SRC-JLB H.B. 1637 78(R) BILL ANALYSIS
Senate Research Center H.B. 1637
By: Oliveira (Averitt)
Business & Commerce
5/2/2003
Engrossed
DIGEST AND PURPOSE
The secretary of state's office and the Partnership and Limited Liability
Company Law Committee of the Business Law Section of the State Bar of
Texas have worked together to update and improve Texas statutes governing
partnerships and limited liability companies ("LLCs") so that Texas will
continue to have modern, flexible laws in these areas. The work focuses on
the Texas Limited Liability Company Act ("TLLCA"), the Texas Revised
Limited Partnership Act ("TRLPA"), and the Texas Revised Partnership Act
("TRPA"). Currently, there are inconsistencies in these statutes and
some believe that a need exists to provide additional flexibility in the
structuring and operation of the affected entities.
H.B. 1637 provides amendments to the TLLCA, TRLPA, and TRPA to eliminate
certain inconsistencies and uncertainties in the statutes; updates,
clarifies and adds flexibility to the current statutory provisions in view
of changes to the federal income tax classification rules and trends in
other states, including eliminating the outmoded dissolution provisions
and providing a mechanism for continuation of an LLC upon the death of the
LLC's sole member by appointment of a successor member; and corrects and
clarifies provisions dealing with filing procedures as proposed by the
secretary of state. The bill also contains a provision to be added to the
Government Code codifying the Secretary of State's current practice of
maintaining business organizations filings as permanent records in order
to clarify the status of certain organizations under Chapter 9 of the
Texas Business and Commerce Code.
RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to
a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Article 2.23, Texas Limited Liability Company Act
(Article 1528n, V.T.C.S.), by adding Section C-1 and amending Sections D,
G, and H, as follows:
C-1. Authorizes members or managers to take action at a meeting of the
members or managers or without a meeting in any manner permitted by the
articles of organization, regulations, or this Act. Provides that unless
otherwise provided by the articles of organization or the regulations, an
action is effective if it is taken in a certain manner.
D. Provides that except as provided in the articles of organization or
the regulations, the affirmative vote, approval, or consent of a majority
of all the members is required to: approve any merger, consolidation,
share or interest exchange, or other transaction authorized by or subject
to the provisions of Part Ten of this Act; voluntarily cause the
dissolution of the limited liability company; and authorize any act that
would make it impossible to carry on the ordinary business of the limited
liability company. Deletes text regarding certain requirements.
G. Authorizes a majority of the managers named in the articles of
organization, except as provided in the articles of organization or the
regulations, if the limited liability company has no members, has not
received any capital, and has not otherwise commenced business, to amend
the articles of organization or dissolve the limited liability company.
Authorizes a majority of the members named in the articles of
organization, except as provided by the articles of organization or the
regulations, if the limited liability company has not received any
capital, the limited liability company has not otherwise commenced
business, and the management has been reserved to the members, to amend
the articles of organization or dissolve the limited liability company.
H. Provides that except as provided in the articles of organization or
the regulations, if any capital has been paid into the limited liability
company or the limited liability company has otherwise commenced business,
the affirmative vote, approval, or consent of all members is required to
amend the articles of organization.
SECTION 2. Amends Article 4.01, Texas Limited Liability Company Act
(Article 1528n, V.T.C.S.), as follows:
Art. 4.01. New heading: ADMISSION OF MEMBERS AND ISSUANCE OF MEMBERSHIP
INTERESTS. A. Provides that in connection with the formation of a
limited liability company, a person becomes a member on a certain date.
Deletes text regarding acquiring an interest as a member.
B. Provides that after the formation of a limited liability company, a
person becomes a new member under certain conditions.
B-1. Authorizes the limited liability company, after the formation of a
limited liability company, to issue a membership interest in the limited
liability company to a person on compliance with the provisions of the
regulations governing issuance of membership interests or, if the
regulations contain no relevant issuance provisions, upon the consent of
all members.
B-2. Authorizes the regulations to provide that a person may be admitted
as a member of a limited liability company and acquire a membership
interest in the limited liability company, including a person who will be
the sole member, without meeting certain criteria. Authorizes the
regulations, if one or more persons own a membership interest in a limited
liability company, to provide that a person may be admitted to the limited
liability company as a member without acquiring a membership interest in
the limited liability company.
C. Makes nonsubstantive changes.
SECTION 3. Amends Article 5.02-1, Texas Limited Liability Company Act
(Article 1528n, V.T.C.S.), as follows:
Art. 5.02-1. ALLOCATION OF PROFITS AND LOSSES. A. Requires the profits
and losses, if the regulations do not otherwise provide, to be allocated
on the basis of the agreed value of the contributions made by each member,
as stated in limited liability company records of the kind described in
Section A of Article 2.22 of this Act.
