the corporation that 452-21 is conferred on the shareholders and members by the bylaws. 452-22 Sec. 23.065. VOTING BY SHAREHOLDER OR MEMBER. (a) Each 452-23 shareholder of a corporation has one vote, in person or by proxy, 452-24 for each share held by the shareholder. 452-25 (b) Each member of a corporation has one vote in person or 452-26 by proxy. 452-27 (c) A member with a loan limit that exceeds $1,000 has one 453-1 additional vote, in person or by proxy, for each additional $1,000 453-2 the member may have outstanding on loans to the corporation at any 453-3 one time as determined under Section 23.068. 453-4 Sec. 23.066. LOAN TO CORPORATION. (a) When called on by a 453-5 corporation to make a loan to the corporation, a member of the 453-6 corporation shall make the loan on those terms and conditions 453-7 periodically approved by the board of directors. 453-8 (b) A loan made to the corporation by a member shall be 453-9 evidenced by a bond, debenture, note, or other evidence of 453-10 indebtedness of the corporation that: 453-11 (1) is freely transferable at any time; and 453-12 (2) accrues interest at a rate of not less than 453-13 one-fourth of one percent more than the rate of interest determined 453-14 by the board of directors to be the prime rate prevailing on the 453-15 date of issuance on unsecured commercial loans. 453-16 Sec. 23.067. PROHIBITED LOAN. (a) A member may not make a 453-17 loan to a corporation if, immediately after the loan would be made, 453-18 the total amount of the obligations of the corporation would exceed 453-19 50 times the capital of the corporation. 453-20 (b) For purposes of this section, the capital of the 453-21 corporation includes the amount of the outstanding shares of the 453-22 corporation, whether common or preferred, and the earned or paid-in 453-23 surplus of the corporation. 453-24 Sec. 23.068. LOAN LIMITS. (a) A loan limit shall be 453-25 established at the $1,000 amount nearest to the amount computed in 453-26 accordance with this section. 453-27 (b) The total amount outstanding on loans made to a 454-1 corporation by a member at any one time, when added to the amount 454-2 of the investment in the shares of the corporation then held by the 454-3 member, may not exceed: 454-4 (1) 20 percent of the total amount then outstanding on 454-5 loans to the corporation by all members, including outstanding 454-6 amounts validly called for a loan but not yet loaned; or 454-7 (2) the following limit, to be determined as of the 454-8 time the member becomes a member of the corporation, or at any time 454-9 requested by a member on the basis of the audited balance sheet of 454-10 the member at the close of its fiscal year immediately preceding 454-11 its application for membership or, in the case of an insurance 454-12 company, its last annual statement to the Texas Department of 454-13 Insurance: 454-14 (A) an amount equal to the lesser of $750,000 or 454-15 two percent of the capital and surplus of a commercial bank or 454-16 trust company; 454-17 (B) an amount equal to one percent of the total 454-18 outstanding loans made by a savings and loan association; 454-19 (C) an amount equal to one percent of the 454-20 capital and unassigned surplus of a stock insurance company other 454-21 than a fire insurance company; 454-22 (D) an amount equal to one percent of the 454-23 unassigned surplus of a mutual insurance company other than a fire 454-24 insurance company; 454-25 (E) an amount equal to one-tenth of one percent 454-26 of the assets of a fire insurance company; or 454-27 (F) the limits approved by the board of 455-1 directors of the corporation for a government pension fund or other 455-2 financial institution. 455-3 (c) Subject to Subsection (b), each call made by the 455-4 corporation shall be prorated among the members of the corporation 455-5 in substantially the same proportion that the adjusted loan limit 455-6 of each member bears to the aggregate of the adjusted loan limits 455-7 of all members. 455-8 (d) For purposes of Subsection (c), the adjusted loan limit 455-9 of a member is the amount of the member's loan limit, reduced by 455-10 the balance of outstanding loans made by the member to the 455-11 corporation and the investment in shares of the corporation held by 455-12 the member at the time of the call. 455-13 Sec. 23.069. SURPLUS. (a) A corporation shall set apart as 455-14 earned surplus not less than 10 percent of the corporation's net 455-15 earnings each year until the surplus, with any unimpaired surplus 455-16 paid in, is equal to one-half of the amount paid in on the shares 455-17 then outstanding. The surplus shall be kept to secure against 455-18 losses and contingencies. If the surplus becomes impaired, the 455-19 surplus shall be reimbursed in the manner provided for its 455-20 accumulation. 455-21 (b) Net earnings and surplus shall be determined by the 455-22 board of directors after providing for the required reserves as the 455-23 directors consider advisable. A good faith determination of net 455-24 earnings and surplus by the directors under this subsection is 455-25 conclusive. 455-26 Sec. 23.070. DEPOSITORY. (a) A corporation may deposit the 455-27 corporation's funds in a banking institution that has been 456-1 designated as a depository by a vote of the majority of the 456-2 directors present at an authorized meeting of the board of 456-3 directors of the corporation, excluding a director who is an 456-4 officer or director of the designated depository. 456-5 (b) The corporation may not receive money on deposit. 456-6 Sec. 23.071. ANNUAL REPORT; PROVISION OF REQUIRED 456-7 INFORMATION. (a) A corporation shall annually make a report of 456-8 its condition to the banking commissioner and the Texas Department 456-9 of Insurance. 456-10 (b) A corporation shall provide any information that is 456-11 periodically required by the secretary of state. 456-12 (Sections 23.072-23.100 reserved for expansion) 456-13 SUBCHAPTER C. GRAND LODGES 456-14 Sec. 23.101. FORMATION. (a) An institution or order, by 456-15 resolution or other consent of its members, may incorporate under 456-16 this subchapter if the institution or order is: 456-17 (1) the grand lodge of Texas, Ancient, Free and 456-18 Accepted Masons; 456-19 (2) the Grand Royal Arch Chapter of Texas; 456-20 (3) the Grand Commandery of Knights Templars of Texas; 456-21 (4) the grand lodge of the Independent Order of Odd 456-22 Fellows of Texas; or 456-23 (5) another similar institution or order organized for 456-24 charitable or benevolent purposes. 456-25 (b) A corporation formed under this subchapter shall file a 456-26 certificate of formation in accordance with Chapter 4 that complies 456-27 with this subchapter. 457-1 Sec. 23.102. APPLICABILITY OF CHAPTER 22. If this 457-2 subchapter does not contain any provision regarding a matter 457-3 provided for in Chapter 22, to the extent consistent with this 457-4 subchapter, Chapter 22 applies to a corporation formed under this 457-5 subchapter. 457-6 Sec. 23.103. DURATION. A grand body that incorporates under 457-7 this subchapter may provide in the grand body's certificate of 457-8 formation for the expiration of its corporate powers at the end of 457-9 a stated number of years. If the certificate of formation does not 457-10 provide for the duration of the grand body, the grand body has 457-11 perpetual existence. The grand body may by its corporate name have 457-12 perpetual succession of its officers and members. 457-13 Sec. 23.104. SUBORDINATE LODGES. (a) The incorporation of 457-14 a grand body includes each of its subordinate lodges or bodies 457-15 holding a warrant or charter under the grand body. 457-16 (b) A subordinate body has all of the rights of other 457-17 corporations under and by the name given to the grand body in the 457-18 warrant or charter issued to the grand body to which it is 457-19 attached. Those rights shall be provided for in the charter of the 457-20 grand body. 457-21 (c) A subordinate body is subject to the jurisdiction and 457-22 control of its respective grand body, and the warrant or charter of 457-23 the subordinate body may be revoked by the grand body. 457-24 Sec. 23.105. TRUSTEES AND DIRECTORS. A grand body and a 457-25 subordinate of the grand body may elect trustees and directors or 457-26 may appoint trustees or directors from among their officers. 457-27 Sec. 23.106. FRANCHISE TAXES. A corporation formed under 458-1 this subchapter is not subject to or required to pay a franchise 458-2 tax, except that a corporation is exempt from the franchise tax 458-3 imposed by Chapter 171, Tax Code, only if the corporation is 458-4 exempted by that chapter. 458-5 Sec. 23.107. GENERAL POWERS. A grand body and a subordinate 458-6 of the grand body may take action as directed or provided by law in 458-7 the case of other corporations and may make constitutions and 458-8 bylaws to govern their affairs. 458-9 Sec. 23.108. AUTHORITY REGARDING PROPERTY. (a) A grand 458-10 body or subordinate body may acquire and hold property as necessary 458-11 or convenient for a site on which to erect a building for the use 458-12 and occupancy of the body and to erect homes and schools for 458-13 members' widows or orphans or elderly, disabled, or indigent 458-14 members and may sell or mortgage the property. 458-15 (b) A conveyance must be executed by the presiding officer 458-16 and attested to by the secretary with the seal. 458-17 (c) The authority of a subordinate body to sell or to 458-18 mortgage property is subject to the conditions periodically 458-19 prescribed or established by the grand body to which the 458-20 subordinate is attached. 458-21 Sec. 23.109. AUTHORITY REGARDING LOANS. (a) A grand body 458-22 incorporated under this subchapter may: 458-23 (1) loan money held and owned by the grand body for 458-24 charitable purposes, for the endowment of any of the institutions 458-25 of the grand body, or otherwise; and 458-26 (2) secure loans by taking and receiving liens on real 458-27 property or by another method elected by the grand body. 459-1 (b) On sale of real property secured by a lien, a grand body 459-2 may become the purchaser of the real property and hold title to the 459-3 property. 459-4 Sec. 23.110. WINDING UP AND TERMINATION OF SUBORDINATE BODY. 459-5 (a) On the winding up and termination of a subordinate body 459-6 attached to a grand body, all property and rights existing in the 459-7 subordinate body pass to and vest in the grand body to which it was 459-8 attached, subject to the payment of any debt owed by the 459-9 subordinate body. 459-10 (b) Notwithstanding a grand body's liability for the debt of 459-11 a subordinate body under Subsection (a), the grand body is not 459-12 liable for an amount greater than the actual cash value of the 459-13 subordinate body's effects or authority. 459-14 TITLE 3. LIMITED LIABILITY COMPANIES 459-15 CHAPTER 101. LIMITED LIABILITY COMPANIES 459-16 SUBCHAPTER A. GENERAL PROVISIONS 459-17 Sec. 101.001. DEFINITIONS. In this title: 459-18 (1) "Assignee" means a person who, before the person 459-19 is admitted as a member of a limited liability company, is assigned 459-20 or transferred a membership interest in the company. 459-21 (2) "Company" means a domestic or foreign limited 459-22 liability company governed by this title. 459-23 (3) "Company agreement" means an oral or written 459-24 agreement relating to a limited liability company executed by the 459-25 members of the company. 459-26 (Sections 101.002-101.050 reserved for expansion) 460-1 SUBCHAPTER B. FORMATION AND GOVERNING DOCUMENTS 460-2 Sec. 101.051. SUPPLEMENTAL INFORMATION FOR CERTIFICATE OF 460-3 FORMATION. In addition to the information required by Section 460-4 3.005, the certificate of formation of a limited liability company 460-5 must state: 460-6 (1) whether the company will or will not have 460-7 managers; 460-8 (2) if the company will have managers, the name and 460-9 address of each initial manager of the company; and 460-10 (3) if the company will not have managers, the name 460-11 and address of each initial member of the company. 460-12 Sec. 101.052. CERTAIN PROVISIONS CONTAINED IN CERTIFICATE OF 460-13 FORMATION. (a) A provision that may be contained in the company 460-14 agreement of a limited liability company may alternatively be 460-15 included in the certificate of formation of the company as provided 460-16 by Section 3.005(b). 460-17 (b) A reference in this title to the company agreement of a 460-18 limited liability company includes any provision contained in the 460-19 company's certificate of formation instead of the company agreement 460-20 as provided by Subsection (a). 460-21 Sec. 101.053. COMPANY AGREEMENT. (a) Except as provided by 460-22 Section 101.054, the company agreement of a limited liability 460-23 company governs: 460-24 (1) the relations among members, managers, and 460-25 officers of the company, assignees of membership interests in the 460-26 company, and the company itself; and 460-27 (2) other internal affairs of the company. 461-1 (b) To the extent that the company agreement of a limited 461-2 liability company does not otherwise provide, this title and the 461-3 provisions of Title 1 applicable to a limited liability company 461-4 govern the internal affairs of the company. 461-5 (c) Except as provided by Section 101.054, a provision of 461-6 this title or Title 1 that is applicable to a limited liability 461-7 company may be waived or modified in the company agreement of a 461-8 limited liability company. 461-9 Sec. 101.054. WAIVER OR MODIFICATION OF CERTAIN STATUTORY 461-10 PROVISIONS PROHIBITED; EXCEPTIONS. (a) Except as provided by this 461-11 section, the following provisions may not be waived or modified in 461-12 the company agreement of a limited liability company: 461-13 (1) this section; 461-14 (2) Section 101.051, 101.055, 101.101(b), 101.206, 461-15 101.502, or 101.551; 461-16 (3) Chapter 1, if the provision is used to interpret a 461-17 provision or define a word or phrase contained in a section listed 461-18 in this subsection; 461-19 (4) Chapter 2, other than Section 2.104(c)(2), 461-20 2.104(c)(3), or 2.106; 461-21 (5) Chapter 3, other than Subchapters C and E; or 461-22 (6) Chapter 4, 5, 7, 10, 11, or 12. 461-23 (b) A provision listed in Subsection (a) may be waived or 461-24 modified in the company agreement if the provision that is waived 461-25 or modified authorizes the limited liability company to waive or 461-26 modify the provision in the company's governing documents. 461-27 (c) A provision listed in Subsection (a) may be modified in 462-1 the company agreement if the provision that is modified specifies: 462-2 (1) the person or group of persons entitled to approve 462-3 a modification; or 462-4 (2) the vote or other method by which a modification 462-5 is required to be approved. 462-6 (d) A provision in this title or in that part of Title 1 462-7 applicable to a limited liability company that grants a right to a 462-8 person, other than a member, manager, officer, or assignee of a 462-9 membership interest in a limited liability company, may be waived 462-10 or modified in the company agreement of the company only if the 462-11 person consents in writing to the waiver or modification. 462-12 Sec. 101.055. AMENDMENT OF COMPANY AGREEMENT. The company 462-13 agreement of a limited liability company may be amended only if 462-14 each member of the company consents to the amendment. 462-15 (Sections 101.056-101.100 reserved for expansion) 462-16 SUBCHAPTER C. MEMBERSHIP 462-17 Sec. 101.101. MEMBERS REQUIRED. (a) A limited liability 462-18 company may have one or more members. Except as provided by this 462-19 section, a limited liability company must have at least one member. 462-20 (b) A limited liability company that has managers is not 462-21 required to have any members during a reasonable period between the 462-22 date the company is formed and the date the first member is 462-23 admitted to the company. 462-24 (c) A limited liability company is not required to have any 462-25 members during the period between the date the continued membership 462-26 of the last remaining member of the company is terminated and the 462-27 date the agreement to continue the company described by Section 463-1 101.551 is executed. 463-2 Sec. 101.102. QUALIFICATION FOR MEMBERSHIP. (a) A person 463-3 may be a member of or acquire a membership interest in a limited 463-4 liability company unless the person lacks capacity apart from this 463-5 code. 463-6 (b) A person is not required, as a condition to becoming a 463-7 member of or acquiring a membership interest in a limited liability 463-8 company, to: 463-9 (1) make a contribution to the company; 463-10 (2) otherwise pay cash or transfer property to the 463-11 company; or 463-12 (3) assume an obligation to make a contribution or 463-13 otherwise pay cash or transfer property to the company. 463-14 Sec. 101.103. EFFECTIVE DATE OF MEMBERSHIP. (a) A person 463-15 who acquires a membership interest in a limited liability company 463-16 in connection with the formation of the company becomes a member of 463-17 the company on the date the company is formed if the person is 463-18 named as an initial member in the company's certificate of 463-19 formation. 463-20 (b) A person who acquires a membership interest in a limited 463-21 liability company during the formation of the company but who is 463-22 not named as an initial member in the company's certificate of 463-23 formation becomes a member of the company on the latest of: 463-24 (1) the date the company is formed; 463-25 (2) the date stated in the company's records as the 463-26 date the person becomes a member of the company; or 463-27 (3) if the company's records do not state a date 464-1 described by Subdivision (2), the date the person's admission to 464-2 the company is first reflected in the company's records. 464-3 (c) A person who, after the formation of a limited liability 464-4 company, acquires directly or is assigned a membership interest in 464-5 the company becomes a member of the company on approval of the 464-6 company's governing authority. 464-7 Sec. 101.104. CLASSES OR GROUPS OF MEMBERS OR MEMBERSHIP 464-8 INTERESTS. (a) The company agreement of a limited liability 464-9 company may: 464-10 (1) establish within the company classes or groups of 464-11 one or more members or membership interests each of which has 464-12 certain expressed relative rights, powers, and duties, including 464-13 voting rights; and 464-14 (2) provide for the manner of establishing within the 464-15 company additional classes or groups of one or more members or 464-16 membership interests each of which has certain expressed relative 464-17 rights, powers, and duties, including voting rights. 464-18 (b) The rights, powers, and duties of a class or group of 464-19 members or membership interests described by Subsection (a)(2) may 464-20 be stated in the company agreement or stated at the time the class 464-21 or group is established. 464-22 (c) If the company agreement of a limited liability company 464-23 does not provide for the manner of establishing classes or groups 464-24 of members or membership interests under Subsection (a)(2), 464-25 additional classes or groups of members or membership interests may 464-26 be established only by the adoption of an amendment to the company 464-27 agreement. 465-1 (d) The rights, powers, or duties of any class or group of 465-2 members or membership interests of a limited liability company may 465-3 be senior to the rights, powers, or duties of any other class or 465-4 group of members or membership interests in the company, including 465-5 a previously established class or group. 465-6 Sec. 101.105. ISSUANCE OF MEMBERSHIP INTERESTS AFTER 465-7 FORMATION OF COMPANY. A limited liability company, after the 465-8 formation of the company, may: 465-9 (1) issue membership interests in the company to any 465-10 person, including an existing member of the company, with the 465-11 approval of the governing authority of the company; and 465-12 (2) if the issuance of a membership interest requires 465-13 the establishment of a new class or group of members or membership 465-14 interests, establish a new class or group as provided by Sections 465-15 101.104(a)(2), (b), and (c). 465-16 Sec. 101.106. NATURE OF MEMBERSHIP INTEREST. (a) A 465-17 membership interest in a limited liability company is personal 465-18 property. 465-19 (b) A member of a limited liability company or an assignee 465-20 of a membership interest in a limited liability company does not 465-21 have an interest in any specific property of the company. 465-22 Sec. 101.107. WITHDRAWAL OR EXPULSION OF MEMBER PROHIBITED. 465-23 A member of a limited liability company may not withdraw or be 465-24 expelled from the company. 465-25 Sec. 101.108. ASSIGNMENT OF MEMBERSHIP INTEREST. (a) A 465-26 membership interest in a limited liability company may be wholly or 465-27 partly assigned. 466-1 (b) An assignment of a membership interest in a limited 466-2 liability company: 466-3 (1) is not an event requiring the winding up of the 466-4 company; and 466-5 (2) does not entitle the assignee to: 466-6 (A) participate in the management and affairs of 466-7 the company; 466-8 (B) become a member of the company; or 466-9 (C) exercise any rights of a member of the 466-10 company. 466-11 Sec. 101.109. RIGHTS AND DUTIES OF ASSIGNEE OF MEMBERSHIP 466-12 INTEREST BEFORE MEMBERSHIP. (a) A person who is assigned a 466-13 membership interest in a limited liability company is entitled to: 466-14 (1) receive any allocation of income, gain, loss, 466-15 deduction, credit, or a similar item that the assignor is entitled 466-16 to receive if the allocation of the item is assigned; 466-17 (2) receive any distribution the assignor is entitled 466-18 to receive if the distribution is assigned; 466-19 (3) require, for any proper purpose, reasonable 466-20 information or a reasonable account of the transactions of the 466-21 company; and 466-22 (4) make, for any proper purpose, reasonable 466-23 inspections of the books and records of the company. 466-24 (b) An assignee of a membership interest in a limited 466-25 liability company is entitled to become a member of the company on 466-26 the approval of the company's governing authority. 466-27 (c) An assignee of a membership interest in a limited 467-1 liability company is not liable as a member of the company until 467-2 the assignee becomes a member of the company. 467-3 Sec. 101.110. RIGHTS AND LIABILITIES OF ASSIGNEE OF 467-4 MEMBERSHIP INTEREST AFTER BECOMING MEMBER. (a) An assignee of a 467-5 membership interest in a limited liability company, after becoming 467-6 a member of the company, is: 467-7 (1) entitled, to the extent assigned, to the same 467-8 rights and powers granted or provided to a member of the company by 467-9 the company agreement or this code; 467-10 (2) subject to the same restrictions and liabilities 467-11 placed or imposed on a member of the company by the company 467-12 agreement or this code; and 467-13 (3) except as provided by Subsection (b), liable for 467-14 the assignor's obligation to make contributions to the company. 467-15 (b) An assignee of a membership interest in a limited 467-16 liability company, after becoming a member of the company, is not 467-17 obligated for a liability of the assignor that: 467-18 (1) the assignee did not have knowledge of on the date 467-19 the assignee became a member of the company; and 467-20 (2) could not be ascertained from the company 467-21 agreement. 467-22 Sec. 101.111. RIGHTS AND DUTIES OF ASSIGNOR OF MEMBERSHIP 467-23 INTEREST. (a) An assignor of a membership interest in a limited 467-24 liability company continues to be a member of the company and is 467-25 entitled to exercise any unassigned rights or powers of a member of 467-26 the company until the assignee becomes a member of the company. 467-27 (b) An assignor of a membership interest in a limited 468-1 liability company is not released from any liability arising from 468-2 the assignor's membership interest in the company, regardless of 468-3 whether the assignee of the membership interest becomes a member of 468-4 the company. 468-5 Sec. 101.112. JUDGMENT CREDITOR; CHARGE OF MEMBERSHIP 468-6 INTEREST. (a) On application by a judgment creditor of a member 468-7 of a limited liability company or an assignee of a membership 468-8 interest in a limited liability company, a court may charge the 468-9 membership interest of the member or assignee, as appropriate, with 468-10 payment of the unsatisfied amount of the judgment. 468-11 (b) If a court charges a membership interest with payment of 468-12 a judgment as provided by Subsection (a), the judgment creditor has 468-13 only the rights of an assignee of the membership interest. 468-14 (c) This section may not be construed to deprive a member of 468-15 a limited liability company or an assignee of a membership interest 468-16 in a limited liability company of the benefit of any exemption laws 468-17 applicable to the membership interest of the member or assignee. 468-18 Sec. 101.113. PARTIES TO ACTIONS. A member of a limited 468-19 liability company may be named as a party only in an action brought 468-20 to enforce a right or liability of the member relating to the 468-21 company. 468-22 Sec. 101.114. REQUIREMENTS FOR ENFORCEABLE SUBSCRIPTION. A 468-23 subscription to purchase a membership interest in a limited 468-24 liability company is enforceable only if the subscription is: 468-25 (1) in writing; and 468-26 (2) signed by the person making the subscription. 468-27 (Sections 101.115-101.150 reserved for expansion) 469-1 SUBCHAPTER D. CONTRIBUTIONS 469-2 Sec. 101.151. REQUIREMENTS FOR ENFORCEABLE PROMISE. A 469-3 promise to make a contribution or otherwise pay cash or transfer 469-4 property to a limited liability company is enforceable only if the 469-5 promise is: 469-6 (1) in writing; and 469-7 (2) signed by the person making the promise. 469-8 Sec. 101.152. ENFORCEABLE PROMISE NOT AFFECTED BY CHANGE IN 469-9 CIRCUMSTANCES. A member of a limited liability company is 469-10 obligated to perform an enforceable promise to make a contribution 469-11 or otherwise pay cash or transfer property to the company without 469-12 regard to the death, disability, or other change in circumstances 469-13 of the member. 469-14 Sec. 101.153. FAILURE TO PERFORM ENFORCEABLE PROMISE; 469-15 CONSEQUENCES. (a) A member of a limited liability company, or the 469-16 member's legal representative or successor, who does not perform an 469-17 enforceable promise to make a contribution, including a previously 469-18 made contribution, or to otherwise pay cash or transfer property to 469-19 the company is obligated, at the request of the company, to pay in 469-20 cash the agreed value of the contribution, as stated in the company 469-21 agreement or the company's records required under Section 3.151, 469-22 less: 469-23 (1) any amount already paid for the contribution; and 469-24 (2) the value of any property already transferred. 469-25 (b) The company agreement of a limited liability company may 469-26 provide that the membership interest of a member who does not 469-27 perform an enforceable promise to make a contribution, including a 470-1 previously made contribution, or otherwise pay cash or transfer 470-2 property to the company may be: 470-3 (1) reduced; 470-4 (2) subordinated to other membership interests of 470-5 nondefaulting members; 470-6 (3) redeemed or sold at a value determined by 470-7 appraisal or other formula; or 470-8 (4) made the subject of: 470-9 (A) a forced sale; 470-10 (B) forfeiture; 470-11 (C) a loan from other members of the company in 470-12 an amount necessary to satisfy the enforceable promise; or 470-13 (D) another penalty or consequence. 470-14 Sec. 101.154. CONSENT REQUIRED TO RELEASE ENFORCEABLE 470-15 OBLIGATION. The obligation of a member of a limited liability 470-16 company, or of the member's legal representative or successor, to 470-17 make a contribution or otherwise pay cash or transfer property to 470-18 the company, or to return cash or property to the company paid or 470-19 distributed to the member in violation of this code or the company 470-20 agreement, may be released or settled only by consent of each 470-21 member of the company. 470-22 Sec. 101.155. CREDITOR'S RIGHT TO ENFORCE CERTAIN 470-23 OBLIGATIONS. A creditor of a limited liability company who extends 470-24 credit or otherwise acts in reasonable reliance on an enforceable 470-25 obligation of a member of the company that is released or settled 470-26 as provided by Section 101.154 may enforce the original obligation 470-27 if the obligation is stated in a document that is: 471-1 (1) signed by the member; and 471-2 (2) not amended or canceled to evidence the release or 471-3 settlement of the obligation. 471-4 Sec. 101.156. REQUIREMENTS TO ENFORCE CONDITIONAL 471-5 OBLIGATION. (a) An obligation of a member of a limited liability 471-6 company that is subject to a condition may be enforced by the 471-7 company or a creditor described by Section 101.155 only if the 471-8 condition is satisfied or waived by or with respect to the member. 471-9 (b) A conditional obligation of a member of a limited 471-10 liability company under this section includes a contribution 471-11 payable on a discretionary call of the limited liability company 471-12 before the time the call occurs. 471-13 (Sections 101.157-101.200 reserved for expansion) 471-14 SUBCHAPTER E. ALLOCATIONS AND DISTRIBUTIONS 471-15 Sec. 101.201. ALLOCATION OF PROFITS AND LOSSES. The profits 471-16 and losses of a limited liability company shall be allocated to 471-17 each member of the company in accordance with the member's 471-18 percentage or other interest in the company on the date of the 471-19 allocation as stated in the company's records required under 471-20 Sections 3.151 and 101.501. 471-21 Sec. 101.202. DISTRIBUTION IN KIND. A member of a limited 471-22 liability company is entitled to receive or demand a distribution 471-23 from the company only in the form of cash, regardless of the form 471-24 of the member's contribution to the company. 471-25 Sec. 101.203. SHARING OF DISTRIBUTIONS. Distributions of 471-26 cash and other assets of a limited liability company shall be made 471-27 to each member of the company according to the agreed value of the 472-1 member's contribution to the company as stated in the company's 472-2 records required under Sections 3.151 and 101.501. 472-3 Sec. 101.204. INTERIM DISTRIBUTIONS. A member of a limited 472-4 liability company, before the winding up of the company, is not 472-5 entitled to receive and may not demand a distribution from the 472-6 company until the company's governing authority declares a 472-7 distribution to: 472-8 (1) each member of the company; or 472-9 (2) a class or group of members that includes the 472-10 member. 472-11 Sec. 101.205. DISTRIBUTION ON WITHDRAWAL. A member of a 472-12 limited liability company who validly exercises the member's right 472-13 to withdraw from the company granted under the company agreement is 472-14 entitled to receive, within a reasonable time after the date of 472-15 withdrawal, the fair value of the member's interest in the company 472-16 as determined on the date of withdrawal. 472-17 Sec. 101.206. PROHIBITED DISTRIBUTION; DUTY TO RETURN. (a) 472-18 A limited liability company may not make a distribution to a member 472-19 of the company if, immediately after making the distribution, the 472-20 company's total liabilities, other than liabilities described by 472-21 Subsection (b), exceed the fair value of the company's total 472-22 assets. 472-23 (b) For purposes of Subsection (a), the liabilities of a 472-24 limited liability company do not include: 472-25 (1) a liability related to the member's membership 472-26 interest; or 472-27 (2) except as provided by Subsection (c), a liability 473-1 for which the recourse of creditors is limited to specified 473-2 property of the company. 473-3 (c) For purposes of Subsection (a), the assets of a limited 473-4 liability company include the fair value of property subject to a 473-5 liability for which recourse of creditors is limited to specified 473-6 property of the company only if the fair value of that property 473-7 exceeds the liability. 473-8 (d) A member of a limited liability company who receives a 473-9 distribution from the company in violation of this section is 473-10 required to return the distribution to the company if the member 473-11 had knowledge of the violation. 473-12 (e) This section may not be construed to affect the 473-13 obligation of a member of a limited liability company to return a 473-14 distribution to the company under the company agreement or other 473-15 state or federal law. 473-16 Sec. 101.207. CREDITOR STATUS WITH RESPECT TO DISTRIBUTION. 473-17 Subject to Sections 11.053 and 101.206, when a member of a limited 473-18 liability company is entitled to receive a distribution from the 473-19 company, the member, with respect to the distribution, has the same 473-20 status as a creditor of the company and is entitled to any remedy 473-21 available to a creditor of the company. 473-22 (Sections 101.208-101.250 reserved for expansion) 473-23 SUBCHAPTER F. MANAGEMENT 473-24 Sec. 101.251. MEMBERSHIP. The governing authority of a 473-25 limited liability company consists of: 473-26 (1) the managers of the company, if the company's 473-27 certificate of formation states that the company will have one or 474-1 more managers; or 474-2 (2) the members of the company, if the company's 474-3 certificate of formation states that the company will not have 474-4 managers. 474-5 Sec. 101.252. MANAGEMENT BY GOVERNING AUTHORITY. The 474-6 governing authority of a limited liability company shall manage the 474-7 business and affairs of the company as provided by: 474-8 (1) the company agreement; and 474-9 (2) this title and the provisions of Title 1 474-10 applicable to a limited liability company to the extent that the 474-11 company agreement does not provide for the management of the 474-12 company. 474-13 Sec. 101.253. DESIGNATION OF COMMITTEES; DELEGATION OF 474-14 AUTHORITY. (a) The governing authority of a limited liability 474-15 company by resolution may designate: 474-16 (1) one or more committees of the governing authority 474-17 consisting of one or more governing persons of the company; and 474-18 (2) subject to any limitation imposed by the governing 474-19 authority, a governing person to serve as an alternate member of a 474-20 committee designated under Subdivision (1) at a committee meeting 474-21 from which a member of the committee is absent or disqualified. 474-22 (b) A committee of the governing authority of a limited 474-23 liability company may exercise the authority of the governing 474-24 authority as provided by the resolution designating the committee. 474-25 (c) The designation of a committee under this section does 474-26 not relieve the governing authority of any responsibility imposed 474-27 by law. 475-1 Sec. 101.254. DESIGNATION OF AGENTS; BINDING ACTS. (a) 475-2 Except as provided by this title and Title 1, each governing person 475-3 of a limited liability company and each officer or agent of a 475-4 limited liability company vested with actual or apparent authority 475-5 by the governing authority of the company is an agent of the 475-6 company for purposes of carrying out the company's business. 475-7 (b) An act committed by an agent of a limited liability 475-8 company described by Subsection (a) for the purpose of apparently 475-9 carrying out the ordinary course of business of the company, 475-10 including the execution of an instrument in the name of the 475-11 company, binds the company unless: 475-12 (1) the agent does not have actual authority to act 475-13 for the company; and 475-14 (2) the person with whom the agent is dealing has 475-15 knowledge of the agent's lack of actual authority. 475-16 (c) An act committed by an agent of a limited liability 475-17 company described by Subsection (a) that is not apparently for 475-18 carrying out the ordinary course of business of the company binds 475-19 the company only if the act is authorized in accordance with this 475-20 title. 475-21 Sec. 101.255. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED 475-22 GOVERNING PERSONS OR OFFICERS. (a) This section applies only to a 475-23 contract or transaction between a limited liability company and: 475-24 (1) one or more of the company's governing persons or 475-25 officers; or 475-26 (2) an entity or other organization in which one or 475-27 more of the company's governing persons or officers: 476-1 (A) is a managerial official; or 476-2 (B) has a financial interest. 476-3 (b) An otherwise valid contract or transaction is valid 476-4 notwithstanding that a governing person or officer of the company 476-5 is present at or participates in the meeting of the governing 476-6 authority, or of a committee of the governing person's authority, 476-7 that authorizes the contract or transaction or votes to authorize 476-8 the contract or transaction, if: 476-9 (1) the material facts as to the relationship or 476-10 interest and as to the contract or transaction are disclosed to or 476-11 known by: 476-12 (A) the company's governing authority or a 476-13 committee of the governing authority and the governing authority or 476-14 committee in good faith authorizes the contract or transaction by 476-15 the affirmative vote of the majority of the disinterested governing 476-16 persons of the company, regardless of whether the disinterested 476-17 governing persons constitute a quorum; or 476-18 (B) if the company has managers, the members of 476-19 the company, and the members in good faith approve the contract or 476-20 transaction by a majority vote of all of the members; or 476-21 (2) the contract or transaction is fair to the company 476-22 when the contract or transaction is authorized, approved, or 476-23 ratified by the governing authority, a committee of the governing 476-24 authority, or the members of the company. 476-25 (c) Common or interested governing persons of a limited 476-26 liability company may be included in determining the presence of a 476-27 quorum at a meeting of the company's governing authority, or of a 477-1 committee of the governing authority that authorizes the contract 477-2 or transaction. 477-3 (Sections 101.256-101.300 reserved for expansion) 477-4 SUBCHAPTER G. MANAGERS 477-5 Sec. 101.301. APPLICABILITY OF SUBCHAPTER. This subchapter 477-6 applies only to a limited liability company that has one or more 477-7 managers. 477-8 Sec. 101.302. NUMBER AND QUALIFICATIONS. (a) The managers 477-9 of a limited liability company consist of one or more persons. 477-10 (b) Except as provided by Subsection (c), the number of 477-11 managers of a limited liability company consists of the number of 477-12 initial managers listed in the company's certificate of formation. 477-13 (c) The number of managers of a limited liability company 477-14 may be increased or decreased by amendment to, or as provided by, 477-15 the company agreement, except that a decrease in the number of 477-16 managers may not shorten the term of an incumbent manager. 477-17 (d) A manager of a limited liability company is not required 477-18 to be a: 477-19 (1) resident of this state; or 477-20 (2) member of the company. 477-21 Sec. 101.303. TERM. A manager of a limited liability 477-22 company serves: 477-23 (1) for the term, if any, for which the manager is 477-24 elected and until the manager's successor is elected; or 477-25 (2) until the death, resignation, or removal of the 477-26 manager. 477-27 Sec. 101.304. REMOVAL. Subject to Section 101.306(a), a 478-1 manager of a limited liability company may be removed, with or 478-2 without cause, at a meeting of the company's members called for 478-3 that purpose. 478-4 Sec. 101.305. MANAGER VACANCY. (a) Subject to Section 478-5 101.306(b), a vacancy in the position of a manager of a limited 478-6 liability company may be filled by: 478-7 (1) the affirmative vote of the majority of the 478-8 remaining managers of the company, without regard to whether the 478-9 remaining managers constitute a quorum; or 478-10 (2) if the vacancy is a result of an increase in the 478-11 number of managers, an election at an annual or special meeting of 478-12 the company's members called for that purpose. 478-13 (b) A person elected to fill a vacancy in the position of a 478-14 manager serves for the unexpired term of the person's predecessor. 478-15 Sec. 101.306. ELECTION OF MANAGER BY CLASS OR GROUP. (a) 478-16 If a class or group of the members of a limited liability company 478-17 is entitled by the company agreement of the company to elect one or 478-18 more managers of the company, a manager may be removed from office 478-19 only by the class or group that elected the manager. 478-20 (b) A vacancy in the position of a manager elected as 478-21 provided by Subsection (a) may be filled only by: 478-22 (1) a majority vote of the managers serving on the 478-23 date the vacancy occurs who were elected by the class or group of 478-24 members; or 478-25 (2) a majority vote of the members of the class or 478-26 group. 478-27 Sec. 101.307. METHODS OF CLASSIFYING MANAGERS. Other 479-1 methods of classifying managers of a limited liability company, 479-2 including providing for managers who serve for staggered terms of 479-3 office or terms that are not uniform, may be established in the 479-4 company agreement. 479-5 (Sections 101.308-101.350 reserved for expansion) 479-6 SUBCHAPTER H. MEETINGS AND VOTING 479-7 Sec. 101.351. APPLICABILITY OF SUBCHAPTER. This subchapter 479-8 applies only to a meeting of and voting by: 479-9 (1) the governing authority of a limited liability 479-10 company; 479-11 (2) the members of a limited liability company if the 479-12 members do not constitute the governing authority of the company; 479-13 and 479-14 (3) a committee of the governing authority of a 479-15 limited liability company. 479-16 Sec. 101.352. GENERAL NOTICE REQUIREMENTS. (a) Except as 479-17 provided by Subsection (b), notice of a regular or special meeting 479-18 of the governing authority or members of a limited liability 479-19 company, or a committee of the company's governing authority, shall 479-20 be given in writing to each governing person, member, or committee 479-21 member, as appropriate, and as provided by Section 6.051. 479-22 (b) If the members of a limited liability company do not 479-23 constitute the governing authority of the company, notice required 479-24 by Subsection (a) shall be given by or at the direction of the 479-25 governing authority not later than the 10th day or earlier than the 479-26 60th day before the date of the meeting. Notice of a meeting 479-27 required under this subsection must state the business to be 480-1 transacted at the meeting or the purpose of the meeting if: 480-2 (1) the meeting is a special meeting; or 480-3 (2) a purpose of the meeting is to consider a matter 480-4 described by Section 101.356. 480-5 Sec. 101.353. QUORUM. A majority of all of the governing 480-6 persons, members, or committee members of a limited liability 480-7 company constitutes a quorum for the purpose of transacting 480-8 business at a meeting of the governing authority, members, or 480-9 committee of the company, as appropriate. 480-10 Sec. 101.354. EQUAL VOTING RIGHTS. Each governing person, 480-11 member, or committee member of a limited liability company has an 480-12 equal vote at a meeting of the governing authority, members, or 480-13 committee of the company, as appropriate. 480-14 Sec. 101.355. ACT OF GOVERNING AUTHORITY, MEMBERS, OR 480-15 COMMITTEE. Except as provided by this title or Title 1, the 480-16 affirmative vote of the majority of the governing persons, members, 480-17 or committee members of a limited liability company present at a 480-18 meeting at which a quorum is present constitutes an act of the 480-19 governing authority, members, or committee of the company, as 480-20 appropriate. 480-21 Sec. 101.356. VOTES REQUIRED TO APPROVE CERTAIN ACTIONS. 480-22 (a) Except as provided by Subsections (b), (c), and (d) or other 480-23 sections in this title, an action of a limited liability company 480-24 may be approved by the company's governing authority as provided by 480-25 Section 101.355. 480-26 (b) Except as provided by Subsections (c) and (d) or other 480-27 sections in this title, an action of a limited liability company 481-1 taken apparently not for carrying out the ordinary course of 481-2 business of the company must be approved by the affirmative vote of 481-3 the majority of the company's governing persons. 481-4 (c) Except as provided by Subsections (d) and (e) or other 481-5 sections in this title, a fundamental business transaction of a 481-6 limited liability company, or an action that would make it 481-7 impossible for a limited liability company to carry out the 481-8 ordinary business of the company, must be approved by the 481-9 affirmative vote of the majority of all of: 481-10 (1) the company's governing persons; or 481-11 (2) if the company has no managers, the company's 481-12 members. 481-13 (d) Except as provided by Subsection (e) and other sections 481-14 of this title, an amendment to the certificate of formation of a 481-15 limited liability company must be approved by an affirmative vote 481-16 of all of: 481-17 (1) the company's governing persons; and 481-18 (2) if the company has no managers, the company's 481-19 members. 481-20 (e) A requirement that an action of a limited liability 481-21 company must be approved by the company's members does not apply 481-22 during the period prescribed by Section 101.101(b). 481-23 Sec. 101.357. MANNER OF VOTING. (a) A member of a limited 481-24 liability company may vote: 481-25 (1) in person; or 481-26 (2) by a proxy executed in writing by the member. 481-27 (b) A manager or committee member of a limited liability 482-1 company, if authorized by the company agreement, may vote: 482-2 (1) in person; or 482-3 (2) by a proxy executed in writing by the governing 482-4 person or committee member, as appropriate. 482-5 Sec. 101.358. ACTION BY LESS THAN UNANIMOUS WRITTEN CONSENT. 482-6 (a) This section applies only to an action required or authorized 482-7 to be taken at an annual or special meeting of the governing 482-8 authority, the members, or a committee of the governing authority 482-9 of a limited liability company under this title, Title 1, or the 482-10 governing documents of the company. 482-11 (b) Notwithstanding Sections 6.201 and 6.202, an action may 482-12 be taken without holding a meeting, providing notice, or taking a 482-13 vote if a written consent or consents stating the action to be 482-14 taken is signed by the number of governing persons, members, or 482-15 committee members of a limited liability company, as appropriate, 482-16 necessary to have at least the minimum number of votes that would 482-17 be necessary to take the action at a meeting at which each 482-18 governing person, member, or committee member, as appropriate, 482-19 entitled to vote on the action is present and votes. 482-20 Sec. 101.359. RIGHTS OF DISSENT AND APPRAISAL. (a) Except 482-21 as provided by Subsection (b), a limited liability company is not a 482-22 domestic entity subject to dissenters' rights, as defined by 482-23 Section 1.002, and the members of a limited liability company are 482-24 not entitled to the rights of dissent and appraisal provided by 482-25 Subchapter H, Chapter 10, with respect to an action of the company 482-26 described by this title or Title 1. 482-27 (b) A limited liability company is a domestic entity subject 483-1 to dissenters' rights and the members of the limited liability 483-2 company are entitled to the rights of dissent and appraisal 483-3 provided by Subchapter H, Chapter 10, if the rights of dissent and 483-4 appraisal are conferred by a company agreement. 483-5 (Sections 101.360-101.400 reserved for expansion) 483-6 SUBCHAPTER I. MODIFICATION OF DUTIES; INDEMNIFICATION 483-7 Sec. 101.401. EXPANSION OR RESTRICTION OF DUTIES AND 483-8 LIABILITIES. The company agreement of a limited liability company 483-9 may expand or restrict duties, including fiduciary duties, and 483-10 liabilities of a person relating to the company or to a member, 483-11 manager, or officer of the company or an assignee of a membership 483-12 interest in the company. 483-13 Sec. 101.402. PERMISSIVE INDEMNIFICATION, ADVANCEMENT OF 483-14 EXPENSES, AND INSURANCE OR OTHER ARRANGEMENTS. (a) A limited 483-15 liability company may: 483-16 (1) indemnify a person; 483-17 (2) pay in advance or reimburse expenses incurred by a 483-18 person; and 483-19 (3) purchase or procure or establish and maintain 483-20 insurance or another arrangement to indemnify or hold harmless a 483-21 person. 483-22 (b) In this section, "person" includes a member, manager, or 483-23 officer of a limited liability company or an assignee of a 483-24 membership interest in the company. 483-25 (Sections 101.403-101.450 reserved for expansion) 483-26 SUBCHAPTER J. DERIVATIVE PROCEEDINGS 483-27 Sec. 101.451. DEFINITIONS. In this subchapter: 484-1 (1) "Derivative proceeding" means a civil suit in the 484-2 right of a domestic limited liability company or, to the extent 484-3 provided by Section 101.462, in the right of a foreign limited 484-4 liability company. 484-5 (2) "Member" includes a beneficial owner whose shares 484-6 are held in a voting trust or by a nominee on the beneficial 484-7 owner's behalf. 484-8 Sec. 101.452. STANDING TO BRING PROCEEDING. A member may 484-9 not institute or maintain a derivative proceeding unless: 484-10 (1) the member: 484-11 (A) was a member of the limited liability 484-12 company at the time of the act or omission complained of; or 484-13 (B) became a member by operation of law from a 484-14 person that was a member at the time of the act or omission 484-15 complained of; and 484-16 (2) the member fairly and adequately represents the 484-17 interests of the limited liability company in enforcing the right 484-18 of the limited liability company. 484-19 Sec. 101.453. DEMAND. (a) A member may not institute a 484-20 derivative proceeding until the 91st day after the date a written 484-21 demand is filed with the limited liability company stating with 484-22 particularity the act, omission, or other matter that is the 484-23 subject of the claim or challenge and requesting that the limited 484-24 liability company take suitable action. 484-25 (b) The waiting period required by Subsection (a) before a 484-26 derivative proceeding may be instituted is not required if: 484-27 (1) the member has been previously notified that the 485-1 demand has been rejected by the limited liability company; 485-2 (2) the limited liability company is suffering 485-3 irreparable injury; or 485-4 (3) irreparable injury to the limited liability 485-5 company would result by waiting for the expiration of the 90-day 485-6 period. 