BILL ANALYSIS
H.B. 1637
By: Oliveira
Business and Industry
Committee Report (Unamended)
BACKGROUND 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 a
need to provide additional flexibility in the structuring and operation of
the affected entities. Also, certain filing procedures with the Secretary
of State need streamlining.
One significant development that has prompted most states to amend their
LLC statutes in recent years is the adoption of the "check-the-box"
federal tax classification rules effective January 1, 1997. Most LLC
statutes were originally drafted with dissolution provisions that were
not necessarily best suited to businesses using the LLC form but were
viewed as essential to preserve the tax status of the LLC. While most
states have amended these outmoded dissolution provisions, the TLLCA still
follows the original approach to dissolution by providing that the death,
withdrawal or other event terminating the membership of a member dissolves
the LLC.
Finally, a proposed new provision of the Government Code is necessary to
codify the Secretary of State's current record keeping procedures and
clarify the status of certain business organizations as "registered
organizations" within the meaning of Chapter 9 of the Texas Business and
Commerce Code, which was enacted effective July 1, 2001.
This bill contains proposed amendments to the TLLCA, TRLPA, and TRPA that
fall into three general categories: (1) amendments to eliminate certain
inconsistencies and uncertainties in the statutes; (2) amendments
updating, clarifying and adding 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 (3) technical corrections and improvements to 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
It is the committee's opinion that this bill does not expressly grant any
rulemaking authority to a state officer, department, agency, or
institution.
SECTION BY SECTION ANALYSIS
H.B. 1637 78(R)SECTION 1. Amends Article 2.23 of the TLLCA by adding
Section C-1 to clarify that the regulations of a limited liability company
may authorize decision making in a manner other than by a meeting or
written consent and to clarify that an action is effective if taken with
consent, however evidenced, of all of the members. Amends Section D of
Article 2.23 to eliminate inconsistencies in the TLLCA by deleting
Subsections (1), (2) and (5). Amends Sections G and H of Article 2.23
relating to situations in which no capital has been paid into the limited
liability company to be consistent with the amendment to Article 4.01.
SECTION 2. Amends Article 4.01 of the TLLCA to expressly provide that a
person may become a member and receive a membership interest in a limited
liability company without making a contribution and that a person may be a
member without having a membership interest.
SECTION 3. Amends Article 5.02-1 of the TLLCA to provide that the
allocation of LLC profit and loss shall be made in accordance with the
contributions of each member in the absence of provisions in the
regulations.
SECTION 4. Amends Article 5.05 of the TLLCA to clarify that a member may
not withdraw or be expelled from a limited liability company except as
expressly provided in the regulations.
SECTION 5. Amends Section A(5) of Article 6.01 of the TLLCA to eliminate
certain causes of dissolution of a limited liability company. Amends
Section A(4) of Article 6.01 to be consistent with the changes to Articles
2.23G and 4.01. Amends Section B of Article 6.01 to be consistent with
the deletion of Section A(5). Adds Section C to Article 6.01 to provide
for the continuation of a limited liability company after the death or
other termination of membership of the sole remaining member by
appointment of a successor member.
SECTION 6. Adds Sections B, C and D to Article 6.06 of the TLLCA to
provide a mechanism through which a limited liability company may revoke
voluntary dissolution proceedings previously instituted.
SECTION 7. Amends Article 7.03 of the TLLCA to provide that a foreign
entity need not comply with the name requirements of Article 7.03A(1) if
it elects to procure a certificate of authority as described in Article
1.02A(9) of the TLLCA but is not characterized as a limited liability
company under the laws of its jurisdiction of organization.
SECTION 8. Amends Subsections A(1) and (2) of Article 7.05 of the TLLCA
to be consistent with the amendment to Article 7.03. Adds Subsection A(8)
to Article 7.05 to require that a foreign limited liability company
include in its application for a Certificate of Authority a statement that
it exists as a valid entity under the laws of its jurisdiction of
formation.
SECTION 9. Amends Section A of Article 7.06 of the TLLCA to eliminate the
need for a foreign limited liability company that is filing an
application for a Certificate of Authority to submit to the Secretary of
State a certificate evidencing its existence in its jurisdiction of
formation.
SECTION 10. Amends Article 8.12 of the TLLCA to make clear that the
registered name renewal provisions available to corporations may be
utilized by a limited liability company that has registered a name.
SECTION 11. Amends Section 1.02(12) of the Texas Revised Limited
Partnership Act (TRLPA) to conform the definition of "person" to the other
business organizations statutes and clarify the scope of the definition.
SECTION 12. Amends Section 1.03 of the TRLPA to clarify that the
abbreviation "LP" (without the periods) is a permissible designator for a
limited partnership.
SECTION 13. Amends Section 1.06(a) of the TRLPA to expand the list of
entities that may act as a registered agent of a limited partnership.
SECTION 14. Amends Section 2.11(i) of the TRLPA to make clear that the
definition of "other entity," as used in Sec. 2.11, includes limited
liability companies.
SECTION 15. Amends Section 2.14(a) of the TRLPA to clarify that the
abbreviation "LLP" is a permissible designator for a limited partnership
that registers as a limited liability partnership and to specify that the
words "limited liability partnership" may be used as a designator.
SECTION 16. Adds Subsection (c)(1) to Section 4.01 of the TRLPA to
provide that a written partnership agreement may permit a person to be
admitted as a general partner and acquire a partnership interest in a
limited partnership without making a contribution or assuming an
obligation to make a contribution to the limited partnership. Adds
Subsection (c)(2) to Section 4.10 to provide that a written partnership
agreement may permit a person to be admitted as a general partner in the
limited partnership without acquiring a partnership interest in the
limited partnership.
SECTION 17. Amends Section 5.01 of the TRLPA to make clear that the types
of permissible contributions enumerated are permissible for both limited
partners and general partners of the limited partnership.
SECTION 18. Amends Section 3.08(c) of the Texas Revised Partnership Act
(TRPA) to clarify that the abbreviation "LLP" (without the periods) is a
permissible designator for a limited liability partnership and to specify
that the words "limited liability partnership" may be used as a
designator.
SECTION 19. Amends Section 6.08(b) of the TRPA to make clear that the
date of withdrawal of a partner who is judicially expelled is the date of
the judicial decree.
SECTION 20. Adds Section 405.020 to the Government Code to codify the
Secretary of State's existing procedure with respect to the maintenance of
filings for business organizations.
SECTION 21. Specifies that new section 405.020 applies to instruments on
file or filed after the effective date.
SECTION 22. Effective Date September 1, 2003.