SECTION 4. Amends Article 5.05, Texas Limited Liability Company Act
(Article 1528n, V.T.C.S.), as follows:
Art. 5.05. WITHDRAWAL OR EXPULSION OF MEMBER. A. Authorizes a member to
withdraw or be expelled from a limited liability company only at the time
or on the occurrence of events specified in the regulations.
SECTION 5. Amends Article 6.01, Texas Limited Liability Company Act
(Article 1528n, V.T.C.S.), as follows:
Art. 6.01. DISSOLUTION. A. Requires a limited liability company, except
as provided by Section B or C of this Article, to be dissolved at a
certain time.
B. Provides that a limited liability company is not dissolved if an
event of dissolution described by Subsection (1) or (2), but not (5), of
Section A of this Article occurs, there is at least one remaining member,
and the business of the limited liability company is continued by the vote
of the members or class as stated in the articles of organization or
regulations of the limited liability company, or if not so stated, by all
remaining members.
C. Provides that a limited liability company is not dissolved on the
occurrence of an event of dissolution described by Subsection (5) of
Section A of this Article if the legal representative or successor of the
last remaining member agrees to continue the limited liability company and
to become a member as of the date of the termination of the last remaining
member's membership in the limited liability company or designates another
person who agrees to become a member of the limited liability company as
of the date of the termination. Requires the agreement of the legal
representative or successor to continue the limited liability company and
to become a member or the designation of another person who agrees to
become a member, unless otherwise provided in the articles of organization
or in the regulations, to be made not later than 90 days after the date of
termination of the last remaining member's membership in the limited
liability company.
SECTION 6. Amends Article 6.06, Texas Limited Liability Company Act
(Article 1528n, V.T.C.S.), as follows:
Art. 6.06. REVOCATION OF VOLUNTARY DISSOLUTION PROCEEDINGS. A.
Authorizes a limited liability company, at any time before the issuance of
a certificate of dissolution by the Secretary of State, or not later than
120 days after the date of the issuance of the certificate of dissolution,
to revoke voluntary dissolution proceedings by the written consent of all
its members.
A-1. Requires the limited liability company, after revocation of
voluntary dissolution is authorized as provided in Section A of this
Article, to, if a certificate of dissolution of the limited liability
company has been issued by the secretary of state, deliver to the
secretary of state for filing not later than 120 days after the date the
certificate was issued, the original and a copy of the articles of
revocation of dissolution executed on behalf of the limited liability
company by a manager or authorized member, that set forth certain
information.
A-2. Requires the secretary of state, except as provided by Section A-3
of this Article, if the secretary of state finds that the articles of
revocation of dissolution conform to law, to, when the appropriate filing
fee is paid as required by law, to perform certain acts.
A-3. Requires the secretary of state, if the limited liability company's
name is the same as or deceptively similar to a name already on file or
reserved or registered as specified in Article 2.03 of this Act, to issue
to the limited liability company a certificate of revocation of
dissolution as provided by Section A-2 of this Article only if the limited
liability company contemporaneously amends its articles of organization to
change its name.
B. Authorizes the limited liability company, if a limited liability
company revokes voluntary dissolution proceedings prior to the issuance by
the secretary of state of a certificate of dissolution of the limited
liability company, to again carry on its business as though voluntary
dissolution proceedings had not occurred. Provides that if a limited
liability company revokes voluntary dissolution proceedings after the
issuance by the secretary of state of a certificate of dissolution of the
limited liability company, then on the issuance by the secretary of state
of a certificate of revocation of dissolution certain acts will occur.
SECTION 7. Amends Article 7.03, Texas Limited Liability Company Act
(Article 1528n, V.T.C.S.), as follows:
Art. 7.03. LIMITED LIABILITY COMPANY NAME OF FOREIGN LIMITED LIABILITY
COMPANY. A. Requires no certificate of authority to be issued to a
foreign limited liability company unless certain conditions apply.
SECTION 8. Amends Section A, Article 7.05, Texas Limited Liability
Company Act (Article 1528n, V.T.C.S.), as follows:
A. Requires a foreign limited liability company, to procure a Certificate
of Authority to transact business in this state, to make application
therefor to the secretary of state, which application shall set forth
certain information.
SECTION 9. Amends Section A, Article 7.06, Texas Limited Liability
Company Act (Article 1528n, V.T.C.S.), as follows:
A. Requires the original and a copy of the application of the foreign
limited liability company for a Certificate of Authority to be delivered
to the secretary of state. Deletes text regarding a certificate
evidencing the foreign limited liability company existence.