485-7 Sec. 101.454. DETERMINATION BY GOVERNING OR INDEPENDENT 485-8 PERSONS. (a) The determination of how to proceed on allegations 485-9 made in a demand or petition relating to a derivative proceeding 485-10 must be made by: 485-11 (1) an affirmative vote of the majority of the 485-12 independent and disinterested governing persons present at a 485-13 meeting of the governing authority at which interested governing 485-14 persons are not present at the time of the vote if the independent 485-15 and disinterested governing persons constitute a quorum of the 485-16 governing authority; 485-17 (2) an affirmative vote of the majority of a committee 485-18 consisting of two or more independent and disinterested governing 485-19 persons appointed by an affirmative vote of the majority of one or 485-20 more independent and disinterested governing persons present at a 485-21 meeting of the governing authority, regardless of whether the 485-22 independent and disinterested governing persons constitute a quorum 485-23 of the governing authority; or 485-24 (3) a panel of one or more independent and 485-25 disinterested persons appointed by the court on a motion by the 485-26 limited liability company listing the names of the persons to be 485-27 appointed and stating that, to the best of the limited liability 486-1 company's knowledge, the persons to be appointed are disinterested 486-2 and qualified to make the determinations contemplated by Section 486-3 101.458. 486-4 (b) The court shall appoint a panel under Subsection (a)(3) 486-5 if the court finds that the persons recommended by the limited 486-6 liability company are independent and disinterested and are 486-7 otherwise qualified with respect to expertise, experience, 486-8 independent judgment, and other factors considered appropriate by 486-9 the court under the circumstances to make the determinations. A 486-10 person appointed by the court to a panel under this section may not 486-11 be held liable to the limited liability company or the limited 486-12 liability company's members for an action taken or omission made by 486-13 the person in that capacity, except for acts or omissions 486-14 constituting fraud or wilful misconduct. 486-15 Sec. 101.455. STAY OF PROCEEDING. (a) If the domestic or 486-16 foreign limited liability company that is the subject of a 486-17 derivative proceeding commences an inquiry into the allegations 486-18 made in a demand or petition and the person or group of persons 486-19 described by Section 101.454 is conducting an active review of the 486-20 allegations in good faith, the court shall stay a derivative 486-21 proceeding until the review is completed and a determination is 486-22 made by the person or group regarding what further action, if any, 486-23 should be taken. 486-24 (b) To obtain a stay, the domestic or foreign limited 486-25 liability company shall provide the court with a written statement 486-26 agreeing to advise the court and the member making the demand of 486-27 the determination promptly on the completion of the review of the 487-1 matter. A stay, on motion, may be reviewed every 60 days for the 487-2 continued necessity of the stay. 487-3 (c) If the review and determination made by the person or 487-4 group is not completed before the 61st day after the date on which 487-5 the court orders the stay, the stay may be renewed for one or more 487-6 additional 60-day periods if the domestic or foreign limited 487-7 liability company provides the court and the member with a written 487-8 statement of the status of the review and the reasons why a 487-9 continued extension of the stay is necessary. 487-10 Sec. 101.456. DISCOVERY. (a) If a domestic or foreign 487-11 limited liability company proposes to dismiss a derivative 487-12 proceeding under Section 101.458, discovery by a member after the 487-13 filing of the derivative proceeding in accordance with this 487-14 subchapter shall be limited to: 487-15 (1) facts relating to whether the person or group of 487-16 persons described by Section 101.458 is independent and 487-17 disinterested; 487-18 (2) the good faith of the inquiry and review by the 487-19 person or group; and 487-20 (3) the reasonableness of the procedures followed by 487-21 the person or group in conducting the review. 487-22 (b) Discovery described by Subsection (a) may not be 487-23 expanded to include a fact or substantive matter regarding the act, 487-24 omission, or other matter that is the subject matter of the 487-25 derivative proceeding. The scope of discovery may be expanded if 487-26 the court determines after notice and hearing that a good faith 487-27 review of the allegations for purposes of Section 101.458 has not 488-1 been made by an independent and disinterested person or group in 488-2 accordance with that section. 488-3 Sec. 101.457. TOLLING OF STATUTE OF LIMITATIONS. A written 488-4 demand filed with the limited liability company under Section 488-5 101.453 tolls the statute of limitations on the claim on which 488-6 demand is made until the earlier of: 488-7 (1) the 91st day after the date of the demand; or 488-8 (2) the 31st day after the date the limited liability 488-9 company advises the member that the demand has been rejected or the 488-10 review has been completed. 488-11 Sec. 101.458. DISMISSAL OF DERIVATIVE PROCEEDING. (a) A 488-12 court shall dismiss a derivative proceeding on a motion by the 488-13 limited liability company if the person or group of persons 488-14 described by Section 101.454 determines in good faith, after 488-15 conducting a reasonable inquiry and based on factors the person or 488-16 group considers appropriate under the circumstances, that 488-17 continuation of the derivative proceeding is not in the best 488-18 interests of the limited liability company. 488-19 (b) In determining whether the requirements of Subsection 488-20 (a) have been met, the burden of proof shall be on: 488-21 (1) the plaintiff member if: 488-22 (A) the majority of the governing authority 488-23 consists of independent and disinterested persons at the time the 488-24 determination is made; 488-25 (B) the determination is made by a panel of one 488-26 or more independent and disinterested persons appointed under 488-27 Section 101.454; or 489-1 (C) the limited liability company presents prima 489-2 facie evidence that demonstrates that the persons appointed under 489-3 Section 101.454 are independent and disinterested; or 489-4 (2) the limited liability company in any other 489-5 circumstance. 489-6 Sec. 101.459. DEMAND. If a derivative proceeding is 489-7 instituted after a demand is rejected, the petition must allege 489-8 with particularity facts that establish that the rejection was not 489-9 made in accordance with the requirements of Sections 101.454 and 489-10 101.458. 489-11 Sec. 101.460. DISCONTINUANCE OR SETTLEMENT. (a) A 489-12 derivative proceeding may not be discontinued or settled without 489-13 court approval. 489-14 (b) The court shall direct that notice be given to the 489-15 affected members if the court determines that a proposed 489-16 discontinuance or settlement may substantially affect the interests 489-17 of other members. 489-18 Sec. 101.461. PAYMENT OF EXPENSES. (a) In this section, 489-19 "expenses" means reasonable expenses incurred by a party in a 489-20 derivative proceeding, including: 489-21 (1) attorney's fees; 489-22 (2) costs of pursuing an investigation of the matter 489-23 that was the subject of the derivative proceeding; or 489-24 (3) expenses for which the domestic or foreign limited 489-25 liability company may be required to indemnify another person. 489-26 (b) On termination of a derivative proceeding, the court may 489-27 order: 490-1 (1) the domestic or foreign limited liability company 490-2 to pay the expenses the plaintiff incurred in the proceeding if the 490-3 court finds the proceeding has resulted in a substantial benefit to 490-4 the domestic or foreign limited liability company; 490-5 (2) the plaintiff to pay the expenses the domestic or 490-6 foreign limited liability company or other defendant incurred in 490-7 investigating and defending the proceeding if the court finds the 490-8 proceeding has been instituted or maintained without reasonable 490-9 cause or for an improper purpose; or 490-10 (3) a party to pay the expenses incurred by another 490-11 party relating to the filing of a pleading, motion, or other paper 490-12 if the court finds the pleading, motion, or other paper: 490-13 (A) was not well grounded in fact after 490-14 reasonable inquiry; 490-15 (B) was not warranted by existing law or a good 490-16 faith argument for the extension, modification, or reversal of 490-17 existing law; or 490-18 (C) was interposed for an improper purpose, such 490-19 as to harass, cause unnecessary delay, or cause a needless increase 490-20 in the cost of litigation. 490-21 Sec. 101.462. APPLICATION TO FOREIGN LIMITED LIABILITY 490-22 COMPANIES. (a) In a derivative proceeding brought in the right of 490-23 a foreign limited liability company, the matters covered by this 490-24 subchapter are governed by the laws of the jurisdiction of 490-25 organization of the foreign limited liability company, except for 490-26 Sections 101.455, 101.460, and 101.461, which are procedural 490-27 provisions and do not relate to the internal affairs of the foreign 491-1 limited liability company. 491-2 (b) In the case of matters relating to a foreign limited 491-3 liability company under Section 101.454, a reference to a person or 491-4 group of persons described by that section refers to a person or 491-5 group entitled under the laws of the jurisdiction of organization 491-6 of the foreign limited liability company to review and dispose of a 491-7 derivative proceeding. The standard of review of a decision made 491-8 by the person or group to dismiss the derivative proceeding shall 491-9 be governed by the laws of the jurisdiction of organization of the 491-10 foreign limited liability company. 491-11 Sec. 101.463. CLOSELY HELD LIMITED LIABILITY COMPANY. (a) 491-12 In this section, "closely held limited liability company" means a 491-13 limited liability company that has: 491-14 (1) fewer than 35 members; and 491-15 (2) no shares listed on a national securities exchange 491-16 or regularly quoted in an over-the-counter market by one or more 491-17 members of a national securities association. 491-18 (b) Subject to Subsection (c), Sections 101.452-101.459 do 491-19 not apply to a closely held limited liability company. 491-20 (c) If justice requires: 491-21 (1) a derivative proceeding brought by a member of a 491-22 closely held limited liability company may be treated by a court as 491-23 a direct action brought by the member for the member's own benefit; 491-24 and 491-25 (2) a recovery in a direct or derivative proceeding by 491-26 a member may be paid directly to the plaintiff or to the limited 491-27 liability company if necessary to protect the interests of 492-1 creditors or other members of the limited liability company. 492-2 (Sections 101.464-101.500 reserved for expansion) 492-3 SUBCHAPTER K. SUPPLEMENTAL RECORDKEEPING REQUIREMENTS 492-4 Sec. 101.501. ADDITIONAL RECORDS REQUIRED. (a) In addition 492-5 to the books and records required to be kept under Section 3.151, a 492-6 limited liability company shall keep at its principal domestic 492-7 office, or make available to a person at its principal domestic 492-8 office not later than the fifth day after the date the person 492-9 submits a written request to examine the books and records of the 492-10 company under Section 3.152(a) or 101.502: 492-11 (1) a current list of each member of a class or group 492-12 of membership interests in the company; 492-13 (2) a copy of the company's federal, state, and local 492-14 tax information or income tax returns for each of the six preceding 492-15 tax years; 492-16 (3) a copy of the company's certificate of formation, 492-17 including any amendments to or restatements of the certificate of 492-18 formation; 492-19 (4) if the company agreement is in writing, a copy of 492-20 the company agreement, including any amendments to or restatements 492-21 of the company agreement; 492-22 (5) an executed copy of any powers of attorney; 492-23 (6) a copy of any document that establishes a class or 492-24 group of members of the company as provided by the company 492-25 agreement; and 492-26 (7) except as provided by Subsection (b), a written 492-27 statement of: 493-1 (A) the amount of a cash contribution and a 493-2 description and statement of the agreed value of any other 493-3 contribution made or agreed to be made by each member; 493-4 (B) the dates any additional contributions are 493-5 to be made by a member; 493-6 (C) any event the occurrence of which requires a 493-7 member to make additional contributions; 493-8 (D) any event the occurrence of which requires 493-9 the winding up of the company; and 493-10 (E) the date each member became a member of the 493-11 company. 493-12 (b) A limited liability company is not required to keep or 493-13 make available at its principal domestic office a written statement 493-14 of the information required by Subsection (a)(7) if that 493-15 information is stated in the company agreement. 493-16 (c) A limited liability company shall keep at its registered 493-17 office located in this state and make available to a member of the 493-18 company on reasonable request the street address of the company's 493-19 principal domestic office in which the records required by this 493-20 section and Section 3.151 are maintained or made available. 493-21 Sec. 101.502. RIGHT TO EXAMINE RECORDS AND CERTAIN OTHER 493-22 INFORMATION. (a) A member of a limited liability company or an 493-23 assignee of a membership interest in a limited liability company, 493-24 or a representative of the member or assignee, on written request 493-25 and for a proper purpose, may examine and copy at any reasonable 493-26 time and at the member's or assignee's expense: 493-27 (1) records required under Sections 3.151 and 101.501; 494-1 and 494-2 (2) other information regarding the business, affairs, 494-3 and financial condition of the company that is reasonable for the 494-4 person to examine and copy. 494-5 (b) A limited liability company shall provide to a member of 494-6 the company or an assignee of a membership interest in the company, 494-7 on written request by the member or assignee mailed to the 494-8 company's principal domestic office or, if different, the person 494-9 and address designated in the company agreement, a free copy of: 494-10 (1) the company's certificate of formation, including 494-11 any amendments to or restatements of the certificate of formation; 494-12 (2) if in writing, the company agreement, including 494-13 any amendments to or restatements of the company agreement; and 494-14 (3) any tax returns described by Section 494-15 101.501(a)(2). 494-16 (Sections 101.503-101.550 reserved for expansion) 494-17 SUBCHAPTER L. SUPPLEMENTAL WINDING UP AND TERMINATION 494-18 PROVISIONS 494-19 Sec. 101.551. ADDITIONAL EVENT REQUIRING WINDING UP. In 494-20 addition to an event listed under Section 11.051, the termination 494-21 of the continued membership of the last remaining member of a 494-22 limited liability company is an event that requires the winding up 494-23 of a domestic entity unless, not later than the 90th day after the 494-24 date of the termination, the legal representative or successor of 494-25 the last remaining member agrees: 494-26 (1) to continue the company; and 494-27 (2) from the date of the termination, to become a 495-1 member of the company or nominate or delegate another person to 495-2 become a member of the company. 495-3 Sec. 101.552. PERSONS ELIGIBLE TO WIND UP COMPANY. After an 495-4 event requiring the winding up of a limited liability company 495-5 unless a revocation as provided by Section 11.151 or a cancellation 495-6 as provided by Section 11.152 occurs, the winding up of the company 495-7 must be carried out by: 495-8 (1) the company's governing authority or one or more 495-9 persons, including a governing person, designated by the governing 495-10 authority; 495-11 (2) if the event requiring the winding up of the 495-12 company is the termination of the continued membership of the last 495-13 remaining member of the company, the legal representative or 495-14 successor of the last remaining member or one or more persons 495-15 designated by the legal representative or successor; or 495-16 (3) a person appointed by the court to carry out the 495-17 winding up of the company under Section 11.054, 11.405, 11.409, or 495-18 11.410. 495-19 Sec. 101.553. APPROVAL OF VOLUNTARY WINDING UP, REVOCATION, 495-20 CANCELLATION, OR REINSTATEMENT. A majority vote of all of the 495-21 governing persons of a limited liability company and, if the 495-22 limited liability company has managers, a majority vote of all of 495-23 the members of the company is required to approve: 495-24 (1) a voluntary winding up of the company under 495-25 Chapter 11; 495-26 (2) a revocation of a voluntary decision to wind up 495-27 the company under Section 11.151; 496-1 (3) a cancellation of an event requiring the winding 496-2 up of the company under Section 11.152; or 496-3 (4) a reinstatement of a termination of the company 496-4 under Section 11.202. 496-5 TITLE 4. PARTNERSHIPS 496-6 CHAPTER 151. GENERAL PROVISIONS 496-7 Sec. 151.001. DEFINITIONS. In this title: 496-8 (1) "Capital account" means the amount computed by: 496-9 (A) adding the amount of a partner's original 496-10 and additional contributions of cash to a partnership, the agreed 496-11 value of any other property that that partner originally or 496-12 additionally contributed to the partnership, and allocations of 496-13 partnership profits to that partner; and 496-14 (B) subtracting the amount of distributions to 496-15 that partner and allocations of partnership losses to that partner. 496-16 (2) "Foreign limited partnership" means a partnership 496-17 formed under the laws of another state that has one or more general 496-18 partners and one or more limited partners. 496-19 (3) "Majority-in-interest," with respect to all or a 496-20 specified group of partners, means partners who own more than 50 496-21 percent of the current percentage or other interest in the profits 496-22 of the partnership that is owned by all of the partners or by the 496-23 partners in the specified group, as appropriate. 496-24 (4) "Partnership agreement" means a written or oral 496-25 agreement of the partners concerning a partnership. 496-26 Sec. 151.002. KNOWLEDGE OF FACT. For purposes of this 496-27 title, a person has knowledge of a fact only if the person has 497-1 actual knowledge of the fact. 497-2 Sec. 151.003. NOTICE OF FACT. (a) For purposes of this 497-3 title, a person has notice of a fact if the person: 497-4 (1) has knowledge of the fact; 497-5 (2) has received a communication of the fact as 497-6 provided by Subsection (c); or 497-7 (3) reasonably should have concluded, from all facts 497-8 then known to that person, that the fact exists. 497-9 (b) A person notifies or gives notice to another person of a 497-10 fact by taking actions reasonably required to inform the other 497-11 person of the fact in the ordinary course of business, regardless 497-12 of whether the other person actually has knowledge of the fact. 497-13 (c) A person is notified or receives notice of a fact when 497-14 the fact is communicated to: 497-15 (1) the person; 497-16 (2) the person's place of business; or 497-17 (3) another place held out by the person as the place 497-18 for receipt of communications. 497-19 (d) Receipt of notice by a partner of a fact relating to the 497-20 partnership is effective immediately as notice to the partnership 497-21 unless fraud against the partnership is committed by or with the 497-22 consent of the partner receiving the notice. 497-23 CHAPTER 152. GENERAL PARTNERSHIPS 497-24 SUBCHAPTER A. GENERAL PROVISIONS 497-25 Sec. 152.001. DEFINITIONS. In this chapter: 497-26 (1) "Event of withdrawal" or "withdrawal" means an 497-27 event specified by Section 152.501(b). 498-1 (2) "Event requiring a winding up" means an event 498-2 specified by Section 152.701. 498-3 (3) "Foreign limited liability partnership" means a 498-4 partnership that: 498-5 (A) is foreign; and 498-6 (B) has the status of a registered limited 498-7 liability partnership pursuant to the laws of the jurisdiction 498-8 under which it is formed or that govern its internal affairs. 498-9 (4) "Other partnership provisions" means the 498-10 provisions of Chapters 151 and 154 and Title 1 to the extent 498-11 applicable to partnerships. 498-12 (5) "Withdrawn partner" means a partner with respect 498-13 to whom an event of withdrawal has occurred. 498-14 Sec. 152.002. EFFECT OF PARTNERSHIP AGREEMENT; NONWAIVABLE 498-15 AND VARIABLE PROVISIONS. (a) Except as provided by Subsection 498-16 (b), a partnership agreement governs the relations of the partners 498-17 and between the partners and the partnership. To the extent that 498-18 the partnership agreement does not otherwise provide, this chapter 498-19 and the other partnership provisions govern the relationship of the 498-20 partners and between the partners and the partnership. 498-21 (b) A partnership agreement or the partners may not: 498-22 (1) unreasonably restrict a partner's right of access 498-23 to books and records under Section 152.212; 498-24 (2) eliminate the duty of loyalty under Section 498-25 152.205, except that the partners by agreement may identify a 498-26 specific type of activity or category of activities that do not 498-27 violate the duty of loyalty if the type or category is not 499-1 manifestly unreasonable; 499-2 (3) eliminate the duty of care under Section 152.206, 499-3 except that the partners by agreement may determine the standards 499-4 by which the performance of the obligation is to be measured if the 499-5 standards are not manifestly unreasonable; 499-6 (4) eliminate the obligation of good faith under 499-7 Section 152.204(b), except that the partners by agreement may 499-8 determine the standards by which the performance of the obligation 499-9 is to be measured if the standards are not manifestly unreasonable; 499-10 (5) vary the power to withdraw as a partner under 499-11 Section 152.501(b)(1), (7), or (8), except for the requirement that 499-12 notice be in writing; 499-13 (6) vary the right to expel a partner by a court in an 499-14 event specified by Section 152.501(b)(5); 499-15 (7) vary the requirement to wind up the partnership 499-16 business in an event specified by Section 152.701(a)(3), (4), or 499-17 (5); 499-18 (8) restrict rights of a third party under this 499-19 chapter or the other partnership provisions, except for a 499-20 limitation on an individual partner's liability in a registered 499-21 limited liability partnership as provided by this chapter; or 499-22 (9) select a governing law not permitted under 499-23 Sections 1.103 and 1.001(43)(c). 499-24 Sec. 152.003. SUPPLEMENTAL PRINCIPLES OF LAW. The 499-25 principles of law and equity and the other partnership provisions 499-26 supplement this chapter unless otherwise provided by this chapter 499-27 or the other partnership provisions. 500-1 Sec. 152.004. RULE OF STATUTORY CONSTRUCTION NOT APPLICABLE. 500-2 The rule that a statute in derogation of the common law is to be 500-3 strictly construed does not apply to this chapter or the other 500-4 partnership provisions. 500-5 Sec. 152.005. APPLICABLE INTEREST RATE. If an obligation to 500-6 pay interest arises under this chapter and the rate is not 500-7 specified, the interest rate is the rate specified by Section 500-8 302.002, Finance Code. 500-9 (Sections 152.006-152.050 reserved for expansion) 500-10 SUBCHAPTER B. NATURE AND CREATION OF PARTNERSHIP 500-11 Sec. 152.051. PARTNERSHIP DEFINED. (a) In this section, 500-12 "association" does not have the meaning of the term "association" 500-13 under Section 1.002. 500-14 (b) Except as provided by Subsection (c) and Section 500-15 152.053, an association of two or more persons to carry on a 500-16 business for profit as owners creates a partnership, regardless of 500-17 whether: 500-18 (1) the persons intend to create a partnership; or 500-19 (2) the association is called a "partnership," "joint 500-20 venture," or other name. 500-21 (c) An association or entity created under a law other than 500-22 this title and the provisions of Title 1 applicable to partnerships 500-23 and limited partnerships is not a partnership. 500-24 Sec. 152.052. RULES FOR DETERMINING IF PARTNERSHIP IS 500-25 CREATED. (a) Factors indicating that persons have created a 500-26 partnership include the persons': 500-27 (1) receipt or right to receive a share of profits of 501-1 the business; 501-2 (2) expression of an intent to be partners in the 501-3 business; 501-4 (3) participation or right to participate in control 501-5 of the business; 501-6 (4) agreement to share or sharing: 501-7 (A) losses of the business; or 501-8 (B) liability for claims by third parties 501-9 against the business; and 501-10 (5) agreement to contribute or contributing money or 501-11 property to the business. 501-12 (b) One of the following circumstances, by itself, does not 501-13 indicate that a person is a partner in the business: 501-14 (1) the receipt or right to receive a share of profits 501-15 as payment: 501-16 (A) of a debt, including repayment by 501-17 installments; 501-18 (B) of wages or other compensation to an 501-19 employee or independent contractor; 501-20 (C) of rent; 501-21 (D) to a former partner, surviving spouse or 501-22 representative of a deceased or disabled partner, or transferee of 501-23 a partnership interest; 501-24 (E) of interest or other charge on a loan, 501-25 regardless of whether the amount varies with the profits of the 501-26 business, including a direct or indirect present or future 501-27 ownership interest in collateral or rights to income, proceeds, or 502-1 increase in value derived from collateral; or 502-2 (F) of consideration for the sale of a business 502-3 or other property, including payment by installments; 502-4 (2) co-ownership of property, regardless of whether 502-5 the co-ownership is: 502-6 (A) a joint tenancy, tenancy in common, tenancy 502-7 by the entirety, joint property, community property, or part 502-8 ownership; or 502-9 (B) combined with sharing of profits from the 502-10 property; 502-11 (3) the right to share or sharing gross returns or 502-12 revenues, regardless of whether the persons sharing the gross 502-13 returns or revenues have a common or joint interest in the property 502-14 from which the returns or revenues are derived; or 502-15 (4) ownership of mineral property under a joint 502-16 operating agreement. 502-17 (c) An agreement by the owners of a business to share losses 502-18 is not necessary to create a partnership. 502-19 Sec. 152.053. QUALIFICATIONS TO BE PARTNER; NONPARTNER'S 502-20 LIABILITY TO THIRD PERSON. (a) A person may be a partner unless 502-21 the person lacks capacity apart from this chapter. 502-22 (b) Except as provided by Sections 152.054 and 152.506, a 502-23 person who is not a partner in a partnership under Section 152.051 502-24 is not a partner as to a third person and is not liable to a third 502-25 person under this chapter. 502-26 Sec. 152.054. FALSE REPRESENTATION OF PARTNERSHIP OR 502-27 PARTNER. (a) A false representation or other conduct falsely 503-1 indicating that a person is a partner with another person does not 503-2 of itself create a partnership. 503-3 (b) A representation or other conduct indicating that a 503-4 person is a partner in an existing partnership, if that is not the 503-5 case, does not of itself make that person a partner in the 503-6 partnership. 503-7 (Sections 152.055-152.100 reserved for expansion) 503-8 SUBCHAPTER C. PARTNERSHIP PROPERTY 503-9 Sec. 152.101. NATURE OF PARTNERSHIP PROPERTY. Partnership 503-10 property is not property of the partners. A partner or a partner's 503-11 spouse does not have an interest in partnership property. 503-12 Sec. 152.102. CLASSIFICATION AS PARTNERSHIP PROPERTY. (a) 503-13 Property is partnership property if acquired in the name of: 503-14 (1) the partnership; or 503-15 (2) one or more partners if the instrument 503-16 transferring title to the property indicates: 503-17 (A) the person's capacity as a partner; or 503-18 (B) the existence of a partnership, regardless 503-19 of whether the name of the partnership is indicated. 503-20 (b) Property is presumed to be partnership property if 503-21 acquired with partnership property, regardless of whether the 503-22 property is acquired as provided by Subsection (a). 503-23 (c) Property acquired in the name of one or more partners is 503-24 presumed to be the partner's property, regardless of whether the 503-25 property is used for partnership purposes, if the instrument 503-26 transferring title to the property does not indicate the person's 503-27 capacity as a partner or the existence of a partnership, and if the 504-1 property is not acquired with partnership property. 504-2 (d) For purposes of this section, property is acquired in 504-3 the name of the partnership by a transfer to: 504-4 (1) the partnership in its name; or 504-5 (2) one or more partners in the partners' capacity as 504-6 partners in the partnership, if the name of the partnership is 504-7 indicated in the instrument transferring title to the property. 504-8 (Sections 152.103-152.200 reserved for expansion) 504-9 SUBCHAPTER D. RELATIONSHIP BETWEEN PARTNERS AND BETWEEN 504-10 PARTNERS AND PARTNERSHIPS 504-11 Sec. 152.201. ADMISSION AS PARTNER. A person may become a 504-12 partner only with the consent of all partners. 504-13 Sec. 152.202. CREDITS OF AND CHARGES TO PARTNER. (a) Each 504-14 partner is credited with an amount equal to: 504-15 (1) the cash and the value of property the partner 504-16 contributes to a partnership; and 504-17 (2) the partner's share of the partnership's profits. 504-18 (b) Each partner is charged with an amount equal to: 504-19 (1) the cash and the value of other property 504-20 distributed by the partnership to the partner; and 504-21 (2) the partner's share of the partnership's losses. 504-22 (c) Each partner is entitled to be credited with an equal 504-23 share of the partnership's profits and is chargeable with a share 504-24 of the partnership's capital or operating losses in proportion to 504-25 the partner's share of the profits. 504-26 Sec. 152.203. RIGHTS AND DUTIES OF PARTNER. (a) Each 504-27 partner has equal rights in the management and conduct of the 505-1 business of a partnership. A partner's right to participate in the 505-2 management and conduct of the business is not community property. 505-3 (b) A partner may use or possess partnership property only 505-4 on behalf of the partnership. 505-5 (c) A partner is not entitled to receive compensation for 505-6 services performed for a partnership other than reasonable 505-7 compensation for services rendered in winding up the business of 505-8 the partnership. 505-9 (d) A partner who, in the proper conduct of the business of 505-10 the partnership or for the preservation of its business or 505-11 property, reasonably makes a payment or advance beyond the amount 505-12 the partner agreed to contribute, or who reasonably incurs a 505-13 liability, is entitled to be repaid and to receive interest from 505-14 the date of the: 505-15 (1) payment or advance; or 505-16 (2) incurrence of the liability. 505-17 Sec. 152.204. GENERAL STANDARDS OF PARTNER'S CONDUCT. (a) 505-18 A partner owes to the partnership and the other partners: 505-19 (1) a duty of loyalty; and 505-20 (2) a duty of care. 505-21 (b) A partner shall discharge the partner's duties to the 505-22 partnership and the other partners under this code or under the 505-23 partnership agreement and exercise any rights and powers in the 505-24 conduct or winding up of the partnership business: 505-25 (1) in good faith; and 505-26 (2) in a manner the partner reasonably believes to be 505-27 in the best interest of the partnership. 506-1 (c) A partner does not violate a duty or obligation under 506-2 this chapter or under the partnership agreement merely because the 506-3 partner's conduct furthers the partner's own interest. 506-4 (d) A partner, in the partner's capacity as partner, is not 506-5 a trustee and is not held to the standards of a trustee. 506-6 Sec. 152.205. PARTNER'S DUTY OF LOYALTY. A partner's duty 506-7 of loyalty includes: 506-8 (1) accounting to and holding for the partnership 506-9 property, profit, or benefit derived by the partner: 506-10 (A) in the conduct and winding up of the 506-11 partnership business; or 506-12 (B) from use by the partner of partnership 506-13 property; 506-14 (2) refraining from dealing with the partnership on 506-15 behalf of a person who has an interest adverse to the partnership; 506-16 and 506-17 (3) refraining from competing or dealing with the 506-18 partnership in a manner adverse to the partnership. 506-19 Sec. 152.206. PARTNER'S DUTY OF CARE. (a) A partner's duty 506-20 of care to the partnership and the other partners is to act in the 506-21 conduct and winding up of the partnership business with the care an 506-22 ordinarily prudent person would exercise in similar circumstances. 506-23 (b) An error in judgment does not by itself constitute a 506-24 breach of the duty of care. 506-25 (c) A partner is presumed to satisfy the duty of care if the 506-26 partner acts on an informed basis and in compliance with Section 506-27 152.154(b). 507-1 Sec. 152.207. STANDARDS OF CONDUCT APPLICABLE TO PERSON 507-2 WINDING UP PARTNERSHIP BUSINESS. Sections 152.204-152.206 apply to 507-3 a person winding up the partnership business as the personal or 507-4 legal representative of the last surviving partner to the same 507-5 extent as those sections apply to a partner. 507-6 Sec. 152.208. AMENDMENT TO PARTNERSHIP AGREEMENT. A 507-7 partnership agreement may be amended only with the consent of all 507-8 partners. 507-9 Sec. 152.209. DECISION-MAKING REQUIREMENT. (a) A 507-10 difference arising in a matter in the ordinary course of the 507-11 partnership business may be decided by a majority-in-interest of 507-12 the partners. 507-13 (b) An act outside the ordinary course of business of a 507-14 partnership may be undertaken only with the consent of all 507-15 partners. 507-16 Sec. 152.210. PARTNER'S LIABILITY TO PARTNERSHIP AND OTHER 507-17 PARTNERS. A partner is liable to a partnership and the other 507-18 partners for: 507-19 (1) a breach of the partnership agreement; or 507-20 (2) a violation of a duty to the partnership or other 507-21 partners under this chapter that causes harm to the partnership or 507-22 the other partners. 507-23 Sec. 152.211. REMEDIES OF PARTNERSHIP AND PARTNERS. (a) A 507-24 partnership may maintain an action against a partner for a breach 507-25 of the partnership agreement or for the violation of a duty to the 507-26 partnership causing harm to the partnership. 507-27 (b) A partner may maintain an action against the partnership 508-1 or another partner for legal or equitable relief, including an 508-2 accounting of partnership business, to: 508-3 (1) enforce a right under the partnership agreement; 508-4 (2) enforce a right under this chapter, including: 508-5 (A) the partner's rights under Sections 508-6 152.201-152.209, 152.212, and 152.213; 508-7 (B) the partner's right on withdrawal to have 508-8 the partner's interest in the partnership redeemed under Subchapter 508-9 H or to enforce any other right under Subchapters G and H; and 508-10 (C) the partner's rights under Subchapter I; or 508-11 (3) enforce the rights and otherwise protect the 508-12 interests of the partner, including rights and interests arising 508-13 independently of the partnership relationship. 508-14 (c) The accrual of and a time limitation on a right of 508-15 action for a remedy under this section is governed by other 508-16 applicable law. 508-17 (d) A right to an accounting does not revive a claim barred 508-18 by law. 508-19 Sec. 152.212. BOOKS AND RECORDS OF PARTNERSHIP. (a) In 508-20 this section, "access" includes the opportunity to inspect and copy 508-21 books and records during ordinary business hours. 508-22 (b) A partnership shall keep its books and records, if any, 508-23 at its chief executive office. 508-24 (c) A partnership shall provide access to its books and 508-25 records to a partner or an agent or attorney of a partner. 508-26 (d) The partnership shall provide a former partner or an 508-27 agent or attorney of a former partner access to books and records 509-1 pertaining to the period during which the former partner was a 509-2 partner or for any other proper purpose with respect to another 509-3 period. 509-4 (e) A partnership may impose a reasonable charge, covering 509-5 the costs of labor and material, for copies of documents furnished 509-6 under this section. 509-7 Sec. 152.213. INFORMATION REGARDING PARTNERSHIP. (a) On 509-8 request and to the extent just and reasonable, each partner and the 509-9 partnership shall furnish complete and accurate information 509-10 concerning the partnership to: 509-11 (1) a partner; 509-12 (2) the legal representative of a deceased partner or 509-13 a partner who has a legal disability; or 509-14 (3) an assignee. 509-15 (b) A legal representative of a deceased partner or a 509-16 partner who has a legal disability and an assignee are subject to 509-17 the duties of a partner with respect to information made available. 509-18 Sec. 152.214. CERTAIN THIRD-PARTY OBLIGATIONS NOT AFFECTED. 509-19 Sections 152.201-152.203, 152.208, 152.209, 154.101-154.103, and 509-20 154.201 do not limit a partnership's obligations to another person 509-21 under Sections 152.301 and 152.302. 509-22 (Sections 152.215-152.300 reserved for expansion) 509-23 SUBCHAPTER E. RELATIONSHIP BETWEEN PARTNERS 509-24 AND OTHER PERSONS 509-25 Sec. 152.301. PARTNER AS AGENT. Each partner is an agent of 509-26 the partnership for the purpose of its business. 509-27 Sec. 152.302. BINDING EFFECT OF PARTNER'S ACTION. (a) 510-1 Unless a partner does not have authority to act for the partnership 510-2 in a particular matter and the person with whom the partner is 510-3 dealing knows that the partner lacks authority, an act of a 510-4 partner, including the execution of an instrument in the 510-5 partnership name, binds the partnership if the act is apparently 510-6 for carrying on in the ordinary course: 510-7 (1) the partnership business; or 510-8 (2) business of the kind carried on by the 510-9 partnership. 510-10 (b) An act of a partner that is not apparently for carrying 510-11 on in the ordinary course a business described by Subsection (a) 510-12 binds the partnership only if authorized by the other partners. 510-13 (c) A conveyance of real property by a partner on behalf of 510-14 the partnership not otherwise binding on the partnership binds the 510-15 partnership if the property has been conveyed by the grantee or a 510-16 person claiming through the grantee to be a holder for value 510-17 without knowledge that the partner exceeded that partner's 510-18 authority in making the conveyance. 510-19 Sec. 152.303. LIABILITY OF PARTNERSHIP FOR CONDUCT OF 510-20 PARTNER. (a) A partnership is liable for loss or injury to a 510-21 person, including a partner, or for a penalty caused by or incurred 510-22 as a result of a wrongful act or omission or other actionable 510-23 conduct of a partner acting: 510-24 (1) in the ordinary course of business of the 510-25 partnership; or 510-26 (2) with the authority of the partnership. 510-27 (b) A partnership is liable for the loss of money or 511-1 property of a person who is not a partner that is: 511-2 (1) received in the course of the partnership's 511-3 business; and 511-4 (2) misapplied by a partner while in the custody of 511-5 the partnership. 511-6 Sec. 152.304. NATURE OF PARTNER'S LIABILITY. (a) Except as 511-7 provided by Subsection (b) or Section 152.801(b), all partners are 511-8 liable jointly and severally for a debt or obligation of the 511-9 partnership unless otherwise: 511-10 (1) agreed by the claimant; or 511-11 (2) provided by law. 511-12 (b) A person who is admitted as a partner into an existing 511-13 partnership does not have personal liability under Subsection (a) 511-14 for an obligation of the partnership that: 511-15 (1) arises before the partner's admission to the 511-16 partnership; 511-17 (2) relates to an action taken or omission occurring 511-18 before the partner's admission to the partnership; or 511-19 (3) arises before or after the partner's admission to 511-20 the partnership under a contract or commitment entered into before 511-21 the partner's admission. 511-22 Sec. 152.305. REMEDY. An action may be brought against a 511-23 partnership and any or all of the partners in the same action or in 511-24 separate actions. 511-25 Sec. 152.306. ENFORCEMENT OF REMEDY. (a) A judgment 511-26 against a partnership is not by itself a judgment against a 511-27 partner. A judgment may be entered against a partner who has been 512-1 served with process in a suit against the partnership. 512-2 (b) Except as provided by Subsection (c), a creditor may 512-3 proceed against one or more partners or the property of the 512-4 partners to satisfy a judgment based on a claim that could have 512-5 been successfully asserted against the partnership only if a 512-6 judgment: 512-7 (1) is also obtained against the partner; and 512-8 (2) based on the same claim: 512-9 (A) is obtained against the partnership; 512-10 (B) has not been reversed or vacated; and 512-11 (C) remains unsatisfied for 90 days after: 512-12 (i) the date on which the judgment is 512-13 entered; or 512-14 (ii) the date on which the stay expires, 512-15 if the judgment is contested by appropriate proceedings and 512-16 execution on the judgment is stayed. 512-17 (c) Subsection (b) does not prohibit a creditor from 512-18 proceeding directly against one or more partners or the property of 512-19 the partners without first seeking satisfaction from partnership 512-20 property if: 512-21 (1) the partnership is a debtor in bankruptcy; 512-22 (2) the creditor and the partnership agreed that the 512-23 creditor is not required to comply with Subsection (b); 512-24 (3) a court orders otherwise, based on a finding that 512-25 partnership property subject to execution in the state is clearly 512-26 insufficient to satisfy the judgment or that compliance with 512-27 Subsection (b) is excessively burdensome; or 513-1 (4) liability is imposed on the partner by law 513-2 independently of the person's status as a partner. 513-3 (d) This section does not limit the effect of Section 513-4 152.801 with respect to a registered limited liability partnership. 513-5 Sec. 152.307. EXTENSION OF CREDIT IN RELIANCE ON FALSE 513-6 REPRESENTATION. (a) The rights of a person extending credit in 513-7 reliance on a representation described by Section 152.054 are 513-8 determined by applicable law other than this chapter and the other 513-9 partnership provisions, including the law of estoppel, agency, 513-10 negligence, fraud, and unjust enrichment. 513-11 (b) The rights and duties of a person held liable under 513-12 Subsection (a) are also determined by law other than the law 513-13 described by Subsection (a). 513-14 (Sections 152.308-152.400 reserved for expansion) 513-15 SUBCHAPTER F. TRANSFER OF PARTNERSHIP INTERESTS 513-16 Sec. 152.401. TRANSFER OF PARTNERSHIP INTEREST. A partner 513-17 may transfer all or part of the partner's partnership interest. 513-18 Sec. 152.402. GENERAL EFFECT OF TRANSFER. A transfer of all 513-19 or part of a partner's partnership interest: 513-20 (1) is not an event of withdrawal; 513-21 (2) does not by itself cause a winding up of the 513-22 partnership business; and 513-23 (3) against the other partners or the partnership, 513-24 does not entitle the transferee, during the continuance of the 513-25 partnership, to participate in the management or conduct of the 513-26 partnership business. 513-27 Sec. 152.403. EFFECT OF TRANSFER ON TRANSFEROR. After 514-1 transfer, the transferor continues to have the rights and duties of 514-2 a partner other than the interest transferred. 514-3 Sec. 152.404. RIGHTS AND DUTIES OF TRANSFEREE. (a) A 514-4 transferee of a partner's partnership interest is entitled to 514-5 receive, to the extent transferred, distributions to which the 514-6 transferor otherwise would be entitled. 514-7 (b) If an event requires a winding up of partnership 514-8 business under Subchapter I, a transferee is entitled to receive, 514-9 to the extent transferred, the net amount otherwise distributable 514-10 to the transferor. 514-11 (c) Until a transferee becomes a partner, the transferee 514-12 does not have liability as a partner solely as a result of the 514-13 transfer. 514-14 (d) For a proper purpose the transferee may require 514-15 reasonable information or an account of a partnership transaction 514-16 and make reasonable inspection of the partnership books. In a 514-17 winding up of partnership business, a transferee may require an 514-18 accounting only from the date of the latest account agreed to by 514-19 all of the partners. 514-20 (e) Until receipt of notice of a transfer, a partnership is 514-21 not required to give effect to a transferee's rights under this 514-22 section and Sections 152.401-152.403. 514-23 Sec. 152.405. POWER TO EFFECT TRANSFER OR GRANT OF SECURITY 514-24 INTEREST. A partnership is not required to give effect to a 514-25 transfer, assignment, or grant of a security interest prohibited by 514-26 a partnership agreement. 514-27 Sec. 152.406. EFFECT OF DEATH OR DIVORCE ON PARTNERSHIP 515-1 INTEREST. (a) For purposes of this code: 515-2 (1) on the divorce of a partner, the partner's spouse, 515-3 to the extent of the spouse's partnership interest, is a 515-4 transferee of the partnership interest from the partner; 515-5 (2) on the death of a partner, the partner's surviving 515-6 spouse, if any, and an heir, legatee, or personal representative of 515-7 the partner, to the extent of their respective partnership 515-8 interest, is a transferee of the partnership interest from the 515-9 partner; and 515-10 (3) on the death of a partner's spouse, an heir, 515-11 legatee, or personal representative of the spouse, to the extent of 515-12 their respective partnership interest, is a transferee of the 515-13 partnership interest from the partner. 515-14 (b) An event of the type described by Section 152.501 515-15 occurring with respect to a partner's spouse is not an event of 515-16 withdrawal. 515-17 (c) This chapter does not impair an agreement for the 515-18 purchase or sale of a partnership interest at any time, including 515-19 the death of an owner of the partnership interest. 515-20 (Sections 152.407-152.500 reserved for expansion) 515-21 SUBCHAPTER G. WITHDRAWAL OF PARTNER 515-22 Sec. 152.501. EVENTS OF WITHDRAWAL. (a) A person ceases to 515-23 be a partner on the occurrence of an event of withdrawal. 515-24 (b) An event of withdrawal of a partner occurs on: 515-25 (1) receipt by the partnership of notice of the 515-26 partner's express will to withdraw as a partner on: 515-27 (A) the date on which the notice is received; or 516-1 (B) a later date specified by the notice; 516-2 (2) an event specified in the partnership agreement as 516-3 causing the partner's withdrawal; 516-4 (3) the partner's expulsion as provided by the 516-5 partnership agreement; 516-6 (4) the partner's expulsion by vote of a 516-7 majority-in-interest of the other partners if: 516-8 (A) it is unlawful to carry on the partnership 516-9 business with that partner; 516-10 (B) there has been a transfer of all or 516-11 substantially all of that partner's partnership interest, other 516-12 than: 516-13 (i) a transfer for security purposes that 516-14 has not been foreclosed; or 516-15 (ii) the substitution of a successor 516-16 trustee or successor personal representative; 516-17 (C) not later than the 90th day after the date 516-18 on which the partnership notifies an entity partner, other than a 516-19 nonfiling entity or foreign nonfiling entity partner, that it will 516-20 be expelled because it has filed a certificate of termination or 516-21 the equivalent, its existence has been involuntarily terminated or 516-22 its charter has been revoked, or its right to conduct business has 516-23 been terminated or suspended by the jurisdiction of its formation, 516-24 if the certificate of termination or the equivalent is not revoked 516-25 or its existence, charter, or right to conduct business is not 516-26 reinstated; or 516-27 (D) an event requiring a winding up has occurred 517-1 with respect to a nonfiling entity or foreign nonfiling entity that 517-2 is a partner; 517-3 (5) application by the partnership or another partner 517-4 for the partner's expulsion by judicial decree because the partner: 517-5 (A) engaged in wrongful conduct that adversely 517-6 and materially affected the partnership business; 517-7 (B) wilfully or persistently committed a 517-8 material breach of: 517-9 (i) the partnership agreement; or 517-10 (ii) a duty owed to the partnership or the 517-11 other partners under Sections 152.204-152.206; or 517-12 (C) engaged in conduct relating to the 517-13 partnership business that made it not reasonably practicable to 517-14 carry on the business in partnership with that partner; 517-15 (6) the partner's: 517-16 (A) becoming a debtor in bankruptcy; 517-17 (B) executing an assignment for the benefit of a 517-18 creditor; 517-19 (C) seeking, consenting to, or acquiescing in 517-20 the appointment of a trustee, receiver, or liquidator of that 517-21 partner or of all or substantially all of that partner's property; 517-22 or 517-23 (D) failing, not later than the 90th day after 517-24 the appointment, to have vacated or stayed the appointment of a 517-25 trustee, receiver, or liquidator of the partner or of all or 517-26 substantially all of the partner's property obtained without the 517-27 partner's consent or acquiescence, or not later than the 90th day 518-1 after the date of expiration of a stay, failing to have the 518-2 appointment vacated; 518-3 (7) if a partner is an individual: 518-4 (A) the partner's death; 518-5 (B) the appointment of a guardian or general 518-6 conservator for the partner; or 518-7 (C) a judicial determination that the partner 518-8 has otherwise become incapable of performing the partner's duties 518-9 under the partnership agreement; 518-10 (8) termination of a partner's existence; 518-11 (9) if a partner has transferred all of the partner's 518-12 partnership interest, redemption of the transferee's interest under 518-13 Sections 152.611 and 152.612(a); or 518-14 (10) an agreement to continue the partnership under 518-15 Section 152.701 if the partnership has received a notice from the 518-16 partner under Section 152.701 requesting that the partnership be 518-17 wound up. 518-18 Sec. 152.502. EFFECT OF EVENT OF WITHDRAWAL ON PARTNERSHIP 518-19 AND OTHER PARTNERS. A partnership continues after an event of 518-20 withdrawal. The event of withdrawal affects the relationships 518-21 among the withdrawn partner, the partnership, and the continuing 518-22 partners as provided by Sections 152.503-152.506 and Subchapter H. 518-23 Sec. 152.503. WRONGFUL WITHDRAWAL; LIABILITY. (a) At any 518-24 time before the occurrence of an event requiring a winding up of 518-25 partnership business, a partner may withdraw from the partnership 518-26 and cease to be a partner as provided by Section 152.501. 518-27 (b) A partner's withdrawal is wrongful only if: 519-1 (1) the withdrawal breaches an express provision of 519-2 the partnership agreement; 519-3 (2) in the case of a partnership for a definite term 519-4 or particular undertaking or for which the partnership agreement 519-5 provides for winding up on a specified event, before the expiration 519-6 of the term, the completion of the undertaking, or the occurrence 519-7 of the event, as appropriate: 519-8 (A) the partner withdraws by express will; 519-9 (B) the partner withdraws by becoming a debtor 519-10 in bankruptcy; or 519-11 (C) in the case of a partner that is not an 519-12 individual, a trust other than a business trust, or an estate, the 519-13 partner is expelled or otherwise withdraws because the partner 519-14 wilfully dissolved or terminated; or 519-15 (3) the partner is expelled by judicial decree under 519-16 Section 152.501(b)(5). 519-17 (c) In addition to other liability of the partner to the 519-18 partnership or to the other partners, a wrongfully withdrawing 519-19 partner is liable to the partnership and to the other partners for 519-20 damages caused by the withdrawal. 519-21 Sec. 152.504. WITHDRAWN PARTNER'S POWER TO BIND PARTNERSHIP. 519-22 (a) The action of a withdrawn partner occurring not later than the 519-23 first anniversary of the date of the person's withdrawal binds the 519-24 partnership if the transaction would bind the partnership before 519-25 the person's withdrawal and the other party to the transaction: 519-26 (1) does not have notice of the person's withdrawal as 519-27 a partner; 520-1 (2) had done business with the partnership within one 520-2 year preceding the date of withdrawal; and 520-3 (3) reasonably believed that the withdrawn partner was 520-4 a partner at the time of the transaction. 520-5 (b) A withdrawn partner is liable to the partnership for 520-6 loss caused to the partnership arising from an obligation incurred 520-7 by the withdrawn partner after the withdrawal date and for which 520-8 the partnership is liable under Subsection (a). 520-9 Sec. 152.505. EFFECT OF WITHDRAWAL ON PARTNER'S EXISTING 520-10 LIABILITY. (a) Withdrawal of a partner does not by itself 520-11 discharge the partner's liability for an obligation of the 520-12 partnership incurred before the date of withdrawal. 520-13 (b) The estate of a deceased partner is liable for an 520-14 obligation of the partnership incurred while the deceased was a 520-15 partner to the same extent that a withdrawn partner is liable for 520-16 an obligation of the partnership incurred before the date of 520-17 withdrawal. 520-18 (c) A withdrawn partner is discharged from liability 520-19 incurred before the date of withdrawal by an agreement to that 520-20 effect between the partner and a partnership creditor. 520-21 (d) If a creditor of a partnership has notice of a partner's 520-22 withdrawal and without the consent of the withdrawn partner agrees 520-23 to a material alteration in the nature or time of payment of an 520-24 obligation of the partnership incurred before the date of 520-25 withdrawal, the withdrawn partner is discharged from the 520-26 obligation. 520-27 Sec. 152.506. LIABILITY OF WITHDRAWN PARTNER TO THIRD PARTY. 521-1 A person who withdraws as a partner in a circumstance that is not 521-2 an event requiring a winding up of partnership business under 521-3 Section 152.701 is liable to another party as a partner in a 521-4 transaction entered into by the partnership or a surviving 521-5 partnership under Section 10.001 not later than the second 521-6 anniversary of the date of the partner's withdrawal only if the 521-7 other party to the transaction: 521-8 (1) does not have notice of the partner's withdrawal; 521-9 and 521-10 (2) reasonably believed that the withdrawn partner was 521-11 a partner at the time of the transaction. 521-12 (Sections 152.507-152.600 reserved for expansion) 521-13 SUBCHAPTER H. REDEMPTION OF WITHDRAWING PARTNER OR 521-14 TRANSFEREE'S INTEREST 521-15 Sec. 152.601. REDEMPTION IF PARTNERSHIP NOT WOUND UP. The 521-16 partnership interest of a withdrawn partner automatically is 521-17 redeemed by the partnership as of the date of withdrawal in 521-18 accordance with this subchapter if: 521-19 (1) an event of withdrawal occurs under Sections 521-20 152.501(b)(1)-(9) and an event requiring a winding up of 521-21 partnership business does not occur before the 61st day after the 521-22 date of the withdrawal; or 521-23 (2) an event of a withdrawal occurs under Section 521-24 152.501(b)(10). 521-25 Sec. 152.602. REDEMPTION PRICE. (a) Except as provided by 521-26 Subsection (b), the redemption price of a withdrawn partner's 521-27 partnership interest is the fair value of the interest on the date 522-1 of withdrawal. 522-2 (b) The redemption price of the partnership interest of a 522-3 partner who wrongfully withdraws before the expiration of a 522-4 definite term, the completion of a particular undertaking, or the 522-5 occurrence of a specified event requiring a winding up of 522-6 partnership business, as appropriate, is the lesser of: 522-7 (1) the fair value of the withdrawn partner's 522-8 partnership interest on the date of withdrawal; or 522-9 (2) the amount that the withdrawn partner would have 522-10 received if an event requiring a winding up of partnership business 522-11 had occurred at the time of the partner's withdrawal. 522-12 (c) Interest is payable on the amount owed under this 522-13 section. 522-14 Sec. 152.603. CONTRIBUTION OBLIGATION. If a wrongfully 522-15 withdrawing partner would have been required to make contributions 522-16 to the partnership under Section 152.708 or 152.709 if an event 522-17 requiring winding up of the partnership business had occurred at 522-18 the time of withdrawal, the withdrawn partner is required to make 522-19 contributions to the partnership in that amount and pay interest on 522-20 the amount owed. 522-21 Sec. 152.604. SETOFF FOR CERTAIN DAMAGES. The partnership 522-22 may set off against the redemption price payable to the withdrawn 522-23 partner the damages for wrongful withdrawal under Section 522-24 152.503(b) and all other amounts owed by the withdrawn partner to 522-25 the partnership, whether currently due, including interest. 522-26 Sec. 152.605. ACCRUAL OF INTEREST. Interest payable under 522-27 Sections 152.602-152.604 accrues from the date of the withdrawal to 523-1 the date of payment. 523-2 Sec. 152.606. INDEMNIFICATION FOR CERTAIN LIABILITY. (a) A 523-3 partnership shall indemnify a withdrawn partner against a 523-4 partnership liability incurred before the date of withdrawal, 523-5 except for a liability: 523-6 (1) that is unknown to the partnership at the time; or 523-7 (2) incurred by an act of the withdrawn partner under 523-8 Sections 152.504 and 152.505. 523-9 (b) For purposes of this section, a liability is unknown to 523-10 the partnership if it is not known to a partner other than the 523-11 withdrawn partner. 523-12 Sec. 152.607. DEMAND OR PAYMENT OF ESTIMATED REDEMPTION. 523-13 (a) If a deferred payment is not authorized under Section 152.608 523-14 and an agreement on the redemption price of a withdrawn partner's 523-15 interest is not reached before the 121st day after the date of a 523-16 written demand for payment is made by either party, not later than 523-17 the 30th day after the expiration of the period, the partnership 523-18 shall: 523-19 (1) pay to the withdrawn partner in cash the amount 523-20 the partnership estimates to be the redemption price and any 523-21 accrued interest, reduced by any setoffs and accrued interest under 523-22 Section 152.604; or 523-23 (2) make written demand to the partnership for payment 523-24 of its estimate of the amount owed by the withdrawn partner, minus 523-25 any amount owed to the partner. 523-26 (b) If a deferred payment is authorized under Section 523-27 152.608 or a contribution or other amount is owed by the withdrawn 524-1 partner to the partnership, the partnership may offer in writing to 524-2 pay or deliver a written statement of demand for the amount it 524-3 estimates to be the net amount owed, stating the amount and other 524-4 terms of the obligation. 524-5 (c) On request of the other party, the payment, offer, or 524-6 demand required or allowed by Subsection (a) or (b) must be 524-7 accompanied or followed promptly by: 524-8 (1) if payment, tender, or demand is made or delivered 524-9 by the partnership, a statement of partnership property and 524-10 liabilities from the date of the partner's withdrawal and the most 524-11 recent available partnership balance sheet and income statement, if 524-12 any; and 524-13 (2) an explanation of the computation of the estimated 524-14 payment obligation. 524-15 (d) The terms of a payment or tender under Subsection (a) or 524-16 (b) govern a redemption if: 524-17 (1) the payment or tender is accompanied by written 524-18 notice that: 524-19 (A) the payment or tendered amount, if made, 524-20 fully satisfies a party's obligations relating to the redemption of 524-21 the withdrawn partner's partnership interest; and 524-22 (B) an action to determine the redemption price, 524-23 a contribution obligation or setoff under Section 152.603 or 524-24 152.604, or other terms of the redemption obligation must be 524-25 commenced not later than the first anniversary of the later of: 524-26 (i) the date on which the written notice 524-27 is given; or 525-1 (ii) the date on which the information 525-2 required by Subsection (c) is delivered; and 525-3 (2) the party receiving the payment or offer does not 525-4 commence an action in the period described by Subdivision (1)(B). 525-5 Sec. 152.608. DEFERRED PAYMENT ON WRONGFUL WITHDRAWAL. (a) 525-6 A partner who wrongfully withdraws before the expiration of a 525-7 definite term, the completion of a particular undertaking, or the 525-8 occurrence of a specified event requiring a winding up of 525-9 partnership business is not entitled to receive any portion of the 525-10 redemption price until the expiration of the term, the completion 525-11 of the undertaking, or the occurrence of the specified event, as 525-12 appropriate, unless the partner establishes to the satisfaction of 525-13 a court that earlier payment will not cause undue hardship to the 525-14 partnership. 525-15 (b) A deferred payment accrues interest. 525-16 (c) The withdrawn partner may demonstrate to the 525-17 satisfaction of the court that security for a deferred payment is 525-18 appropriate. 525-19 Sec. 152.609. ACTION TO DETERMINE PARTNER'S REDEMPTION. 525-20 (a) A withdrawn partner or the partnership may maintain an action 525-21 against the other party under Sections 152.210 and 152.211 to 525-22 determine: 525-23 (1) the terms of redemption of that partner's 525-24 interest, including a contribution obligation or setoff under 525-25 Section 152.603 or 152.604; or 525-26 (2) other terms of the redemption obligations of 525-27 either party. 526-1 (b) The action must be commenced not later than the first 526-2 anniversary of the later of: 526-3 (1) the date of delivery of information required by 526-4 Section 152.607(c); or 526-5 (2) the date written notice is given under Section 526-6 152.607(d). 526-7 (c) The court shall determine the terms of the redemption of 526-8 the withdrawn partner's interest, any contribution obligation or 526-9 setoff due under Section 152.603 or 152.604, and accrued interest 526-10 and shall enter judgment for an additional payment or refund. 526-11 (d) If deferred payment is authorized under Section 152.608, 526-12 the court shall also determine the security for payment if 526-13 requested to consider whether security is appropriate. 526-14 (e) If the court finds that a party failed to tender payment 526-15 or make an offer to pay or to comply with the requirements of 526-16 Section 152.607(c) or otherwise acted arbitrarily, vexatiously, or 526-17 not in good faith, the court may assess damages against the party, 526-18 including, if appropriate, in an amount the court finds equitable: 526-19 (1) a share of the profits of the continuing business; 526-20 (2) reasonable attorney's fees; and 526-21 (3) fees and expenses of appraisers or other experts 526-22 for a party to the action. 526-23 Sec. 152.610. DEFERRAL ON WINDING UP PARTNERSHIP. (a) If a 526-24 partner withdraws under Section 152.501 and not later than the 60th 526-25 day after the date of withdrawal an event requiring winding up 526-26 occurs under Section 11.051 or 152.701, the partnership may defer 526-27 paying the redemption price to the withdrawn partner until the 527-1 partnership makes a winding up distribution to the remaining 527-2 partners. 527-3 (b) The redemption price or contribution obligation is the 527-4 amount the withdrawn partner would have received or contributed if 527-5 the event requiring winding up had occurred at the time of the 527-6 partner's withdrawal. 527-7 Sec. 152.611. REDEMPTION OF TRANSFEREE'S PARTNERSHIP 527-8 INTEREST. (a) A partnership must redeem the partnership interest 527-9 of a transferee for its fair value if: 527-10 (1) the interest was transferred when: 527-11 (A) the partnership was for a definite term that 527-12 has not yet expired; 527-13 (B) the partnership was for a particular 527-14 undertaking not yet completed; or 527-15 (C) the partnership agreement provided for 527-16 winding up of the partnership business on a specified event that 527-17 has not yet occurred; 527-18 (2) the definite term of the partnership has expired, 527-19 the particular undertaking has been completed, or the specified 527-20 event has occurred; and 527-21 (3) the transferee makes a written demand for 527-22 redemption. 527-23 (b) If an agreement for the redemption price of a 527-24 transferee's interest is not reached before the 121st day after the 527-25 date a written demand for redemption is made, the partnership must 527-26 pay to the transferee in cash the amount the partnership estimates 527-27 to be the redemption price and any accrued interest from the date 528-1 of demand not later than the 30th day after the expiration of the 528-2 period. 528-3 (c) On request of the transferee, the payment required by 528-4 Subsection (b) must be accompanied or followed by: 528-5 (1) a statement of partnership property and 528-6 liabilities from the date of the demand for redemption; 528-7 (2) the most recent available partnership balance 528-8 sheet and income statement, if any; and 528-9 (3) an explanation of the computation of the estimated 528-10 payment obligation. 528-11 (d) If the payment required by Subsection (b) is accompanied 528-12 by written notice that the payment is in full satisfaction of the 528-13 partnership's obligations relating to the redemption of the 528-14 transferee's interest, the payment, less interest, is the 528-15 redemption price unless the transferee, not later than the first 528-16 anniversary of the written notice, commences an action to determine 528-17 the redemption price. 528-18 Sec. 152.612. ACTION TO DETERMINE TRANSFEREE'S REDEMPTION. 528-19 (a) A transferee may maintain an action against a partnership to 528-20 determine the redemption price of the transferee's interest. 528-21 (b) The court shall determine the redemption price of the 528-22 transferee's interest and accrued interest and enter judgment for 528-23 payment or refund. 528-24 (c) If the court finds that the partnership failed to make 528-25 payment or otherwise acted arbitrarily, vexatiously, or not in good 528-26 faith, the court may assess against the partnership in an amount 528-27 the court finds equitable: 529-1 (1) reasonable attorney's fees; and 529-2 (2) fees and expenses of appraisers or other experts 529-3 for a party to the action. 529-4 (d) The redemption of a transferee's interest under Sections 529-5 152.611(a) and (b) may be deferred as determined by the court if 529-6 the partnership establishes to the satisfaction of the court that 529-7 failure to defer redemption will cause undue hardship to the 529-8 partnership business. 529-9 (Sections 152.613-152.700 reserved for expansion) 529-10 SUBCHAPTER I. SUPPLEMENTAL WINDING UP AND TERMINATION PROVISIONS 529-11 Sec. 152.701. ADDITIONAL EVENTS REQUIRING WINDING UP. (a) 529-12 An event requiring winding up of a partnership includes, in 529-13 addition to any event specified in Section 11.051, the following: 529-14 (1) in a partnership that is not for a definite term 529-15 or for a particular undertaking or in which the partnership 529-16 agreement does not provide for winding up the partnership business 529-17 on a specified event, the express will of a majority-in-interest of 529-18 the partners who have not assigned their interests; 529-19 (2) in a partnership for a definite term or for a 529-20 particular undertaking, on: 529-21 (A) the express will of all of the partners; or 529-22 (B) the expiration of the term or the completion 529-23 of the undertaking, unless otherwise continued under Section 529-24 152.710; 529-25 (3) in a partnership in which the partnership 529-26 agreement provides for the winding up of the partnership business 529-27 on a specified event, on the express will of all of the partners; 530-1 (4) an event that makes it illegal for all or 530-2 substantially all of the partnership business to be continued, but 530-3 a cure of illegality before the 91st day after the date of notice 530-4 to the partnership of the event is effective retroactively to the 530-5 date of the event for purposes of this subsection; 530-6 (5) on application by a partner, a judicial decree 530-7 that determines: 530-8 (A) the economic purpose of the partnership is 530-9 likely to be unreasonably frustrated; 530-10 (B) another partner has engaged in conduct 530-11 relating to the partnership business that makes it not reasonably 530-12 practicable to carry on the business in partnership with that 530-13 partner; or 530-14 (C) it is not otherwise reasonably practicable 530-15 to carry on the partnership business in conformity with the 530-16 partnership agreement; 530-17 (6) the sale of all or substantially all of the 530-18 property of the partnership outside the ordinary course of 530-19 business; and 530-20 (7) if a partnership is not for a definite term or a 530-21 particular undertaking and its partnership agreement does not 530-22 provide for a specified event requiring a winding up of the 530-23 partnership business, a request for winding up the partnership 530-24 business from a partner, other than a partner who has agreed not to 530-25 withdraw. 530-26 (b) An event described by Subsection (a)(7) requires the 530-27 winding up of a partnership 60 days after the date on which the 531-1 partnership receives notice of the request or at a later date as 531-2 specified by the notice, unless a majority-in-interest of the 531-3 partners agree to continue the partnership. 531-4 Sec. 152.702. EFFECT OF EVENT REQUIRING WINDING UP. On the 531-5 occurrence of an event requiring winding up of a partnership 531-6 business under Section 11.051 or 152.701: 531-7 (1) the partnership continues until the winding up of 531-8 its business is completed, at which time the partnership is 531-9 terminated; and 531-10 (2) the relationship among the partners is changed as 531-11 provided by this subchapter. 531-12 Sec. 152.703. PERSONS ELIGIBLE TO WIND UP PARTNERSHIP 531-13 BUSINESS. (a) After the occurrence of an event requiring a 531-14 winding up of a partnership business, the partnership business may 531-15 be wound up by: 531-16 (1) the partners who have not withdrawn; 531-17 (2) the legal representative of the last surviving 531-18 partner; or 531-19 (3) a person appointed by the court to carry out the 531-20 winding up under Subsection (b). 531-21 (b) On application of a partner, a partner's legal 531-22 representative or transferee, or a withdrawn partner whose interest 531-23 is not redeemed under Section 152.608, a court, for good cause, may 531-24 appoint a person to carry out the winding up and may make an order, 531-25 direction, or inquiry that the circumstances require. 531-26 Sec. 152.704. RIGHTS AND DUTIES OF PERSON WINDING UP 531-27 PARTNERSHIP BUSINESS. (a) To the extent appropriate for winding 532-1 up, as soon as reasonably practicable, and in the name of and for 532-2 and on behalf of the partnership, a person winding up a 532-3 partnership's business may: 532-4 (1) prosecute and defend a civil, criminal, or 532-5 administrative suit; 532-6 (2) settle and close the partnership's business; 532-7 (3) dispose of and convey the partnership's property; 532-8 (4) satisfy or provide for the satisfaction of the 532-9 partnership's liabilities; 532-10 (5) distribute to the partners any remaining property 532-11 of the partnership; and 532-12 (6) perform any other necessary act. 532-13 (b) A person winding up a partnership's business may 532-14 continue the partnership business wholly or partly, including 532-15 delaying the disposition of partnership property, only for the 532-16 limited period necessary to avoid unreasonable loss of the 532-17 partnership's property or business. 532-18 Sec. 152.705. BINDING EFFECT OF PARTNER'S ACTION AFTER WIND 532-19 UP. After the occurrence of an event requiring winding up of the 532-20 partnership business, a partnership is bound by a partner's act 532-21 that: 532-22 (1) is appropriate for winding up; or 532-23 (2) would bind the partnership under Sections 152.301 532-24 and 152.302 before the occurrence of the event requiring winding 532-25 up, if the other party to the transaction does not have notice that 532-26 an event requiring winding up has occurred. 532-27 Sec. 152.706. PARTNER'S LIABILITY TO OTHER PARTNERS AFTER 533-1 WIND UP. (a) Except as provided by Subsection (b), after 533-2 occurrence of an event requiring winding up of the partnership 533-3 business the losses with respect to which a partner must contribute 533-4 under Section 152.709(a) include losses from a liability incurred 533-5 under Section 152.705. 533-6 (b) A partner who incurs, with notice that an event 533-7 requiring a winding up of the partnership business has occurred, a 533-8 partnership liability under Section 152.705(2) by an act that is 533-9 not appropriate for winding up is liable to the partnership for a 533-10 loss caused to the partnership arising from that liability. 533-11 Sec. 152.707. DISPOSITION OF ASSETS. (a) In winding up the 533-12 partnership business, the property of the partnership shall be 533-13 applied to discharge its obligations to creditors, including 533-14 partners who are creditors other than in the partners' capacities 533-15 as partners. 533-16 (b) A surplus shall be applied to pay in cash the net amount 533-17 distributable to partners in accordance with their right to 533-18 distributions under Section 152.708. 533-19 Sec. 152.708. SETTLEMENT OF ACCOUNTS. (a) Each partner is 533-20 entitled to a settlement of all partnership accounts on winding up 533-21 the partnership business. 533-22 (b) In settling accounts among the partners, the partnership 533-23 interest of a withdrawn partner that is not redeemed under 533-24 Subchapter H is credited with a share of any profits for the period 533-25 after the partner's withdrawal but is charged with a share of 533-26 losses for that period only to the extent of profits credited for 533-27 that period. 534-1 (c) The profits and losses that result from the liquidation 534-2 of the partnership property must be credited and charged to the 534-3 partners' capital accounts. 534-4 (d) The partnership shall make a distribution to a partner 534-5 in an amount equal to that partner's positive balance in the 534-6 partner's capital account. Except as provided by Section 534-7 152.304(b) or 152.801, a partner shall contribute to the 534-8 partnership an amount equal to that partner's negative balance in 534-9 the partner's capital account. 534-10 Sec. 152.709. CONTRIBUTIONS TO DISCHARGE OBLIGATIONS. (a) 534-11 Except as provided by Sections 152.304(b) and 152.801, to the 534-12 extent not taken into account in settling the accounts among 534-13 partners under Section 152.708: 534-14 (1) each partner shall contribute, in the proportion 534-15 in which the partner shares partnership losses, the amount 534-16 necessary to satisfy partnership obligations, excluding liabilities 534-17 that creditors have agreed may be satisfied only with partnership 534-18 property without recourse to individual partners; 534-19 (2) if a partner fails to contribute, the other 534-20 partners shall contribute the additional amount necessary to 534-21 satisfy the partnership obligations in the proportions in which the 534-22 partners share partnership losses; and 534-23 (3) a partner or partner's legal representative may 534-24 enforce or recover from the other partners, or from the estate of a 534-25 deceased partner, contributions the partner or estate makes to the 534-26 extent the amount contributed exceeds that partner's or the 534-27 estate's share of the partnership obligations. 535-1 (b) The estate of a deceased partner is liable for the 535-2 partner's obligation to contribute to the partnership. 535-3 (c) The following persons may enforce the obligation of a 535-4 partner or the estate of a deceased partner to contribute to a 535-5 partnership: 535-6 (1) the partnership; 535-7 (2) an assignee for the benefit of creditors of a 535-8 partnership or a partner; or 535-9 (3) a person appointed by a court to represent 535-10 creditors of a partnership or a partner. 535-11 Sec. 152.710. CONTINUATION OF PARTNERSHIP. (a) If all the 535-12 partners in a partnership for a definite term or for a particular 535-13 undertaking or for which the partnership agreement provides for 535-14 winding up on a specified event agree to continue the partnership 535-15 business notwithstanding the expiration of the term, the completion 535-16 of the undertaking, or the occurrence of the event, as appropriate, 535-17 other than the withdrawal of a partner, the partnership is 535-18 continued and the partnership agreement is considered amended to 535-19 provide that the expiration, the completion, or the occurrence of 535-20 the event did not result in an event requiring the winding up of 535-21 the partnership business. 535-22 (b) A continuation of the business for 90 days by the 535-23 partners or those who habitually acted in the business during the 535-24 term or undertaking or preceding the event, without a settlement or 535-25 liquidation of the partnership business and without objection from 535-26 a partner, is prima facie evidence of agreement by all partners to 535-27 continue the business under Subsection (a). 536-1 (c) The continuation of the business by the other partners 536-2 or by those who habitually acted in the business before the notice 536-3 under Section 152.701(b), other than the partner giving the notice, 536-4 without any settlement or liquidation of the partnership business, 536-5 is prima facie evidence of an agreement to continue the partnership 536-6 under Section 152.701(b). 536-7 (Sections 152.711-152.800 reserved for expansion) 536-8 SUBCHAPTER J. REGISTERED LIMITED LIABILITY PARTNERSHIPS 536-9 Sec. 152.801. LIABILITY OF PARTNER. (a) In this section, 536-10 "representative" includes an agent, servant, or employee of a 536-11 registered limited liability partnership. 536-12 (b) Except as provided by Subsection (c), a partner in a 536-13 registered limited liability partnership is not individually 536-14 liable, directly or indirectly, by contribution, indemnity, or 536-15 otherwise, for a debt or obligation of the partnership incurred 536-16 while the partnership is a registered limited liability 536-17 partnership. 536-18 (c) A partner in a registered limited liability partnership 536-19 is individually liable, in the manner prescribed by Subsection (b), 536-20 for a debt or obligation of the partnership arising from an error, 536-21 an omission, negligence, incompetence, or malfeasance committed 536-22 while the partnership is a registered limited liability partnership 536-23 and in the course of the partnership business by another partner or 536-24 a representative of the partnership who is not working under the 536-25 supervision or direction of the first partner if the first partner: 536-26 (1) was directly involved in the specific activity in 536-27 which the error, omission, negligence, incompetence, or malfeasance 537-1 was committed by the other partner or representative; or 537-2 (2) had notice or knowledge of the error, omission, 537-3 negligence, incompetence, or malfeasance by the other partner or 537-4 representative at the time of occurrence and failed to take 537-5 reasonable action to prevent or cure the error, omission, 537-6 negligence, incompetence, or malfeasance. 537-7 (d) Sections 2.101(a)(1), 152.305, and 152.306 do not limit 537-8 the effect of Subsection (b) with respect to a registered limited 537-9 liability partnership. 537-10 (e) Subsections (b) and (c) do not affect: 537-11 (1) the liability of a partnership to pay its debts 537-12 and obligations from partnership property; 537-13 (2) the liability of a partner, if any, imposed by law 537-14 or contract independently of the partner's status as a partner; or 537-15 (3) the manner in which service of citation or other 537-16 civil process may be served in an action against a partnership. 537-17 (f) This section controls over Chapter 152 and the other 537-18 partnership provisions regarding the liability of partners of a 537-19 registered limited liability partnership, the chargeability of the 537-20 partners for the debts and obligations of the partnership, and the 537-21 obligations of the partners regarding contributions and indemnity. 537-22 Sec. 152.802. REGISTRATION. (a) In addition to complying 537-23 with Sections 152.803 and 152.804, a partnership, to become a 537-24 registered limited liability partnership, must file an application 537-25 with the secretary of state in accordance with Chapter 4. The 537-26 application must: 537-27 (1) set out: 538-1 (A) the name of the partnership; 538-2 (B) the federal tax identification number of the 538-3 partnership; 538-4 (C) the street address of the partnership's 538-5 principal office in this state or outside of this state, as 538-6 applicable; and 538-7 (D) the number of partners at the date of 538-8 application; 538-9 (2) contain a brief statement of the partnership's 538-10 business; and 538-11 (3) be accompanied by the fees required under Chapter 538-12 4. 538-13 (b) The application must be signed by: 538-14 (1) a majority-in-interest of the partners; or 538-15 (2) one or more partners authorized by a 538-16 majority-in-interest of the partners. 538-17 (c) A partnership is registered as a registered limited 538-18 liability partnership by the secretary of state on: 538-19 (1) the date on which a completed initial or renewal 538-20 application is filed in accordance with Chapter 4; or 538-21 (2) a later date specified in the application. 538-22 (d) A registration is not affected by subsequent changes in 538-23 the partners of the partnership. 538-24 (e) The registration of a limited liability partnership is 538-25 effective until the first anniversary of the date of registration 538-26 or a later effective date, unless the application is: 538-27 (1) withdrawn or revoked at an earlier time; or 539-1 (2) renewed in accordance with Subsection (g). 539-2 (f) A registration may be withdrawn by filing a withdrawal 539-3 notice with the secretary of state in accordance with Chapter 4. A 539-4 withdrawal notice terminates the status of the partnership as a 539-5 registered limited liability partnership from the date on which the 539-6 notice is filed or a later date specified in the notice, but not 539-7 later than the expiration date under Subsection (e). A withdrawal 539-8 notice must: 539-9 (1) contain: 539-10 (A) the name of the partnership; 539-11 (B) the federal tax identification number of the 539-12 partnership; 539-13 (C) the date of registration of the 539-14 partnership's last application under this subchapter; and 539-15 (D) the current street address of the 539-16 partnership's principal office in this state and outside this 539-17 state, if applicable; and 539-18 (2) be signed by: 539-19 (A) a majority-in-interest of the partners; or 539-20 (B) one or more partners authorized by a 539-21 majority-in-interest of the partners. 539-22 (g) An effective registration may be renewed before its 539-23 expiration by filing an application with the secretary of state in 539-24 accordance with Chapter 4. A renewal application filed under this 539-25 subsection continues an effective registration for one year after 539-26 the date the registration would otherwise expire. The renewal 539-27 application must: 540-1 (1) contain: 540-2 (A) current information required for an initial 540-3 application; and 540-4 (B) the most recent date of registration of the 540-5 partnership; and 540-6 (2) be accompanied by the fees required under Chapter 540-7 4. 540-8 (h) The secretary of state may remove from its active 540-9 records the registration of a partnership the registration of which 540-10 has: 540-11 (1) been withdrawn or revoked; or 540-12 (2) expired and not been renewed. 540-13 (i) The secretary of state may revoke the filing of a 540-14 document filed under this subchapter if the secretary of state 540-15 determines that the filing fee for the document was paid by an 540-16 instrument that was dishonored when presented by the state for 540-17 payment. The secretary of state shall return the document and give 540-18 notice of revocation to the filing party by regular mail. Failure 540-19 to give or receive notice does not invalidate the revocation. A 540-20 revocation of a filing does not affect an earlier filing. 540-21 (j) The secretary of state is not responsible for 540-22 determining whether a partnership is in compliance with the 540-23 requirements of Section 152.804(a). 540-24 (k) A document filed under this subchapter may be amended by 540-25 filing articles of amendment with the secretary of state in 540-26 accordance with Chapter 4. The articles of amendment must: 540-27 (1) contain: 541-1 (A) the name of the partnership; 541-2 (B) the tax identification number of the 541-3 partnership; 541-4 (C) the identity of the document being amended; 541-5 (D) the date on which the document being amended 541-6 was filed; 541-7 (E) a reference to the part of the document 541-8 being amended; and 541-9 (F) the amendment or correction; 541-10 (2) be accompanied by the fees required under Chapter 541-11 4; and 541-12 (3) be signed by: 541-13 (A) a majority-in-interest of the partners; or 541-14 (B) one or more partners authorized by a 541-15 majority-in-interest of the partners. 541-16 Sec. 152.803. NAME. The name of a registered limited 541-17 liability partnership must contain: 541-18 (1) the words "registered limited liability 541-19 partnership"; or 541-20 (2) the abbreviation "L.L.P." as the last word or 541-21 letters of its name. 541-22 Sec. 152.804. INSURANCE OR FINANCIAL RESPONSIBILITY. (a) A 541-23 registered limited liability partnership must: 541-24 (1) carry at least $100,000 of liability insurance of 541-25 a kind that is designed to cover the kind of error, omission, 541-26 negligence, incompetence, or malfeasance for which liability is 541-27 limited by Section 152.801(c); or 542-1 (2) provide $100,000 specifically designated and 542-2 segregated for the satisfaction of judgments against the 542-3 partnership for the kind of error, omission, negligence, 542-4 incompetence, or malfeasance for which liability is limited by 542-5 Section 152.801(c) by: 542-6 (A) deposit of cash, bank certificates of 542-7 deposit, or United States Treasury obligations in trust or bank 542-8 escrow; 542-9 (B) a bank letter of credit; or 542-10 (C) insurance company bond. 542-11 (b) If the registered limited liability partnership is in 542-12 compliance with Subsection (a), the requirements of this section 542-13 may not be admissible or be made known to the jury in determining 542-14 an issue of liability for or extent of: 542-15 (1) the debt or obligation in question; or 542-16 (2) damages in question. 542-17 (c) If compliance with Subsection (a) is disputed: 542-18 (1) compliance must be determined separately from the 542-19 trial or proceeding to determine: 542-20 (A) the partnership debt or obligation in 542-21 question; 542-22 (B) the amount of the debt or obligation; or 542-23 (C) partner liability for the debt or 542-24 obligation; and 542-25 (2) the burden of proof of compliance is on the person 542-26 claiming limitation of liability under Section 154.801(c). 542-27 Sec. 152.805. APPLICABILITY OF CERTAIN FILING PROVISIONS. 543-1 Chapters 4 and 10 apply to a filing under this chapter with the 543-2 secretary of state. 543-3 Sec. 152.806. LIMITED PARTNERSHIP. A limited partnership 543-4 may become a registered limited liability partnership by complying 543-5 with applicable provisions of Chapter 153. 543-6 (Sections 152.807-152.900 reserved for expansion) 543-7 SUBCHAPTER K. FOREIGN LIMITED LIABILITY PARTNERSHIPS 543-8 Sec. 152.901. GENERAL. (a) A foreign limited liability 543-9 partnership is subject to Section 2.101 with respect to its 543-10 activities in this state to the same extent as a domestic 543-11 registered limited liability partnership. 543-12 (b) A foreign limited liability partnership may not be 543-13 denied a statement of foreign qualification because of a difference 543-14 between the laws of the state under which the partnership is formed 543-15 and the laws of this state. 543-16 Sec. 152.902. NAME. The name of a foreign limited liability 543-17 partnership must: 543-18 (1) satisfy the requirements of the state of 543-19 formation; and 543-20 (2) end with: 543-21 (A) the words "registered limited liability 543-22 partnership" or "limited liability partnership"; or 543-23 (B) the letters "R.L.L.P.," "L.L.P.," or "LLP." 543-24 Sec. 152.903. ACTIVITIES NOT CONSTITUTING TRANSACTING 543-25 BUSINESS. Without excluding other activities that do not 543-26 constitute transacting business in this state, a foreign limited 543-27 liability partnership is not considered to be transacting business 544-1 in this state for purposes of this code because it carries on in 544-2 this state one or more of the activities listed by Section 9.101. 544-3 Sec. 152.904. REGISTERED AGENT. (a) A foreign limited 544-4 liability partnership subject to this chapter shall maintain a 544-5 registered office and registered agent in this state. 544-6 (b) For purposes of a registered office and registered 544-7 agent, a foreign limited liability partnership is subject to 544-8 Sections 5.201 through 5.209 to the same extent as a foreign filing 544-9 entity. 544-10 Sec. 152.905. STATEMENT OF FOREIGN QUALIFICATION. (a) 544-11 Before transacting business in this state, a foreign limited 544-12 liability partnership must file a statement of foreign 544-13 qualification with the secretary of state in accordance with 544-14 Chapter 4. 544-15 (b) The statement must: 544-16 (1) set out: 544-17 (A) the name of the partnership; 544-18 (B) the federal tax identification number of the 544-19 partnership; 544-20 (C) the state in which the partnership is 544-21 formed; 544-22 (D) the date of initial registration as a 544-23 limited liability partnership under the laws of the state of 544-24 formation; 544-25 (E) the street address of the partnership's 544-26 chief executive office and, if different, the street address of any 544-27 other office in this state; 545-1 (F) the address of the registered office and the 545-2 name and address of the registered agent for service of process 545-3 required to be maintained by Section 152.904; and 545-4 (G) the number of partners at the date of the 545-5 statement; 545-6 (2) contain a statement that: 545-7 (A) as of the date of the filing, the 545-8 partnership validly exists as a limited liability partnership under 545-9 the laws of the state of formation; and 545-10 (B) the secretary of state is appointed the 545-11 agent of the partnership for service of process under the 545-12 circumstances set forth by Section 152.904; 545-13 (3) contain a brief statement of the partnership's 545-14 business; and 545-15 (4) be accompanied by the fees required by Chapter 4. 545-16 (c) The statement of qualification must be signed by: 545-17 (1) a majority-in-interest of the partners; or 545-18 (2) one or more partners authorized by a 545-19 majority-in-interest of the partners. 545-20 (d) A partnership is registered as a foreign limited 545-21 liability partnership on: 545-22 (1) the date on which a completed initial or renewal 545-23 statement of foreign qualification is filed with the secretary of 545-24 state in accordance with Chapter 4; or 545-25 (2) a later date specified in the statement. 545-26 (e) A registration is not affected by subsequent changes in 545-27 the partners of the partnership. 546-1 (f) The registration of a foreign limited liability 546-2 partnership is effective until the first anniversary of the date 546-3 after the date of registration or a later effective date, unless 546-4 the statement is: 546-5 (1) withdrawn or revoked at an earlier time; or 546-6 (2) renewed in accordance with Section 152.908. 546-7 Sec. 152.906. WITHDRAWAL OF REGISTRATION. (a) A 546-8 registration may be withdrawn by filing in duplicate with the 546-9 secretary of state a written withdrawal notice. 546-10 (b) A withdrawal notice must: 546-11 (1) contain: 546-12 (A) the name of the partnership; 546-13 (B) the federal tax identification number of the 546-14 partnership; 546-15 (C) the date of registration of the 546-16 partnership's last statement of foreign qualification under this 546-17 section; and 546-18 (D) a current street address of the 546-19 partnership's principal office in this state and outside this 546-20 state, if applicable; and 546-21 (2) be signed by: 546-22 (A) a majority-in-interest of the partners; or 546-23 (B) one or more partners authorized by a 546-24 majority-in-interest of the partners. 546-25 Sec. 152.907. EFFECT OF WITHDRAWAL NOTICE. A withdrawal 546-26 notice terminates the registration of the partnership as a foreign 546-27 limited liability partnership as of the date on which the notice is 547-1 filed or a later date specified in the notice, but not later than 547-2 the expiration date under Section 152.905(f). 547-3 Sec. 152.908. RENEWAL OF REGISTRATION. (a) An effective 547-4 registration may be renewed before its expiration by filing a 547-5 statement of foreign qualification with the secretary of state in 547-6 accordance with Chapter 4. 547-7 (b) The statement must: 547-8 (1) contain: 547-9 (A) current information required for an initial 547-10 statement of qualification; and 547-11 (B) the most recent date of registration of the 547-12 partnership; and 547-13 (2) be accompanied by a $200 fee for each partner in 547-14 this state on the date of renewal, with the aggregate of the fees 547-15 not to exceed $750. 547-16 (c) A renewal statement of foreign qualification filed under 547-17 this section continues an effective registration for one year after 547-18 the date the registration would otherwise expire. 547-19 Sec. 152.909. ACTION BY SECRETARY OF STATE. (a) The 547-20 secretary of state may remove from its active records the 547-21 registration of a foreign limited liability partnership the 547-22 registration of which has: 547-23 (1) been withdrawn or revoked; or 547-24 (2) expired and not been renewed. 547-25 (b) The secretary of state may revoke the filing of a 547-26 document filed under this subchapter if the secretary of state 547-27 determines that the filing fee for the document was paid by an 548-1 instrument that was dishonored when presented by the state for 548-2 payment. The secretary of state shall return the document and give 548-3 notice of revocation to the filing party by regular mail. 548-4 (c) Failure to give or receive notice under Subsection (b) 548-5 does not affect an earlier filing. 548-6 (d) The secretary of state may provide a form for the 548-7 statement of foreign qualification or renewal of registration. 548-8 Sec. 152.910. EFFECT OF FAILURE TO QUALIFY. (a) A foreign 548-9 limited liability partnership that transacts business in this state 548-10 without being registered is subject to Sections 9.011 and 9.012 to 548-11 the same extent as a foreign filing entity. 548-12 (b) A partner of a foreign limited liability partnership is 548-13 not liable for a debt or obligation of the partnership solely 548-14 because the partnership transacted business in this state without 548-15 being registered. 548-16 Sec. 152.911. AMENDMENT. (a) A document filed under this 548-17 subchapter may be amended by filing with the secretary of state 548-18 articles of amendment in accordance with Chapter 4. 548-19 (b) The articles must: 548-20 (1) contain: 548-21 (A) the name of the partnership; 548-22 (B) the tax identification number of the 548-23 partnership; 548-24 (C) the identity of the document being amended; 548-25 (D) a reference to the date on which the 548-26 document being amended was filed; 548-27 (E) the part of the document being amended; and 549-1 (F) the amendment or correction; and 549-2 (2) be accompanied by the fees required under Chapter 4. 549-3 Sec. 152.912. EXECUTION OF APPLICATION FOR AMENDMENT. The 549-4 articles of amendment must be signed by: 549-5 (1) a majority-in-interest of the partners; or 549-6 (2) one or more partners authorized by a 549-7 majority-in-interest of the partners. 549-8 Sec. 152.913. EXECUTION OF STATEMENT OF CHANGE OF REGISTERED 549-9 OFFICE OR REGISTERED AGENT. A statement filed by a foreign limited 549-10 liability partnership in accordance with Section 5.202 must be 549-11 signed by: 549-12 (1) a majority-in-interest of the partners; or 549-13 (2) one or more partners authorized by a 549-14 majority-in-interest of the partners. 549-15 CHAPTER 153. LIMITED PARTNERSHIPS 549-16 SUBCHAPTER A. GENERAL PROVISIONS 549-17 Sec. 153.001. DEFINITION. In this chapter, "other limited 549-18 partnership provisions" means the provisions of Title 1 and 549-19 Chapters 151 and 154, to the extent applicable to limited 549-20 partnerships. 549-21 Sec. 153.002. CONSTRUCTION. (a) This chapter and the other 549-22 limited partnership provisions shall be applied and construed to 549-23 effect its general purpose to make uniform the law with respect to 549-24 limited partnerships among states that have similar laws. 549-25 (b) The rule that a statute in derogation of the common law 549-26 is to be strictly construed does not apply to this chapter and the 549-27 other limited partnership provisions. 550-1 Sec. 153.003. APPLICABILITY OF OTHER LAW. In a case not 550-2 provided for by this chapter and the other limited partnership 550-3 provisions, the applicable provisions of Chapters 152 and 154 550-4 governing partnerships that are not limited partnerships and the 550-5 rules of law and equity govern. 550-6 (Sections 153.004-153.050 reserved for expansion) 550-7 SUBCHAPTER B. SUPPLEMENTAL PROVISIONS REGARDING CERTIFICATE OF 550-8 FORMATION AND AMENDMENT TO CERTIFICATE 550-9 Sec. 153.051. CERTIFICATE OF FORMATION. (a) To form a 550-10 limited partnership, the partners must enter into a partnership 550-11 agreement and file a certificate of formation as provided by 550-12 Chapter 3 and this section. 550-13 (b) The partners of a limited partnership agreement formed 550-14 under Section 10.001 or 10.101 may include the partnership 550-15 agreement required under Subsection (a) in the plan of merger or 550-16 conversion. 550-17 (c) A certificate of formation for a limited partnership 550-18 must include the address of the principal office of the partnership 550-19 in the United States where records are to be kept or made available 550-20 under Section 153.551. 550-21 (d) The fact that a certificate of formation is on file with 550-22 the secretary of state is notice that the partnership is a limited 550-23 partnership and of all other facts contained in the certificate as 550-24 required by Section 3.005. 550-25 Sec. 153.052. REQUIRED AMENDMENT TO CERTIFICATE OF 550-26 FORMATION. (a) A general partner shall file a certificate of 550-27 amendment reflecting the occurrence of one or more of the following 551-1 events not later than the 30th day after the date on which the 551-2 event occurred: 551-3 (1) the admission of a new general partner; 551-4 (2) the withdrawal of a general partner; 551-5 (3) a change in the name of the limited partnership; 551-6 or 551-7 (4) except as provided by Section 5.03, a change in: 551-8 (A) the address of the registered office; or 551-9 (B) the name or address of the registered agent 551-10 of the limited partnership. 551-11 (b) A general partner who becomes aware that a statement in 551-12 a certificate of formation was false when made or that a matter 551-13 described in the certificate has changed, making the certificate 551-14 false in any material respect, shall promptly amend the certificate 551-15 to make it accurate. 551-16 Sec. 153.053. DISCRETIONARY AMENDMENT TO CERTIFICATE OF 551-17 FORMATION. (a) A certificate of formation may be amended at any 551-18 time for a proper purpose as determined by the general partners. 551-19 (b) A certificate of formation may be amended to state the 551-20 name, mailing address, and street address of the business or 551-21 residence of each person winding up the limited partnership's 551-22 affairs if, after an event requiring the winding up of a limited 551-23 partnership but before the limited partnership is reconstituted or 551-24 a certificate of cancellation is filed as provided by Section 551-25 153.451: 551-26 (1) the certificate of formation has been amended to 551-27 reflect the withdrawal of all general partners; or 552-1 (2) a person who is not shown on the certificate of 552-2 formation as a general partner is carrying out the winding up of a 552-3 limited partnership's affairs. 552-4 (c) If the certificate of formation is amended under 552-5 Subsection (b), each person winding up the limited partnership's 552-6 affairs shall execute and file the certificate of amendment. A 552-7 person winding up the partnership's affairs is not subject to 552-8 liability as a general partner because of the filing of the 552-9 certificate of amendment. 552-10 (d) A general partner who is not winding up the limited 552-11 partnership's affairs is not required to execute and file a 552-12 certificate of amendment as provided by this section. 552-13 (Sections 153.054-153.100 reserved for expansion) 552-14 SUBCHAPTER C. LIMITED PARTNERS 552-15 Sec. 153.101. ADMISSION OF LIMITED PARTNERS. (a) In 552-16 connection with the formation of a limited partnership, a person 552-17 acquiring a limited partnership interest becomes a limited partner 552-18 on the later of: 552-19 (1) the date on which the limited partnership is 552-20 formed; or 552-21 (2) the date stated in the records of the limited 552-22 partnership as the date on which the person becomes a limited 552-23 partner or, if that date is not stated in those records, the date 552-24 on which the person's admission is first reflected in the records 552-25 of the limited partnership. 552-26 (b) After a limited partnership is formed, a person who 552-27 acquires a partnership interest directly from the limited 553-1 partnership becomes a new limited partner on: 553-2 (1) compliance with the provisions of the partnership 553-3 agreement governing admission of new limited partners; or 553-4 (2) if the partnership agreement does not contain 553-5 relevant admission provisions, the written consent of all partners. 