SECTION 10. Amends Section A, Article 8.12, Texas Limited Liability
Company Act (Article 1528n, V.T.C.S.), as follows:
A. Provides that subject to Section C of this Article, Articles 2.07,
2.08, 4.14, and 5.14 and Part Seven of TBCA apply to a limited liability
company and its members, managers, and officers.
SECTION 11. Amends Section 1.02(12), Texas Revised Limited Partnership
Act (Article 6132a-1, V.T.C.S.), to redefine "person."
SECTION 12. Amends Section 1.03, Texas Revised Limited Partnership Act
(Article 6132a-1, V.T.C.S.), as follows:
Sec. 1.03. PARTNERSHIP NAME. Provides that except as provided by Section
2.14(a)(3) of this Act, the name of a limited partnership as stated in its
certificate of limited partnership, a reserved or registered name, or the
name under which a foreign limited partnership is permitted to register to
do business in Texas as contained in its application for registration as a
foreign limited partnership must contain the words "Limited Partnership,"
"Limited," or the abbreviation "LP," "L.P.," or "Ltd." as the last words
or letters of its name and prohibits including certain information.
SECTION 13. Amends Section 1.06(a), Texas Revised Limited Partnership Act
(Article 6132a1, V.T.C.S.), to require a limited partnership or foreign
limited partnership subject to this Act to have and maintain in Texas
certain persons and entities.
SECTION 14. Amends Section 2.11(i), Texas Revised Limited Partnership Act
(Article 6132a1, V.T.C.S.), to redefine "other entity."
SECTION 15. Amends Section 2.14(a), Texas Revised Limited Partnership Act
(Article 6132a1, V.T.C.S.), to provide that a limited partnership is a
registered limited liability partnership as well as a limited partnership
if it meets certain criteria.
SECTION 16. Amends Section 4.01, Texas Revised Limited Partnership Act
(Article 6132a-1, V.T.C.S.), as follows:
Sec. 4.01. New heading: ADMISSION OF GENERAL PARTNERS. (a)-(b) Make no
substantive changes.
(c) Authorizes a person, if provided in a written partnership agreement,
to be admitted as a general partner in a limited partnership, including as
the sole general partner, and acquire a partnership interest in the
limited partnership without committing certain acts. Authorizes a person,
if provided in a written partnership agreement, to be admitted as a
general partner in a limited partnership, including as the sole general
partner, without acquiring a partnership interest in the limited
partnership.
(d) Provides that nothing contained in this section limits or otherwise
affects the provisions of Section 4.03 of this Act.
SECTION 17. Amends Section 5.01, Texas Revised Limited Partnership Act
(Article 6132a-1, V.T.C.S.), as follows:
Sec. 5.01. FORM OF CONTRIBUTION. Authorizes the contribution of a
partner, rather than limited partner, to consist of any tangible or
intangible benefit to the limited partnership or other property of any
kind or nature, including cash, a promissory note, services performed, a
contract for services to be performed, other interests in or securities of
the limited partnership, or interests in or securities of any other
limited partnership, domestic or foreign, or other entity.
SECTION 18. Amends Section 3.08(c), Texas Revised Partnership Act
(Article 6132b-3.08, V.T.C.S.), to require a registered limited liability
partnership's name to contain the words "registered limited liability
partnership" or "limited liability partnership" or the abbreviation "LLP"
or "L.L.P." as the last words or letters of its name.
SECTION 19. Amends Section 4.04(a), Texas Revised Partnership Act
(Article 6132b-4.04, V.T.C.S.), to provide that a partner owes to the
partnership, the other partners, and successors of deceased partners
certain duties.
SECTION 20. Amends Section 6.01(b), Texas Revised Partnership Act
(Article 6132b-6.01, V.T.C.S.), to provide that an event of withdrawal of
a partner occurs upon a certain event.
SECTION 21. Amends Subchapter B, Chapter 405, Government Code, by adding
Section 405.020, as follows:
Sec. 405.020. PUBLIC RECORDS. (a) Requires the secretary of state to
permanently maintain as a public record any instrument, or the information
included in any instrument, that is filed with the secretary of state
evidencing the organization of, or otherwise in connection with, any
entity formed under the laws of this state.
(b) Requires the secretary of state to maintain the records required
under Subsection (a) in any form the secretary of state considers
appropriate.
SECTION 22. Provides that Section 405.020, Government Code, as added by
this Act, applies only to an instrument or information on file with the
secretary of state on the effective date of this Act or filed with the
secretary of state after the effective date of this Act.
SECTION 23. Effective date: September 1, 2003.