553-6 (c) After formation of a limited partnership, an assignee of 553-7 a partnership interest becomes a new limited partner as provided by 553-8 Section 153.253(a). 553-9 (d) A person may be a limited partner unless the person 553-10 lacks capacity apart from this chapter. 553-11 Sec. 153.102. LIABILITY TO THIRD PARTIES. (a) Except as 553-12 provided by Subsection (c), a limited partner is not liable for the 553-13 obligations of a limited partnership unless: 553-14 (1) the limited partner is also a general partner; or 553-15 (2) in addition to the exercise of the limited 553-16 partner's rights and powers as a limited partner, the limited 553-17 partner participates in the control of the business. 553-18 (b) If the limited partner participates in the control of 553-19 the business, the limited partner is liable only to a person who 553-20 transacts business with the limited partnership reasonably 553-21 believing, based on the limited partner's conduct, that the limited 553-22 partner is a general partner. 553-23 (c) A limited partner who knowingly permits the limited 553-24 partner's name to be used in the name of the limited partnership, 553-25 except under a circumstance permitted by Section 5.055(c), is 553-26 liable to a creditor who extends credit to the limited partnership 553-27 without actual knowledge that the limited partner is not a general 554-1 partner. 554-2 Sec. 153.103. ACTIONS NOT CONSTITUTING PARTICIPATION IN 554-3 BUSINESS FOR LIABILITY PURPOSES. For purposes of this section and 554-4 Sections 153.102, 153.104, and 153.105, a limited partner does not 554-5 participate in the control of the business because the limited 554-6 partner has or has acted in one or more of the following capacities 554-7 or possesses or exercises one or more of the following powers: 554-8 (1) acting as a contractor for or an agent or employee 554-9 of: 554-10 (A) the limited partnership; 554-11 (B) a general partner; 554-12 (C) an officer, director, or stockholder of a 554-13 corporate general partner; 554-14 (D) a partner of a partnership that is a general 554-15 partner of the limited partnership; or 554-16 (E) a member or manager of a limited liability 554-17 company that is a general partner of the limited partnership; 554-18 (2) acting in a capacity similar to that described in 554-19 Subdivision (1) with any other person that is a general partner of 554-20 the limited partnership; 554-21 (3) consulting with or advising a general partner on 554-22 any matter, including the business of the limited partnership; 554-23 (4) acting as surety, guarantor, or endorser for the 554-24 limited partnership, guaranteeing or assuming one or more specific 554-25 obligations of the limited partnership, or providing collateral for 554-26 borrowings of the limited partnership; 554-27 (5) calling, requesting, attending, or participating 555-1 in a meeting of the partners or the limited partners; 555-2 (6) winding up the business of a limited partnership 555-3 under Sections 153.504-153.506; 555-4 (7) taking an action required or permitted by law to 555-5 bring, pursue, settle, or otherwise terminate a derivative action 555-6 in the right of the limited partnership; 555-7 (8) serving on a committee of the limited partnership 555-8 or the limited partners; or 555-9 (9) proposing, approving, or disapproving, by vote or 555-10 otherwise: 555-11 (A) the winding up of the limited partnership; 555-12 (B) an election to reconstitute or continue the 555-13 business of the limited partnership; 555-14 (C) the sale, exchange, lease, mortgage, 555-15 assignment, pledge, or other transfer of, or granting of a security 555-16 interest in, an asset of the limited partnership; 555-17 (D) the incurring, renewal, refinancing, or 555-18 payment or other discharge of indebtedness by the limited 555-19 partnership; 555-20 (E) a change in the nature of the business of 555-21 the limited partnership; 555-22 (F) the admission, removal, or retention of a 555-23 general partner; 555-24 (G) the admission, removal, or retention of a 555-25 limited partner; 555-26 (H) a transaction or other matter involving an 555-27 actual or potential conflict of interest; 556-1 (I) an amendment to the partnership agreement or 556-2 certificate of formation; 556-3 (J) if the limited partnership is qualified as 556-4 an investment company under the federal Investment Company Act of 556-5 1940 (15 U.S.C. Section 80a-1 et seq.), as amended, any matter 556-6 required by that Act or the rules and regulations of the Securities 556-7 and Exchange Commission under that Act, to be approved by the 556-8 holders of beneficial interests in an investment company, 556-9 including: 556-10 (i) electing directors or trustees of the 556-11 investment company; 556-12 (ii) approving or terminating an 556-13 investment advisory or underwriting contract; 556-14 (iii) approving an auditor; and 556-15 (iv) acting on another matter that that 556-16 Act requires to be approved by the holders of beneficial interests 556-17 in the investment company; 556-18 (K) indemnification of a general partner under 556-19 Chapter 8; 556-20 (L) any other matter stated in the partnership 556-21 agreement; 556-22 (M) the exercising of a right or power granted 556-23 or permitted to limited partners under this code and not 556-24 specifically enumerated in this subsection; or 556-25 (N) the merger or conversion of a limited 556-26 partnership. 556-27 Sec. 153.104. ENUMERATION OF ACTIONS NOT EXCLUSIVE. The 557-1 enumeration in Section 153.103 does not mean that a limited partner 557-2 who has acted or acts in another capacity or possesses or exercises 557-3 another power constitutes participation by that limited partner in 557-4 the control of the business of the limited partnership. 557-5 Sec. 153.105. CREATION OF RIGHTS. Sections 153.102(c), 557-6 153.103, and 153.104 do not create rights of limited partners. 557-7 Rights of limited partners may be created only by: 557-8 (1) the certificate of formation; 557-9 (2) the partnership agreement; 557-10 (3) other sections of this chapter; or 557-11 (4) the other limited partnership provisions. 557-12 Sec. 153.106. ERRONEOUS BELIEF OF CONTRIBUTOR BEING LIMITED 557-13 PARTNER. Except as provided by Section 153.109, a person who 557-14 erroneously but in good faith believes that the person has made a 557-15 contribution to and has become a limited partner in a limited 557-16 partnership is not liable as a general partner or otherwise 557-17 obligated because of making or attempting to make the contribution, 557-18 receiving distributions from the partnership, or exercising the 557-19 rights of a limited partner if, within a reasonable time after 557-20 ascertaining the mistake, the person: 557-21 (1) causes an appropriate certificate of formation or 557-22 certificate of amendment to be signed and filed; 557-23 (2) files or causes to be filed with the secretary of 557-24 state a statement in accordance with Section 153.107; or 557-25 (3) withdraws from participation in future profits of 557-26 the enterprise by executing and filing with the secretary of state 557-27 a certificate declaring the person's withdrawal under this section, 558-1 Section 153.102, and Sections 153.107-153.109. 558-2 Sec. 153.107. STATEMENT REQUIRED FOR LIABILITY PROTECTION. 558-3 (a) A statement filed under Section 153.106(2) must be entitled 558-4 "Filing under Section 153.106(2), Business Organizations Code," and 558-5 contain: 558-6 (1) the name of the partnership; 558-7 (2) the name and mailing address of the person signing 558-8 the statement; and 558-9 (3) a statement that: 558-10 (A) the person signing the statement acquired a 558-11 limited partnership interest in the partnership; 558-12 (B) the person signing the statement has made an 558-13 effort to cause a general partner of the partnership to file an 558-14 accurate certificate of formation required by the code and the 558-15 general partner has failed or refused to file the certificate; and 558-16 (C) the statement is being filed under Section 558-17 153.106(2) and the person signing the statement is claiming status 558-18 as a limited partner of the partnership named in the document. 558-19 (b) The statement is effective for 180 days. 558-20 (c) A statement filed under Section 153.106(2) may be signed 558-21 by more than one person claiming limited partnership status under 558-22 this section and Sections 153.106, 153.108, and 153.109. 558-23 Sec. 153.108. REQUIREMENTS FOR LIABILITY PROTECTION 558-24 FOLLOWING EXPIRATION OF STATEMENT. (a) If a certificate described 558-25 by Section 153.106(1) has not been filed before the expiration of 558-26 the 180-day period described by Section 153.107(b), the person 558-27 filing the statement has no further protection from liability under 559-1 Section 153.106(2). To be protected under Section 153.106 the 559-2 person must, not later than the 10th day after the date of 559-3 expiration of the 180-day period: 559-4 (1) withdraw under Section 153.106(3); or 559-5 (2) bring an action under Section 153.554 to compel 559-6 the execution and filing of a certificate of formation or 559-7 amendment. 559-8 (b) If an action is brought within the applicable period and 559-9 is diligently prosecuted to conclusion, the person bringing the 559-10 action continues to be protected from liability under Section 559-11 153.106(2) until the action is finally decided adversely to that 559-12 person. 559-13 (c) This section and Sections 153.102, 153.106, 153.107, and 559-14 153.109 do not protect a person from liability that arises under 559-15 Sections 153.102-153.105. 559-16 Sec. 153.109. LIABILITY OF ERRONEOUS CONTRIBUTOR. 559-17 Regardless of whether Sections 153.107 and 153.108 apply, a person 559-18 who makes a contribution in the circumstances described by Section 559-19 153.107(a) is liable as a general partner to a third party who 559-20 transacts business with the partnership before an action taken 559-21 under Section 153.107(a) if: 559-22 (1) the contributor has knowledge or notice that no 559-23 certificate has been filed or that the certificate inaccurately 559-24 referred to the contributor as a general partner; and 559-25 (2) the third party reasonably believed, based on the 559-26 contributor's conduct, that the contributor was a general partner 559-27 at the time of the transaction and extended credit to the 560-1 partnership in reasonable reliance on the credit of the 560-2 contributor. 560-3 Sec. 153.110. WITHDRAWAL OF LIMITED PARTNER. A limited 560-4 partner may withdraw from a limited partnership on the occurrence 560-5 of an event specified in a written partnership agreement. The 560-6 withdrawal of the partner must be made in accordance with that 560-7 agreement. 560-8 Sec. 153.111. DISTRIBUTION ON WITHDRAWAL. Except as 560-9 otherwise provided by this section and Sections 153.105, 153.110, 560-10 153.112, 153.157-153.162, 153.207, 153.209, and 153.210 or the 560-11 partnership agreement, on withdrawal a withdrawing limited partner 560-12 is entitled to receive, not later than a reasonable time after 560-13 withdrawal, the fair value of that limited partner's interest in 560-14 the limited partnership as of the date of withdrawal. 560-15 Sec. 153.112. RECEIPT OF WRONGFUL DISTRIBUTION. A limited 560-16 partner who receives a distribution that is not permitted under 560-17 Section 153.210 is not required to return the distribution unless 560-18 the limited partner knew that the distribution violated the 560-19 prohibition of Section 153.210. This subsection does not affect an 560-20 obligation of the limited partner under the partnership agreement 560-21 or other applicable law to return the distribution. 560-22 Sec. 153.113. POWERS OF ESTATE OF LIMITED PARTNER WHO IS 560-23 DECEASED OR INCAPACITATED. If a limited partner who is an 560-24 individual dies or a court adjudges the limited partner to be 560-25 incapacitated in managing the limited partner's person or property, 560-26 the limited partner's executor, administrator, guardian, 560-27 conservator, or other legal representative may exercise all of the 561-1 limited partner's rights and powers to settle the limited partner's 561-2 estate or administer the limited partner's property, including the 561-3 power of an assignee to become a limited partner under the 561-4 partnership agreement. 561-5 (Sections 153.114-153.150 reserved for expansion) 561-6 SUBCHAPTER D. GENERAL PARTNERS 561-7 Sec. 153.151. ADMISSION OF ADDITIONAL GENERAL PARTNERS. 561-8 (a) After a limited partnership is formed, additional general 561-9 partners may be admitted: 561-10 (1) in the manner provided by a written partnership 561-11 agreement; or 561-12 (2) if a written partnership agreement does not 561-13 provide for the admission of additional general partners, with the 561-14 written consent of all partners. 561-15 (b) A person may be a general partner unless the person 561-16 lacks capacity apart from this chapter. 561-17 Sec. 153.152. GENERAL POWERS AND LIABILITIES OF GENERAL 561-18 PARTNER. (a) Except as provided by this chapter, the other 561-19 limited partnership provisions, or a partnership agreement, a 561-20 general partner of a limited partnership: 561-21 (1) has the rights and powers and is subject to the 561-22 restrictions of a partner in a partnership without limited 561-23 partners; and 561-24 (2) has the liabilities of a partner in a partnership 561-25 without limited partners to the partnership and to the other 561-26 partners. 561-27 (b) Except as provided by this chapter or the other limited 562-1 partnership provisions, a general partner of a limited partnership 562-2 has the liabilities of a partner in a partnership without limited 562-3 partners to a person other than the partnership and the other 562-4 partners. 562-5 Sec. 153.153. POWERS AND LIABILITIES OF PERSON WHO IS BOTH 562-6 GENERAL PARTNER AND LIMITED PARTNER. A person who is both a 562-7 general partner and a limited partner: 562-8 (1) has the rights and powers and is subject to the 562-9 restrictions and liabilities of a general partner; and 562-10 (2) except as otherwise provided by the partnership 562-11 agreement, this chapter, or the other limited partnership 562-12 provisions, has the rights and powers and is subject to the 562-13 restrictions and liabilities, if any, of a limited partner to the 562-14 extent of the general partner's participation in the partnership as 562-15 a limited partner. 562-16 Sec. 153.154. CONTRIBUTIONS BY AND DISTRIBUTIONS TO GENERAL 562-17 PARTNER. A general partner of a limited partnership may make a 562-18 contribution to, be allocated profits and losses of, and receive a 562-19 distribution from the limited partnership as a general partner, a 562-20 limited partner, or both. 562-21 Sec. 153.155. WITHDRAWAL OF GENERAL PARTNER. (a) A person 562-22 ceases to be a general partner of a limited partnership on the 562-23 occurrence of one or more of the following events of withdrawal: 562-24 (1) the general partner withdraws as a general partner 562-25 from the limited partnership as provided by Sections 562-26 153.157-153.162; 562-27 (2) the general partner ceases to be a general partner 563-1 of the limited partnership as provided by Section 153.251; 563-2 (3) the general partner is removed as a general 563-3 partner in accordance with the partnership agreement; 563-4 (4) unless otherwise provided by a written partnership 563-5 agreement, or with the written consent of all partners, the general 563-6 partner: 563-7 (A) makes a general assignment for the benefit 563-8 of creditors; 563-9 (B) files a voluntary bankruptcy petition; 563-10 (C) becomes the subject of an order for relief 563-11 or is declared insolvent in a federal or state bankruptcy or 563-12 insolvency proceeding; 563-13 (D) files a petition or answer seeking for the 563-14 general partner a reorganization, arrangement, composition, 563-15 readjustment, liquidation, dissolution, or similar relief under 563-16 law; 563-17 (E) files a pleading admitting or failing to 563-18 contest the material allegations of a petition filed against the 563-19 general partner in a proceeding of the type described by Paragraphs 563-20 (A)-(D); or 563-21 (F) seeks, consents to, or acquiesces in the 563-22 appointment of a trustee, receiver, or liquidator of the general 563-23 partner or of all or a substantial part of the general partner's 563-24 properties; 563-25 (5) unless otherwise provided by a written partnership 563-26 agreement or with the written consent of all partners, the 563-27 expiration of: 564-1 (A) 120 days after the date of the commencement 564-2 of a proceeding against the general partner seeking reorganization, 564-3 arrangement, composition, readjustment, liquidation, dissolution, 564-4 or similar relief under law if the proceeding has not been 564-5 previously dismissed; 564-6 (B) 90 days after the date of the appointment, 564-7 without the general partner's consent, of a trustee, receiver, or 564-8 liquidator of the general partner or of all or a substantial part 564-9 of the general partner's properties if the appointment has not 564-10 previously been vacated or stayed; or 564-11 (C) 90 days after the date of expiration of a 564-12 stay, if the appointment has not previously been vacated; 564-13 (6) the death of a general partner; 564-14 (7) a court adjudicating a general partner who is an 564-15 individual mentally incompetent to manage the general partner's 564-16 person or property; 564-17 (8) unless otherwise provided by a written partnership 564-18 agreement or with the written consent of all partners, the 564-19 commencement of winding up activities intended to conclude in the 564-20 termination of a trust that is a general partner, but not merely 564-21 the substitution of a new trustee; 564-22 (9) unless otherwise provided by a written partnership 564-23 agreement or with the written consent of all partners, the 564-24 commencement of winding up activities of a separate partnership 564-25 that is a general partner; 564-26 (10) unless otherwise provided by a written 564-27 partnership agreement or with the written consent of all partners, 565-1 the: 565-2 (A) filing of a certificate of termination or 565-3 its equivalent for an entity, other than a nonfiling entity or a 565-4 foreign nonfiling entity, that is a general partner; or 565-5 (B) revocation of the charter of an entity, 565-6 other than a nonfiling entity or a foreign nonfiling entity, that 565-7 is a general partner and the expiration of 90 days after the date 565-8 of notice to the entity of revocation without a reinstatement of 565-9 its charter; or 565-10 (11) the distribution by the fiduciary of an estate 565-11 that is a general partner of the estate's entire interest in the 565-12 limited partnership. 565-13 (b) A general partner may withdraw at any time from a 565-14 limited partnership and cease to be a general partner under 565-15 Subsection (a) by giving written notice to the other partners. 565-16 Sec. 153.156. NOTICE OF EVENT OF WITHDRAWAL. A general 565-17 partner who is subject to an event that with the passage of the 565-18 specified period becomes an event of withdrawal under Section 565-19 153.155(a)(4) or (5) shall notify the other partners of the event 565-20 not later than the 30th day after the date on which the event 565-21 occurred. 565-22 Sec. 153.157. WITHDRAWAL OF GENERAL PARTNER IN VIOLATION OF 565-23 PARTNERSHIP AGREEMENT. Unless otherwise provided by the 565-24 partnership agreement, a withdrawal by a general partner of a 565-25 partnership for a definite term or particular undertaking before 565-26 the expiration of that term or completion of that undertaking is a 565-27 breach of the partnership agreement. 566-1 Sec. 153.158. EFFECT OF WITHDRAWAL. (a) Unless otherwise 566-2 provided by a written partnership agreement and subject to the 566-3 liability created under Section 153.162, if a general partner 566-4 ceases to be a general partner under Section 153.155, the remaining 566-5 general partner or partners, or, if there are no remaining general 566-6 partners, a majority-in-interest of the limited partners in a vote 566-7 that excludes any limited partnership interest held by the 566-8 withdrawing general partner, may: 566-9 (1) convert that general partner's partnership 566-10 interest to that of a limited partner; or 566-11 (2) pay to the withdrawn general partner in cash, or 566-12 secure by bond approved by a court of competent jurisdiction, the 566-13 value of that partner's partnership interest minus the damages 566-14 caused if the withdrawal constituted a breach of the partnership 566-15 agreement. 566-16 (b) Until an action described by Subsection (a) is taken, 566-17 the owner of the partnership interest of the withdrawn general 566-18 partner has the status of an assignee under Subchapter F, Section 566-19 153.113, and Section 153.555. 566-20 (c) If there are no remaining general partners following the 566-21 withdrawal of a general partner, the partnership may be 566-22 reconstituted. 566-23 Sec. 153.159. CONVERSION OF PARTNERSHIP INTEREST AFTER 566-24 WITHDRAWAL. If the partners convert the partnership interest under 566-25 Section 153.158(a)(1), the limited partnership interest may be 566-26 reduced pro rata with all other partners to provide compensation, 566-27 an interest in the partnership, or both, to a replacement general 567-1 partner. 567-2 Sec. 153.160. EFFECT OF CONVERSION OF PARTNERSHIP INTEREST. 567-3 (a) After an amendment to the certificate of formation reflecting 567-4 the general partner's withdrawal as a general partner is filed 567-5 under Section 153.052, the withdrawing general partner: 567-6 (1) may vote as a limited partner in all matters, to 567-7 the same extent as the members of the class of limited partners 567-8 having the least voting rights with respect to the matter on which 567-9 the vote is taken; and 567-10 (2) may not vote on the admission and compensation of 567-11 a general partner who replaces the withdrawing general partner. 567-12 (b) If the general partner's withdrawal violates the 567-13 partnership agreement, the general partner does not have voting 567-14 rights. 567-15 Sec. 153.161. LIABILITY OF GENERAL PARTNER FOR EVENT OF 567-16 WITHDRAWAL. (a) Unless otherwise provided by a written 567-17 partnership agreement and subject to the liability created under 567-18 Section 153.157, a general partner who ceases to be a general 567-19 partner under Section 153.155 is not personally liable in the 567-20 partner's capacity as a general partner for partnership debt 567-21 incurred after that partner ceases to be a general partner unless 567-22 the applicable creditor at the time the debt was incurred 567-23 reasonably believed that the partner remained a general partner. 567-24 (b) A creditor of the partnership has reason to believe that 567-25 a partner remains a general partner if: 567-26 (1) the creditor was: 567-27 (A) a creditor of the partnership at the time of 568-1 the general partner's withdrawal; or 568-2 (B) had extended credit to the partnership 568-3 within two years before the date of withdrawal and had no knowledge 568-4 or notice of the general partner's withdrawal; or 568-5 (2) the creditor had known that the partner was a 568-6 general partner in the partnership before the general partner's 568-7 withdrawal and had no knowledge or notice of the withdrawal and the 568-8 general partner's withdrawal had not been advertised in a 568-9 newspaper of general circulation in each place at which the 568-10 partnership business was regularly conducted. 568-11 Sec. 153.162. LIABILITY FOR WRONGFUL WITHDRAWAL. (a) If a 568-12 general partner's withdrawal from a limited partnership violates 568-13 the partnership agreement, the partnership may recover damages from 568-14 the withdrawing general partner for breach of the partnership 568-15 agreement, including the reasonable cost of obtaining replacement 568-16 of the services the withdrawn partner was obligated to perform. 568-17 (b) In addition to pursuing any remedy available under 568-18 applicable law, the partnership may effect the recovery of damages 568-19 under Subsection (a) by offsetting those damages against the amount 568-20 otherwise distributable to the withdrawing general partner, 568-21 reducing the limited partner interest into which the withdrawing 568-22 general partner's interest may be converted under Section 568-23 153.158(a)(1), or both. 568-24 (Sections 153.163-153.200 reserved for expansion) 568-25 SUBCHAPTER E. FINANCES 568-26 Sec. 153.201. FORM OF CONTRIBUTION. The contribution of a 568-27 limited partner may consist of a tangible or intangible benefit to 569-1 the limited partnership or other property of any kind or nature, 569-2 including: 569-3 (1) cash; 569-4 (2) a promissory note; 569-5 (3) services performed; 569-6 (4) a contract for services to be performed; and 569-7 (5) another interest in or security of the limited 569-8 partnership, another domestic or foreign limited partnership, or 569-9 other entity. 569-10 Sec. 153.202. ENFORCEABILITY OF PROMISE TO MAKE 569-11 CONTRIBUTION. (a) A promise by a limited partner to make a 569-12 contribution to, or pay cash or transfer other property to, a 569-13 limited partnership is not enforceable unless the promise is in 569-14 writing and signed by the limited partner. 569-15 (b) Except as otherwise provided by the partnership 569-16 agreement, a partner or the partner's legal representative or 569-17 successor is obligated to the limited partnership to perform an 569-18 enforceable promise to make a contribution to or pay cash or 569-19 transfer other property to a limited partnership, notwithstanding 569-20 the partner's death, disability, or other change in circumstances. 569-21 (c) If a partner or a partner's legal representative or 569-22 successor does not make a contribution or other payment of cash or 569-23 transfer of other property required by the enforceable promise, 569-24 whether as a contribution or with respect to a contribution 569-25 previously made, that partner or the partner's legal representative 569-26 or successor is obligated, at the option of the limited 569-27 partnership, to pay to the partnership an amount of cash equal to 570-1 the portion of the agreed value, as stated in the partnership 570-2 agreement or in the partnership records required to be kept under 570-3 Sections 153.551 and 153.552, of the contribution represented by 570-4 the amount of cash that has not been paid or the value of the 570-5 property that has not been transferred. 570-6 (d) A partnership agreement may provide that the partnership 570-7 interest of a partner who fails to make a payment of cash or 570-8 transfer of other property to the partnership, whether as a 570-9 contribution or with respect to a contribution previously made, 570-10 required by an enforceable promise is subject to specified 570-11 consequences, which may include: 570-12 (1) a reduction of the defaulting partner's percentage 570-13 or other interest in the limited partnership; 570-14 (2) subordination of the partner's partnership 570-15 interest to the interest of nondefaulting partners; 570-16 (3) a forced sale of the partner's partnership 570-17 interest; 570-18 (4) forfeiture of the partner's partnership interest; 570-19 (5) the lending of money to the defaulting partner by 570-20 other partners of the amount necessary to meet the defaulting 570-21 partner's commitment; 570-22 (6) a determination of the value of the defaulting 570-23 partner's partnership interest by appraisal or by formula and 570-24 redemption or sale of the partnership interest at that value; or 570-25 (7) another penalty or consequence. 570-26 Sec. 153.203. RELEASE OF OBLIGATION TO PARTNERSHIP. Unless 570-27 otherwise provided by the partnership agreement, the obligation of 571-1 a partner or the legal representative or successor of a partner to 571-2 make a contribution, pay cash, transfer other property, or return 571-3 cash or property paid or distributed to the partner in violation of 571-4 this chapter or the partnership agreement may be compromised or 571-5 released only by consent of all of the partners. 571-6 Sec. 153.204. ENFORCEABILITY OF OBLIGATION. (a) 571-7 Notwithstanding a compromise or release under Section 153.203, a 571-8 creditor of a limited partnership who extends credit or otherwise 571-9 acts in reasonable reliance on an obligation described by Section 571-10 153.203 may enforce the original obligation if: 571-11 (1) the obligation is reflected in a document signed 571-12 by the partner; and 571-13 (2) the document is not amended or canceled to reflect 571-14 the compromise or release. 571-15 (b) Notwithstanding the compromise or release, a general 571-16 partner remains liable to persons other than the partnership and 571-17 the other partners, as provided by Sections 153.152(a)(2) and 571-18 153.152(b). 571-19 Sec. 153.205. ENFORCEABILITY OF CONDITIONAL OBLIGATION. 571-20 (a) A conditional obligation may not be enforced unless the 571-21 conditions of the obligation have been satisfied or waived as to or 571-22 by the applicable limited partner. 571-23 (b) A conditional obligation includes a contribution payable 571-24 on a discretionary call of a limited partnership before the time 571-25 the call occurs. 571-26 Sec. 153.206. ALLOCATION OF PROFITS AND LOSSES. (a) The 571-27 profits and losses of a limited partnership shall be allocated 572-1 among the partners in the manner provided by a written partnership 572-2 agreement. 572-3 (b) If a written partnership agreement does not provide for 572-4 the allocation of profits and losses, the profits and losses shall 572-5 be allocated: 572-6 (1) in accordance with the current percentage or other 572-7 interest in the partnership stated in partnership records of the 572-8 kind described by Section 153.551(a); or 572-9 (2) if the allocation of profits and losses is not 572-10 provided for in partnership records of the kind described by 572-11 Section 153.551(a), in proportion to capital accounts. 572-12 Sec. 153.207. RIGHT TO DISTRIBUTION. Subject to Sections 572-13 153.112, 153.210, and 153.506, when a partner becomes entitled to 572-14 receive a distribution, the partner has with respect to the 572-15 distribution the status of and is entitled to all remedies 572-16 available to a creditor of the limited partnership. 572-17 Sec. 153.208. SHARING OF DISTRIBUTIONS. (a) A distribution 572-18 of cash or another asset of a limited partnership shall be made to 572-19 a partner in the manner provided by a written partnership 572-20 agreement. 572-21 (b) If a written partnership agreement does not provide 572-22 otherwise, a distribution that is a return of capital shall be made 572-23 on the basis of the agreed value, as stated in the partnership 572-24 records required to be maintained under Section 153.551(a), of the 572-25 contribution made by each partner to the extent that the 572-26 contribution has not been returned. A distribution that is not a 572-27 return of capital shall be made in proportion to the allocation of 573-1 profits as determined under Section 153.206. 573-2 (c) Unless otherwise defined by a written partnership 573-3 agreement, in this section, "return of capital" means a 573-4 distribution to a partner to the extent that the partner's capital 573-5 account, immediately after the distribution, is less than the 573-6 amount of that partner's contribution to the partnership as reduced 573-7 by a prior distribution that was a return of capital. 573-8 Sec. 153.209. INTERIM DISTRIBUTIONS. Except as otherwise 573-9 provided by this section and Sections 153.105, 153.110-153.112, 573-10 153.157-153.162, 153.207, and 153.210, a partner is entitled to 573-11 receive a distribution from a limited partnership to the extent and 573-12 at the time or on the occurrence of an event specified in the 573-13 partnership agreement before: 573-14 (1) the partner withdraws from the partnership; and 573-15 (2) the winding up of the partnership business. 573-16 Sec. 153.210. LIMITATION ON DISTRIBUTION. A limited 573-17 partnership may not make a distribution to a partner if immediately 573-18 after giving effect to the distribution and despite any compromise 573-19 of a claim referred to by Sections 153.203 and 153.204, all 573-20 liabilities of the limited partnership, other than liabilities to 573-21 partners with respect to their partnership interests and 573-22 liabilities for which the recourse of creditors is limited to 573-23 specified property of the limited partnership, exceed the fair 573-24 value of the partnership assets. The fair value of property that 573-25 is subject to a liability for which recourse of creditors is 573-26 limited shall be included in the partnership assets for purposes of 573-27 this subsection only to the extent that the fair value of that 574-1 property exceeds that liability. 574-2 (Sections 153.211-153.250 reserved for expansion) 574-3 SUBCHAPTER F. PARTNERSHIP INTEREST 574-4 Sec. 153.251. ASSIGNMENT OF PARTNERSHIP INTEREST. 574-5 (a) Except as otherwise provided by the partnership agreement, a 574-6 partnership interest is assignable wholly or partly. 574-7 (b) Except as otherwise provided by the partnership 574-8 agreement, an assignment of a partnership interest: 574-9 (1) does not dissolve a limited partnership; 574-10 (2) does not entitle the assignee to become, or to 574-11 exercise rights or powers of, a partner; and 574-12 (3) entitles the assignee to be allocated income, 574-13 gain, loss, deduction, credit, or similar items and to receive 574-14 distributions to which the assignor was entitled to the extent 574-15 those items are assigned. 574-16 Sec. 153.252. RIGHTS OF ASSIGNOR. (a) Except as otherwise 574-17 provided by the partnership agreement, until the assignee becomes a 574-18 partner, the assignor partner continues to be a partner in the 574-19 partnership. The assignor partner may exercise any rights or 574-20 powers of a partner, except to the extent those rights or powers 574-21 are assigned. 574-22 (b) Except as otherwise provided by the partnership 574-23 agreement, on the assignment by a general partner of all of the 574-24 general partner's rights as a general partner, the general 574-25 partner's status as a general partner may be terminated by the 574-26 affirmative vote of a majority-in-interest of the limited partners. 574-27 Sec. 153.253. RIGHTS OF ASSIGNEE. (a) An assignee of a 575-1 partnership interest, including the partnership interest of a 575-2 general partner, may become a limited partner if and to the extent 575-3 that: 575-4 (1) the partnership agreement provides; or 575-5 (2) all partners consent. 575-6 (b) An assignee who becomes a limited partner, to the extent 575-7 of the rights and powers assigned, has the rights and powers and is 575-8 subject to the restrictions and liabilities of a limited partner 575-9 under a partnership agreement and this code. 575-10 Sec. 153.254. LIABILITY OF ASSIGNEE. (a) Until an assignee 575-11 of the partnership interest in a limited partnership becomes a 575-12 partner, the assignee does not have liability as a partner solely 575-13 as a result of the assignment. 575-14 (b) Unless otherwise provided by a written partnership 575-15 agreement, an assignee who becomes a limited partner: 575-16 (1) is liable for the obligations of the assignor to 575-17 make contributions as provided by Sections 153.202-153.204; 575-18 (2) is not obligated for liabilities unknown to the 575-19 assignee at the time the assignee became a limited partner and 575-20 that could not be ascertained from a written partnership agreement; 575-21 and 575-22 (3) is not liable for the obligations of the assignor 575-23 under Sections 153.105, 153.110-153.112, 153.157-153.162, 153.207, 575-24 153.209, and 153.210. 575-25 Sec. 153.255. LIABILITY OF ASSIGNOR. Regardless of whether 575-26 an assignee of a partnership interest becomes a limited partner, 575-27 the assignor is not released from the assignor's liability to the 576-1 limited partnership under Subchapter E and Sections 153.105, 576-2 153.110-153.112, 153.157-153.162, 153.207, 153.209, and 153.210. 576-3 Sec. 153.256. CHARGE IN PAYMENT OF JUDGMENT CREDITOR. 576-4 (a) On application to a court by a judgment creditor of a partner 576-5 or other owner of a partnership interest, the court may: 576-6 (1) charge the partnership interest of the partner or 576-7 other owner with payment of the unsatisfied amount of the judgment, 576-8 with interest; 576-9 (2) appoint a receiver for the debtor partner's share 576-10 of the partnership's profits and other money payable or that 576-11 becomes payable to the debtor partner with respect to the 576-12 partnership; and 576-13 (3) make other orders, directions, and inquiries that 576-14 the circumstances of the case require. 576-15 (b) To the extent that the partnership interest is charged 576-16 in the manner provided by Subsection (a), the judgment creditor has 576-17 only the rights of an assignee of the partnership interest. 576-18 (c) The partnership interest charged may be: 576-19 (1) redeemed at any time before foreclosure; or 576-20 (2) in case of a sale directed by the court, and 576-21 without constituting an event requiring winding up, purchased: 576-22 (A) by one or more of the general partners with 576-23 separate property of any general partner; or 576-24 (B) with respect to partnership property, by one 576-25 or more of the general partners whose interests are not charged, on 576-26 the consent of all general partners whose interests are not charged 576-27 and a majority in interest of the limited partners, excluding 577-1 limited partnership interests held by a general partner whose 577-2 interest is charged. 577-3 (d) The remedies provided by Subsection (a) are exclusive of 577-4 other remedies that may exist, including remedies under laws of 577-5 this state applicable to partnerships without limited partners. 577-6 Sec. 153.257. EXEMPTION LAWS APPLICABLE TO PARTNERSHIP 577-7 INTEREST NOT AFFECTED. Section 153.256 does not deprive a partner 577-8 of the benefit of an exemption law applicable to that partner's 577-9 partnership interest. 577-10 (Sections 153.258-153.300 reserved for expansion) 577-11 SUBCHAPTER G. REPORTS, RECORDS, AND INFORMATION 577-12 Sec. 153.301. PERIODIC REPORT. The secretary of state may 577-13 require a domestic limited partnership or a foreign limited 577-14 partnership registered to transact business in this state to file a 577-15 report not more than once every four years as required by this 577-16 subchapter. 577-17 Sec. 153.302. FORM AND CONTENTS OF REPORT. (a) The report 577-18 must: 577-19 (1) include: 577-20 (A) the name of the limited partnership; 577-21 (B) the state or territory under the laws of 577-22 which the limited partnership is formed; 577-23 (C) the address of the registered office of the 577-24 limited partnership in this state and the name of the registered 577-25 agent at that address; 577-26 (D) the address of the principal office in the 577-27 United States where records are to be kept or made available under 578-1 Sections 153.551 and 153.552; and 578-2 (E) the name, mailing address, and street 578-3 address of the business or residence of each general partner; 578-4 (2) be made on a form adopted by the secretary of 578-5 state for that purpose; and 578-6 (3) be signed on behalf of the limited partnership by 578-7 at least one general partner. 578-8 (b) The information contained in the report must be given as 578-9 of the date of the execution of the report. 578-10 Sec. 153.303. FILING FEE. The filing fee for the report is 578-11 as provided by Chapter 4. 578-12 Sec. 153.304. DELIVERY OF REPORT. Two copies of the report 578-13 must be delivered to the secretary of state not later than the 30th 578-14 day after the date on which notice is mailed under Section 153.305. 578-15 Sec. 153.305. ACTION BY SECRETARY OF STATE. (a) The 578-16 secretary of state shall send a notice that the report required by 578-17 Section 153.301 is due. 578-18 (b) The notice must be: 578-19 (1) addressed to the limited partnership; and 578-20 (2) mailed to: 578-21 (A) the registered office of the limited 578-22 partnership; 578-23 (B) the last known address of the limited 578-24 partnership as it appears on record in the office of the secretary 578-25 of state; or 578-26 (C) any other known place of business of the 578-27 limited partnership. 579-1 (c) The secretary of state shall include with the notice 579-2 copies of a report form to be prepared and filed as provided by 579-3 this subchapter. 579-4 Sec. 153.306. EFFECT OF FILING REPORT. (a) If the 579-5 secretary of state finds that the report complies with this 579-6 subchapter, the secretary shall: 579-7 (1) endorse on the report the word "Filed" and the 579-8 month, day, and year of filing; 579-9 (2) notify the limited partnership of the filing of 579-10 the report; and 579-11 (3) update the records of the secretary of state's 579-12 office to reflect: 579-13 (A) a reported change in the address of the 579-14 registered office, principal office, or the business or residence 579-15 address of a general partner; and 579-16 (B) a reported change in the name of the 579-17 registered agent. 579-18 (b) The filing of a report under Section 153.301 does not 579-19 relieve the limited partnership of the requirement to file an 579-20 amendment to the certificate of formation required under Section 579-21 153.052 or 153.053, except that the limited partnership is not 579-22 required to file an amendment to change the information specified 579-23 in Subsection (a)(3). 579-24 Sec. 153.307. EFFECT OF FAILURE TO FILE REPORT. (a) A 579-25 domestic or foreign limited partnership that fails to file a report 579-26 under Section 153.301 when the report is due forfeits the limited 579-27 partnership's right to transact business in this state. A 580-1 forfeiture under this section takes effect without judicial 580-2 ascertainment. 580-3 (b) When the right to transact business has been forfeited 580-4 under this section, the secretary of state shall note that the 580-5 right to transact business has been forfeited and the date of 580-6 forfeiture on the record kept in the secretary's office relating to 580-7 the limited partnership. 580-8 Sec. 153.308. NOTICE OF FORFEITURE OF RIGHT TO TRANSACT 580-9 BUSINESS. Notice of the forfeiture under Section 153.307 shall be 580-10 mailed to the limited partnership at: 580-11 (1) the registered office of the limited partnership; 580-12 (2) the last known address of the limited partnership; 580-13 or 580-14 (3) any other place of business of the limited 580-15 partnership. 580-16 Sec. 153.309. EFFECT OF FORFEITURE OF RIGHT TO TRANSACT 580-17 BUSINESS. (a) Unless the right of the limited partnership to 580-18 transact business is revived in accordance with Section 153.310: 580-19 (1) the limited partnership may not maintain an 580-20 action, suit, or proceeding in a court of this state; and 580-21 (2) a successor or assignee of the limited partnership 580-22 may not maintain an action, suit, or proceeding in a court of this 580-23 state on a right, claim, or demand arising from the transaction of 580-24 business by the limited partnership in this state. 580-25 (b) The forfeiture of the right to transact business in this 580-26 state does not: 580-27 (1) impair the validity of a contract or act of the 581-1 limited partnership; or 581-2 (2) prevent the limited partnership from defending an 581-3 action, suit, or proceeding in a court of this state. 581-4 (c) This section and Sections 153.307 and 153.308 do not 581-5 affect the liability of a limited partner to the limited 581-6 partnership. 581-7 Sec. 153.310. REVIVAL OF RIGHT TO TRANSACT BUSINESS. (a) A 581-8 limited partnership that forfeits the right to transact business in 581-9 this state as provided by Section 153.309 may be relieved from the 581-10 forfeiture by filing the required report not later than the 120th 581-11 day after the date of mailing of the notice of forfeiture under 581-12 Section 153.308, accompanied by the filing fees as provided by 581-13 Chapter 4. 581-14 (b) If a limited partnership complies with Subsection (a), 581-15 the secretary of state shall: 581-16 (1) revive the right of the limited partnership to 581-17 transact business in this state; 581-18 (2) cancel the note regarding the forfeiture; and 581-19 (3) note the revival and the date of revival on the 581-20 record kept in the secretary's office relating to the limited 581-21 partnership. 581-22 Sec. 153.311. CANCELLATION OF CERTIFICATE OR REGISTRATION 581-23 AFTER FORFEITURE. (a) The secretary of state may cancel the 581-24 certificate of a limited partnership, or the registration of a 581-25 foreign limited partnership, if the limited partnership: 581-26 (1) forfeits its right to transact business in this 581-27 state under Section 153.307; and 582-1 (2) fails to revive that right under Section 153.310. 582-2 (b) Cancellation of the certificate or registration takes 582-3 effect without judicial ascertainment. 582-4 (c) The secretary of state shall note the cancellation and 582-5 the date of cancellation on the record kept in the secretary's 582-6 office relating to the limited partnership. 582-7 (d) On cancellation, the status of the limited partnership 582-8 is changed to inactive according to the records of the secretary of 582-9 state. The change to inactive status does not affect the liability 582-10 of a limited partner to the limited partnership. 582-11 Sec. 153.312. REINSTATEMENT OF CERTIFICATE OR REGISTRATION. 582-12 (a) A limited partnership the certificate or registration of which 582-13 has been canceled as provided by Section 153.311 may be relieved of 582-14 the cancellation by filing the report required by Section 153.301, 582-15 accompanied by the filing fees provided by Chapter 4. 582-16 (b) If the limited partnership pays the fees required by 582-17 Subsection (a), the secretary of state shall: 582-18 (1) reinstate the certificate or registration of the 582-19 limited partnership without judicial ascertainment; 582-20 (2) change the status of the limited partnership to 582-21 active; and 582-22 (3) note the reinstatement on the record kept in the 582-23 secretary's office relating to the limited partnership. 582-24 (c) If the name of the limited partnership is not available 582-25 at the time of reinstatement, the secretary of state shall require 582-26 the limited partnership as a precondition to reinstatement to: 582-27 (1) file an amendment to the partnership's certificate 583-1 or application; or 583-2 (2) in the case of a foreign limited partnership, 583-3 amend its application to adopt an assumed name for use in this 583-4 state. 583-5 (Sections 153.313-153.350 reserved for expansion) 583-6 SUBCHAPTER H. LIMITED PARTNERSHIP AS REGISTERED LIMITED 583-7 LIABILITY PARTNERSHIP 583-8 Sec. 153.351. REQUIREMENTS. A limited partnership is a 583-9 registered limited liability partnership and a limited partnership 583-10 if the partnership: 583-11 (1) registers as a registered limited liability 583-12 partnership: 583-13 (A) as permitted by its partnership agreement; 583-14 or 583-15 (B) if its partnership agreement does not 583-16 include a provision for becoming a registered limited liability 583-17 partnership, with the consent of partners required to amend its 583-18 partnership agreement; 583-19 (2) complies with Subchapter J, Chapter 152; and 583-20 (3) has as the last words or letters of its name the 583-21 words "Limited Partnership" or the abbreviation "Ltd." followed by 583-22 the words "registered limited liability partnership" or the 583-23 abbreviation "L.L.P." 583-24 Sec. 153.352. APPLICABILITY OF OTHER REQUIREMENTS. For 583-25 purposes of applying Section 152.802 to a limited partnership: 583-26 (1) an application to become a registered limited 583-27 liability partnership or to withdraw a registration must be signed 584-1 by at least one general partner; and 584-2 (2) other references to a partner mean a general 584-3 partner only. 584-4 Sec. 153.353. LAW APPLICABLE TO PARTNERS. If a limited 584-5 partnership is a registered limited liability partnership, Section 584-6 152.801 applies to a general partner and to a limited partner who 584-7 is liable under other provisions of this chapter for the debts or 584-8 obligations of the limited partnership. 584-9 (Sections 153.354-153.400 reserved for expansion) 584-10 SUBCHAPTER I. DERIVATIVE ACTIONS 584-11 Sec. 153.401. RIGHT TO BRING ACTION. A limited partner may 584-12 bring an action in a court on behalf of the limited partnership to 584-13 recover a judgment in the limited partnership's favor if: 584-14 (1) all general partners with authority to bring the 584-15 action have refused to bring the action; or 584-16 (2) an effort to cause those general partners to bring 584-17 the action is not likely to succeed. 584-18 Sec. 153.402. PROPER PLAINTIFF. In a derivative action, the 584-19 plaintiff must be a limited partner when the action is brought and: 584-20 (1) must have been a limited partner at the time of 584-21 the transaction that is the subject of the action; or 584-22 (2) the person's status as a limited partner must have 584-23 arisen by operation of law or under the terms of the partnership 584-24 agreement from a person who was a limited partner at the time of 584-25 the transaction. 584-26 Sec. 153.403. PLEADING. In a derivative action, the 584-27 complaint must contain with particularity: 585-1 (1) the effort, if any, of the plaintiff to secure 585-2 initiation of the action by a general partner; or 585-3 (2) the reasons for not making the effort. 585-4 Sec. 153.404. SECURITY FOR EXPENSES OF DEFENDANTS. (a) In 585-5 a derivative action, the court may require the plaintiff to give 585-6 security for the reasonable expenses incurred or expected to be 585-7 incurred by a defendant in the action, including reasonable 585-8 attorney's fees. 585-9 (b) The court may increase or decrease at any time the 585-10 amount of the security on a showing that the security provided is 585-11 inadequate or excessive. 585-12 (c) If a plaintiff is unable to give security, the plaintiff 585-13 may file an affidavit in accordance with the Texas Rules of Civil 585-14 Procedure. 585-15 (d) Except as provided by Subsection (c), if a plaintiff 585-16 fails to give the security within a reasonable time set by the 585-17 court, the court shall dismiss the suit without prejudice. 585-18 (e) The court, on final judgment for a defendant and on a 585-19 finding that suit was brought without reasonable cause against the 585-20 defendant, may require the plaintiff to pay reasonable expenses, 585-21 including reasonable attorney's fees, to the defendant, regardless 585-22 of whether security has been required. 585-23 Sec. 153.405. EXPENSES OF PLAINTIFF. If a derivative action 585-24 is successful, wholly or partly, or if anything is received by the 585-25 plaintiff because of a judgment, compromise, or settlement of the 585-26 action or claim constituting a part of the action, the court may 585-27 award the plaintiff reasonable expenses, including reasonable 586-1 attorney's fees, and shall direct the plaintiff to remit to a party 586-2 identified by the court the remainder of the proceeds received by 586-3 the plaintiff. 586-4 (Sections 153.406-153.450 reserved for expansion) 586-5 SUBCHAPTER J. CANCELLATION OF CERTIFICATE OF FORMATION 586-6 Sec. 153.451. CERTIFICATE OF CANCELLATION. (a) A 586-7 certificate of formation shall be canceled by filing a certificate 586-8 of cancellation with the secretary of state in accordance with 586-9 Chapter 4: 586-10 (1) on the completion of the winding up of the 586-11 partnership business; 586-12 (2) when there are no limited partners; or 586-13 (3) subject to Subsection (b), on a merger or 586-14 conversion as provided by Chapter 10. 586-15 (b) If a limited partnership formed under this code is not 586-16 one of the surviving or resulting domestic limited partnerships or 586-17 other entities in a merger or conversion, the articles of merger or 586-18 conversion filed under Chapter 10 are sufficient, without a filing 586-19 under this section, to cancel the certificate of formation of the 586-20 nonsurviving limited partnership. 586-21 Sec. 153.452. CONTENTS OF CERTIFICATE OF CANCELLATION. A 586-22 certificate of cancellation must contain: 586-23 (1) the name of the limited partnership; 586-24 (2) the date of the filing of the partnership's 586-25 certificate of formation; 586-26 (3) the reason for filing the certificate of 586-27 cancellation; 587-1 (4) the future effective date or a certain time of 587-2 cancellation if cancellation is not effective on the filing of the 587-3 certificate; and 587-4 (5) other proper information as determined by the 587-5 person filing the certificate of cancellation. 587-6 (Sections 153.453-153.500 reserved for expansion) 587-7 SUBCHAPTER K. SUPPLEMENTAL WINDING UP AND TERMINATION PROVISIONS 587-8 Sec. 153.501. ADDITIONAL EVENTS REQUIRING WINDING UP. An 587-9 event requiring the winding up of a limited partnership includes, 587-10 in addition to any event specified in Section 11.051, the 587-11 following: 587-12 (1) written consent of all partners to the winding up 587-13 and termination of the limited partnership; and 587-14 (2) an event of withdrawal of a general partner. 587-15 Sec. 153.502. CONTINUATION WITHOUT WINDING UP. (a) The 587-16 limited partnership may cancel an event requiring winding up as 587-17 specified in Section 11.051(1) or (3) if, not later than the 90th 587-18 day after the event, all remaining partners, or another group or 587-19 percentage of partners as specified by the partnership agreement, 587-20 agree in writing to continue the business of the limited 587-21 partnership. 587-22 (b) The limited partnership may revoke an event requiring 587-23 winding up as specified in Section 153.501(2) if: 587-24 (1) there remains at least one general partner and the 587-25 partnership agreement permits the business of the limited 587-26 partnership to be carried on by the remaining general partners and 587-27 those remaining general partners carry on the business; or 588-1 (2) not later than the 90th day after the event, all 588-2 remaining partners, or another group or percentage of partners 588-3 specified in the partnership agreement: 588-4 (A) agree in writing to continue the business of 588-5 the limited partnership in writing; and 588-6 (B) to the extent that they desire or if there 588-7 are no remaining general partners, agree to the appointment of one 588-8 or more new general partners. 588-9 (c) The appointment of one or more new general partners 588-10 under Subsection (b)(2)(B) is effective from the date of 588-11 withdrawal. 588-12 Sec. 153.503. JUDICIAL DECREE. On application by or for a 588-13 partner, a court may decree the winding up and termination of a 588-14 limited partnership if the court determines that: 588-15 (1) the economic purpose of the limited partnership is 588-16 likely to be unreasonably frustrated; 588-17 (2) another partner has engaged in conduct relating to 588-18 the limited partnership business that makes it not reasonably 588-19 practicable to carry on the business in limited partnership with 588-20 that partner; or 588-21 (3) it is not reasonably practicable to carry on the 588-22 business of the limited partnership in conformity with the 588-23 partnership agreement. 588-24 Sec. 153.504. WINDING UP PROCEDURES. (a) Except as 588-25 provided by the partnership agreement, after an event requiring the 588-26 winding up of a limited partnership, the partnership's affairs 588-27 shall be wound up as soon as reasonably practicable. 589-1 (b) The winding up of the partnership's affairs shall be 589-2 accomplished by: 589-3 (1) the general partners who have not wrongfully 589-4 dissolved a limited partnership; or 589-5 (2) if there are no general partners who have not 589-6 wrongfully dissolved the partnership, the limited partners or a 589-7 person chosen by the limited partners. 589-8 Sec. 153.505. POWERS OF PERSON CONDUCTING WIND UP. (a) 589-9 After an event requiring the winding up of a limited partnership 589-10 and until the filing of a certificate of cancellation as provided 589-11 by Sections 153.451 and 153.452, unless a written partnership 589-12 agreement provides otherwise, a person winding up the limited 589-13 partnership's business in the name of and on behalf of the limited 589-14 partnership may: 589-15 (1) prosecute or defend a civil, criminal, or 589-16 administrative suit; 589-17 (2) settle and close the limited partnership's 589-18 business; 589-19 (3) dispose of and convey the limited partnership's 589-20 property for cash, unless a written partnership agreement permits a 589-21 transfer on noncash terms; 589-22 (4) discharge or make reasonable provision to pay the 589-23 limited partnership's liabilities; and 589-24 (5) distribute to the partners any remaining assets of 589-25 the limited partnership. 589-26 (b) A power described by Subsection (a) does not create a 589-27 liability for a limited partner that did not exist before an action 590-1 to wind up the business of the partnership was taken. 590-2 Sec. 153.506. DISPOSITION OF ASSETS. On the winding up of a 590-3 limited partnership, its assets shall be paid or transferred as 590-4 follows: 590-5 (1) to the extent otherwise permitted by law, to 590-6 creditors, including partners who are creditors other than solely 590-7 because of the application of Section 153.207 for the payment or 590-8 the making of reasonable provision for payment to satisfy the 590-9 liabilities of the limited partnership; 590-10 (2) unless otherwise provided by the partnership 590-11 agreement, to partners and former partners to satisfy the 590-12 partnership's liability for distributions under Section 153.111 or 590-13 153.209; and 590-14 (3) unless otherwise provided by the partnership 590-15 agreement, to partners first for the return of their capital and 590-16 second with respect to their partnership interests, in the 590-17 proportions provided by Section 153.208. 590-18 (Sections 153.507-153.550 reserved for expansion) 590-19 SUBCHAPTER L. MISCELLANEOUS PROVISIONS 590-20 Sec. 153.551. RECORDS. (a) A domestic limited partnership 590-21 shall maintain the following records in its principal office in the 590-22 United States or make the records available in that office not 590-23 later than the fifth day after the date on which a written request 590-24 under Section 153.552(a) is received: 590-25 (1) a current list that states: 590-26 (A) the name and mailing address of each 590-27 partner, separately identifying in alphabetical order the general 591-1 partners and the limited partners; 591-2 (B) the last known street address of the 591-3 business or residence of each general partner; 591-4 (C) the percentage or other interest in the 591-5 partnership owned by each partner; and 591-6 (D) if one or more classes or groups are 591-7 established under the partnership agreement, the names of the 591-8 partners who are members of each specified class or group; 591-9 (2) a copy of: 591-10 (A) the limited partnership's federal, state, 591-11 and local information or income tax returns for each of the 591-12 partnership's six most recent tax years; 591-13 (B) the partnership agreement and certificate of 591-14 formation; and 591-15 (C) all amendments or restatements; 591-16 (3) copies of any document that creates, in the manner 591-17 provided by the partnership agreement, classes or groups of 591-18 partners; 591-19 (4) an executed copy of any powers of attorney under 591-20 which the partnership agreement, certificate of formation, and all 591-21 amendments or restatements to the agreement and certificate have 591-22 been executed; 591-23 (5) unless contained in the written partnership 591-24 agreement, a written statement of: 591-25 (A) the amount of the cash contribution and a 591-26 description and statement of the agreed value of any other 591-27 contribution made by each partner; 592-1 (B) the amount of the cash contribution and a 592-2 description and statement of the agreed value of any other 592-3 contribution that the partner has agreed to make in the future as 592-4 an additional contribution; 592-5 (C) the date on which additional contributions 592-6 are to be made or the date of events requiring additional 592-7 contributions to be made; 592-8 (D) events requiring the limited partnership to 592-9 be dissolved and its affairs wound up; and 592-10 (E) the date on which each partner in the 592-11 limited partnership became a partner; and 592-12 (6) books and records of the accounts of the limited 592-13 partnership. 592-14 (b) A limited partnership shall maintain its records in 592-15 written form or in another form capable of being converted to 592-16 written form in a reasonable time. 592-17 (c) A limited partnership shall keep in its registered 592-18 office in this state and make available to a partner on reasonable 592-19 request the street address of its principal office in the United 592-20 States in which the records required by this section are 592-21 maintained. 592-22 Sec. 153.552. EXAMINATION OF RECORDS AND INFORMATION. (a) 592-23 On written request stating a proper purpose, a partner or an 592-24 assignee of a partnership interest may examine and copy, in person 592-25 or through a representative, records required to be kept under 592-26 Section 153.551 and other information regarding the business, 592-27 affairs, and financial condition of the limited partnership as is 593-1 just and reasonable for the person to examine and copy. 593-2 (b) The records requested under Subsection (a) may be 593-3 examined and copied at a reasonable time and at the partner's sole 593-4 expense. 593-5 (c) On written request by a partner or an assignee of a 593-6 partnership interest, the partnership shall provide to the 593-7 requesting partner or assignee without charge copies of: 593-8 (1) the partnership agreement and certificate of 593-9 formation and all amendments or restatements; and 593-10 (2) any tax return described by Section 153.551(a)(2). 593-11 (d) A request made under Subsection (c) must be made to: 593-12 (1) the person who is designated to receive the 593-13 request in the partnership agreement at the address designated in 593-14 the partnership agreement; or 593-15 (2) if there is no designation, a general partner at 593-16 the partnership's principal office in the United States. 593-17 Sec. 153.553. EXECUTION OF CERTAIN FILINGS. (a) Each 593-18 certificate required by this code to be filed by a limited 593-19 partnership with the secretary of state shall be executed as 593-20 follows: 593-21 (1) an initial certificate of formation must be signed 593-22 by all general partners, except for an initial certification of 593-23 formation signed by a person under Section 153.106(1); 593-24 (2) a certificate of amendment or restated certificate 593-25 of formation must be signed by at least one general partner and by 593-26 each other general partner designated in the certificate of 593-27 amendment as a new general partner, unless signed and filed by a 594-1 person under Section 153.053(b), 153.053(c), or 153.106(1), but the 594-2 certificate of amendment need not be signed by a withdrawing 594-3 general partner; 594-4 (3) a certificate of cancellation must be signed by 594-5 all general partners participating in the winding up of the limited 594-6 partnership's business or, if no general partners are winding up 594-7 the limited partnership's business, by all nonpartner liquidators 594-8 or, if the limited partners are winding up the limited 594-9 partnership's business, by a majority in interest of the limited 594-10 partners; 594-11 (4) a certificate of merger filed on behalf of a 594-12 domestic limited partnership must be signed as provided by Chapter 594-13 10; 594-14 (5) a certificate filed under Section 10.251 must be 594-15 signed by the person designated by the court; and 594-16 (6) a certificate of correction must be signed by at 594-17 least one general partner. 594-18 (b) Any person may sign a certificate or partnership 594-19 agreement or amendment or restated certificate by an attorney in 594-20 fact. A power of attorney relating to the signing of a certificate 594-21 or partnership agreement or amendment or restated certificate by an 594-22 attorney in fact: 594-23 (1) is not required to be sworn to, verified, or 594-24 acknowledged; 594-25 (2) is not required to be filed with the secretary of 594-26 state; and 594-27 (3) shall be retained with the partnership records 595-1 under Sections 153.551 and 153.552. 595-2 (c) The execution of a certificate by a general partner or 595-3 the execution of a written statement by a person under Section 595-4 153.106(2) is an oath or affirmation, under a penalty of perjury, 595-5 that, to the best of the executing party's knowledge and belief, 595-6 the facts stated in the certificate or statement are true. 595-7 Sec. 153.554. EXECUTION, AMENDMENT, OR CANCELLATION BY 595-8 JUDICIAL ORDER. (a) If a person fails or refuses to execute or 595-9 file a certificate as required by this chapter or to execute a 595-10 partnership agreement, another person adversely affected by the 595-11 failure or refusal may petition a court to direct the execution or 595-12 filing of the certificate or the execution of the partnership 595-13 agreement, as appropriate. 595-14 (b) If the court finds that the execution or filing of the 595-15 certificate is proper and that a person required to execute or file 595-16 the certificate has failed or refused to execute or file the 595-17 certificate, the court shall order the secretary of state to record 595-18 an appropriate certificate. 595-19 (c) The judicial remedy described by Subsection (b) is not a 595-20 limit on the rights of a person to file a written statement under 595-21 Section 153.106(2). 595-22 (d) If the court finds that the partnership agreement should 595-23 be executed and that a person required to execute the partnership 595-24 agreement has failed or refused to execute the agreement, the court 595-25 shall enter an order granting appropriate relief. 595-26 (e) If a court enters an order in favor of the adversely 595-27 affected person requesting relief under this section, the court 596-1 shall award to that person reasonable expenses, including 596-2 reasonable attorney's fees. 596-3 Sec. 153.555. PERMITTED TRANSFER IN CONNECTION WITH 596-4 RACETRACK LICENSE. The following transfer relating to a limited 596-5 partnership is not a prohibited transfer that violates Section 596-6 6.12(a), Texas Racing Act (Article 179e, Vernon's Texas Civil 596-7 Statutes): 596-8 (1) a transfer by a general partnership of its assets 596-9 to a limited partnership, the corporate general partner of which is 596-10 controlled by the partners of the general partnership; or 596-11 (2) a transfer by a limited partnership of the 596-12 beneficial use of or interest in any of its rights, privileges, or 596-13 assets to a local development corporation incorporated before 596-14 January 31, 1993, under Subchapter D, Chapter 431, Transportation 596-15 Code. 596-16 CHAPTER 154. PROVISIONS APPLICABLE TO BOTH GENERAL 596-17 AND LIMITED PARTNERSHIPS 596-18 SUBCHAPTER A. PARTNERSHIP INTERESTS 596-19 Sec. 154.001. NATURE OF PARTNER'S PARTNERSHIP INTEREST. 596-20 (a) A partner's partnership interest is personal property for all 596-21 purposes. 596-22 (b) A partner's partnership interest may be community 596-23 property under applicable law. 596-24 (c) A partner is not a co-owner of partnership property. 596-25 Sec. 154.002. TRANSFER OF INTEREST IN PARTNERSHIP PROPERTY 596-26 PROHIBITED. A partner does not have an interest that can be 596-27 transferred, voluntarily or involuntarily, in partnership property. 597-1 (Sections 154.003-154.100 reserved for expansion) 597-2 SUBCHAPTER B. PARTNERSHIP AGREEMENT 597-3 Sec. 154.101. CLASS OR GROUP OF PARTNERS. (a) A written 597-4 partnership agreement may establish or provide for the future 597-5 creation of additional classes or groups of one or more partners 597-6 that have certain express relative rights, powers, and duties, 597-7 including voting rights. The future creation of additional classes 597-8 or groups may be expressed in the partnership agreement or at the 597-9 time of creation of the class or group. 597-10 (b) The rights, powers, or duties of a class or group of 597-11 partners may be senior to those partners of an existing class or 597-12 group. 597-13 Sec. 154.102. PROVISIONS RELATING TO VOTING. A written 597-14 partnership agreement that grants or provides for granting a right 597-15 to vote to a partner may contain a provision relating to: 597-16 (1) giving notice of the time, place, or purpose of a 597-17 meeting at which a matter is to be voted on by the partners; 597-18 (2) waiver of notice; 597-19 (3) action by consent without a meeting; 597-20 (4) the establishment of a record date; 597-21 (5) quorum requirements; 597-22 (6) voting in person or by proxy; or 597-23 (7) other matters relating to the exercise of the 597-24 right to vote. 597-25 Sec. 154.103. NOTICE OF ACTION BY CONSENT WITHOUT A MEETING. 597-26 (a) Prompt notice of the taking of an action under a partnership 597-27 agreement that may be taken without a meeting by consent of fewer 598-1 than all of the partners shall be given to a partner who has not 598-2 given written consent to the action. 598-3 (b) For purposes of this section, the "taking of an action" 598-4 includes: 598-5 (1) amending the partnership agreement; or 598-6 (2) creating under the partnership agreement a class 598-7 of partners that did not previously exist. 598-8 (Sections 154.104-154.200 reserved for expansion) 598-9 SUBCHAPTER C. PARTNERSHIP TRANSACTIONS AND RELATIONSHIPS 598-10 Sec. 154.201. BUSINESS TRANSACTIONS BETWEEN PARTNER AND 598-11 PARTNERSHIP. Except as otherwise provided by the partnership 598-12 agreement, a partner may lend money to and transact other business 598-13 with the partnership. Subject to other applicable law, a partner 598-14 has the same rights and obligations with respect to those matters 598-15 as a person who is not a partner. 598-16 Sec. 154.202. EFFECT OF PARTNER CHANGE ON RELATIONSHIP 598-17 BETWEEN PARTNERSHIP AND CREDITORS. A relationship between a 598-18 partnership and its creditors is not affected by the: 598-19 (1) withdrawal of a partner; or 598-20 (2) addition of a new partner. 598-21 Sec. 154.203. DISTRIBUTIONS IN KIND. (a) Except as 598-22 provided by the partnership agreement, a partner, regardless of the 598-23 nature of the partner's contribution, is not entitled to demand or 598-24 receive from a partnership a distribution in any form other than 598-25 cash. 598-26 (b) Except as provided by the partnership agreement, a 598-27 partner may not be compelled to accept a disproportionate 599-1 distribution of an asset in kind from a partnership to the extent 599-2 that the percentage portion of assets distributed to the partner 599-3 exceeds the percentage of those assets that equals the percentage 599-4 in which the partner shares in distributions from the partnership. 599-5 TITLE 5. BUSINESS TRUSTS 599-6 CHAPTER 200. REAL ESTATE INVESTMENT TRUSTS 599-7 SUBCHAPTER A. GENERAL PROVISIONS 599-8 Sec. 200.001. DEFINITION. In this chapter, "real estate 599-9 investment trust" means an unincorporated trust: 599-10 (1) formed by one or more trust managers under this 599-11 chapter and Chapter 3; and 599-12 (2) managed under this chapter. 599-13 Sec. 200.002. APPLICABILITY OF CHAPTER. (a) The provisions 599-14 of Chapters 20 and 21 govern a matter to the extent that this 599-15 chapter or Title 1 does not govern the matter. 599-16 (b) An unincorporated trust that does not meet the 599-17 requirements of this chapter is an unincorporated association under 599-18 Chapter 253. 599-19 Sec. 200.003. CONFLICT WITH OTHER LAW. In case of conflict 599-20 between this chapter and Chapters 20 and 21, this chapter controls. 599-21 Chapters 20 and 21 do not control over this chapter merely because 599-22 a provision of Chapter 20 or 21 is more or less extensive, 599-23 restrictive, or detailed than a similar provision of this chapter. 599-24 Sec. 200.004. ULTRA VIRES ACTS. (a) Lack of capacity of a 599-25 real estate investment trust may not be the basis of any claim or 599-26 defense at law or in equity. 599-27 (b) An act of a real estate investment trust or a transfer 600-1 of property by or to a real estate investment trust is not invalid 600-2 because the act or transfer was: 600-3 (1) beyond the scope of the purpose or purposes of the 600-4 real estate investment trust as expressed in the real estate 600-5 investment trust's certificate of formation; or 600-6 (2) inconsistent with a limitation on the authority of 600-7 an officer or trust manager to exercise a statutory power of the 600-8 real estate investment trust, as that limitation is expressed in 600-9 the real estate investment trust's certificate of formation. 600-10 (c) The fact that an act or transfer is beyond the scope of 600-11 the expressed purpose or purposes of the real estate investment 600-12 trust or is inconsistent with an expressed limitation on the 600-13 authority of an officer or trust manager may be asserted in a 600-14 proceeding: 600-15 (1) by a shareholder against the real estate 600-16 investment trust to enjoin the performance of an act or the 600-17 transfer of property by or to the real estate investment trust; or 600-18 (2) by the real estate investment trust, acting 600-19 directly or through a receiver, trustee, or other legal 600-20 representative, or through shareholders in a representative suit, 600-21 against an officer or trust manager or former officer or trust 600-22 manager of the real estate investment trust for exceeding that 600-23 person's authority. 600-24 (d) If the unauthorized act or transfer sought to be 600-25 enjoined under Subsection (c)(1) is being or is to be performed or 600-26 made under a contract to which the real estate investment trust is 600-27 a party and if each party to the contract is a party to the 601-1 proceeding, the court may set aside and enjoin the performance of 601-2 the contract. The court may award to the real estate investment 601-3 trust or to another party to the contract, as appropriate, 601-4 compensation for loss or damage resulting from the action of the 601-5 court in setting aside and enjoining the performance of the 601-6 contract, excluding loss of anticipated profits. 601-7 Sec. 200.005. SUPPLEMENTARY POWERS OF REAL ESTATE INVESTMENT 601-8 TRUST. (a) Subject to Section 2.106(a) and in addition to the 601-9 powers specified in Section 2.101, a real estate investment trust 601-10 may engage in activities mandated or authorized by: 601-11 (1) provisions of the Internal Revenue Code that are 601-12 related to or govern real estate investment trusts; and 601-13 (2) regulations adopted under the Internal Revenue 601-14 Code. 601-15 (b) This section does not authorize a real estate investment 601-16 trust or an officer or trust manager of a real estate investment 601-17 trust to exercise a power in a manner inconsistent with a 601-18 limitation on the purposes or powers of the real estate investment 601-19 trust contained in: 601-20 (1) the trust's certificate of formation; 601-21 (2) this code; or 601-22 (3) another law of this state. 601-23 (Sections 200.006-200.050 reserved for expansion) 601-24 SUBCHAPTER B. FORMATION AND GOVERNING DOCUMENTS 601-25 Sec. 200.051. SUPPLEMENTAL PROVISIONS FOR CERTIFICATE OF 601-26 FORMATION. (a) For purposes of this code, the certificate of 601-27 formation of a real estate investment trust is a declaration of 602-1 trust. The certificate of formation may be titled "declaration of 602-2 trust" or "certificate of formation." 602-3 (b) In addition to the information required by Section 602-4 3.005, the certificate of formation of a real estate investment 602-5 trust must state: 602-6 (1) that an assumed name certificate stating the name 602-7 of the real estate investment trust has been filed in the manner 602-8 provided by law; 602-9 (2) that the purpose of the real estate investment 602-10 trust is to: 602-11 (A) purchase, hold, lease, manage, sell, 602-12 exchange, develop, subdivide, and improve real property and 602-13 interests in real property, other than severed mineral, oil, or gas 602-14 royalty interests, and carry on any other business and perform any 602-15 other action in connection with a purpose described by this 602-16 paragraph; 602-17 (B) exercise powers conferred by the laws of 602-18 this state on a real estate investment trust; and 602-19 (C) perform any action described by this chapter 602-20 or Title 1 to the same extent as an individual; 602-21 (3) the post office address of the initial principal 602-22 office and place of business of the real estate investment trust; 602-23 (4) the aggregate number of shares of beneficial 602-24 interest the real estate investment trust is authorized to issue 602-25 and the par value to be received by the real estate investment 602-26 trust for the issuance of each share; 602-27 (5) if shares described by Subdivision (4) are divided 603-1 into classes as authorized by Section 200.102 or 200.103, a 603-2 description of each class of shares, including any preferences, 603-3 conversion, and other rights, voting powers, restrictions, 603-4 limitations as to dividends, qualifications, and terms and 603-5 conditions of redemption; and 603-6 (6) that the trust managers shall manage the money or 603-7 property received for the issuance of shares for the benefit of the 603-8 shareholders of the real estate investment trust. 603-9 Sec. 200.052. NO PROPERTY RIGHT IN CERTIFICATE OF FORMATION. 603-10 A shareholder of a real estate investment trust does not have a 603-11 vested property right resulting from the certificate of formation, 603-12 including a provision in the certificate of formation relating to 603-13 the management, control, capital structure, dividend entitlement, 603-14 purpose, or duration of the real estate investment trust. 603-15 Sec. 200.053. PROCEDURES TO ADOPT AMENDMENT TO CERTIFICATE 603-16 OF FORMATION. (a) To adopt an amendment to the certificate of 603-17 formation of a real estate investment trust as provided by 603-18 Subchapter B, Chapter 3, the trust managers shall: 603-19 (1) adopt a resolution stating the proposed amendment; 603-20 and 603-21 (2) follow the procedures prescribed by this section 603-22 and Sections 200.054-200.057. 603-23 (b) The resolution may incorporate the proposed amendment in 603-24 a restated certificate of formation that complies with Section 603-25 3.057. 603-26 Sec. 200.054. ADOPTION OF AMENDMENT BY TRUST MANAGERS. If a 603-27 real estate investment trust does not have any issued and 604-1 outstanding shares, the trust managers may adopt a proposed 604-2 amendment to the real estate investment trust's certificate of 604-3 formation by resolution without shareholder approval. 604-4 Sec. 200.055. ADOPTION OF AMENDMENT BY SHAREHOLDERS. If a 604-5 real estate investment trust has issued shares, a resolution 604-6 described by Section 200.053 must also direct that: 604-7 (1) the proposed amendment be submitted to a vote of 604-8 the shareholders at a meeting; and 604-9 (2) the shareholders approve the proposed amendment in 604-10 the manner provided by Section 200.056. 604-11 Sec. 200.056. NOTICE OF AND MEETING TO CONSIDER PROPOSED 604-12 AMENDMENT. (a) Each shareholder of record entitled to vote shall 604-13 be given written notice containing the proposed amendment or a 604-14 summary of the changes to be effected within the time and in the 604-15 manner provided by this code for giving notice of meetings to 604-16 shareholders. If the proposed amendment is to be considered at an 604-17 annual meeting, the proposed amendment or summary may be included 604-18 in the notice required to be provided for an annual meeting. 604-19 (b) At the meeting, the proposed amendment shall be adopted 604-20 only on receiving the affirmative vote of shareholders entitled to 604-21 vote required by Section 200.261. 604-22 (c) An unlimited number of amendments may be submitted for 604-23 adoption by the shareholders at a meeting. 604-24 Sec. 200.057. SUPPLEMENTAL PROVISIONS FOR CERTIFICATE OF 604-25 AMENDMENT. (a) In addition to the statements required by Section 604-26 3.053, a certificate of amendment for a real estate investment 604-27 trust must state: 605-1 (1) if the amendment provides for an exchange, 605-2 reclassification, or cancellation of issued shares, the manner in 605-3 which the exchange, reclassification, or cancellation of the issued 605-4 shares will be effected if the manner is not specified in the 605-5 amendment; and 605-6 (2) if the amendment effects a change in the amount of 605-7 stated capital, the manner in which the change in the amount of 605-8 stated capital is effected and the amount of stated capital 605-9 expressed in dollar terms as changed by the amendment. 605-10 (b) An officer shall sign the certificate of amendment on 605-11 behalf of the real estate investment trust. If shares of the real 605-12 estate investment trust have not been issued and the certificate of 605-13 amendment is adopted by the trust managers, a majority of the trust 605-14 managers may execute the certificate of amendment on behalf of the 605-15 real estate investment trust. 605-16 (c) The certificate of amendment must be filed in accordance 605-17 with Chapter 4 and has the same effect as provided by Subchapter B, 605-18 Chapter 3. 605-19 Sec. 200.058. RESTATED CERTIFICATE OF FORMATION. (a) A 605-20 real estate investment trust may adopt a restated certificate of 605-21 formation, as provided by Subchapter B, Chapter 3, by following the 605-22 same procedures to amend its certificate of formation under 605-23 Sections 200.053-200.057, except that shareholder approval is not 605-24 required if an amendment is not adopted. 605-25 (b) An officer shall sign the restated certificate of 605-26 formation on behalf of the real estate investment trust. If shares 605-27 of the real estate investment trust have not been issued and the 606-1 restated certificate of formation is adopted by the trust managers, 606-2 the majority of the trust managers may execute the restated 606-3 certificate of formation on behalf of the real estate investment 606-4 trust. 606-5 (c) In addition to the provisions authorized or required by 606-6 Section 3.057, a restated certificate of formation may update the 606-7 current number of trust managers and the names and addresses of the 606-8 persons serving as trust managers. 606-9 Sec. 200.059. BYLAWS. (a) The trust managers of a real 606-10 estate investment trust shall adopt initial bylaws. 606-11 (b) The bylaws may contain provisions for the regulation and 606-12 management of the affairs of the real estate investment trust that 606-13 are consistent with law and the real estate investment trust's 606-14 certificate of formation. 606-15 (c) The trust managers of a real estate investment trust may 606-16 amend or repeal bylaws or adopt new bylaws unless: 606-17 (1) the real estate investment trust's certificate of 606-18 formation or this chapter wholly or partly reserves the power 606-19 exclusively to the real estate investment trust's shareholders; or 606-20 (2) in amending, repealing, or adopting a bylaw, the 606-21 shareholders expressly provide that the trust managers may not 606-22 amend, repeal, or readopt that bylaw. 606-23 Sec. 200.060. DUAL AUTHORITY. Unless the certificate of 606-24 formation or a bylaw adopted by the shareholders provides otherwise 606-25 as to all or a part of a real estate investment trust's bylaws, the 606-26 shareholders of a real estate investment trust may amend, repeal, 606-27 or adopt the bylaws of the real estate investment trust even if the 607-1 bylaws may also be amended, repealed, or adopted by the trust 607-2 managers of the real estate investment trust. 607-3 Sec. 200.061. ORGANIZATION MEETING. (a) After the real 607-4 estate investment trust has been formed, the initial trust managers 607-5 of the real estate investment trust shall hold an organization 607-6 meeting, at the call of a majority of those trust managers, for the 607-7 purpose of adopting bylaws, electing officers, and transacting 607-8 other business. 607-9 (b) Not later than the fourth day before the date of the 607-10 meeting, the initial trust managers calling the meeting shall mail 607-11 notice of the time and place of the meeting to the other initial 607-12 trust managers named in the certificate of formation. 607-13 (Sections 200.062-200.100 reserved for expansion) 607-14 SUBCHAPTER C. SHARES 607-15 Sec. 200.101. NUMBER. A real estate investment trust may 607-16 issue the number of shares stated in the real estate investment 607-17 trust's certificate of formation. 607-18 Sec. 200.102. CLASSIFICATION OF SHARES. A real estate 607-19 investment trust may provide in the real estate investment trust's 607-20 certificate of formation: 607-21 (1) that a specified class of shares is preferred over 607-22 another class of shares as to its distributive share of the assets 607-23 on voluntary or involuntary liquidation of the real estate 607-24 investment trust; 607-25 (2) the amount of a preference described by 607-26 Subdivision (1); 607-27 (3) that a specified class of shares may be redeemed 608-1 at the option of the real estate investment trust or of the holders 608-2 of the shares; 608-3 (4) the terms and conditions of a redemption of shares 608-4 described by Subdivision (3), including the time and price of 608-5 redemption; 608-6 (5) that a specified class of shares may be converted 608-7 into shares of one or more other classes; 608-8 (6) the terms and conditions of a conversion described 608-9 by Subdivision (5); 608-10 (7) that a holder of a specified security issued or to 608-11 be issued by the real estate investment trust has voting or other 608-12 rights authorized by law; and 608-13 (8) for other preferences, rights, restrictions, 608-14 including restrictions on transferability, and qualifications 608-15 consistent with law. 608-16 Sec. 200.103. CLASSES OF SHARES ESTABLISHED BY TRUST 608-17 MANAGERS. (a) A real estate investment trust may provide in the 608-18 real estate investment trust's certificate of formation that the 608-19 trust managers may periodically classify or reclassify any unissued 608-20 shares by setting or changing the preferences, conversion or other 608-21 rights, voting powers, restrictions, limitations as to dividends, 608-22 qualifications, or terms or conditions of redemption of the shares. 608-23 (b) Before issuing shares, the trust managers who perform as 608-24 authorized by the certificate of formation an action described by 608-25 Subsection (a) must file with the county clerk of the county of the 608-26 principal place of business of the real estate investment trust a 608-27 statement of designation that contains: 609-1 (1) a description of the shares, including the 609-2 preferences, conversion and other rights, voting powers, 609-3 restrictions, limitations as to dividends, qualifications, and 609-4 terms and conditions of redemption, as set or changed by the trust 609-5 managers; and 609-6 (2) a statement that the shares have been classified 609-7 or reclassified by the trust managers as authorized by the 609-8 certificate of formation. 609-9 Sec. 200.104. TYPES OF CONSIDERATION FOR ISSUANCE OF SHARES. 609-10 Shares with or without par value may be issued by a real estate 609-11 investment trust for the following types of consideration: 609-12 (1) a tangible or intangible benefit to the real 609-13 estate investment trust; 609-14 (2) cash; 609-15 (3) a promissory note; 609-16 (4) services performed or a contract for services to 609-17 be performed; 609-18 (5) a security of the real estate investment trust or 609-19 any other organization; and 609-20 (6) any other property of any kind or nature. 609-21 Sec. 200.105. ISSUANCE OF SHARES. Shares may not be issued 609-22 until the consideration has been received by the real estate 609-23 investment trust or by a corporation the outstanding shares of each 609-24 class of capital stock of which are directly or indirectly owned by 609-25 the real estate investment trust. When the consideration is 609-26 received: 609-27 (1) the shares are considered to be issued, and the 610-1 shareholder entitled to receive the shares is a shareholder with 610-2 respect to the shares; and 610-3 (2) the shares are considered fully paid and 610-4 nonassessable. 610-5 Sec. 200.106. DETERMINATION OF CONSIDERATION FOR SHARES. 610-6 Consideration to be received by a real estate investment trust for 610-7 shares shall be determined by the trust managers. 610-8 Sec. 200.107. AMOUNT OF CONSIDERATION FOR ISSUANCE OF SHARES 610-9 WITH PAR VALUE. Consideration to be received by a real estate 610-10 investment trust for the issuance of shares with par value may not 610-11 be less than the par value of the shares. 610-12 Sec. 200.108. VALUE OF CONSIDERATION. In the absence of 610-13 fraud in the transaction, the judgment of the trust managers or 610-14 shareholders, as appropriate, is conclusive in determining the 610-15 value of the consideration received for the shares. 610-16 Sec. 200.109. LIABILITY OF ASSIGNEE OR TRANSFEREE. An 610-17 assignee or transferee of certificated shares, uncertificated 610-18 shares, or a subscription for shares in good faith and without 610-19 knowledge that full consideration for the shares or subscription 610-20 has not been paid may not be held personally liable to the real 610-21 estate investment trust or a creditor of the real estate investment 610-22 trust for an unpaid portion of the consideration. 610-23 Sec. 200.110. SUBSCRIPTIONS. (a) A real estate investment 610-24 trust may accept a subscription by notifying the subscriber in 610-25 writing. 610-26 (b) A subscription to purchase shares in a real estate 610-27 investment trust that is in the process of being formed is 611-1 irrevocable for six months if the subscription is in writing and 611-2 signed by the subscriber unless the subscription provides for a 611-3 longer or shorter period or all of the other subscribers agree to 611-4 the revocation of the subscription. 611-5 (c) A written subscription entered into after the real 611-6 estate investment trust is formed is a contract between the 611-7 subscriber and the real estate investment trust. 611-8 Sec. 200.111. PREFORMATION SUBSCRIPTION. (a) A real estate 611-9 investment trust may determine the payment terms of a preformation 611-10 subscription unless the payment terms are specified by the 611-11 subscription. The payment terms may authorize payment in full on 611-12 acceptance or by installments. 611-13 (b) Unless the subscription provides otherwise, a real 611-14 estate investment trust shall make calls placed to all subscribers 611-15 of similar interests for payment on preformation subscriptions 611-16 uniform as far as practicable. 611-17 (c) After a real estate investment trust is formed, the real 611-18 estate investment trust may: 611-19 (1) collect as any other debt the amount due on any 611-20 unpaid preformation subscription; or 611-21 (2) forfeit the subscription on 20 days' written 611-22 notice to the subscriber. 611-23 (d) Although the forfeiture of a subscription terminates all 611-24 the rights and obligations of the subscriber, the real estate 611-25 investment trust may retain any amount previously paid on the 611-26 subscription. 611-27 Sec. 200.112. COMMITMENT TO PURCHASE SHARES. (a) A person 612-1 who contemplates the acquisition of shares in a real estate 612-2 investment trust may commit to act in a specified manner with 612-3 respect to the shares after the acquisition, including the voting 612-4 of the shares or the retention or disposition of the shares. To be 612-5 binding, the commitment must be in writing and be signed by the 612-6 person acquiring the shares. The commitment continues for a 612-7 six-month period unless the commitment provides for a longer or 612-8 shorter period. 612-9 (b) A written commitment entered into under Subsection (a) 612-10 is a contract between the shareholder and the real estate 612-11 investment trust. 612-12 (Sections 200.113-200.150 reserved for expansion) 612-13 SUBCHAPTER D. SHAREHOLDER RIGHTS AND RESTRICTIONS 612-14 Sec. 200.151. REGISTERED HOLDERS AS OWNERS. Except as 612-15 otherwise provided by this code and subject to Chapter 8, Business 612-16 & Commerce Code, a real estate investment trust may consider the 612-17 person registered as the owner of a share in the share transfer 612-18 records of the real estate investment trust at a particular time, 612-19 including a record date set under Section 6.102, as the owner of 612-20 that share at that time for purposes of: 612-21 (1) voting the share; 612-22 (2) receiving distributions on the share; 612-23 (3) transferring the share; 612-24 (4) receiving notice, exercising rights of dissent and 612-25 appraisal, exercising or waiving a preemptive right, or giving 612-26 proxies with respect to that share; or 612-27 (5) entering into agreements with respect to that 613-1 share in accordance with Section 6.251 or 6.252 or with this 613-2 subchapter. 613-3 Sec. 200.152. NO STATUTORY PREEMPTIVE RIGHT UNLESS 613-4 SPECIFICALLY PROVIDED BY CERTIFICATE OF FORMATION. A shareholder 613-5 of a real estate investment trust does not have a preemptive right 613-6 to acquire securities except to the extent specifically provided by 613-7 the certificate of formation. 613-8 Sec. 200.153. TRANSFER OF SHARES AND OTHER SECURITIES. 613-9 Except as otherwise provided by this code, the shares and other 613-10 securities of a real estate investment trust are transferable in 613-11 accordance with Chapter 8, Business & Commerce Code. 613-12 Sec. 200.154. RESTRICTION ON TRANSFER OF SHARES AND OTHER 613-13 SECURITIES. (a) A restriction on the transfer or registration of 613-14 transfer of a security may be imposed by: 613-15 (1) the real estate investment trust's certificate of 613-16 formation; 613-17 (2) the real estate investment trust's bylaws; 613-18 (3) a written agreement among two or more holders of 613-19 the securities; or 613-20 (4) a written agreement among one or more holders of 613-21 the securities and the real estate investment trust if: 613-22 (A) the real estate investment trust files a 613-23 copy of the agreement at the principal place of business or 613-24 registered office of the real estate investment trust; and 613-25 (B) the copy of the agreement is subject to the 613-26 same right of examination by a shareholder of the real estate 613-27 investment trust, in person or by agent, attorney, or accountant, 614-1 as the books and records of the real estate investment trust. 614-2 (b) A restriction imposed under Subsection (a) is not valid 614-3 with respect to a security issued before the restriction has been 614-4 adopted, unless the holder of the security voted in favor of the 614-5 restriction or is a party to the agreement imposing the 614-6 restriction. 614-7 Sec. 200.155. VALID RESTRICTION ON TRANSFER. 614-8 Notwithstanding Sections 200.154 and 200.157, a restriction placed 614-9 on the transfer or registration of transfer of a security of a real 614-10 estate investment trust is valid if the restriction reasonably: 614-11 (1) obligates the holder of the restricted security to 614-12 offer a person, including the real estate investment trust or other 614-13 holders of securities of the real estate investment trust, an 614-14 opportunity to acquire the restricted security within a reasonable 614-15 time before the transfer; 614-16 (2) obligates the real estate investment trust, to the 614-17 extent provided by this code, or another person to purchase 614-18 securities that are the subject of an agreement relating to the 614-19 purchase and sale of the restricted security; 614-20 (3) requires the real estate investment trust or the 614-21 holders of a class of the real estate investment trust's securities 614-22 to consent to a proposed transfer of the restricted security or to 614-23 approve the proposed transferee of the restricted security for the 614-24 purpose of preventing a violation of law; 614-25 (4) prohibits the transfer of the restricted security 614-26 to a designated person or group of persons and the designation is 614-27 not manifestly unreasonable; or 615-1 (5) maintains a tax advantage to the real estate 615-2 investment trust, including maintaining its status as a real estate 615-3 investment trust under the relevant provisions of the Internal 615-4 Revenue Code and regulations adopted under the Internal Revenue 615-5 Code. 615-6 Sec. 200.156. BYLAW OR AGREEMENT RESTRICTING TRANSFER OF 615-7 SHARES OR OTHER SECURITIES. (a) A real estate investment trust 615-8 that has adopted a bylaw or is a party to an agreement that 615-9 restricts the transfer of the shares or other securities of the 615-10 real estate investment trust may file with the county clerk of the 615-11 county of the principal place of business of the real estate 615-12 investment trust a copy of the bylaw or agreement and a statement 615-13 attached to the copy that: 615-14 (1) contains the name of the real estate investment 615-15 trust; 615-16 (2) states that the attached copy of the bylaw or 615-17 agreement is a true and correct copy of the bylaw or agreement; and 615-18 (3) states that the filing has been authorized by the 615-19 trust managers or shareholders, as appropriate. 615-20 (b) After the statement is filed with the county clerk, the 615-21 bylaws or agreement restricting the transfer of shares or other 615-22 securities is a public record, and the fact that the statement has 615-23 been filed must be stated on a certificate representing the 615-24 restricted shares or securities if required by Section 3.202. 615-25 (c) A real estate investment trust that is a party to an 615-26 agreement restricting the transfer of the shares or other 615-27 securities of the real estate investment trust may make the 616-1 agreement part of the real estate investment trust's certificate of 616-2 formation without restating the provisions of the agreement in the 616-3 certificate of formation by complying with this code or amending 616-4 the certificate of formation. If the agreement alters the original 616-5 or amended certificate of formation, the altered provision must be 616-6 identified by reference or description in the certificate of 616-7 amendment. If the agreement is an addition to the original or 616-8 amended certificate of formation, the certificate of amendment must 616-9 state that fact. 616-10 (d) The certificate of amendment must: 616-11 (1) include a copy of the agreement restricting the 616-12 transfer of shares or other securities; 616-13 (2) state that the attached copy of the agreement is a 616-14 true and correct copy of the agreement; and 616-15 (3) state that inclusion of the certificate of 616-16 amendment as part of the certificate of formation has been 616-17 authorized in the manner required by this code to amend the 616-18 certificate of formation. 616-19 Sec. 200.157. ENFORCEABILITY OF RESTRICTION ON TRANSFER OF 616-20 CERTAIN SECURITIES. (a) A restriction placed on the transfer or 616-21 registration of the transfer of a security of a real estate 616-22 investment trust is specifically enforceable against the holder, or 616-23 a successor or transferee of the holder, if: 616-24 (1) the restriction is reasonable and noted 616-25 conspicuously on the certificate or other instrument representing 616-26 the security; or 616-27 (2) with respect to an uncertificated security, the 617-1 restriction is reasonable and a notation of the restriction is 617-2 contained in the notice sent with respect to the security under 617-3 Section 3.205. 617-4 (b) Unless noted in the manner specified by Subsection (a) 617-5 with respect to a certificate or other instrument or an 617-6 uncertificated security, an otherwise enforceable restriction is 617-7 ineffective against a transferee for value without actual knowledge 617-8 of the restriction at the time of the transfer or against a 617-9 subsequent transferee, regardless of whether the transfer is for 617-10 value. A restriction is specifically enforceable against a person 617-11 other than a transferee for value from the time the person acquires 617-12 actual knowledge of the restriction's existence. 617-13 Sec. 200.158. JOINT OWNERSHIP OF SHARES. (a) If shares are 617-14 registered on the books of a real estate investment trust in the 617-15 names of two or more persons as joint owners with the right of 617-16 survivorship and one of the owners dies, the real estate investment 617-17 trust may record on its books and effect the transfer of the shares 617-18 to a person, including the surviving joint owner, and pay any 617-19 distributions made with respect to the shares, as if the surviving 617-20 joint owner was the sole owner of the shares. The recording and 617-21 distribution authorized by this subsection must be made after the 617-22 death of a joint owner and before the real estate investment trust 617-23 receives actual written notice that a party other than a surviving 617-24 joint owner is claiming an interest in the shares or distribution. 617-25 (b) The discharge of a real estate investment trust from 617-26 liability under Section 200.160 and the transfer of full legal and 617-27 equitable title of the shares does not affect, reduce, or limit any 618-1 cause of action existing in favor of an owner of an interest in the 618-2 shares or distributions against the surviving owner. 618-3 Sec. 200.159. LIABILITY FOR DESIGNATING OWNER OF SHARES. A 618-4 real estate investment trust or an officer, trust manager, 618-5 employee, or agent of the real estate investment trust may not be 618-6 held liable for considering a person to be the owner of a share for 618-7 a purpose described by Section 200.151, regardless of whether the 618-8 person possesses a certificate for those shares. 618-9 Sec. 200.160. LIABILITY REGARDING JOINT OWNERSHIP OF SHARES. 618-10 A real estate investment trust that transfers shares or makes a 618-11 distribution to a surviving joint owner under Section 200.158 618-12 before the real estate investment trust has received a written 618-13 claim for the shares or distribution from another person is 618-14 discharged from liability for the transfer or payment. 618-15 (Sections 200.161-200.200 reserved for expansion) 618-16 SUBCHAPTER E. DISTRIBUTIONS AND SHARE DIVIDENDS 618-17 Sec. 200.201. AUTHORITY FOR DISTRIBUTIONS. The trust 618-18 managers of a real estate investment trust may authorize a 618-19 distribution and the real estate investment trust may make a 618-20 distribution, subject to Section 200.202 and any restriction in the 618-21 certificate of formation. 618-22 Sec. 200.202. LIMITATIONS ON DISTRIBUTIONS. (a) A real 618-23 estate investment trust may not make a distribution that: 618-24 (1) will cause the real estate investment trust to 618-25 become insolvent; or 618-26 (2) is more than the surplus of the real estate 618-27 investment trust. 619-1 (b) Notwithstanding Subsection (a), if the net assets of a 619-2 real estate investment trust are not less than the amount of the 619-3 proposed distribution, the real estate investment trust may make a 619-4 distribution involving a purchase or redemption of its own shares 619-5 if the purchase or redemption is made by the real estate investment 619-6 trust to: 619-7 (1) eliminate fractional shares; 619-8 (2) collect or settle indebtedness owed by or to the 619-9 real estate investment trust; 619-10 (3) pay dissenting shareholders entitled to receive 619-11 payment for their shares under this chapter; or 619-12 (4) effect the purchase or redemption of redeemable 619-13 shares in accordance with this code. 619-14 Sec. 200.203. PRIORITY OF DISTRIBUTIONS. A real estate 619-15 investment trust's indebtedness that arises as a result of the 619-16 declaration of a distribution made in accordance with this 619-17 subchapter is at parity with the real estate investment trust's 619-18 indebtedness to its general, unsecured creditors, except to the 619-19 extent the indebtedness is subordinated, or payment of that 619-20 indebtedness is secured, by agreement. 619-21 Sec. 200.204. RESERVES, DESIGNATIONS, AND ALLOCATIONS FROM 619-22 SURPLUS. (a) A real estate investment trust, by resolution of the 619-23 trust managers of the real estate investment trust, may: 619-24 (1) create a reserve out of the surplus of the real 619-25 estate investment trust; or 619-26 (2) designate or allocate in any manner a part or all 619-27 of the real estate investment trust's surplus for a proper purpose. 620-1 (b) A real estate investment trust may increase, decrease, 620-2 or abolish a reserve, designation, or allocation in the manner 620-3 provided by Subsection (a). 620-4 Sec. 200.205. AUTHORITY FOR SHARE DISTRIBUTIONS. The trust 620-5 managers of a real estate investment trust may authorize a share 620-6 distribution, and the real estate investment trust may pay a share 620-7 distribution subject to Section 200.206 and any restriction in the 620-8 certificate of formation. 620-9 Sec. 200.206. LIMITATIONS ON SHARE DISTRIBUTIONS. (a) A 620-10 real estate investment trust may not pay a share distribution in 620-11 authorized but unissued shares of any class if the surplus of the 620-12 real estate investment trust is less than the amount required by 620-13 Section 200.208 to be transferred to stated capital at the time the 620-14 share distribution is made. 620-15 (b) A share distribution in shares of any class may not be 620-16 made to a holder of shares of any other class unless: 620-17 (1) the real estate investment trust's certificate of 620-18 formation provides for the distribution; or 620-19 (2) the share distribution is authorized by the 620-20 affirmative vote or the written consent of the holders of at least 620-21 a majority of the outstanding shares of the class in which the 620-22 share distribution is to be made. 620-23 Sec. 200.207. VALUE OF SHARES ISSUED AS SHARE DISTRIBUTIONS. 620-24 (a) A share distribution payable in authorized but unissued shares 620-25 with par value shall be issued at the par value of the shares. 620-26 (b) A share distribution payable in authorized but unissued 620-27 shares without par value shall be issued at the value set by the 621-1 trust managers when the share distribution is authorized. 621-2 Sec. 200.208. TRANSFER OF SURPLUS FOR SHARE DISTRIBUTIONS. 621-3 (a) When a share distribution payable in authorized but unissued 621-4 shares with par value is made by a real estate investment trust, an 621-5 amount of surplus designated by the trust managers that is not less 621-6 than the aggregate par value of the shares issued as a share 621-7 distribution shall be transferred to stated capital. 621-8 (b) When a share distribution payable in authorized but 621-9 unissued shares without par value is made by a real estate 621-10 investment trust, an amount of surplus equal to the aggregate value 621-11 set by the trust managers with respect to the shares under Section 621-12 200.207(b) shall be transferred to stated capital. 621-13 Sec. 200.209. DETERMINATION OF SOLVENCY, NET ASSETS, STATED 621-14 CAPITAL, AND SURPLUS. (a) The determination of whether a real 621-15 estate investment trust is insolvent and the determination of the 621-16 value of a real estate investment trust's net assets, stated 621-17 capital, or surplus and each of the components of net assets, 621-18 stated capital, or surplus may be based on: 621-19 (1) financial statements of the real estate investment 621-20 trust that present the financial condition of the real estate 621-21 investment trust in accordance with generally accepted accounting 621-22 principles, including financial statements that include subsidiary 621-23 entities or other entities accounted for on a consolidated basis or 621-24 on the equity method of accounting; 621-25 (2) financial statements prepared using the method of 621-26 accounting used to file the real estate investment trust's federal 621-27 income tax return or using any other accounting practices and 622-1 principles that are reasonable under the circumstances; 622-2 (3) financial information, including condensed or 622-3 summary financial statements, that is prepared on the same basis as 622-4 financial statements described by Subdivision (1) or (2); 622-5 (4) a projection, forecast, or other forward-looking 622-6 information relating to the future economic performance, financial 622-7 condition, or liquidity of the real estate investment trust that is 622-8 reasonable under the circumstances; 622-9 (5) a fair valuation or information from any other 622-10 method that is reasonable under the circumstances; or 622-11 (6) a combination of a statement, valuation, or 622-12 information authorized by this section. 622-13 (b) Subsection (a) does not apply to the computation of any 622-14 tax imposed under the laws of this state. 622-15 Sec. 200.210. DATE OF DETERMINATION OF SURPLUS. (a) For 622-16 purposes of this subchapter, a determination of whether a real 622-17 estate investment trust is or would be made insolvent by a 622-18 distribution or share distribution or a determination of the value 622-19 of a real estate investment trust's surplus shall be made: 622-20 (1) on the date the distribution or share distribution 622-21 is authorized by the trust managers of the real estate investment 622-22 trust if the distribution or the share distribution is made not 622-23 later than the 120th day after the date of authorization; 622-24 (2) on the date designated by the trust managers for 622-25 the determination to be made if: 622-26 (A) the distribution or the share distribution 622-27 is made more than 120 days after the date of authorization; and 623-1 (B) the date designated by the trust managers is 623-2 not later than the 121st day before the date the distribution or 623-3 the share distribution is made; or 623-4 (3) on the date the distribution or the share 623-5 distribution is made if: 623-6 (A) the distribution or the share distribution 623-7 is made more than 120 days after the date of authorization; and 623-8 (B) the trust managers do not make the 623-9 designation described by Subdivision (2). 623-10 (b) For purposes of this section, a distribution that 623-11 involves the incurrence by a real estate investment trust of 623-12 indebtedness or a deferred payment obligation or that involves a 623-13 contract by the real estate investment trust to acquire any of its 623-14 own shares is considered to have been made on the date: 623-15 (1) the indebtedness or obligation is incurred; or 623-16 (2) if it involves a contract by the real estate 623-17 investment trust to acquire shares, the contract is made or takes 623-18 effect or on the date the shares are acquired, at the option of the 623-19 real estate investment trust. 623-20 Sec. 200.211. SPLIT-UP OR DIVISION OF SHARES. The trust 623-21 managers of a real estate investment trust may authorize the real 623-22 estate investment trust to carry out any split-up or division of 623-23 the issued shares of a class of the real estate investment trust 623-24 into a larger number of shares within the same class that does not 623-25 increase the stated capital of the real estate investment trust 623-26 because the split-up or division of issued shares is not a share 623-27 dividend or a distribution. 624-1 (Sections 200.212-200.250 reserved for expansion) 624-2 SUBCHAPTER F. SHAREHOLDER MEETINGS; VOTING AND QUORUM 624-3 Sec. 200.251. ANNUAL MEETING. (a) An annual meeting of the 624-4 shareholders of a real estate investment trust shall be held at a 624-5 time that is stated in or set in accordance with the bylaws of the 624-6 real estate investment trust. 624-7 (b) If the annual meeting is not held at the designated 624-8 time, a shareholder may by registered mail make a written request 624-9 to an officer or trust manager of the real estate investment trust 624-10 that the meeting be held within a reasonable time. If the annual 624-11 meeting is not called before the 61st day after the date the 624-12 request calling for a meeting is made, any shareholder may bring 624-13 suit at law or in equity to compel the meeting to be held. 624-14 (c) Each shareholder has a justifiable interest sufficient 624-15 to enable the shareholder to institute and prosecute a legal 624-16 proceeding described by this section. 624-17 (d) The failure to hold an annual meeting at the designated 624-18 time does not result in the winding up or termination of the real 624-19 estate investment trust. 624-20 Sec. 200.252. SPECIAL MEETING. A special meeting of the 624-21 shareholders of a real estate investment trust may be called by: 624-22 (1) a trust manager, an officer of the real estate 624-23 investment trust, or any other person authorized to call special 624-24 meetings by the certificate of formation or bylaws of the real 624-25 estate investment trust; or 624-26 (2) the holders of at least 10 percent of all of the 624-27 shares of the real estate investment trust entitled to vote at the 625-1 proposed special meeting unless a quarter percentage of shares is 625-2 specified in the certificate of formation, not to exceed 50 percent 625-3 of the shares entitled to vote. 625-4 Sec. 200.253. NOTICE OF MEETING. (a) Written notice of a 625-5 meeting in accordance with Section 6.051 shall be given to each 625-6 shareholder entitled to vote at the meeting not later than the 10th 625-7 day and not earlier than the 60th day before the date of the 625-8 meeting. Notice shall be given in person or by mail by or at the 625-9 direction of a trust manager, officer, or other person calling the 625-10 meeting. 625-11 (b) The notice of a special meeting must contain a statement 625-12 regarding the purpose or purposes of the meeting. 625-13 Sec. 200.254. CLOSING OF SHARE TRANSFER RECORDS. Share 625-14 transfer records that are closed in accordance with Section 6.101 625-15 for the purpose of determining which shareholders are entitled to 625-16 receive notice of a meeting of shareholders shall remain closed for 625-17 at least 10 days immediately preceding the date of the meeting. 625-18 Sec. 200.255. RECORD DATE FOR WRITTEN CONSENT TO ACTION. 625-19 The record date provided in accordance with Section 6.102(a) may 625-20 not be more than 10 days after the date on which the trust managers 625-21 adopt the resolution setting the record date. 625-22 Sec. 200.256. RECORD DATE FOR PURPOSE OTHER THAN WRITTEN 625-23 CONSENT TO ACTION. The record date provided by the trust managers 625-24 in accordance with Section 6.101 must be at least 10 days before 625-25 the date on which the particular action requiring the determination 625-26 of shareholders is to be taken. 625-27 Sec. 200.257. QUORUM. (a) Subject to Subsection (b), the 626-1 holders of the majority of the shares entitled to vote at a meeting 626-2 of the shareholders of a real estate investment trust that are 626-3 present or represented by proxy at the meeting are a quorum for the 626-4 consideration of a matter to be presented at that meeting. 626-5 (b) The certificate of formation of a real estate investment 626-6 trust may provide that a quorum is present only if: 626-7 (1) the holders of a specified portion of the shares 626-8 that is greater than the majority of the shares entitled to vote 626-9 are represented at the meeting in person or by proxy; or 626-10 (2) the holders of a specified portion of the shares 626-11 that is less than the majority but not less than one-third of the 626-12 shares entitled to vote are represented at the meeting in person or 626-13 by proxy. 626-14 (c) Unless provided by the certificate of formation or 626-15 bylaws of the real estate investment trust, after a quorum is 626-16 present at a meeting of shareholders, the shareholders may conduct 626-17 business properly brought before the meeting until the meeting is 626-18 adjourned. The subsequent withdrawal from the meeting of a 626-19 shareholder or the refusal of a shareholder present at or 626-20 represented by proxy at the meeting to vote does not negate the 626-21 presence of a quorum at the meeting. 626-22 (d) Unless provided by the certificate of formation or 626-23 bylaws, the shareholders of the real estate investment trust at a 626-24 meeting at which a quorum is not present may adjourn the meeting 626-25 until the time and to the place as may be determined by a vote of 626-26 the holders of the majority of the shares who are present or 626-27 represented by proxy at the meeting. 627-1 Sec. 200.258. VOTING IN ELECTION OF TRUST MANAGERS. (a) 627-2 Subject to Subsection (b), trust managers of a real estate 627-3 investment trust shall be elected by two-thirds of the votes cast 627-4 by the holders of shares entitled to vote in the election of trust 627-5 managers at a meeting of shareholders at which a quorum is present. 627-6 (b) The certificate of formation or bylaws of a real estate 627-7 investment trust may provide that a trust manager of the real 627-8 estate investment trust shall be elected only if the trust manager 627-9 receives: 627-10 (1) the vote of the holders of a specified portion, 627-11 but not less than the majority, of the shares entitled to vote in 627-12 the election of trust managers; 627-13 (2) the vote of the holders of a specified portion, 627-14 but not less than the majority, of the shares entitled to vote in 627-15 the election of trust managers and represented in person or by 627-16 proxy at a meeting of shareholders at which a quorum is present; or 627-17 (3) the vote of the holders of a specified portion, 627-18 but not less than the majority, of the votes cast by the holders of 627-19 shares entitled to vote in the election of trust managers at a 627-20 meeting of shareholders at which a quorum is present. 627-21 (c) Subject to Section 200.259, at each election of trust 627-22 managers of a real estate investment trust each shareholder 627-23 entitled to vote at the election is entitled to vote, in person or 627-24 by proxy, the number of shares owned by the shareholder for as many 627-25 candidates as there are trust managers to be elected and for whose 627-26 election the shareholder is entitled to vote. 627-27 Sec. 200.259. CUMULATIVE VOTING IN ELECTION OF TRUST 628-1 MANAGERS. (a) Cumulative voting is allowed only if specifically 628-2 authorized by the certificate of formation of a real estate 628-3 investment trust. 628-4 (b) Cumulative voting occurs when a shareholder: 628-5 (1) gives one candidate as many votes as the total of 628-6 the number of the trust managers to be elected multiplied by the 628-7 shareholder's shares; or 628-8 (2) distributes the votes among one or more candidates 628-9 using the same principle. 628-10 (c) If cumulative voting is specifically authorized by the 628-11 certificate of formation, a shareholder who intends to cumulate 628-12 votes must give written notice of that intention to the trust 628-13 managers on or before the day preceding the date of the election at 628-14 which the shareholder intends to cumulate votes. 628-15 Sec. 200.260. VOTING ON MATTERS OTHER THAN ELECTION OF TRUST 628-16 MANAGERS. (a) Subject to Subsection (b), with respect to a matter 628-17 other than the election of trust managers or a matter for which the 628-18 affirmative vote of the holders of a specified portion of the 628-19 shares entitled to vote is required by this code, the affirmative 628-20 vote of the holders of the majority of the shares entitled to vote 628-21 on, and who voted for, against, or expressly abstained with respect 628-22 to, the matter at a shareholders' meeting of a real estate 628-23 investment trust at which a quorum is present is the act of the 628-24 shareholders. 628-25 (b) With respect to a matter other than the election of 628-26 trust managers or a matter for which the affirmative vote of the 628-27 holders of a specified portion of the shares entitled to vote is 629-1 required by this code, the certificate of formation or bylaws of a 629-2 real estate investment trust may provide that the act of the 629-3 shareholders of the real estate investment trust is: 629-4 (1) the affirmative vote of the holders of a specified 629-5 portion, but not less than the majority, of the shares entitled to 629-6 vote on that matter; 629-7 (2) the affirmative vote of the holders of a specified 629-8 portion, but not less than the majority, of the shares entitled to 629-9 vote on that matter and represented in person or by proxy at a 629-10 shareholders' meeting at which a quorum is present; 629-11 (3) the affirmative vote of the holders of a specified 629-12 portion, but not less than the majority, of the shares entitled to 629-13 vote on, and who voted for or against, the matter at a 629-14 shareholders' meeting at which a quorum is present; or 629-15 (4) the affirmative vote of the holders of a specified 629-16 portion, but not less than the majority, of the shares entitled to 629-17 vote on, and who voted for, against, or expressly abstained with 629-18 respect to, the matter at a shareholders' meeting at which a quorum 629-19 is present. 629-20 Sec. 200.261. VOTE REQUIRED TO APPROVE FUNDAMENTAL ACTION. 629-21 (a) In this section, a "fundamental action" means: 629-22 (1) an amendment of a certificate of formation; 629-23 (2) a voluntary winding up; or 629-24 (3) a revocation of a voluntary winding up. 629-25 (b) Except as otherwise provided by this code or the 629-26 certificate of formation or bylaws of a real estate investment 629-27 trust in accordance with Section 200.260, the vote required for 630-1 approval of a fundamental action by the shareholders is the 630-2 affirmative vote of the holders of at least two-thirds of the 630-3 outstanding shares entitled to vote on the fundamental action. 630-4 (c) If a class or series of shares is entitled to vote as a 630-5 class on a fundamental action, the vote required for approval of 630-6 the action by the shareholders is the affirmative vote of the 630-7 holders of at least two-thirds of the outstanding shares in each 630-8 class or series of shares entitled to vote on the action as a class 630-9 and at least two-thirds of the outstanding shares otherwise 630-10 entitled to vote on the action. Shares entitled to vote as a class 630-11 shall be entitled to vote only as a class unless otherwise entitled 630-12 to vote on each matter generally or otherwise provided by the 630-13 certificate of formation. 630-14 (d) Unless an amendment to the certificate of formation is 630-15 undertaken by the trust managers under Section 200.103, separate 630-16 voting by a class or series of shares of a real estate investment 630-17 trust is required for approval of an amendment to the certificate 630-18 of formation that would result in: 630-19 (1) the increase or decrease of the aggregate number 630-20 of authorized shares of the class or series; 630-21 (2) the increase or decrease of the par value of the 630-22 shares of the class, including changing shares with par value into 630-23 shares without par value or changing shares without par value into 630-24 shares with par value; 630-25 (3) effecting an exchange, reclassification, or 630-26 cancellation of all or part of the shares of the class or series; 630-27 (4) effecting an exchange or creating a right of 631-1 exchange of all or part of the shares of another class or series 631-2 into the shares of the class or series; 631-3 (5) the change of the designations, preferences, 631-4 limitations, or relative rights of the shares of the class or 631-5 series; 631-6 (6) the change of the shares of the class or series, 631-7 with or without par value, into the same or a different number of 631-8 shares, with or without par value, of the same class or series or 631-9 another class or series; 631-10 (7) the creation of a new class or series of shares 631-11 with rights and preferences equal, prior, or superior to the shares 631-12 of the class or series; 631-13 (8) increasing the rights and preferences of a class 631-14 or series with rights and preferences equal, lesser than, or 631-15 superior to the shares of the class or series; 631-16 (9) increasing the rights and preferences of a class 631-17 or series with rights or preferences later or inferior to the 631-18 shares of the class or series in such a manner that the rights or 631-19 preferences will be equal, prior, or superior to the shares of the 631-20 class or series; 631-21 (10) dividing the shares of the class into series and 631-22 setting and determining the designation of the series and the 631-23 variations in the relative rights and preferences between the 631-24 shares of the series; 631-25 (11) the limitation or denial of existing preemptive 631-26 or cumulative voting rights of the shares of the class or series; 631-27 or 632-1 (12) canceling or otherwise affecting the dividends on 632-2 the shares of the class or series that have accrued but have not 632-3 been declared. 632-4 (e) Unless otherwise provided by the certificate of 632-5 formation, if the holders of the outstanding shares of a class that 632-6 is divided into series are entitled to vote as a class on a 632-7 proposed amendment that would affect equally all series of the 632-8 class, other than a series in which no shares are outstanding or a 632-9 series that is not affected by the amendment, the holders of the 632-10 separate series are not entitled to separate class votes. 632-11 (f) Unless otherwise provided by the certificate of 632-12 formation, a proposed amendment to the certificate of formation 632-13 that would solely effect changes in the designations, preferences, 632-14 limitations, or relative rights, including voting rights, of one or 632-15 more series of shares of the real estate investment trust that have 632-16 been established under the authority granted to the trust managers 632-17 in the certificate of formation in accordance with Section 200.103 632-18 does not require the approval of the holders of the outstanding 632-19 shares of a class or series other than the affected series if, 632-20 after giving effect to the amendment, the preferences, limitations, 632-21 or relative rights of the affected series, or of any new series 632-22 established as a result of a reclassification of the affected 632-23 series, are within the preferences, limitations, and relative 632-24 rights that may be set and determined by the trust managers with 632-25 respect to the establishment of a new series of shares under the 632-26 authority granted to the trust managers in the certificate of 632-27 formation in accordance with Section 200.103. 633-1 Sec. 200.262. CHANGES IN VOTE REQUIRED FOR CERTAIN MATTERS. 633-2 (a) With respect to a matter for which the affirmative vote of the 633-3 holders of a specified portion of the shares entitled to vote is 633-4 required by this code, the certificate of formation of a real 633-5 estate investment trust may provide that the affirmative vote of 633-6 the holders of a specified portion, but not less than the majority, 633-7 of the shares entitled to vote on that matter is required for 633-8 shareholder action on that matter. 633-9 (b) With respect to a matter for which the affirmative vote 633-10 of the holders of a specified portion of the shares of a class or 633-11 series is required by this code, the certificate of formation may 633-12 provide that the affirmative vote of the holders of a specified 633-13 portion, but not less than the majority, of the shares of that 633-14 class or series is required for action of the holders of shares of 633-15 that class or series on that matter. 633-16 (c) If a provision of the certificate of formation provides 633-17 that the affirmative vote of the holders of a specified portion 633-18 that is greater than the majority of the shares entitled to vote on 633-19 a matter is required for shareholder action on that matter, the 633-20 provision may not be amended, directly or indirectly, without the 633-21 same affirmative vote unless otherwise provided by the certificate 633-22 of formation. 633-23 (d) If a provision of the certificate of formation provides 633-24 that the affirmative vote of the holders of a specified portion 633-25 that is greater than the majority of the shares of a class or 633-26 series is required for shareholder action on a matter, the 633-27 provision may not be amended, directly or indirectly, without the 634-1 same affirmative vote unless otherwise provided by the certificate 634-2 of formation. 634-3 Sec. 200.263. NUMBER OF VOTES PER SHARE. (a) Except as 634-4 provided by the certificate of formation of a real estate 634-5 investment trust or this code, each outstanding share, regardless 634-6 of class, is entitled to one vote on each matter submitted to a 634-7 vote at a shareholders' meeting. 634-8 (b) If the certificate of formation provides for more or 634-9 less than one vote per share on a matter for all of the outstanding 634-10 shares or for the shares of a class or series, each reference in 634-11 this code or in the certificate of formation or bylaws, unless 634-12 expressly stated otherwise, to a specified portion of the shares 634-13 with respect to that matter refers to the portion of the votes 634-14 entitled to be cast with respect to those shares under the 634-15 certificate of formation. 634-16 Sec. 200.264. VOTING IN PERSON OR BY PROXY. (a) A 634-17 shareholder may vote in person or by proxy executed in writing by 634-18 the shareholder. 634-19 (b) A telegram, telex, cablegram, electronic message, or 634-20 similar transmission by the shareholder, or a photographic, 634-21 photostatic, facsimile, or similar reproduction of a writing 634-22 executed by the shareholder, is considered an execution in writing 634-23 for purposes of this section. 634-24 Sec. 200.265. TERM OF PROXY. A proxy is not valid after 11 634-25 months after the date the proxy is executed unless otherwise 634-26 provided by the proxy. 634-27 Sec. 200.266. REVOCABILITY OF PROXY. (a) In this section, 635-1 a "proxy coupled with an interest" includes the appointment as 635-2 proxy of: 635-3 (1) a pledgee; 635-4 (2) a person who purchased or agreed to purchase the 635-5 shares subject to the proxy; 635-6 (3) a person who owns or holds an option to purchase 635-7 the shares subject to the proxy; 635-8 (4) a creditor of the real estate investment trust who 635-9 extended the real estate investment trust credit under terms 635-10 requiring the appointment; 635-11 (5) an employee of the real estate investment trust 635-12 whose employment contract requires the appointment; or 635-13 (6) a party to a voting agreement created under 635-14 Section 6.252. 635-15 (b) A proxy is revocable unless: 635-16 (1) the proxy form conspicuously states that the proxy 635-17 is irrevocable; and 635-18 (2) the proxy is coupled with an interest. 635-19 Sec. 200.267. ENFORCEABILITY OF PROXY. (a) An irrevocable 635-20 proxy is specifically enforceable against the holder of shares or 635-21 any successor or transferee of the holder if: 635-22 (1) the proxy is noted conspicuously on the 635-23 certificate representing the shares subject to the proxy; or 635-24 (2) in the case of uncertificated shares, notation of 635-25 the proxy is contained in the notice sent under Section 3.205 with 635-26 respect to the shares subject to the proxy. 635-27 (b) An irrevocable proxy that is otherwise enforceable is 636-1 ineffective against a transferee for value without actual knowledge 636-2 of the existence of the irrevocable proxy at the time of the 636-3 transfer or against a subsequent transferee, regardless of whether 636-4 the transfer is for value, unless the proxy is: 636-5 (1) noted conspicuously on the certificate 636-6 representing the shares subject to the proxy; or 636-7 (2) in the case of uncertificated shares, notation of 636-8 the proxy is contained in the notice sent under Section 3.205 with 636-9 respect to the shares subject to the proxy. 636-10 (c) An irrevocable proxy shall be specifically enforceable 636-11 against a person who is not a transferee for value from the time 636-12 the person acquires actual knowledge of the existence of the 636-13 irrevocable proxy. 636-14 Sec. 200.268. PROCEDURES IN BYLAWS RELATING TO PROXIES. A 636-15 real estate investment trust may establish in the bylaws of the 636-16 real estate investment trust procedures consistent with this code 636-17 for determining the validity of proxies and determining whether 636-18 shares held of record by a bank, broker, or other nominee are 636-19 represented at a meeting of shareholders. The procedures may 636-20 incorporate rules of and determinations made by a self-regulatory 636-21 organization regulating that bank, broker, or other nominee. 636-22 (Sections 200.269-200.300 reserved for expansion) 636-23 SUBCHAPTER G. BOARD OF MANAGERS 636-24 Sec. 200.301. MANAGEMENT BY TRUST MANAGERS. The control, 636-25 operation, disposition, investment, and management of the trust 636-26 estate and the powers necessary or appropriate to effect any 636-27 purpose for which a real estate investment trust is organized are 637-1 vested in one or more trust managers. 637-2 Sec. 200.302. DESIGNATION OF TRUST MANAGERS. (a) The 637-3 certificate of formation of a real estate investment trust must 637-4 contain the name of each trust manager. 637-5 (b) A successor trust manager must be selected in accordance 637-6 with the certificate of formation. The selection of a successor 637-7 trust manager is considered an amendment to the certificate of 637-8 formation of a real estate investment trust. 637-9 Sec. 200.303. TRUST MANAGER ELIGIBILITY REQUIREMENTS. A 637-10 trust manager of a real estate investment trust must be an 637-11 individual. Unless the certificate of formation or bylaws of a 637-12 real estate investment trust provide otherwise, a person is not 637-13 required to be a resident of this state or a shareholder of the 637-14 real estate investment trust to serve as a trust manager. The 637-15 certificate of formation or bylaws may prescribe other 637-16 qualifications for trust managers. 637-17 Sec. 200.304. NUMBER OF TRUST MANAGERS. (a) The 637-18 certificate of formation of a real estate investment trust shall 637-19 set the number constituting the initial trust managers. The 637-20 certificate of formation or bylaws of the real estate investment 637-21 trust shall set the number of successor trust managers or provide 637-22 for the manner of determining the number of successor trust 637-23 managers. 637-24 (b) The number of trust managers may be increased or 637-25 decreased by amendment to, or as provided by, the certificate of 637-26 formation or bylaws. A decrease in the number of trust managers 637-27 may not shorten the term of an incumbent trust manager. 638-1 Sec. 200.305. COMPENSATION. A trust manager or officer of a 638-2 real estate investment trust is entitled to receive compensation 638-3 set by or in the manner provided by the certificate of formation or 638-4 bylaws of the real estate investment trust. If the certificate of 638-5 formation or bylaws do not provide for compensation to trust 638-6 managers and officers, the trust managers of the real estate 638-7 investment trust must determine the compensation. 638-8 Sec. 200.306. TERM OF TRUST MANAGER. (a) Except as 638-9 provided by the certificate of formation or bylaws of a real estate 638-10 investment trust, a trust manager of the real estate investment 638-11 trust serves until the trust manager's successor is elected. 638-12 (b) A trust manager may succeed himself or herself in 638-13 office. 638-14 (c) If a successor trust manager is not elected, the trust 638-15 manager in office continues to serve as trust manager until the 638-16 trust manager's successor is elected. 638-17 Sec. 200.307. STAGGERED TERMS OF TRUST MANAGERS. (a) A 638-18 governing document of a real estate investment trust may provide 638-19 that all or some of the board of trust managers may be divided into 638-20 two or three classes. Each class must include the same or a 638-21 similar number of trust managers as each other class. 638-22 (b) The terms of office of trust managers constituting the 638-23 first class expire on the election of successors at the first 638-24 annual meeting of shareholders after the election of those trust 638-25 managers. The terms of office of trust managers constituting the 638-26 second class expire on the election of successors at the second 638-27 annual meeting of shareholders after election of those trust 639-1 managers. The terms of office of trust managers constituting the 639-2 third class, if any, expire on the election of successors at the 639-3 third annual meeting of shareholders after election of those trust 639-4 managers. 639-5 (c) If a governing document of the real estate investment 639-6 trust provides for the classification of trust managers, an annual 639-7 election for trust managers as a whole is not necessary. At each 639-8 annual meeting held after the classification of trust managers, an 639-9 election shall be held to elect the number of trust managers equal 639-10 to the number of trust managers in the class the term of which 639-11 expires on the date of the meeting, and those trust managers serve 639-12 until: 639-13 (1) the second succeeding annual meeting if there are 639-14 two classes; or 639-15 (2) the third succeeding annual meeting if there are 639-16 three classes. 639-17 (d) Unless provided by the certificate of formation or a 639-18 bylaw adopted by shareholders, staggered terms for trust managers 639-19 do not take effect until the next annual meeting of shareholders at 639-20 which trust managers are elected. Staggered terms for trust 639-21 managers may not be effected if any shareholder has the right to 639-22 cumulate votes for the election of trust managers and the board of 639-23 trust managers consists of fewer than nine trust managers. 639-24 Sec. 200.308. VACANCY. (a) Except as provided by 639-25 Subsection (b), a vacancy occurring on the board of trust managers 639-26 of a real estate investment trust may be filled by the affirmative 639-27 vote of the majority of the remaining trust managers, even if the 640-1 majority of trust managers constitutes less than a quorum of the 640-2 board of trust managers. 640-3 (b) The certificate of formation or bylaws of the real 640-4 estate investment trust may provide an alternative procedure for 640-5 filling vacancies occurring on the board of trust managers, 640-6 including filling vacancies by simple majority or super majority 640-7 votes of the shareholders. 640-8 (c) The term of a trust manager elected to fill a vacancy 640-9 occurring on the board of trust managers is the unexpired term of 640-10 the director's predecessor in office and until the trust manager's 640-11 successor is elected and has qualified. 640-12 Sec. 200.309. NOTICE OF MEETING. (a) Regular meetings of 640-13 the trust managers of a real estate investment trust may be held 640-14 with or without notice as prescribed by the real estate investment 640-15 trust's bylaws. 640-16 (b) Special meetings of the trust managers shall be held 640-17 with notice as prescribed by the bylaws. 640-18 (c) A notice of a board meeting is not required to specify 640-19 the business to be transacted at the meeting or the purpose of the 640-20 meeting, unless required by the bylaws. 640-21 Sec. 200.310. QUORUM. A quorum of the board of trust 640-22 managers of a real estate investment trust is the majority of the 640-23 number of trust managers unless the real estate investment trust's 640-24 certificate of formation or bylaws require a greater number. 640-25 Sec. 200.311. COMMITTEES OF TRUST MANAGERS. (a) If 640-26 authorized by the certificate of formation or bylaws of a real 640-27 estate investment trust, the trust managers of the real estate 641-1 investment trust, by resolution adopted by a majority of the trust 641-2 managers, may designate: 641-3 (1) committees composed of one or more trust managers; 641-4 or 641-5 (2) trust managers as alternate committee members to 641-6 replace absent or disqualified committee members at a committee 641-7 meeting, subject to any limitations imposed by the trust managers. 641-8 (b) To the extent provided by the resolution designating a 641-9 committee or the certificate of formation or bylaws and subject to 641-10 Subsection (c), the committee has the authority of the trust 641-11 managers. 641-12 (c) A committee of the trust managers may not: 641-13 (1) amend the certificate of formation, except to 641-14 classify or reclassify shares in accordance with Section 200.103 if 641-15 authorized by the resolution designating the committee, certificate 641-16 of formation, or bylaws; 641-17 (2) propose a reduction of stated capital of the real 641-18 estate investment trust; 641-19 (3) approve a plan of merger or share exchange of the 641-20 real estate investment trust; 641-21 (4) recommend to shareholders the sale, lease, or 641-22 exchange of all or substantially all of the property and assets of 641-23 the real estate investment trust not made in the usual and regular 641-24 course of its business; 641-25 (5) recommend to the shareholders a voluntary winding 641-26 up and termination or a revocation of the real estate investment 641-27 trust; 642-1 (6) amend, alter, or repeal the bylaws or adopt new 642-2 bylaws; 642-3 (7) fill vacancies on the board of trust managers; 642-4 (8) fill vacancies in or designate alternate members 642-5 of a committee of the trust managers; 642-6 (9) fill a vacancy to be filled because of an increase 642-7 in the number of trust managers; 642-8 (10) elect or remove officers of the real estate 642-9 investment trust or members or alternate members of a committee of 642-10 the trust managers; 642-11 (11) set the compensation of the members or alternate 642-12 members of a committee of the trust managers; or 642-13 (12) alter or repeal a resolution of the trust 642-14 managers that states that it may not be amended or repealed. 642-15 (d) A committee of the trust managers may authorize a 642-16 distribution or the issuance of shares if authorized by the 642-17 resolution designating the committee or the certificate of 642-18 formation. 642-19 (e) The designation of and delegation of authority to a 642-20 committee of the trust managers does not relieve a trust manager of 642-21 responsibility imposed by law. 642-22 Sec. 200.312. LIABILITY OF TRUST MANAGERS. (a) A trust 642-23 manager of a real estate investment trust who votes for or assents 642-24 to a distribution of assets made by the real estate investment 642-25 trust to its shareholders during the liquidation of the real estate 642-26 investment trust without the payment and discharge of or the making 642-27 of adequate provision for the payment of all of the known debts, 643-1 liabilities, and other obligations of the real estate investment 643-2 trust is jointly and severally liable to the real estate investment 643-3 trust for the value of the distributed assets to the extent the 643-4 debts, liabilities, and other obligations are not paid and 643-5 discharged. 643-6 (b) A trust manager of a real estate investment trust who 643-7 votes for or assents to the making of a loan to another trust 643-8 manager or officer of the real estate investment trust or to the 643-9 making of a loan secured by shares of the real estate investment 643-10 trust is jointly and severally liable to the real estate investment 643-11 trust for the loan amount until the loan is repaid. 643-12 (c) A trust manager is not jointly and severally liable 643-13 under Subsection (a) if, in determining the amount available for 643-14 the distribution, the trust manager, acting in good faith and with 643-15 ordinary care: 643-16 (1) relied on information, opinions, reports, or 643-17 statements in accordance with Section 3.101; or 643-18 (2) considered the assets of the real estate 643-19 investment trust to be valued at least at book value. 643-20 Sec. 200.313. STATUTE OF LIMITATIONS ON CERTAIN ACTION 643-21 AGAINST TRUST MANAGERS. An action may not be brought against a 643-22 trust manager of a real estate investment trust under Section 643-23 200.312 after the second anniversary of the date the alleged act 643-24 giving rise to the liability occurred. 643-25 Sec. 200.314. IMMUNITY FROM LIABILITY FOR PERFORMANCE OF 643-26 DUTY. A trust manager of a real estate investment trust may not be 643-27 held liable to the real estate investment trust for an act, 644-1 omission, loss, or expense arising from the performance of the 644-2 trust manager's duties under the trust, except for liability 644-3 arising from the wilful misfeasance, wilful malfeasance, or gross 644-4 negligence of the trust manager. 644-5 Sec. 200.315. OFFICERS. (a) An officer of a real estate 644-6 investment trust designated by a trust manager under Section 3.102 644-7 may exercise all of the powers of a trust manager relating to the 644-8 business and affairs of the real estate investment trust, unless 644-9 action by a trust manager is specified by this code or another 644-10 applicable law. 644-11 (b) A designation of or delegation of authority to an 644-12 officer of a real estate investment trust described by this section 644-13 does not relieve a trust manager of responsibility imposed by law. 644-14 (Sections 200.316-200.350 reserved for expansion) 644-15 SUBCHAPTER H. TRANSACTIONS AND COMPENSATION OF OFFICERS 644-16 OR TRUST MANAGERS 644-17 Sec. 200.351. CONTRACTS OR TRANSACTIONS INVOLVING INTERESTED 644-18 TRUST MANAGERS AND OFFICERS. (a) This section applies only to a 644-19 contract or transaction between a real estate investment trust and: 644-20 (1) one or more of the trust's trust managers or 644-21 officers; or 644-22 (2) an entity or other organization in which one or 644-23 more of the trust's trust managers or officers: 644-24 (A) is a managerial official; or 644-25 (B) has a financial interest. 644-26 (b) An otherwise valid contract or transaction is valid 644-27 notwithstanding that a trust manager or officer of the trust is 645-1 present at or participates in the meeting of the trust managers or 645-2 of a committee of the trust managers that authorizes the contract 645-3 or transaction, or votes to authorize the contract or transaction, 645-4 if: 645-5 (1) the material facts as to the relationship or 645-6 interest and as to the contract or transaction are disclosed to or 645-7 known by: 645-8 (A) the trust managers or a committee of the 645-9 trust managers, and the trust managers or committee of the trust 645-10 managers in good faith authorize the contract or transaction by the 645-11 affirmative vote of the majority of disinterested trust managers, 645-12 regardless of whether the disinterested trust managers constitute a 645-13 quorum; or 645-14 (B) the shareholders entitled to vote on the 645-15 authorization of the contract or transaction, and the contract or 645-16 transaction is specifically approved in good faith by a vote of the 645-17 shareholders; or 645-18 (2) the contract or transaction is fair to the real 645-19 estate investment trust when the contract or transaction is 645-20 authorized, approved, or ratified by the trust managers, a 645-21 committee of the trust managers, or the shareholders. 645-22 (c) Common or interested trust managers may be included in 645-23 determining the presence of a quorum at a meeting of the trust 645-24 managers, or a committee of the trust managers, that authorizes the 645-25 contract or transaction. 645-26 Sec. 200.352. INVESTMENTS. A trust manager or officer of a 645-27 real estate investment trust has complete discretion with respect 646-1 to the investment of the trust estate unless the investment is 646-2 contrary to or inconsistent with: 646-3 (1) this subchapter; 646-4 (2) a provision of the Internal Revenue Code relating 646-5 to or governing real estate investment trusts; or 646-6 (3) regulations adopted under a provision of the 646-7 Internal Revenue Code relating to or governing real estate 646-8 investment trusts. 646-9 (Sections 200.353-200.400 reserved for expansion) 646-10 SUBCHAPTER I. FUNDAMENTAL BUSINESS TRANSACTIONS 646-11 Sec. 200.401. DEFINITIONS. In this subchapter: 646-12 (1) "Participating shares" means shares that entitle 646-13 the holders of the shares to participate without limitation in 646-14 distributions. 646-15 (2) "Shares" includes a receipt or other instrument 646-16 issued by a depository representing an interest in one or more 646-17 shares or fractions of shares of a domestic or foreign real estate 646-18 investment trust that are deposited with the depository. 646-19 (3) "Voting shares" means shares that entitle the 646-20 holders of the shares to vote unconditionally in elections of trust 646-21 managers. 646-22 Sec. 200.402. APPROVAL OF MERGER. (a) A real estate 646-23 investment trust that is a party to the merger under Chapter 10 646-24 must approve the merger by complying with this section. 646-25 (b) The trust managers of the real estate investment trust 646-26 shall adopt a resolution that: 646-27 (1) approves the plan of merger; and 647-1 (2) if shareholder approval of the merger is required 647-2 by this subchapter: 647-3 (A) recommends that the plan of merger be 647-4 approved by the shareholders of the real estate investment trust; 647-5 or 647-6 (B) directs that the plan of merger be submitted 647-7 to the shareholders for approval without recommendation if the 647-8 trust managers determine for any reason not to recommend approval 647-9 of the plan of merger. 647-10 (c) Except as provided by this subchapter or Chapter 10, the 647-11 plan of merger shall be submitted to the shareholders of the real 647-12 estate investment trust for approval as provided by this 647-13 subchapter. The trust managers may place conditions on the 647-14 submission of the plan of merger to the shareholders. 647-15 (d) If the trust managers approve a plan of merger required 647-16 to be approved by the shareholders of the real estate investment 647-17 trust but do not adopt a resolution recommending that the plan of 647-18 merger be approved by the shareholders, the trust managers shall 647-19 communicate to the shareholders the reason for the trust managers' 647-20 determination to submit the plan of merger without a 647-21 recommendation. 647-22 (e) Except as provided by Chapter 10 or Sections 647-23 200.407-200.409, the shareholders of the real estate investment 647-24 trust shall approve the plan of merger as provided by this 647-25 subchapter. 647-26 Sec. 200.403. APPROVAL OF CONVERSION. (a) A real estate 647-27 investment trust must approve a conversion under Chapter 10 by 648-1 complying with this section. 648-2 (b) The trust managers of the real estate investment trust 648-3 shall adopt a resolution that approves the plan of conversion and: 648-4 (1) recommends that the plan of conversion be approved 648-5 by the shareholders of the real estate investment trust; or 648-6 (2) directs that the plan of conversion be submitted 648-7 to the shareholders for approval without recommendation if the 648-8 trust managers determine for any reason not to recommend approval 648-9 of the plan of conversion. 648-10 (c) The plan of conversion shall be submitted to the 648-11 shareholders of the real estate investment trust for approval as 648-12 provided by this subchapter. The trust managers may place 648-13 conditions on the submission of the plan of conversion to the 648-14 shareholders. 648-15 (d) If the trust managers approve a plan of conversion but 648-16 do not adopt a resolution recommending that the plan of conversion 648-17 be approved by the shareholders of the real estate investment 648-18 trust, the trust managers shall communicate to the shareholders the 648-19 reason for the trust managers' determination to submit the plan of 648-20 conversion without a recommendation. 648-21 (e) Except as provided by Sections 200.407-200.409, the 648-22 shareholders of the real estate investment trust must approve the 648-23 plan of conversion as provided by this subchapter. 648-24 Sec. 200.404. APPROVAL OF INTEREST EXCHANGE. (a) A real 648-25 estate investment trust the shares of which are to be acquired in 648-26 an interest exchange under Chapter 10 must approve the interest 648-27 exchange by complying with this section. 649-1 (b) The trust managers shall adopt a resolution that 649-2 approves the plan of exchange and: 649-3 (1) recommends that the plan of exchange be approved 649-4 by the shareholders of the real estate investment trust; or 649-5 (2) directs that the plan of exchange be submitted to 649-6 the shareholders for approval without recommendation if the trust 649-7 managers determine for any reason not to recommend approval of the 649-8 plan of exchange. 649-9 (c) The plan of exchange shall be submitted to the 649-10 shareholders of the real estate investment trust for approval as 649-11 provided by this subchapter. The trust managers may place 649-12 conditions on the submission of the plan of exchange to the 649-13 shareholders. 649-14 (d) If the trust managers approve a plan of exchange but do 649-15 not adopt a resolution recommending that the plan of exchange be 649-16 approved by the shareholders of the real estate investment trust, 649-17 the trust managers shall communicate to the shareholders the reason 649-18 for the trust managers' determination to submit the plan of 649-19 exchange to shareholders without a recommendation. 649-20 (e) Except as provided by Sections 200.407-200.409, the 649-21 shareholders of the real estate investment trust shall approve the 649-22 plan of exchange as provided by this subchapter. 649-23 Sec. 200.405. APPROVAL OF SALE OF ALL OR SUBSTANTIALLY ALL 649-24 OF ASSETS. (a) Except as provided by the certificate of formation 649-25 of a domestic real estate investment trust, a sale, lease, pledge, 649-26 mortgage, assignment, transfer, or other conveyance of an interest 649-27 in real property or other assets of the real estate investment 650-1 trust does not require the approval or consent of the shareholders 650-2 of the real estate investment trust unless the transaction 650-3 constitutes a sale of all or substantially all of the assets of the 650-4 real estate investment trust. 650-5 (b) A real estate investment trust must approve the sale of 650-6 all or substantially all of its assets by complying with this 650-7 section. 650-8 (c) The trust managers of the real estate investment trust 650-9 shall adopt a resolution that approves the sale of all or 650-10 substantially all of the assets of the real estate investment trust 650-11 and: 650-12 (1) recommends that the sale of all or substantially 650-13 all of the assets of the real estate investment trust be approved 650-14 by the shareholders of the real estate investment trust; or 650-15 (2) directs that the sale of all or substantially all 650-16 of the assets of the real estate investment trust be submitted to 650-17 the shareholders for approval without recommendation if the trust 650-18 managers determine for any reason not to recommend approval of the 650-19 sale. 650-20 (d) The sale of all or substantially all of the assets of 650-21 the real estate investment trust shall be submitted to the 650-22 shareholders of the real estate investment trust for approval as 650-23 provided by this subchapter. The trust managers may place 650-24 conditions on the submission of the proposed sale to the 650-25 shareholders. 650-26 (e) If the trust managers approve the sale of all or 650-27 substantially all of the assets of the real estate investment trust 651-1 but do not adopt a resolution recommending that the proposed sale 651-2 be approved by the shareholders of the real estate investment 651-3 trust, the trust managers shall communicate to the shareholders the 651-4 reason for the trust managers' determination to submit the proposed 651-5 sale to shareholders without a recommendation. 651-6 (f) The shareholders of the real estate investment trust 651-7 shall approve the sale of all or substantially all of the assets of 651-8 the real estate investment trust as provided by this subchapter. 651-9 After the approval of the sale by the shareholders, the trust 651-10 managers may abandon the sale of all or substantially all of the 651-11 assets of the real estate investment trust, subject to the rights 651-12 of a third party under a contract relating to the assets, without 651-13 further action or approval by the shareholders. 651-14 Sec. 200.406. GENERAL PROCEDURE FOR SUBMISSION TO 651-15 SHAREHOLDERS OF FUNDAMENTAL BUSINESS TRANSACTION. (a) If a 651-16 fundamental business transaction involving a real estate investment 651-17 trust is required to be submitted to the shareholders of the real 651-18 estate investment trust under this subchapter, the real estate 651-19 investment trust shall notify each shareholder of the real estate 651-20 investment trust that the fundamental business transaction is being 651-21 submitted to the shareholders for approval as required by this 651-22 subchapter, regardless of whether the shareholder is entitled to 651-23 vote on the matter. 651-24 (b) If the fundamental business transaction is a merger, 651-25 conversion, or interest exchange, the notice required by Subsection 651-26 (a) shall contain or be accompanied by a copy or summary of the 651-27 plan of merger, conversion, or interest exchange, as appropriate. 652-1 (c) If the fundamental business transaction is to be 652-2 considered at a meeting of the shareholders of the real estate 652-3 investment trust, the notice of the meeting must: 652-4 (1) be given not later than the 21st day before the 652-5 date of the meeting; and 652-6 (2) state that the purpose, or one of the purposes, of 652-7 the meeting is to consider the fundamental business transaction. 652-8 (d) If the fundamental business transaction is being 652-9 submitted to shareholders by written consent, the notice required 652-10 by Subsection (a) must: 652-11 (1) be given not later than the 21st day before the 652-12 date the fundamental business transaction takes effect; and 652-13 (2) state that the purpose, or one of the purposes, of 652-14 the solicitation of written consents from the shareholders is to 652-15 receive approval for the fundamental business transaction. 652-16 Sec. 200.407. GENERAL VOTE REQUIREMENT FOR APPROVAL OF 652-17 FUNDAMENTAL BUSINESS TRANSACTION. (a) Except as provided by this 652-18 code or the certificate of formation or bylaws of a real estate 652-19 investment trust in accordance with Section 200.261, the 652-20 affirmative vote of the holders of at least two-thirds of the 652-21 outstanding shares of the real estate investment trust entitled to 652-22 vote on a fundamental business transaction is required to approve 652-23 the transaction. 652-24 (b) Unless provided by the certificate of formation or 652-25 Section 200.408, shares of a class or series that are not otherwise 652-26 entitled to vote on matters submitted to shareholders generally 652-27 will not be entitled to vote for the approval of a fundamental 653-1 business transaction. 653-2 (c) Except as provided by this code, if a class or series of 653-3 shares of a real estate investment trust is entitled to vote on a 653-4 fundamental business transaction as a class or series, in addition 653-5 to the vote required under Subsection (a), the affirmative vote of 653-6 the holders of at least two-thirds of the outstanding shares in 653-7 each class or series of shares entitled to vote on the fundamental 653-8 business transaction as a class or series is required to approve 653-9 the transaction. 653-10 (d) Unless required by the certificate of formation, 653-11 approval of a merger by shareholders is not required under this 653-12 code for a real estate investment trust that is a party to the plan 653-13 of merger unless that real estate investment trust is also a party 653-14 to the merger. 653-15 Sec. 200.408. CLASS VOTING REQUIREMENTS FOR CERTAIN 653-16 FUNDAMENTAL BUSINESS TRANSACTIONS. (a) Separate voting by a class 653-17 or series of shares of a real estate investment trust is required 653-18 for approval of a plan of merger or conversion if: 653-19 (1) the plan of merger or conversion contains a 653-20 provision that would require approval by that class or series of 653-21 shares under Section 200.262 if the provision was contained in a 653-22 proposed amendment to the real estate investment trust's 653-23 certificate of formation; or 653-24 (2) that class or series of shares is entitled under 653-25 the certificate of formation to vote as a class on the plan of 653-26 merger or conversion. 653-27 (b) Separate voting by a class or series of shares of a real 654-1 estate investment trust is required for approval of a plan of 654-2 exchange if: 654-3 (1) shares of that class or series are to be exchanged 654-4 under the terms of the plan of exchange; or 654-5 (2) that class or series is entitled under the 654-6 certificate of formation to vote as a class on the plan of 654-7 exchange. 654-8 (c) Separate voting by a class or series of shares of a real 654-9 estate investment trust is required for approval of a sale of all 654-10 or substantially all of the assets of the real estate investment 654-11 trust if that class or series of shares is entitled under the 654-12 certificate of formation to vote as a class on the sale of the real 654-13 estate investment trust's assets. 654-14 Sec. 200.409. NO SHAREHOLDER VOTE REQUIREMENT FOR CERTAIN 654-15 FUNDAMENTAL BUSINESS TRANSACTIONS. (a) Unless required by the 654-16 real estate investment trust's certificate of formation, a plan of 654-17 merger is not required to be approved by the shareholders of a real 654-18 estate investment trust if: 654-19 (1) the real estate investment trust is the sole 654-20 surviving real estate investment trust in the merger; 654-21 (2) the certificate of formation of the real estate 654-22 investment trust following the merger will not differ from the real 654-23 estate investment trust's certificate of formation before the 654-24 merger; 654-25 (3) immediately after the effective date of the 654-26 merger, each shareholder of the real estate investment trust whose 654-27 shares were outstanding immediately before the effective date of 655-1 the merger will hold the same number of shares, with identical 655-2 designations, preferences, limitations, and relative rights; 655-3 (4) the sum of the voting power of the number of 655-4 voting shares outstanding immediately after the merger and the 655-5 voting power of securities that may be acquired on the conversion 655-6 or exercise of securities issued under the merger does not exceed 655-7 by more than 20 percent the voting power of the total number of 655-8 voting shares of the real estate investment trust that are 655-9 outstanding immediately before the merger; and 655-10 (5) the sum of the number of participating shares that 655-11 are outstanding immediately after the merger and the number of 655-12 participating shares that may be acquired on the conversion or 655-13 exercise of securities issued under the merger does not exceed by 655-14 more than 20 percent the total number of participating shares of 655-15 the real estate investment trust that are outstanding immediately 655-16 before the merger. 655-17 (b) Unless required by the certificate of formation, a plan 655-18 of merger effected under Section 10.005 or 10.006 does not require 655-19 the approval of the shareholders of the real estate investment 655-20 trust. 655-21 Sec. 200.410. RIGHTS OF DISSENT AND APPRAISAL. A 655-22 shareholder of a domestic real estate investment trust has the 655-23 rights of dissent and appraisal under Subchapter H, Chapter 10, 655-24 with respect to a fundamental business transaction. 655-25 (Sections 200.411-200.450 reserved for expansion) 655-26 SUBCHAPTER J. WINDING UP AND TERMINATION 655-27 Sec. 200.451. APPROVAL OF VOLUNTARY WINDING UP. A real 656-1 estate investment trust must approve a voluntary winding up in 656-2 accordance with Chapter 11 by the affirmative vote of the 656-3 shareholders of the real estate investment trust as provided by 656-4 Section 200.262. 656-5 Sec. 200.452. APPROVAL OF REINSTATEMENT OR REVOCATION OF 656-6 VOLUNTARY WINDING UP. A real estate investment trust may reinstate 656-7 its existence under Section 11.202 or revoke a voluntary decision 656-8 to wind up under Section 11.151 by the affirmative vote of the 656-9 shareholders in accordance with Section 200.262. 656-10 (Sections 200.453-200.500 reserved for expansion) 656-11 SUBCHAPTER K. MISCELLANEOUS PROVISIONS 656-12 Sec. 200.501. EXAMINATION OF RECORDS. (a) On written 656-13 demand stating a proper purpose, a shareholder of record of a real 656-14 estate investment trust for at least six months immediately 656-15 preceding the shareholder's demand, or a holder of record of at 656-16 least five percent of all of the outstanding shares of a real 656-17 estate investment trust, is entitled to examine and copy, at a 656-18 reasonable time the real estate investment trust's relevant books, 656-19 records of account, minutes, and share transfer records. The 656-20 examination may be conducted in person or through an agent or 656-21 attorney. 656-22 (b) This section does not impair the power of a court, on 656-23 the presentation of proof of proper purpose by a shareholder, to 656-24 compel the production for examination by the shareholder of the 656-25 books and records of accounts, minutes, and share transfer records 656-26 of a real estate investment trust, regardless of the period during 656-27 which the shareholder was a record holder and regardless of the 657-1 number of shares held by the person. 657-2 Sec. 200.502. JOINDER OF SHAREHOLDERS NOT REQUIRED. The 657-3 joinder of shareholders of a real estate investment trust is not 657-4 required for any sale, lease, mortgage, or other disposition of all 657-5 or part of the assets of the real estate investment trust. 657-6 Sec. 200.503. TAX LAW REQUIREMENTS. In connection with a 657-7 real estate investment trust qualifying or attempting to qualify as 657-8 a real estate investment trust under the Internal Revenue Code and 657-9 the regulations adopted under the Internal Revenue Code, a 657-10 provision of this chapter is subject to the provisions of the 657-11 Internal Revenue Code or the regulations relating to or governing 657-12 real estate investment trusts adopted under those provisions if: 657-13 (1) the provision of this chapter is contrary to or 657-14 inconsistent with the federal provisions or regulations; 657-15 (2) the federal provisions or regulations require a 657-16 real estate investment trust to take any action required to secure 657-17 or maintain its status as a real estate investment trust under the 657-18 federal provisions or regulations; or 657-19 (3) the federal provisions or regulations prohibit the 657-20 real estate investment trust from taking any action required to 657-21 secure or maintain its status as a real estate investment trust 657-22 under the federal provision or regulation. 657-23 TITLE 6. ASSOCIATIONS 657-24 CHAPTER 251. COOPERATIVE ASSOCIATIONS 657-25 SUBCHAPTER A. GENERAL PROVISIONS 657-26 Sec. 251.001. DEFINITIONS. In this chapter: 657-27 (1) "Cooperative basis" means that net savings, after 658-1 payment of any investment dividends or after provision for separate 658-2 funds has been made as required or authorized by law, the 658-3 certificate of formation, or bylaws, are: 658-4 (A) allocated or distributed to a member patron 658-5 or to each patron in proportion to patronage; or 658-6 (B) retained by the entity for: 658-7 (i) actual or potential expansion of the 658-8 entity's services; 658-9 (ii) the reduction of charges to patrons; 658-10 or 658-11 (iii) any other purpose consistent with 658-12 the entity's nonprofit character. 658-13 (2) "Invested capital" means funds invested in a 658-14 cooperative association by an investor with the expectation of 658-15 receiving an investment dividend. 658-16 (3) "Investment dividend" means the return on invested 658-17 capital or on membership capital derived from the net savings of 658-18 the cooperative association. 658-19 (4) "Membership capital" means the funds of a 658-20 cooperative association derived from members of the cooperative 658-21 association generally as a requirement of membership or in lieu of 658-22 patronage dividends. The term does not include deposits or loans 658-23 from members. 658-24 (5) "Net savings" means the total income of a 658-25 cooperative association less the costs of operation. 658-26 (6) "Patronage dividend" means a share of the net 658-27 savings distributed among members of the cooperative association on 659-1 the basis of patronage, as provided by the certificate of 659-2 formation. 659-3 (7) "Savings returns" means the amount returned by a 659-4 cooperative association to patrons of a cooperative association in 659-5 proportion to patronage or otherwise. 659-6 Sec. 251.002. APPLICABILITY OF NONPROFIT CORPORATION 659-7 PROVISIONS. (a) A provision of Title 1 and Chapters 20 and 22 659-8 governing nonprofit corporations applies to a cooperative 659-9 association. 659-10 (b) Notwithstanding Subsection (a), this chapter controls 659-11 over any conflicting provision of Title 1 and Chapters 20 and 22 659-12 governing nonprofit corporations. 659-13 Sec. 251.003. EXEMPTION. This chapter does not apply to a 659-14 corporation or association organized under or having a purpose 659-15 prohibited under: 659-16 (1) Title 2; or 659-17 (2) a law listed in Sections 22.051-22.054. 659-18 (Sections 251.004-251.050 reserved for expansion) 659-19 SUBCHAPTER B. PURPOSES AND POWERS 659-20 Sec. 251.051. PURPOSES. (a) A person may incorporate a 659-21 cooperative association under this code to acquire, produce, build, 659-22 operate, manufacture, furnish, exchange, or distribute any type of 659-23 property, commodities, goods, or services for the primary and 659-24 mutual benefit of the members of the cooperative association. 659-25 (b) A cooperative association may not be incorporated or 659-26 organized to: 659-27 (1) serve or function as a health maintenance 660-1 organization; 660-2 (2) furnish medical or health care; or 660-3 (3) employ or contract with a health care provider in 660-4 a manner prohibited by the statute under which the provider is 660-5 licensed. 660-6 Sec. 251.052. GENERAL POWERS. (a) Except as provided by 660-7 this chapter, a cooperative association may exercise the same 660-8 powers and privileges and is subject to the same duties, 660-9 restrictions, and liabilities as a nonprofit corporation under 660-10 Title 1 and Chapters 20 and 22. 660-11 (b) A cooperative association may: 660-12 (1) own and hold membership in other associations or 660-13 corporations; 660-14 (2) own and hold share capital of other associations 660-15 or corporations; 660-16 (3) own and exercise ownership rights in bonds or 660-17 other obligations; 660-18 (4) make agreements of mutual aid or federation with 660-19 other associations, other groups organized on a cooperative basis, 660-20 or other nonprofit groups; and 660-21 (5) deliver money to a scholarship fund for rural 660-22 students. 660-23 Sec. 251.053. LIMITATION ON POWERS. (a) A cooperative 660-24 association may not directly or indirectly engage in a health 660-25 maintenance organization or a prepaid legal service corporation. 660-26 (b) Except for the payment of necessary legal fees or 660-27 promotion expenses, a cooperative association may not directly or 661-1 indirectly use its funds, issue shares, or incur indebtedness for 661-2 the payment of compensation for the organization of the cooperative 661-3 association in excess of five percent of the amount paid for the 661-4 shares or membership certificates involved in the promotion 661-5 transaction. 661-6 (Sections 251.054-251.100 reserved for expansion) 661-7 SUBCHAPTER C. FORMATION 661-8 Sec. 251.101. CERTIFICATE OF FORMATION. In addition to the 661-9 information required by Section 3.005, the certificate of formation 661-10 of a cooperative association must state: 661-11 (1) whether the cooperative association is organized 661-12 with or without shares; 661-13 (2) the number of shares or memberships subscribed for 661-14 the cooperative association; 661-15 (3) if the cooperative association is organized with 661-16 shares: 661-17 (A) the amount of authorized capital; 661-18 (B) the number and type of shares; 661-19 (C) par value of the shares, if any; and 661-20 (D) the rights, preferences, and restrictions of 661-21 each type of share; and 661-22 (4) the method for distributing on winding up and 661-23 termination of any surplus of the cooperative association in 661-24 accordance with Section 251.453. 661-25 Sec. 251.102. ORGANIZATIONAL MEETING. After a cooperative 661-26 association's certificate of formation is issued, the cooperative 661-27 association shall hold an organizational meeting in accordance with 662-1 Section 22.106. 662-2 Sec. 251.103. AMENDMENT OF CERTIFICATE OF FORMATION. (a) 662-3 The board of directors of a cooperative association may propose an 662-4 amendment to the cooperative association's certificate of formation 662-5 by a two-thirds vote of the board members. The members of a 662-6 cooperative association may petition to amend the certificate of 662-7 formation as provided by the bylaws. 662-8 (b) Not later than the 31st day before the date of the 662-9 meeting, the secretary shall: 662-10 (1) send notice of a meeting to consider a proposed 662-11 amendment to each member of the cooperative association at the 662-12 member's last known address; or 662-13 (2) post notice of a meeting to consider a proposed 662-14 amendment in a conspicuous place in all principal places of 662-15 activity of the cooperative association. 662-16 (c) The notice required by Subsection (b) must include the 662-17 full text of the proposed amendment and the text of the part of the 662-18 certificate of formation to be amended. 662-19 (d) To be approved, an amendment must be adopted by the 662-20 affirmative vote of two-thirds of the members voting on the 662-21 amendment. 662-22 (e) Not later than the 30th day after the date an amendment 662-23 is adopted by the members of a cooperative association, the 662-24 cooperative association shall file a certificate of amendment with 662-25 the secretary of state in accordance with Chapter 4. The 662-26 certificate of amendment must be: 662-27 (1) executed by the president and secretary of the 663-1 cooperative association; and 663-2 (2) in the form required by Section 3.052. 663-3 Sec. 251.104. BYLAWS. (a) Unless the certificate of 663-4 formation or bylaws of a cooperative association require a greater 663-5 majority, the bylaws may be adopted, amended, or repealed by a 663-6 majority vote of the cooperative association's members voting on 663-7 the matter. 663-8 (b) Except as provided by this code, the bylaws may contain: 663-9 (1) requirements for admission to membership; 663-10 (2) requirements for disposal of a member's interest 663-11 on cessation of membership; 663-12 (3) the time, place, and manner of calling and 663-13 conducting meetings; 663-14 (4) the number or percentage of the members 663-15 constituting a quorum; 663-16 (5) the number, qualifications, powers, duties, and 663-17 term of directors and officers; 663-18 (6) the method of electing, removing, and filling a 663-19 vacancy of directors and officers; 663-20 (7) the division or classification, if any, of 663-21 directors to provide for staggered terms; 663-22 (8) the compensation, if any, of the directors; 663-23 (9) the number of directors necessary to constitute a 663-24 quorum; 663-25 (10) the method for distributing the net savings; 663-26 (11) a requirement that each officer or employee of 663-27 the cooperative association who handles funds or securities be 664-1 bonded; 664-2 (12) other discretionary provisions of this code; and 664-3 (13) any other provision incident to a purpose or 664-4 activity of the cooperative association. 664-5 (Sections 251.105-251.150 reserved for expansion) 664-6 SUBCHAPTER D. MANAGEMENT 664-7 Sec. 251.151. BOARD OF DIRECTORS. (a) Except as provided 664-8 by Subsections (b) and (c), a cooperative association is managed by 664-9 a board of directors in accordance with Chapter 22. 664-10 (b) The board shall contain at least five directors elected 664-11 by and from the cooperative association's members. A director: 664-12 (1) serves a term not to exceed three years as 664-13 provided by the bylaws; and 664-14 (2) holds office until the director is removed or the 664-15 director's successor is elected. 664-16 (c) The bylaws of a cooperative association may: 664-17 (1) apportion the number of directors among the units 664-18 into which the cooperative association may be divided; and 664-19 (2) provide for the election of the directors by the 664-20 respective units to which the directors are apportioned. 664-21 (d) An executive committee of the board of directors may be 664-22 elected in the manner and with the powers and duties specified by 664-23 the certificate of formation or bylaws. 664-24 Sec. 251.152. OFFICERS. (a) The directors of a cooperative 664-25 association shall annually elect, unless otherwise provided by the 664-26 bylaws, the following officers for the cooperative association: 664-27 (1) a president; 665-1 (2) one or more vice presidents; and 665-2 (3) a secretary and treasurer or a 665-3 secretary-treasurer. 665-4 (b) The officers of a cooperative association may be 665-5 designated by other titles as provided by the certificate of 665-6 formation or the bylaws of the cooperative association. 665-7 Sec. 251.153. REMOVAL OF DIRECTORS AND OFFICERS. (a) A 665-8 director or officer of a cooperative association may be removed 665-9 from office in the manner provided by the certificate of formation 665-10 or bylaws of the cooperative association. 665-11 (b) If the certificate of formation or bylaws do not provide 665-12 for the person's removal, a director or officer may be removed with 665-13 cause by a vote of a majority of the members voting at a regular or 665-14 special meeting. The director or officer who is to be removed is 665-15 entitled to be heard at the meeting. 665-16 (c) Except as provided by the certificate of formation or 665-17 bylaws, a vacancy on the board of directors caused by removal shall 665-18 be filled by a director elected in the same manner provided by the 665-19 bylaws for the election of directors. 665-20 Sec. 251.154. REFERENDUM. (a) The certificate of formation 665-21 or bylaws of a cooperative association may provide for a referendum 665-22 on any action undertaken by the cooperative association's board of 665-23 directors if the referendum is: 665-24 (1) requested by petition of 10 percent or more of all 665-25 of the members of the cooperative association; or 665-26 (2) requested and approved by the vote of at least a 665-27 majority of the directors of the cooperative association. 666-1 (b) The proposition to be voted on in a referendum 666-2 authorized under Subsection (a) must be submitted to the members of 666-3 the cooperative association for consideration within the time 666-4 specified in the document authorizing the referendum. 666-5 (c) A right of a third party that has vested between the 666-6 time of the action and the time of the referendum is not impaired 666-7 by the referendum results. 666-8 (Sections 251.155-251.200 reserved for expansion) 666-9 SUBCHAPTER E. MEMBERSHIP 666-10 Sec. 251.201. ELIGIBILITY AND ADMISSION. An unincorporated 666-11 group or other person organized on a cooperative basis or a 666-12 nonprofit group may be admitted to membership in a cooperative 666-13 association only if the person meets the qualifications for 666-14 eligibility stated in the certificate of formation or bylaws of the 666-15 cooperative association. 666-16 Sec. 251.202. EXPULSION. (a) A member of a cooperative 666-17 association may be expelled by the vote of a majority of the 666-18 cooperative association's members voting at a regular or special 666-19 meeting. 666-20 (b) Not later than the 11th day before the date of the 666-21 meeting, the cooperative association shall give the member written 666-22 notice of the charges. The member is entitled to be heard at the 666-23 meeting in person or by counsel. 666-24 (c) If the cooperative association votes to expel a member, 666-25 the cooperative association's board of directors must purchase the 666-26 member's capital holdings at par value if the purchase does not 666-27 jeopardize the cooperative association's solvency. 667-1 Sec. 251.203. SUBSCRIBERS. (a) A person is a subscriber of 667-2 a cooperative association only if the person is: 667-3 (1) eligible for membership in the cooperative 667-4 association under Section 251.201; and 667-5 (2) legally obligated to purchase a share or 667-6 membership in the cooperative association. 667-7 (b) The certificate of formation or bylaws of a cooperative 667-8 association may state whether and the conditions under which voting 667-9 rights or other membership rights are granted to a subscriber of 667-10 the cooperative association. 667-11 Sec. 251.204. LIABILITY. (a) Except as provided by 667-12 Subsection (b), a member or subscriber of a cooperative association 667-13 is not jointly or severally liable for a debt of the cooperative 667-14 association. A subscriber is liable for any unpaid amount on the 667-15 subscriber's membership certificates or invested capital 667-16 certificates. 667-17 (b) A subscriber who assigns the subscriber's interest in 667-18 membership certificates or invested capital certificates is jointly 667-19 and severally liable with the assignee until the appropriate 667-20 certificates are fully paid. 667-21 (Sections 251.205-251.250 reserved for expansion) 667-22 SUBCHAPTER F. SHARES 667-23 Sec. 251.251. SHARE AND MEMBERSHIP CERTIFICATES: ISSUANCE 667-24 AND CONTENTS. (a) A cooperative association may not issue a 667-25 certificate for membership capital or for invested capital until 667-26 any par value of the certificate has been paid in full. 667-27 (b) Each certificate for membership capital issued by a 668-1 cooperative association must contain a statement of the 668-2 requirements of Sections 251.252, 251.304, and 251.305. 668-3 (c) Each certificate for invested capital issued by a 668-4 cooperative association must contain a statement of the 668-5 restrictions on transferability as provided by the cooperative 668-6 association's bylaws. 668-7 Sec. 251.252. TRANSFER OF SHARES AND MEMBERSHIP; WITHDRAWAL. 668-8 (a) A member who decides to withdraw from a cooperative 668-9 association shall make a written offer to sell the member's 668-10 membership certificates to the cooperative association's board of 668-11 directors. 668-12 (b) Not later than the 90th day after the date the directors 668-13 receive an offer under Subsection (a), the directors may purchase 668-14 the holdings by paying the member the par value of the certificates 668-15 and shall reissue or cancel the shares after purchasing the 668-16 holdings. The directors shall purchase the shares if a majority of 668-17 the cooperative association's members voting at a regular or 668-18 special meeting vote to require the purchase. 668-19 (c) An investor owning investor certificates must sell, 668-20 assign, or convey the certificates in accordance with the 668-21 cooperative association's bylaws. If an investor fails to sell, 668-22 assign, or convey investor certificates in accordance with the 668-23 bylaws, the cooperative association on written notice to its 668-24 directors shall repurchase the certificates by paying the investor 668-25 the par value of the certificate plus all accrued investment 668-26 dividends. The certificates must be repurchased not later than the 668-27 90th day after the date the cooperative association receives notice 669-1 of the failure. 669-2 Sec. 251.253. SHARE AND MEMBERSHIP CERTIFICATES; RECALL. 669-3 (a) The bylaws of a cooperative association may authorize the 669-4 cooperative association's board of directors to recall during a 669-5 specified time and in accordance with the bylaws the membership 669-6 certificates of a member who fails to patronize the cooperative 669-7 association. The board may use the reserve funds to recall, at par 669-8 value, the membership certificates of any member in excess of the 669-9 amount required for membership. 669-10 (b) After the board of directors of a cooperative 669-11 association recalls a membership certificate under Subsection (a), 669-12 membership in the cooperative association is terminated and the 669-13 board shall reissue or cancel the certificate. The board of 669-14 directors may not recall membership certificates if recalling the 669-15 certificates would jeopardize the cooperative association's 669-16 solvency. 669-17 (c) The board of directors may use the reserve funds to 669-18 recall and repurchase the investment certificates of an investor at 669-19 par value plus any investment dividends due. 669-20 (d) The bylaws of a cooperative association may establish 669-21 specific procedures, terms, and conditions for recalls and 669-22 repurchases of investment certificates. 669-23 Sec. 251.254. CERTIFICATES; ATTACHMENT. The minimum amount 669-24 necessary for membership in a cooperative association, not to 669-25 exceed $50, is exempt from attachment, execution, or garnishment 669-26 for the debts of a member of a cooperative association. If a 669-27 member's holdings are subject to attachment, execution, or 670-1 garnishment, the directors of the cooperative association may admit 670-2 the purchaser to membership or may purchase the holdings at par 670-3 value. 670-4 (Sections 251.255-251.300 reserved for expansion) 670-5 SUBCHAPTER G. MEETINGS AND VOTING 670-6 Sec. 251.301. MEETINGS. (a) Regular meetings of members of 670-7 a cooperative association shall be held at least once a year as 670-8 prescribed by the cooperative association's bylaws. 670-9 (b) A special meeting of the members of a cooperative 670-10 association may be requested by a majority vote of the directors or 670-11 by written petition of at least one-tenth of the membership of the 670-12 cooperative association. The secretary shall call a special 670-13 meeting to be held 30 days after receipt of the request for a 670-14 special meeting. 670-15 Sec. 251.302. NOTICE OF SPECIAL MEETING. The notice of a 670-16 special meeting of the members of a cooperative association shall 670-17 state the purpose of the meeting. 670-18 Sec. 251.303. MEETINGS BY UNITS OF MEMBERSHIP. (a) The 670-19 certificate of formation or bylaws of a cooperative association may 670-20 provide for the holding of meetings by units of the membership of 670-21 the cooperative association and may provide for: 670-22 (1) a method of transmitting the votes cast at unit 670-23 meetings to the central meeting; 670-24 (2) a method of representation of units of the 670-25 membership by the election of delegates to the central meeting; or 670-26 (3) a combination of both methods. 670-27 (b) Except as otherwise provided by the bylaws, a meeting by 671-1 a unit of the membership shall be called and held in the same 671-2 manner as a regular meeting of the members. 671-3 Sec. 251.304. ONE MEMBER--ONE VOTE. (a) Except as provided 671-4 by Subsection (b), a member of a cooperative association has one 671-5 vote. 671-6 (b) If a cooperative association includes among its 671-7 membership another cooperative association or a group that is 671-8 organized on a cooperative basis, the voting rights of the 671-9 cooperative association member or group member may be prescribed by 671-10 the certificate of formation or bylaws of the cooperative 671-11 association. 671-12 (c) Any voting agreement or other device that is made to 671-13 evade the one-member-one-vote rule is not enforceable. 671-14 Sec. 251.305. NO PROXY. A member is not entitled to vote by 671-15 proxy. 671-16 Sec. 251.306. VOTING BY MAIL. (a) The certificate of 671-17 formation or bylaws of a cooperative association may contain the 671-18 procedures in Subsection (b) or (c), or both, for voting by mail. 671-19 (b) With notice of a meeting sent to members of the 671-20 cooperative association, the secretary may include a copy of a 671-21 proposal to be offered at the meeting. If a mail vote is returned 671-22 to the cooperative association within the specified number of days, 671-23 the mail vote shall be counted with the votes cast at the meeting. 671-24 (c) The secretary may send to a member of the cooperative 671-25 association who is absent from a meeting an exact copy of the 671-26 proposal considered at the meeting. If the vote is returned to the 671-27 cooperative association within the specified number of days, the 672-1 mail vote is counted with the votes cast at the meeting. 672-2 (d) The certificate of formation or bylaws may state whether 672-3 and to what extent mail votes are counted in computing a quorum. 672-4 Sec. 251.307. VOTING BY MAIL OR BY DELEGATES. (a) If a 672-5 cooperative association has provided for voting by mail or by 672-6 delegates, a provision of this chapter referring to votes cast by 672-7 members of the cooperative association applies to votes cast by 672-8 mail or by delegates. 672-9 (b) A delegate may not vote by mail. 672-10 (Sections 251.308-251.350 reserved for expansion) 672-11 SUBCHAPTER H. CAPITAL AND NET SAVINGS 672-12 Sec. 251.351. LIMITATIONS ON RETURN ON CAPITAL. (a) Except 672-13 as otherwise provided by the cooperative association's bylaws, an 672-14 investment dividend of a cooperative association may not be 672-15 cumulative and may not exceed eight percent of investment capital. 672-16 (b) Total investment dividends distributed for a fiscal 672-17 year may not exceed 50 percent of the net savings for the period. 672-18 Sec. 251.352. ALLOCATION AND DISTRIBUTION OF NET SAVINGS. 672-19 (a) At least once each year the members or directors of a 672-20 cooperative association, as provided by the certificate of 672-21 formation or bylaws of the cooperative association, shall apportion 672-22 the net savings of the cooperative association in the following 672-23 order: 672-24 (1) subject to Section 251.351, investment dividends 672-25 payable from the surplus of the total assets over total liabilities 672-26 may be paid on invested capital or, if authorized by the bylaws, 672-27 may be paid on the membership certificates; 673-1 (2) a portion of the remainder, as determined by the 673-2 certificate of formation or bylaws, may be allocated to an 673-3 educational fund to be used in teaching cooperation; 673-4 (3) a portion of the remainder may be allocated to 673-5 funds for the general welfare of the members of the cooperative 673-6 association; 673-7 (4) a portion of the remainder may be allocated to 673-8 retained earnings; and 673-9 (5) the remainder shall be allocated at the same 673-10 uniform rate to each patron of the cooperative association in 673-11 proportion to individual patronage as follows: 673-12 (A) for a member patron, the proportionate 673-13 amount of savings return distributed to the member may be any 673-14 combination of cash, property, membership certificates, or 673-15 investment certificates; and 673-16 (B) for a subscriber patron, the patron's 673-17 proportionate amount of savings returns as provided by the 673-18 certificate of formation or bylaws may be distributed to the 673-19 subscriber patron or credited to the subscriber patron's account 673-20 until the amount of capital subscribed for has been fully paid. 673-21 (b) This section does not prevent a cooperative association 673-22 engaged in rendering services from disposing of the net savings 673-23 from the rendering of services in a manner that lowers the fees 673-24 charged for services or furthers the common benefit of the members. 673-25 (c) A cooperative association may adopt a system in which: 673-26 (1) the payment of savings returns that would 673-27 otherwise be distributed are deferred for a fixed period; or 674-1 (2) the savings returns distributed are partly in cash 674-2 or partly in shares, to be retired at a fixed future date, in the 674-3 order of the shares' serial numbers or issuance dates. 674-4 (Sections 251.353-251.400 reserved for expansion) 674-5 SUBCHAPTER I. REPORTS AND RECORDS 674-6 Sec. 251.401. RECORDKEEPING. A cooperative association 674-7 shall keep books and records relating to the cooperative 674-8 association's business operation in accordance with standard 674-9 accounting practices. 674-10 Sec. 251.402. REPORTS TO MEMBERS. (a) A cooperative 674-11 association shall submit a written report to its members at the 674-12 annual meeting of the cooperative association. The annual report 674-13 must contain: 674-14 (1) a balance sheet; 674-15 (2) an income and expense statement; 674-16 (3) the amount and nature of the cooperative 674-17 association's authorized, subscribed, and paid-in capital; 674-18 (4) the total number of shareholders; 674-19 (5) the number of shareholders who were admitted to or 674-20 withdrew from the association during the year; 674-21 (6) the par value of the shares; 674-22 (7) the rate at which any investment dividends have 674-23 been paid; and 674-24 (8) if the cooperative association does not issue 674-25 shares: 674-26 (A) the total number of members; 674-27 (B) the number of members who were admitted to 675-1 or withdrew from the association during the year; and 675-2 (C) the amount of membership fees received. 675-3 (b) The directors shall appoint a committee composed of 675-4 members who are not principal bookkeepers, accountants, or 675-5 employees of the cooperative association to review the cooperative 675-6 association. 675-7 (c) The committee appointed under Subsection (b) shall 675-8 report on the quality of the annual report required by this section 675-9 and the bookkeeping system of the cooperative association at the 675-10 annual meeting. 675-11 Sec. 251.403. ANNUAL REPORT OF FINANCIAL CONDITION. (a) 675-12 This section applies only to a cooperative association that has at 675-13 least 100 members or at least $20,000 in annual business. 675-14 (b) Not later than the 120th day after the date on which the 675-15 association closes its business each year, a cooperative 675-16 association shall file in the association's registered office a 675-17 report of the association's financial condition stating: 675-18 (1) the name of the association; 675-19 (2) the address of the association's principal office; 675-20 (3) the name, address, occupation, and date of 675-21 expiration of the term of office of each officer and director; 675-22 (4) any compensation paid by the association to each 675-23 officer or director of the association; 675-24 (5) the amount and nature of the authorized, 675-25 subscribed, and paid-in capital; 675-26 (6) the total number of shareholders; 675-27 (7) the number of shareholders who were admitted to or 676-1 withdrew from the association during the year; 676-2 (8) the par value of the association's shares; 676-3 (9) the rate at which any investment dividends have 676-4 been paid; and 676-5 (10) if the association has no shares: 676-6 (A) the total number of members; 676-7 (B) the number of members who were admitted to 676-8 or withdrew from the association during the year; and 676-9 (C) the amount of membership fees received. 676-10 (c) The report required by Subsection (b) must: 676-11 (1) include a balance sheet and income and expense 676-12 statement of the cooperative association; and 676-13 (2) be sworn to by the president and secretary. 676-14 (d) A cooperative association that has at least 3,000 676-15 members or at least $750,000 in annual business shall file a copy 676-16 of the report required by this section with the secretary of state. 676-17 (e) A person commits an offense if the person subscribes or 676-18 verifies a report that is required by this section and contains a 676-19 materially false statement that the person knows is false. An 676-20 offense under this subsection is a misdemeanor punishable by: 676-21 (1) a fine of not less than $25 or more than $200; 676-22 (2) confinement in county jail for a term of not less 676-23 than 30 days or more than one year; or 676-24 (3) both the fine and confinement. 676-25 Sec. 251.404. FAILURE TO FILE REPORT. (a) If a cooperative 676-26 association required by Section 251.403 to file a copy of a report 676-27 with the secretary of state does not file the report within the 677-1 prescribed time, the secretary of state shall send written notice 677-2 of the requirement to the cooperative association. The notice must 677-3 be sent by registered mail to the cooperative association's 677-4 principal office not later than the 60th day after the date the 677-5 report becomes due. 677-6 (b) If a cooperative association is required by Section 677-7 251.403 to file a report at its registered office but not with the 677-8 secretary of state and fails to file the report within the 677-9 prescribed time, the secretary of state or any member of the 677-10 cooperative association may send written notice of the requirement 677-11 by registered mail to the cooperative association's principal 677-12 office. 677-13 (c) If the cooperative association does not file the report 677-14 before the 61st day after the date notice is sent under Subsection 677-15 (a) or (b), a member of the cooperative association or the attorney 677-16 general may seek a writ of mandamus against the cooperative 677-17 association and the appropriate officer or officers to compel the 677-18 filing of the report. The court shall require the cooperative 677-19 association or the officer who is determined to be at fault to pay 677-20 the expenses of the proceeding, including attorney's fees. 677-21 (Sections 251.405-251.450 reserved for expansion) 677-22 SUBCHAPTER J. WINDING UP AND TERMINATION 677-23 Sec. 251.451. VOLUNTARY WINDING UP AND LIQUIDATION. (a) A 677-24 cooperative association may wind up and liquidate its affairs in 677-25 accordance with Chapter 11 and Section 22.301. 677-26 (b) If a cooperative association is directed to wind up and 677-27 liquidate its affairs, three members of the cooperative association 678-1 elected by a vote of at least a majority of the members voting 678-2 shall be designated as trustees on behalf of the cooperative 678-3 association to: 678-4 (1) pay debts; 678-5 (2) liquidate the cooperative association's assets 678-6 within the time set in the trustees' designation or any extension 678-7 of time; and 678-8 (3) distribute the cooperative association's assets in 678-9 the manner provided by Section 251.453. 678-10 Sec. 251.452. EXECUTION OF CERTIFICATE OF TERMINATION. An 678-11 officer of a cooperative association or one or more of the persons 678-12 designated as a liquidating trustee under Section 251.451 shall 678-13 execute the certificate of termination on behalf of the cooperative 678-14 association. 678-15 Sec. 251.453. DISTRIBUTION OF ASSETS. Subject to Section 678-16 11.052, the trustees designated under Section 251.451 shall 678-17 distribute the cooperative association's assets in the following 678-18 order: 678-19 (1) by returning the par value of the investors' 678-20 capital to investors; 678-21 (2) by returning the amounts paid on subscriptions to 678-22 subscribers who invested capital; 678-23 (3) by returning the amount of patronage dividends 678-24 credited to patrons' accounts to the patrons; 678-25 (4) by returning the membership capital to members; 678-26 and 678-27 (5) by distributing any surplus in the manner provided 679-1 by the certificate of formation: 679-2 (A) among the patrons who have been members or 679-3 subscribers of the cooperative association during the six years 679-4 preceding the date of dissolution, on the basis of patronage during 679-5 that period; 679-6 (B) as a gift to any cooperative association or 679-7 other nonprofit enterprise designated in the certificate of 679-8 formation; or 679-9 (C) a combination of both methods of 679-10 distribution. 679-11 Sec. 251.454. INVOLUNTARY TERMINATION. A suit for 679-12 involuntary termination of a cooperative association organized 679-13 under this chapter may be instituted for the causes and prosecuted 679-14 in the manner provided by Section 11.251. The assets of a 679-15 cooperative association that is involuntarily terminated shall be 679-16 distributed in accordance with Section 251.453. 679-17 (Sections 251.455-251.500 reserved for expansion) 679-18 SUBCHAPTER K. MISCELLANEOUS PROVISIONS 679-19 Sec. 251.501. EXEMPTION FROM TAXES. A cooperative 679-20 association organized under this chapter is exempt from the 679-21 franchise tax and license fees imposed by the state or a political 679-22 subdivision of the state, except that a cooperative association is 679-23 exempt from the franchise tax imposed by Chapter 171, Tax Code, 679-24 only if the cooperative association is exempt under that chapter. 679-25 Sec. 251.502. USE OF NAME "COOPERATIVE." (a) Only a 679-26 cooperative association organized under this title, a group 679-27 organized on a cooperative basis under another law of this state, 680-1 or a foreign corporation operating on a cooperative basis and 680-2 authorized to do business in this state may use the term 680-3 "cooperative" or any abbreviation or derivation of the term 680-4 "cooperative" as part of its business name or represent itself, in 680-5 advertising or otherwise, as conducting business on a cooperative 680-6 basis. 680-7 (b) A person commits an offense if the person violates 680-8 Subsection (a). An offense under this subsection is a misdemeanor 680-9 punishable by: 680-10 (1) a fine of not less than $25 or more than $200 for 680-11 the first month in which the violation occurs; 680-12 (2) a fine of not more than $200 for each month during 680-13 which a violation occurs after the first month; 680-14 (3) confinement in the county jail for not less than 680-15 30 days or more than one year; or 680-16 (4) a combination of those punishments. 680-17 (c) The attorney general may sue to enjoin a violation of 680-18 this section. 680-19 (d) If a court renders a judgment that a person who used the 680-20 term "cooperative" before September 1, 1975, is not organized on a 680-21 cooperative basis but is authorized to continue to use the term, 680-22 the business shall place immediately after its name the words "does 680-23 not comply with the cooperative association law of Texas" in the 680-24 same kind of type and in letters not less than two-thirds the size 680-25 of the letters used in the word "cooperative." 680-26 (e) Notwithstanding this section, The University Cooperative 680-27 Society, a domestic nonprofit corporation related to The University 681-1 of Texas, may continue to use the word "cooperative" in its name. 681-2 CHAPTER 252. UNINCORPORATED NONPROFIT ASSOCIATIONS 681-3 Sec. 252.001. DEFINITIONS. In this chapter: 681-4 (1) "Member" means a person who, under the rules or 681-5 practices of a nonprofit association, may participate in the 681-6 selection of persons authorized to manage the affairs of the 681-7 nonprofit association or in the development of policy of the 681-8 nonprofit association. 681-9 (2) "Nonprofit association" means an unincorporated 681-10 organization, other than one created by a trust, consisting of 681-11 three or more members joined by mutual consent for a common, 681-12 nonprofit purpose. A form of joint tenancy, tenancy in common, or 681-13 tenancy by the entirety does not by itself establish a nonprofit 681-14 association, regardless of whether the co-owners share use of the 681-15 property for a nonprofit purpose. 681-16 Sec. 252.002. SUPPLEMENTARY GENERAL PRINCIPLES OF LAW AND 681-17 EQUITY. Principles of law and equity supplement this chapter 681-18 unless displaced by a particular provision of this chapter. 681-19 Sec. 252.003. TERRITORIAL APPLICATION. Real and personal 681-20 property in this state may be acquired, held, encumbered, and 681-21 transferred by a nonprofit association, regardless of whether the 681-22 nonprofit association or a member has any other relationship to 681-23 this state. 681-24 Sec. 252.004. REAL AND PERSONAL PROPERTY; NONPROFIT 681-25 ASSOCIATION AS BENEFICIARY. (a) A nonprofit association in its 681-26 name may acquire, hold, encumber, or transfer an estate or interest 681-27 in real or personal property. 682-1 (b) A nonprofit association may be a beneficiary of a trust, 682-2 contract, or will. 682-3 Sec. 252.005. STATEMENT OF AUTHORITY AS TO REAL PROPERTY. 682-4 (a) A nonprofit association may execute and record a statement of 682-5 authority to transfer an estate or interest in real property in the 682-6 name of the nonprofit association. 682-7 (b) An estate or interest in real property in the name of a 682-8 nonprofit association may be transferred by a person so authorized 682-9 in a statement of authority recorded in the county clerk's office 682-10 in the county in which a transfer of the property would be 682-11 recorded. 682-12 (c) A statement of authority must contain: 682-13 (1) the name of the nonprofit association; 682-14 (2) the address in this state, including the street 682-15 address, if any, of the nonprofit association, or, if the nonprofit 682-16 association does not have an address in this state, its address out 682-17 of state; and 682-18 (3) the name or title of a person authorized to 682-19 transfer an estate or interest in real property held in the name of 682-20 the nonprofit association. 682-21 (d) A statement of authority must be executed in the same 682-22 manner as a deed by a person who is not the person authorized to 682-23 transfer the estate or interest. 682-24 (e) The county clerk may collect a fee for recording a 682-25 statement of authority in the amount authorized for recording a 682-26 transfer of real property. 682-27 (f) An amendment, including a cancellation, of a statement 683-1 of authority must meet the requirements for execution and recording 683-2 of an original statement. Unless canceled earlier, a recorded 683-3 statement of authority or its most recent amendment is canceled by 683-4 operation of law on the fifth anniversary of the date of the most 683-5 recent recording. 683-6 (g) If the record title to real property is in the name of a 683-7 nonprofit association and the statement of authority is recorded in 683-8 the county clerk's office of the county in which a transfer of real 683-9 property would be recorded, the authority of the person named in a 683-10 statement of authority is conclusive in favor of a person who gives 683-11 value without notice that the person lacks authority. 683-12 Sec. 252.006. LIABILITY IN TORT AND CONTRACT. (a) A 683-13 nonprofit association is a legal entity separate from its members 683-14 for the purposes of determining and enforcing rights, duties, and 683-15 liabilities in contract and tort. 683-16 (b) A person is not liable for a breach of a nonprofit 683-17 association's contract or for a tortious act or omission for which 683-18 a nonprofit association is liable merely because the person is a 683-19 member, is authorized to participate in the management of the 683-20 affairs of the nonprofit association, or is a person considered as 683-21 a member by the nonprofit association. 683-22 (c) A tortious act or omission of a member or other person 683-23 for which a nonprofit association is liable is not imputed to a 683-24 person merely because the person is a member of the nonprofit 683-25 association, is authorized to participate in the management of the 683-26 affairs of the nonprofit association, or is a person considered as 683-27 a member by the nonprofit association. 684-1 (d) A member of, or a person considered as a member by, a 684-2 nonprofit association may assert a claim against the nonprofit 684-3 association. A nonprofit association may assert a claim against a 684-4 member or a person considered as a member by the nonprofit 684-5 association. 684-6 Sec. 252.007. CAPACITY TO ASSERT AND DEFEND; STANDING. 684-7 (a) A nonprofit association, in its name, may institute, defend, 684-8 intervene, or participate in a judicial, administrative, or other 684-9 governmental proceeding or in an arbitration, mediation, or any 684-10 other form of alternative dispute resolution. 684-11 (b) A nonprofit association may assert a claim in its name 684-12 on behalf of members of the nonprofit association if: 684-13 (1) one or more of the nonprofit association's members 684-14 have standing to assert a claim in their own right; 684-15 (2) the interests the nonprofit association seeks to 684-16 protect are germane to its purposes; and 684-17 (3) neither the claim asserted nor the relief 684-18 requested requires the participation of a member. 684-19 Sec. 252.008. EFFECT OF JUDGMENT OR ORDER. A judgment or 684-20 order against a nonprofit association is not by itself a judgment 684-21 or order against a member or a person considered as a member by the 684-22 nonprofit association. 684-23 Sec. 252.009. DISPOSITION OF PERSONAL PROPERTY OF INACTIVE 684-24 NONPROFIT ASSOCIATION. (a) If a nonprofit association has been 684-25 inactive for three years or longer, or a shorter period as 684-26 specified in a document of the nonprofit association, a person in 684-27 possession or control of personal property of the nonprofit 685-1 association may transfer the custody of the property: 685-2 (1) if a document of a nonprofit association specifies 685-3 a person to whom transfer is to be made under these circumstances, 685-4 to that person; or 685-5 (2) if no person is specified, to a nonprofit 685-6 association or nonprofit corporation pursuing broadly similar 685-7 purposes, or to a government or governmental subdivision, agency, 685-8 or instrumentality. 685-9 (b) Notwithstanding the above, if a nonprofit association is 685-10 classified under the Internal Revenue Code as a 501(c)(3) 685-11 organization or is or holds itself out to be established or 685-12 operating for a charitable, religious, or educational purpose, as 685-13 defined by Section 501(c)(3), Internal Revenue Code, then any 685-14 distribution must be made to another nonprofit association or 685-15 nonprofit corporation with similar charitable, religious, or 685-16 educational purposes. 685-17 Sec. 252.010. BOOKS AND RECORDS. (a) A nonprofit 685-18 association shall keep correct and complete books and records of 685-19 account for at least three years after the end of each fiscal year 685-20 and shall make the books and records available on request to 685-21 members of the association for inspection and copying. 685-22 (b) The attorney general may inspect, examine, and make 685-23 copies of the books, records, and other documents the attorney 685-24 general considers necessary and may investigate the association to 685-25 determine if a violation of any law of this state has occurred. 685-26 Sec. 252.011. APPOINTMENT OF AGENT TO RECEIVE SERVICE OF 685-27 PROCESS. (a) A nonprofit association may file in the office of 686-1 the secretary of state a statement appointing an agent authorized 686-2 to receive service of process. 686-3 (b) A statement appointing an agent must contain: 686-4 (1) the name of the nonprofit association; 686-5 (2) the federal tax identification number of the 686-6 nonprofit association, if applicable; 686-7 (3) the address in this state, including the street 686-8 address, if any, of the nonprofit association, or, if the nonprofit 686-9 association does not have an address in this state, its address out 686-10 of state; and 686-11 (4) the name of the person in this state authorized to 686-12 receive service of process and the person's address, including the 686-13 street address, in this state. 686-14 (c) A statement appointing an agent must be signed by a 686-15 person authorized to manage the affairs of the nonprofit 686-16 association. The statement must also be signed by the person 686-17 appointed agent, who by signing accepts the appointment. The 686-18 appointed agent may resign by filing a resignation in the office of 686-19 the secretary of state and giving notice to the nonprofit 686-20 association. 686-21 (d) The secretary of state may collect a fee for filing a 686-22 statement appointing an agent to receive service of process, an 686-23 amendment, a cancellation, or a resignation in the amount charged 686-24 for filing similar documents. 686-25 (e) An amendment to a statement appointing an agent to 686-26 receive service of process must meet the requirements for execution 686-27 of an original statement. 687-1 (f) A statement appointing an agent may be canceled by 687-2 filing with the secretary of state a written notice of cancellation 687-3 executed by a person authorized to manage the affairs of the 687-4 nonprofit association. A notice of cancellation must contain: 687-5 (1) the name of the nonprofit association; 687-6 (2) the federal tax identification number of the 687-7 nonprofit association, if applicable; 687-8 (3) the date of filing of the nonprofit association's 687-9 statement appointing the agent; and 687-10 (4) a current street address, if any, of the nonprofit 687-11 association in this state, or if the nonprofit association does not 687-12 have an address in this state, its address out of state. 687-13 (g) The secretary of state may adopt forms and procedural 687-14 rules for filing documents under this section. 687-15 Sec. 252.012. CLAIM NOT ABATED BY CHANGE. A claim for 687-16 relief against a nonprofit association does not abate merely 687-17 because of a change in the members or persons authorized to manage 687-18 the affairs of the nonprofit association. 687-19 Sec. 252.013. SUMMONS AND COMPLAINT; SERVICE. (a) In an 687-20 action or proceeding against a nonprofit association, a summons and 687-21 complaint must be served on an agent authorized by appointment to 687-22 receive service of process, an officer, a managing or general 687-23 agent, or a person authorized to participate in the management of 687-24 its affairs, in accordance with the Civil Practice and Remedies 687-25 Code. 687-26 (b) Not later than the 10th day after the date of a request 687-27 by the attorney general to an officer or board member of a 688-1 nonprofit association or to the nonprofit association, the 688-2 nonprofit association shall provide to the attorney general the 688-3 names, current addresses, and telephone numbers of: 688-4 (1) each agent authorized to receive service of 688-5 process on behalf of the nonprofit association; and 688-6 (2) each officer, managing or general agent, and other 688-7 person authorized to participate in the management of the affairs 688-8 of the nonprofit association. 688-9 Sec. 252.014. UNIFORMITY OF APPLICATION AND CONSTRUCTION. 688-10 This chapter shall be applied and construed to make uniform the law 688-11 with respect to the subject of this chapter among states enacting 688-12 it. 688-13 Sec. 252.015. TRANSITION CONCERNING REAL AND PERSONAL 688-14 PROPERTY. If, before September 1, 1995, an estate or interest in 688-15 real or personal property was by the terms of the transfer 688-16 purportedly transferred to a nonprofit association, but under the 688-17 law the estate or interest was vested in a fiduciary such as 688-18 officers of the nonprofit association to hold the estate or 688-19 interest for members of the nonprofit association, on or after 688-20 September 1, 1995, the fiduciary may transfer the estate or 688-21 interest to the nonprofit association in its name, or the nonprofit 688-22 association, by appropriate proceedings, may require that the 688-23 estate or interest be transferred to it in its name. 688-24 Sec. 252.016. SAVING CLAUSE. This chapter does not affect 688-25 an action or proceeding begun or a right accrued before September 688-26 1, 1995. 688-27 Sec. 252.017. EFFECT ON OTHER LAW. This chapter replaces 689-1 existing law with respect to matters covered by this chapter but 689-2 does not affect other law covering unincorporated nonprofit 689-3 associations. 689-4 CHAPTER 253. UNINCORPORATED JOINT STOCK COMPANIES OR 689-5 ASSOCIATIONS 689-6 Sec. 253.001. APPLICABILITY OF CHAPTER. This chapter 689-7 applies to an action by or against an unincorporated joint stock 689-8 company or association or to an action for the enforcement of the 689-9 liability of a stockholder of the company or association. 689-10 Sec. 253.002. EFFECT OF CHAPTER. This chapter does not 689-11 affect or impair the right of an unincorporated joint stock company 689-12 or association to sue in the individual names of its stockholders 689-13 or members or the right of a person to sue the individual 689-14 stockholders or members. 689-15 Sec. 253.003. CUMULATIVE REMEDIES. Each remedy provided by 689-16 this chapter is cumulative of other remedies in law. 689-17 Sec. 253.004. SUIT IN NAME OF JOINT STOCK ASSOCIATION. A 689-18 domestic or foreign unincorporated joint stock company or 689-19 association doing business in this state may sue or be sued in the 689-20 name of the company or association. An individual stockholder or 689-21 member of the company or association does not need to be a named 689-22 party to the suit. 689-23 Sec. 253.005. SERVICE OF CITATION. In an action against a 689-24 joint stock company or association, citation may be served in the 689-25 manner provided by Section 17.023, Civil Practice and Remedies 689-26 Code. Service of citation may also be provided to a stockholder or 689-27 member of the company or association. 690-1 Sec. 253.006. LIABILITY OF STOCKHOLDERS OR MEMBERS. A 690-2 stockholder of an unincorporated joint stock company or association 690-3 is liable to the same extent as a partner in a general partnership 690-4 under this code. 690-5 Sec. 253.007. EXECUTION OF JUDGMENT. (a) In a suit against 690-6 a joint stock company or association, if service is only made on an 690-7 officer or agent of the company or association specified by Section 690-8 17.023, Civil Practice and Remedies Code, a judgment rendered 690-9 against the company or association is binding on the joint property 690-10 of all of the stockholders or members of the company or association 690-11 and may be enforced by execution against the joint property. The 690-12 judgment is not binding on the individual property of the 690-13 stockholders or members of the company or association and does not 690-14 authorize execution against the property of a stockholder or 690-15 member. 690-16 (b) A judgment against a joint stock company or association 690-17 is binding on the individual property of a stockholder or member of 690-18 the company or association who is served with citation. The 690-19 judgment may be executed against the individual property of the 690-20 stockholder only after execution against the joint property has 690-21 been returned unsatisfied. 690-22 TITLE 7. PROFESSIONAL ENTITIES 690-23 CHAPTER 301. PROVISIONS RELATING TO PROFESSIONAL 690-24 ENTITIES 690-25 Sec. 301.001. APPLICABILITY OF TITLE. (a) This title 690-26 applies only to a professional entity or foreign professional 690-27 entity. 691-1 (b) This title does not affect: 691-2 (1) the professional relationship between a person who 691-3 provides a professional service and the recipient of that service, 691-4 including any privilege of confidentiality arising from that 691-5 relationship under state law; or 691-6 (2) a person's legal remedies against another person 691-7 who commits an error, omission, negligent or incompetent act, or 691-8 malfeasance while providing a professional service. 691-9 Sec. 301.002. CONFLICTS OF LAW. This title prevails over a 691-10 conflicting provision of Title 1, 2, 3, or 4. 691-11 Sec. 301.003. DEFINITION. In this title, "professional 691-12 organization," with respect to a professional corporation or a 691-13 professional limited liability company, means a person other than 691-14 an individual, whether nonprofit, for-profit, domestic, or foreign 691-15 and including a nonprofit corporation or nonprofit association, 691-16 that renders the same professional service as the professional 691-17 corporation or professional limited liability company only through 691-18 owners, members, managerial officials, employees, or agents, each 691-19 of whom is a professional individual or professional organization. 691-20 Sec. 301.004. AUTHORIZED PERSON. For purposes of this 691-21 title, a person is authorized to act with respect to: 691-22 (1) a professional association if the person is a 691-23 professional individual; and 691-24 (2) a professional corporation or a professional 691-25 limited liability company if the person is a professional 691-26 individual or organization. 691-27 Sec. 301.005. ADDITIONAL INFORMATION REQUIRED IN CERTIFICATE 692-1 OF FORMATION. In addition to the information required to be 692-2 included in a certificate of formation under Section 3.005, the 692-3 certificate of formation of a professional entity must state: 692-4 (1) the type of professional service to be provided by 692-5 the professional entity as the purpose of the entity; and 692-6 (2) that the professional entity is a: 692-7 (A) professional association; 692-8 (B) professional corporation; or 692-9 (C) professional limited liability company. 692-10 Sec. 301.006. APPLICATION FOR REGISTRATION OF FOREIGN 692-11 PROFESSIONAL ENTITY. (a) A foreign professional entity may file 692-12 an application for registration to provide a professional service 692-13 in this state in accordance with Chapter 9. 692-14 (b) The secretary of state may accept an application filed 692-15 under Subsection (a) only if: 692-16 (1) the name and purpose of the foreign professional 692-17 entity stated in the application comply with this title and 692-18 Chapters 2 and 5; and 692-19 (2) the application states that the jurisdiction of 692-20 formation of the foreign professional entity permits reciprocal 692-21 admission of an entity formed under this code. 692-22 Sec. 301.007. LICENSE REQUIRED TO PROVIDE PROFESSIONAL 692-23 SERVICE. (a) A professional association or foreign professional 692-24 association may provide a professional service in this state only 692-25 through owners, managerial officials, employees, or agents, each of 692-26 whom: 692-27 (1) is a professional individual; and 693-1 (2) is licensed in this state to provide the same 693-2 professional service provided by the entity. 693-3 (b) A professional entity, other than a professional 693-4 association, may provide a professional service in this state only 693-5 through owners, managerial officials, employees, or agents, each of 693-6 whom is an authorized person. 693-7 (c) An individual may not, under the guise of employment, 693-8 provide a professional service in this state unless the individual 693-9 is licensed to provide the professional service under the laws of 693-10 this state. 693-11 (d) This section may not be construed to prohibit a 693-12 professional entity or foreign professional entity from employing 693-13 individuals who do not, according to general custom and practice, 693-14 ordinarily provide a professional service, including clerks, 693-15 secretaries, bookkeepers, technicians, nurses, or assistants. 693-16 Sec. 301.008. CERTAIN REQUIREMENTS TO BE OWNER, GOVERNING 693-17 PERSON, OR OFFICER. (a) A person may be an owner of a 693-18 professional entity or a governing person of a professional limited 693-19 liability company only if the person is an authorized person. 693-20 (b) An individual may be an officer of a professional entity 693-21 or a governing person of a professional association or professional 693-22 corporation only if the individual is a professional individual. 693-23 Sec. 301.009. DUTIES AND POWERS OF OWNER OR MANAGERIAL 693-24 OFFICIAL WHO CEASES TO BE LICENSED; PURCHASE OF OWNERSHIP INTEREST. 693-25 (a) A managerial official of a professional entity who ceases to 693-26 satisfy the requirements of Section 301.008 shall promptly resign 693-27 the person's position and employment with the entity. 694-1 (b) An owner of a professional entity who ceases to be an 694-2 authorized person as required by Section 301.008 shall promptly 694-3 relinquish the person's ownership interest in the entity. 694-4 (c) A person who becomes an owner of a professional entity 694-5 by succeeding to the ownership interest of another owner of the 694-6 entity shall promptly relinquish the person's financial interest in 694-7 the entity if the person is not an authorized person as required by 694-8 Section 301.008. 694-9 (d) A professional entity shall purchase or cause to be 694-10 purchased the ownership interest in the entity of a person who is 694-11 required to relinquish the person's financial interest in the 694-12 entity under this section. The price and terms of a purchase of an 694-13 ownership interest required under this subsection may be provided 694-14 by the governing documents of the entity or an applicable 694-15 agreement. 694-16 (e) A person who owns all of the outstanding ownership 694-17 interests in a professional entity but is required under this 694-18 section to relinquish the person's financial interest in the entity 694-19 may act as a managerial official or owner of the entity only for 694-20 the purpose of winding up the affairs of the entity, including 694-21 selling the outstanding ownership interests and other assets of the 694-22 entity. 694-23 Sec. 301.010. TRANSFER OF OWNERSHIP INTEREST. Except as 694-24 limited by the governing documents of the professional entity or an 694-25 applicable agreement, an ownership interest in a professional 694-26 entity may be transferred only to: 694-27 (1) an owner of the entity; 695-1 (2) the entity itself; or 695-2 (3) an authorized person. 695-3 Sec. 301.011. LIABILITY. (a) A professional entity is 695-4 jointly and severally liable for an error, omission, negligent or 695-5 incompetent act, or malfeasance committed by a person who: 695-6 (1) is an owner, managerial official, employee, or 695-7 agent of the entity; and 695-8 (2) commits the error, omission, negligent or 695-9 incompetent act, or malfeasance while providing a professional 695-10 service for the entity or during the course of the person's 695-11 employment. 695-12 (b) An owner, managerial official, employee, or agent of a 695-13 professional entity other than an owner, managerial official, 695-14 employee, or agent liable under Subsection (a) is not subject to 695-15 the same liability imposed on the professional entity under this 695-16 section. 695-17 (c) If a person described by Subsection (a) is a 695-18 professional organization, the professional organization and the 695-19 professional entity are jointly and severally liable for the error, 695-20 omission, negligent or incompetent act, or malfeasance committed by 695-21 the person while providing a professional service for the 695-22 professional entity or during the course of the person's 695-23 employment. 695-24 Sec. 301.012. EXEMPTION FROM SECURITIES LAWS. (a) A sale, 695-25 issuance, or offer for sale of an ownership interest in a 695-26 professional entity to a person authorized under this title to own 695-27 an ownership interest in the professional entity is exempt from any 696-1 state law, other than this code, that regulates the sale, issuance, 696-2 or offer for sale of securities. 696-3 (b) A transaction described by Subsection (a) does not 696-4 require the approval of or other action by a state official or 696-5 regulatory agency authorized to regulate the sale, issuance, or 696-6 offer for sale of securities. 696-7 CHAPTER 302. PROVISIONS RELATING TO PROFESSIONAL ASSOCIATIONS 696-8 Sec. 302.001. APPLICABILITY OF CERTAIN PROVISIONS GOVERNING 696-9 FOR-PROFIT CORPORATIONS. The provisions of Chapters 20 and 21 696-10 governing a for-profit corporation apply to a professional 696-11 association, unless there is a conflict with this title. 696-12 Sec. 302.002. CERTIFICATE OF FORMATION; ADDITIONAL 696-13 REQUIREMENTS. (a) One or more persons who are licensed to 696-14 practice medicine, osteopathy, or podiatry may form a professional 696-15 association by filing a certificate of formation in accordance with 696-16 Chapter 3 for the purpose of providing the professional service. 696-17 (b) In addition to containing the information required under 696-18 Sections 3.005 and 301.005, the certificate of formation of a 696-19 professional association must: 696-20 (1) be signed by each member of the association; and 696-21 (2) state: 696-22 (A) the name and address of each original member 696-23 of the association; and 696-24 (B) that a member of the association may not 696-25 dissolve the association independently of other members of the 696-26 association. 696-27 (c) The certificate of formation of a professional 697-1 association may: 697-2 (1) contain provisions governing the winding up and 697-3 termination of the association's business; 697-4 (2) contain provisions regarding shares or units of 697-5 ownership in the association; and 697-6 (3) contain any other provision consistent with state 697-7 law regulating the internal affairs of a professional association. 697-8 Sec. 302.003. DURATION OF PROFESSIONAL ASSOCIATION. A 697-9 professional association continues: 697-10 (1) for all purposes as a separate entity independent 697-11 of the association's members until: 697-12 (A) the expiration of the period of duration 697-13 stated in the certificate of formation; or 697-14 (B) the association is dissolved in the manner 697-15 provided by the certificate of formation or, if the certificate of 697-16 formation does not provide a manner for dissolution, by a 697-17 two-thirds vote of the association's members; and 697-18 (2) in existence notwithstanding: 697-19 (A) the death, insanity, incompetency, felony 697-20 conviction, resignation, withdrawal, transfer of ownership 697-21 interest, or expulsion of a member other than the last surviving 697-22 member of the association; 697-23 (B) the admission of a new member or the 697-24 transfer of ownership interest to a new or existing member; or 697-25 (C) the occurrence of an event that would 697-26 require the winding up of a partnership under state law or similar 697-27 circumstances. 698-1 Sec. 302.004. AMENDMENT OF CERTIFICATE OF FORMATION. (a) A 698-2 professional association may amend the association's certificate of 698-3 formation as provided by: 698-4 (1) Chapter 3; 698-5 (2) the procedure for amendment stated in the 698-6 certificate of formation; or 698-7 (3) if the certificate of formation does not provide a 698-8 procedure for amending the certificate, two-thirds vote of the 698-9 association's members. 698-10 (b) A professional association is not required to amend the 698-11 association's certificate of formation to reflect a change in 698-12 membership or a transfer of ownership interests in the association. 698-13 Sec. 302.005. ADOPTION OF BYLAWS; DELEGATION OF AUTHORITY. 698-14 (a) The members of a professional association may adopt bylaws for 698-15 the association. 698-16 (b) The authority to adopt bylaws of a professional 698-17 association granted under Subsection (a) may be delegated under the 698-18 certificate of formation to the governing authority of the 698-19 association. 698-20 Sec. 302.006. GOVERNING AUTHORITY. (a) A professional 698-21 association shall be governed by: 698-22 (1) a board of directors; or 698-23 (2) an executive committee. 698-24 (b) The governing authority of a professional association 698-25 shall be elected by the members of the association. 698-26 Sec. 302.007. MEMBERS' VOTING RIGHTS. A member of a 698-27 professional association is entitled to cast a vote at a meeting of 699-1 the members as provided by the certificate of formation of the 699-2 association. 699-3 Sec. 302.008. ELECTION OF OFFICERS. The governing authority 699-4 of a professional association shall elect officers of the 699-5 association. 699-6 Sec. 302.009. OFFICER AND GOVERNING AUTHORITY ELIGIBILITY 699-7 REQUIREMENTS. (a) Only a member of the professional association 699-8 is eligible to serve as an officer or governing person of a 699-9 professional association. 699-10 (b) Except as provided by Subsection (c), a person is not 699-11 required to be a governing person of a professional association to 699-12 serve as an officer of the association. 699-13 (c) Only a governing person of a professional association is 699-14 eligible to serve as the president of the professional association. 699-15 Sec. 302.010. GENERAL POWERS, DUTIES, AND LIABILITIES. 699-16 Except as provided by this title, a professional association has 699-17 the same powers, privileges, duties, restrictions, and liabilities 699-18 as a for-profit corporation under Chapters 20 and 21. 699-19 Sec. 302.011. EMPLOYMENT OF AGENTS AND EMPLOYEES. The 699-20 officers of a professional association may employ agents or 699-21 employees for the association as the officers consider advisable. 699-22 Sec. 302.012. LIMITATION ON MEMBER'S POWER TO BIND 699-23 ASSOCIATION. A member of a professional association is not 699-24 entitled to bind the association within the scope of the 699-25 association's business or profession merely by virtue of being a 699-26 member of the professional association. 699-27 Sec. 302.013. DIVISION OF PROFITS. The members of a 700-1 professional association shall divide the profits derived from the 700-2 association in the manner provided by the governing documents of 700-3 the association. 700-4 Sec. 302.014. JOINT PRACTICE BY CERTAIN PROFESSIONALS. (a) 700-5 Persons licensed as doctors of medicine and persons licensed as 700-6 doctors of osteopathy by the Texas State Board of Medical Examiners 700-7 and persons licensed as podiatrists by the Texas State Board of 700-8 Podiatric Medical Examiners may jointly form and own a professional 700-9 association as provided by this section. 700-10 (b) A professional association formed under Subsection (a) 700-11 may provide a professional service only if a member of the 700-12 association is licensed in this state to provide that type of 700-13 professional service. 700-14 (c) A member of a professional association formed under 700-15 Subsection (a) may provide a professional service for the 700-16 association only if the member is licensed in this state to provide 700-17 that type of professional service. 700-18 (d) A member of a professional association formed under 700-19 Subsection (a) may not through any type of arrangement, including 700-20 an agreement, bylaw, directive, or financial incentive, exercise 700-21 control over the conduct of another member of the association who 700-22 provides a different type of professional service for the 700-23 association. 700-24 Sec. 302.015. ANNUAL STATEMENT REQUIRED. (a) In June of 700-25 each year, a professional association shall file with the secretary 700-26 of state a statement that: 700-27 (1) lists: 701-1 (A) the name and address of each member of the 701-2 association; and 701-3 (B) the name of each officer and governing 701-4 person of the association; and 701-5 (2) states that each member of the association is 701-6 licensed to provide the same type of professional service provided 701-7 by the association. 701-8 (b) The statement required by this section must be executed 701-9 by an officer of the association on behalf of the association. 701-10 Sec. 302.016. WINDING UP AND TERMINATION; CERTIFICATE OF 701-11 TERMINATION. (a) A professional association may wind up and 701-12 terminate the association's business as provided by: 701-13 (1) the association's certificate of formation; or 701-14 (2) if the certificate of formation does not provide 701-15 for the winding up and termination of the association, two-thirds 701-16 vote of the association's members. 701-17 (b) Except as provided by Subsection (c), a certificate of 701-18 termination must be executed by an officer of the professional 701-19 association on behalf of the association. 701-20 (c) If a professional association does not have any living 701-21 officer, the certificate of termination must be executed by the 701-22 legal representative of the last surviving officer of the 701-23 association. 701-24 CHAPTER 303. PROVISIONS RELATING TO PROFESSIONAL CORPORATIONS 701-25 Sec. 303.001. APPLICABILITY OF CERTAIN PROVISIONS GOVERNING 701-26 FOR-PROFIT CORPORATIONS. The provisions of Chapters 20 and 21 701-27 governing a for-profit corporation apply to a professional 702-1 corporation, unless there is a conflict with this title. 702-2 Sec. 303.002. PROFESSIONAL CORPORATION NOT A PARTNERSHIP. A 702-3 professional corporation is not a partnership. 702-4 Sec. 303.003. GENERAL POWERS, DUTIES, AND LIABILITIES. 702-5 Except as provided by this title, a professional corporation has 702-6 the same powers, privileges, duties, restrictions, and liabilities 702-7 as a for-profit corporation. 702-8 Sec. 303.004. AUTHORITY AND LIABILITY OF SHAREHOLDER. (a) 702-9 A shareholder of a professional corporation is not required to 702-10 supervise the performance of duties by an officer or employee of 702-11 the corporation. 702-12 (b) A shareholder of a professional corporation is subject 702-13 to the same liability imposed on a shareholder of a for-profit 702-14 corporation. 702-15 Sec. 303.005. NOTICE OF RESTRICTION ON TRANSFER OF SHARES. 702-16 Any restriction on the transfer of shares in a professional 702-17 corporation that is imposed by the governing documents of the 702-18 corporation or an applicable agreement must be: 702-19 (1) noted on each certificate representing the shares; 702-20 or 702-21 (2) incorporated by reference in the manner provided 702-22 by Chapter 21. 702-23 Sec. 303.006. REDEMPTION OF SHARES; PRICE AND TERMS. (a) A 702-24 professional corporation may redeem shares of a shareholder, 702-25 including a deceased shareholder. 702-26 (b) The price and other terms of a redemption of shares may 702-27 be: 703-1 (1) agreed to between the board of directors or 703-2 executive committee of the professional corporation and the 703-3 shareholder or the shareholder's personal representative; or 703-4 (2) specified in the governing documents of the 703-5 professional corporation or an applicable agreement. 703-6 Sec. 303.007. EXISTENCE OF PROFESSIONAL CORPORATION BEFORE 703-7 WINDING UP AND TERMINATION. A professional corporation continues 703-8 to exist until the winding up and termination of the corporation as 703-9 provided by Chapter 11 without regard to: 703-10 (1) the death, incompetency, bankruptcy, resignation, 703-11 withdrawal, retirement, or expulsion of any shareholder of the 703-12 corporation; 703-13 (2) the transfer of shares to a new shareholder; or 703-14 (3) the occurrence of an event requiring the winding 703-15 up of a partnership. 703-16 Sec. 303.008. WINDING UP AND TERMINATION OF PROFESSIONAL 703-17 CORPORATION. A shareholder of a professional corporation may not 703-18 independently of other shareholders of the corporation wind up the 703-19 affairs of and terminate the corporation. 703-20 CHAPTER 304. PROVISIONS RELATING TO PROFESSIONAL LIMITED 703-21 LIABILITY COMPANIES 703-22 Sec. 304.001. APPLICABILITY OF CERTAIN PROVISIONS GOVERNING 703-23 LIMITED LIABILITY CORPORATIONS. Title 3 applies to a professional 703-24 limited liability company, unless there is a conflict with this 703-25 title. 703-26 TITLE 8. MISCELLANEOUS AND TRANSITION PROVISIONS 703-27 CHAPTER 401. GENERAL PROVISIONS 704-1 Sec. 401.001. DEFINITIONS. In this title: 704-2 (1) "Mandatory application date" means: 704-3 (A) for an entity subject to this code under 704-4 Section 402.001, the date of formation or registration of the 704-5 entity; 704-6 (B) for an entity subject to this code under 704-7 Section 402.003 or 402.004, the date of filing of documentation 704-8 necessary to adopt this code; and 704-9 (C) for any other entity, January 1, 2006. 704-10 (2) "Prior law" means the applicable law in effect 704-11 before January 1, 2002. 704-12 CHAPTER 402. MISCELLANEOUS AND TRANSITION PROVISIONS 704-13 Sec. 402.001. APPLICABILITY TO ENTITIES FORMED OR REGISTERED 704-14 ON OR AFTER EFFECTIVE DATE. This code applies to: 704-15 (1) a domestic entity formed on or after the effective 704-16 date of this code; and 704-17 (2) a foreign filing entity or other foreign entity 704-18 that: 704-19 (A) affords limited liability under the law of 704-20 its jurisdiction of formation to an owner or member of the entity; 704-21 and 704-22 (B) is transacting business in this state and 704-23 has not registered with the secretary of state to transact business 704-24 in this state before the effective date of this code. 704-25 Sec. 402.002. APPLICABILITY BEFORE MANDATORY APPLICATION 704-26 DATE. (a) Except as provided by Section 402.001, before the 704-27 mandatory application date, this code applies only to a domestic 705-1 entity formed before the mandatory application date, or a foreign 705-2 entity that has registered with the secretary of state to transact 705-3 business in this state before the mandatory application date, that 705-4 elected, as provided by Section 402.003 or 402.004, to be governed 705-5 by this code. 705-6 (b) On or after the effective date of this code, the fees 705-7 required by Chapter 4 apply to all filings made with the secretary 705-8 of state, including comparable filings under prior law regardless 705-9 of whether an existing entity has adopted this code. The intent of 705-10 this subsection is to: 705-11 (1) require a filing fee for all documents made under 705-12 either this code or the prior law without regard to the difference 705-13 in designation of the document; and 705-14 (2) make the filing fees described by Subdivision (1) 705-15 uniform from the effective date of this code. 705-16 Sec. 402.003. ADOPTION OF CODE BY DOMESTIC ENTITY BEFORE 705-17 MANDATORY APPLICATION DATE. (a) A domestic entity formed before 705-18 the effective date of this code may voluntarily elect to adopt and 705-19 become subject to this code by: 705-20 (1) complying with the procedures to amend its 705-21 governing documents; 705-22 (2) amending the domestic entity's governing 705-23 documents; and 705-24 (3) if the domestic entity is a filing entity, filing 705-25 with the secretary of state in accordance with Chapter 4 a 705-26 certificate of amendment to its certificate of formation, or a 705-27 restated certificate of formation, that: 706-1 (A) specifically states that the filing entity 706-2 is electing to adopt this code; and 706-3 (B) would cause its certificate of formation or 706-4 restated certificate of formation to comply with this code. 706-5 (b) If amendments to the governing documents of a domestic 706-6 entity that are necessary to conform the governing documents to 706-7 this code would not require, under prior law, the vote or consent 706-8 of the owners or members of the entity, this code and any amendment 706-9 to the governing documents required by this section may be adopted 706-10 by the governing authority only in the manner provided for an 706-11 amendment of the particular governing document. 706-12 Sec. 402.004. ADOPTION OF CODE BY FOREIGN ENTITY BEFORE 706-13 MANDATORY APPLICATION DATE. A foreign entity registered with the 706-14 secretary of state to transact business in this state before the 706-15 effective date of this code may voluntarily elect to adopt and 706-16 become subject to this code by: 706-17 (1) filing with the secretary of state in accordance 706-18 with Chapter 4 an amendment to its application for registration 706-19 that: 706-20 (A) states that the foreign filing entity is 706-21 electing to adopt this code; and 706-22 (B) would cause its application for registration 706-23 to comply with this code; or 706-24 (2) filing an application for registration that 706-25 complies with this code. 706-26 Sec. 402.005. APPLICABILITY TO EXISTING ENTITIES ON 706-27 MANDATORY APPLICATION DATE. After December 31, 2005, if a domestic 707-1 filing entity formed before the effective date of this code or a 707-2 foreign filing entity registered with the secretary of state to 707-3 transact business in this state before the effective date of this 707-4 code has not taken the actions specified by Section 402.003(a) or 707-5 402.004 to elect to adopt this code: 707-6 (1) the new law applies on or after the mandatory 707-7 application date to all domestic entities and foreign filing 707-8 entities existing on the mandatory application date and all actions 707-9 taken by the governing authority, officers, owners, or members of 707-10 those entities on or after the mandatory application date, except 707-11 as otherwise expressly provided by this title; and 707-12 (2) the entity is not considered to have failed to 707-13 comply with this code if the entity's certificate of formation or 707-14 application for registration, as appropriate, does not comply with 707-15 this code. 707-16 Sec. 402.006. APPLICABILITY TO CERTAIN ACTS, CONTRACTS, AND 707-17 TRANSACTIONS. Except as otherwise expressly provided by this 707-18 title, all of the provisions of this code govern acts, contracts, 707-19 or other transactions by an entity subject to this code or its 707-20 governing authority, officers, owners, or members that occur on or 707-21 after the mandatory application date. The prior law governs the 707-22 acts, contracts, or transactions of the entity that occur before 707-23 the mandatory application date. 707-24 Sec. 402.007. INDEMNIFICATION. Chapter 8 governs any 707-25 proposed indemnification by a domestic entity after the mandatory 707-26 application date, regardless of whether the events on which the 707-27 indemnification is based occurred before or after the mandatory 708-1 application date. A statement relating to indemnification 708-2 contained in the governing documents of a domestic entity on the 708-3 mandatory application date may not be construed as limiting the 708-4 indemnification authorized by Chapter 8 unless it expressly states 708-5 that is the intent. 708-6 Sec. 402.008. MEETINGS OF OWNERS AND MEMBERS; CONSENTS; 708-7 VOTING OF INTERESTS. (a) Except as provided by Subsection (b) and 708-8 regardless of whether a proxy or consent was executed by an owner 708-9 or member before the mandatory application date, Chapter 6 and any 708-10 other applicable provision of this code apply to: 708-11 (1) a meeting of owners or members held on or after 708-12 the mandatory application date; 708-13 (2) an action undertaken by owners or members under a 708-14 written consent that takes effect on or after the mandatory 708-15 application date; 708-16 (3) a vote cast at a meeting described by Subdivision 708-17 (1); and 708-18 (4) consent given for an action described by 708-19 Subdivision (2). 708-20 (b) Prior law applies to a meeting of owners or members and 708-21 to any vote cast at a meeting described by this subsection if the 708-22 meeting was initially called for a date before the mandatory 708-23 application date and notice of the meeting was given to owners or 708-24 members entitled to vote at the meeting. 708-25 Sec. 402.009. MEETINGS OF GOVERNING AUTHORITY AND 708-26 COMMITTEES; CONSENTS. (a) Except as provided by Subsection (b), 708-27 Chapter 6 and any other applicable provision of this code apply to: 709-1 (1) a meeting of the governing authority or a 709-2 committee of the governing authority held on or after the mandatory 709-3 application date; 709-4 (2) an action undertaken by the governing authority or 709-5 a committee of the governing authority under a written consent that 709-6 takes effect on or after the mandatory application date; 709-7 (3) a vote cast at a meeting described by Subdivision 709-8 (1); and 709-9 (4) consent given for an action described by 709-10 Subdivision (2). 709-11 (b) Prior law applies to a meeting of the governing 709-12 authority or a committee of the governing authority and to any vote 709-13 cast at a meeting described by this subsection if the meeting was 709-14 initially called for a date before the mandatory application date 709-15 and notice of the meeting was given to governing persons entitled 709-16 to vote at the meeting. 709-17 Sec. 402.010. SALE OF ASSETS, MERGERS, REORGANIZATIONS, 709-18 CONVERSIONS. Chapter 10 and any other applicable provisions of 709-19 this code apply to a transaction consummated after the mandatory 709-20 application date, except that if a required approval of the 709-21 outstanding ownership interests has been given before the mandatory 709-22 application date or has been given after the mandatory application 709-23 date but at a meeting of owners or members initially called for a 709-24 date before the mandatory application date, the transaction shall 709-25 be governed by the prior law. 709-26 Sec. 402.011. WINDING UP AND TERMINATION. (a) Chapter 11 709-27 applies to: 710-1 (1) an action for involuntary or judicial winding up 710-2 and termination commenced after the mandatory application date; or 710-3 (2) a voluntary winding up and termination proceeding 710-4 initiated by: 710-5 (A) the governing authority; 710-6 (B) the terms of the governing documents; or 710-7 (C) applicable law after the mandatory 710-8 application date. 710-9 (b) The prior law governs: 710-10 (1) an action described by Subsection (a)(1) that is 710-11 pending on the mandatory application date; or 710-12 (2) a proceeding described by Subsection (a)(2) 710-13 initiated before the mandatory application date. 710-14 Sec. 402.012. REGISTRATION OF CERTAIN FOREIGN ENTITIES. A 710-15 foreign entity that has transacted intrastate business in this 710-16 state before the mandatory application date and that is required by 710-17 Chapter 9 to register to transact business is not subject to a 710-18 direct or indirect penalty as a result of failure to register under 710-19 Chapter 9 if the application for registration is filed not later 710-20 than the 30th day after the mandatory application date. 710-21 Sec. 402.013. CORPORATIONS AND OTHER ENTITIES UNDER 710-22 SUSPENSION FOR NONFILING OF REQUIRED REPORTS OR PAYMENT OF TAXES; 710-23 APPLICABILITY OF PRIOR LAW. (a) If the corporate or other similar 710-24 rights, privileges, and powers of a corporation or other domestic 710-25 filing entity have been suspended and are still suspended 710-26 immediately before the mandatory application date under the prior 710-27 law, this code applies to the corporation or other entity on the 711-1 mandatory application date. 711-2 (b) If the corporate or other similar rights, privileges, 711-3 and powers of a corporation or other domestic filing entity have 711-4 been suspended and are still suspended under the Tax Code 711-5 immediately before the mandatory application date, the suspension 711-6 continues to apply to the corporation or other entity until the 711-7 rights, privileges, and powers are restored by the secretary of 711-8 state under that code. 711-9 Sec. 402.014. MAINTENANCE OF PRIOR ACTION. Except as 711-10 expressly provided by this title, this code does not apply to an 711-11 action or proceeding commenced before the mandatory application 711-12 date. Prior law applies to the action or proceeding. 711-13 SECTION 2. CONFORMING AMENDMENT. Part Eleven, Texas 711-14 Business Corporation Act, is amended by adding Article 11.02 to 711-15 read as follows: 711-16 Art. 11.02. APPLICABILITY; EXPIRATION. A. Except as 711-17 provided by Title 8, Texas Business Organizations Code, this Act 711-18 does not apply to a corporation to which the Texas Business 711-19 Organizations Code applies. 711-20 B. This Act expires January 1, 2006. 711-21 SECTION 3. CONFORMING AMENDMENT. Part Seven, Texas 711-22 Miscellaneous Corporation Laws Act (Article 1302-7.01 et seq., 711-23 Vernon's Texas Civil Statutes), is amended by adding Article 7.09 711-24 to read as follows: 711-25 Art. 7.09. APPLICABILITY; EXPIRATION. A. Except as 711-26 provided by Title 8, Texas Business Organizations Code, this Act 711-27 does not apply to a corporation to which the Texas Business 712-1 Organizations Code applies. 712-2 B. This Act expires January 1, 2006. 712-3 SECTION 4. CONFORMING AMENDMENT. The Texas Non-Profit 712-4 Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil 712-5 Statutes) is amended by adding Article 11.02 to read as follows: 712-6 Art. 11.02. APPLICABILITY; EXPIRATION. A. Except as 712-7 provided by Title 8, Texas Business Organizations Code, this Act 712-8 does not apply to a corporation to which the Texas Business 712-9 Organizations Code applies. 712-10 B. This Act expires January 1, 2006. 712-11 SECTION 5. CONFORMING AMENDMENT. The Cooperative 712-12 Association Act (Article 1396-50.01, Vernon's Texas Civil Statutes) 712-13 is amended by adding Section 47 to read as follows: 712-14 Sec. 47. APPLICABILITY; EXPIRATION. (a) Except as provided 712-15 by Title 8, Texas Business Organizations Code, this Act does not 712-16 apply to an association to which the Texas Business Organizations 712-17 Code applies. 712-18 (b) This Act expires January 1, 2006. 712-19 SECTION 6. CONFORMING AMENDMENT. The Texas Uniform 712-20 Unincorporated Nonprofit Association Act (Article 1396-70.01, 712-21 Vernon's Texas Civil Statutes) is amended by adding Section 19 to 712-22 read as follows: 712-23 Sec. 19. APPLICABILITY; EXPIRATION. (a) Except as provided 712-24 by Title 8, Texas Business Organizations Code, this Act does not 712-25 apply to a nonprofit association to which the Texas Business 712-26 Organizations Code applies. 712-27 (b) This Act expires January 1, 2006. 713-1 SECTION 7. CONFORMING AMENDMENT. The Texas Professional 713-2 Corporation Act (Article 1528e, Vernon's Texas Civil Statutes) is 713-3 amended by adding Section 21 to read as follows: 713-4 Sec. 21. APPLICABILITY; EXPIRATION. (a) Except as provided 713-5 by Title 8, Texas Business Organizations Code, this Act does not 713-6 apply to a professional corporation to which the Texas Business 713-7 Organizations Code applies. 713-8 (b) This Act expires January 1, 2006. 713-9 SECTION 8. CONFORMING AMENDMENT. The Texas Professional 713-10 Association Act (Article 1528f, Vernon's Texas Civil Statutes) is 713-11 amended by adding Section 27 to read as follows: 713-12 Sec. 27. APPLICABILITY; EXPIRATION. (A) Except as provided 713-13 by Title 8, Texas Business Organizations Code, this Act does not 713-14 apply to a professional association to which the Texas Business 713-15 Organizations Code applies. 713-16 (B) This Act expires January 1, 2006. 713-17 SECTION 9. CONFORMING AMENDMENT. Part Eight, Texas Limited 713-18 Liability Company Act (Article 1528n, Vernon's Texas Civil 713-19 Statutes), is amended by adding Article 8.13 to read as follows: 713-20 Art. 8.13. APPLICABILITY; EXPIRATION. A. Except as 713-21 provided by Title 8, Texas Business Organizations Code, this Act 713-22 does not apply to a limited liability company to which the Texas 713-23 Business Organizations Code applies. 713-24 B. This Act expires January 1, 2006. 713-25 SECTION 10. CONFORMING AMENDMENT. Article 13, Texas Revised 713-26 Limited Partnership Act (Article 6132a-1, Vernon's Texas Civil 713-27 Statutes), is amended by adding Section 13.10 to read as follows: 714-1 Sec. 13.10. APPLICABILITY; EXPIRATION. (a) Except as 714-2 provided by Title 8, Texas Business Organizations Code, this Act 714-3 does not apply to a limited partnership to which the Texas Business 714-4 Organizations Code applies. 714-5 (b) This Act expires January 1, 2006. 714-6 SECTION 11. CONFORMING AMENDMENT. Article XI, Texas Revised 714-7 Partnership Act (Article 6132b-11.01 et seq., Vernon's Texas Civil 714-8 Statutes), is amended by adding Section 11.05 to read as follows: 714-9 Sec. 11.05. APPLICABILITY; EXPIRATION. (a) Except as 714-10 provided by Title 8, Texas Business Organizations Code, this Act 714-11 does not apply to a partnership to which the Texas Business 714-12 Organizations Code applies. 714-13 (b) This Act expires January 1, 2006. 714-14 SECTION 12. CONFORMING AMENDMENT. The Texas Real Estate 714-15 Investment Trust Act (Article 6138A, Vernon's Texas Civil Statutes) 714-16 is amended by adding Section 29.10 to read as follows: 714-17 Sec. 29.10. APPLICABILITY; EXPIRATION. (A) Except as 714-18 provided by Title 8, Texas Business Organizations Code, this Act 714-19 does not apply to a real estate investment trust to which the Texas 714-20 Business Organizations Code applies. 714-21 (B) This Act expires January 1, 2006. 714-22 SECTION 13. REPEALER. The following Acts and articles as 714-23 compiled in Vernon's Texas Civil Statutes are repealed: Articles 714-24 1399, 1400, 1401, 1402, 1403, 1404, 1405, 1406, 1407, 1407a, 1525, 714-25 1526, 1527, 1527a, 1528, 1528a, 1528g, and 1528h. 714-26 SECTION 14. EFFECTIVE DATE. This Act takes effect January 714-27 1, 2001. 715-1 SECTION 15. EMERGENCY CLAUSE. The importance of this 715-2 legislation and the crowded condition of the calendars in both 715-3 houses create an emergency and an imperative public necessity that 715-4 the constitutional rule requiring bills to be read on three several 715-5 days in each house be suspended, and this rule is hereby suspended.