By: Hancock S.B. No. 1859

(In the Senate - Filed March 7, 2019; March 18, 2019, read first time and referred to Committee on Business & Commerce; April 24, 2019, reported adversely, with favorable Committee Substitute by the following vote: Yeas 9, Nays 0; April 24, 2019, sent to printer.) Click here to see the committee vote

COMMITTEE SUBSTITUTE FOR S.B. No. 1859 By: Hancock

A BILL TO BE ENTITLED

AN ACT

relating to business entities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 1.002, Business Organizations Code, is amended by amending Subdivisions (20-a) and (81) and adding Subdivision (20-b) to read as follows:

(20-a) "Electronic data system" means an electronic network or database. The term includes a distributed electronic network or database, including one that employs blockchain or distributed ledger technology.

(20-b) "Electronic transmission" means a form of communication, including communication by use of or participation in one or more electronic data systems, that:

(A) does not directly involve the physical transmission of paper;

(B) creates a record that may be retained, retrieved, and reviewed by the recipient; and

(C) may be directly reproduced in paper form by the recipient through an automated process.

(81) "Shareholder" or "holder of shares" means:

(A) the person in whose name shares issued by a for-profit corporation, professional corporation, or real estate investment trust are registered in the share transfer records maintained by or on behalf of the for-profit corporation, professional corporation, or real estate investment trust; or

(B) the beneficial owner of shares issued by a for-profit corporation, whose shares are held in a voting trust or by a nominee on the beneficial owner's behalf, to the extent of the rights granted by a nominee statement on file with the for-profit corporation in accordance with Sections 21.201(b) and (c).

SECTION 2. Sections 3.151(a) and (b), Business Organizations Code, are amended to read as follows:

(a) Each filing entity shall keep:

(1) books and records of accounts;

(2) minutes of the proceedings of the owners or members or governing authority of the filing entity and committees of the owners or members or governing authority of the filing entity;

(3) [at its registered office or principal place of business, or at the office of its transfer agent or registrar,] a current record of the name and mailing address of each owner or member of the filing entity; and

(4) other books and records as required by the title of this code governing the entity.

(b) The books, records, minutes, and ownership or membership records of any filing entity[, including those described in Subsection (a)(4),] may be:

(1) in written paper form; or

(2) maintained by or on behalf of the filing entity on, or by means of, an information storage device or method or one or more electronic data systems, provided that any books, records, minutes, and ownership or membership records so maintained can be [another form capable of being] converted into written paper form within a reasonable time.

SECTION 3. Sections 3.205(a) and (c), Business Organizations Code, are amended to read as follows:

(a) Except as provided by Subsection (c) and in accordance with Chapter 8, Business & Commerce Code, after an issuance [issuing] or transfer of [transferring] an uncertificated ownership interest in a domestic entity, [a domestic entity shall notify] the owner of the ownership interest shall be notified in writing or by electronic transmission of any information required under this subchapter to be stated on a certificate representing the ownership interest.

(c) The owner of an uncertificated ownership interest in a [A] domestic entity is not required to be notified [send a notice] under Subsection (a) if:

(1) the required information is included in the governing documents of the entity; and

(2) the owner of the uncertificated ownership interest is provided with a copy of the governing documents.

SECTION 4. Sections 4.052, 4.053, 4.054, 4.055, and 4.056, Business Organizations Code, are amended to read as follows:

Sec. 4.052. DELAYED EFFECTIVENESS OF CERTAIN FILINGS. (a) Except as provided by Section 4.058, a filing instrument may take effect after the time the instrument would otherwise take effect as provided by this code for the entity filing the instrument.

(b) If the effectiveness of a filing instrument is to be delayed as permitted by this section, the filing instrument may take effect [and]:

(1) at a specified date;

(2) at a specified date and time; [or]

(3) [(2)] on the occurrence of a specified future event or fact, including an act of any person; or

(4) after the occurrence of a future event or fact, including the act of any person, at a specified date, at a specified date and time, or after the passage of a specified period of time.

Sec. 4.053. CONDITIONS FOR DELAYED EFFECTIVENESS. (a) The date, or the date and time, at which a filing instrument takes effect is delayed if the instrument clearly and expressly states, in addition to any other required statement or information:

(1) the specified date, or the specified [specific] date and time, at which the instrument takes effect; or

(2) if the instrument takes effect on or after the occurrence of a future event or fact that may occur:

(A) the [manner in which the] event or fact that will cause the instrument to take effect; [and]

(B) when the filing instrument is to take effect if the instrument is to take effect after the occurrence of a specified future event or fact; and

(C) the date of the 90th day after the date the instrument is signed.

(b) If the effectiveness of a filing instrument is to be delayed as permitted by Section 4.052 [take effect on a specific date and time other than that provided by this code]:

(1) the effective date may not be later than the 90th day after the date the instrument is signed; and

(2) the specified [specific] time at which the instrument is to take effect may not be specified as "12:00 a.m." or "12:00 p.m."

Sec. 4.054. DELAYED EFFECTIVENESS ON FUTURE EVENT OR FACT. A filing instrument that is to take effect on or after the occurrence of a future event or fact in accordance with Section 4.053(a)(2)[, other than the passage of time,] and for which the statement required by Section 4.055 is filed within the prescribed time[,] takes effect on:

(1) the date, or the date and time, at which the [last specified] event or fact occurs or is waived; or

(2) the specified date, the specified date and time, or the passage of the specified period of time after the occurrence or waiver of the event or fact [or the date and time at which a condition is satisfied or waived].

Sec. 4.055. STATEMENT OF EVENT OR FACT. An entity that files a filing instrument that takes effect on or after the occurrence of a future event or fact in accordance with Section 4.053(a)(2)[, other than the passage of time,] must sign and file as provided by Subchapter A, not later than the 90th day after the date the filing instrument is filed, a statement that:

(1) confirms that each event or fact on which the effect of the instrument is conditioned has been satisfied or waived; [and]

(2) states the date, or the date and time, on which the condition was satisfied or waived; and

(3) if the filing instrument was to take effect after the occurrence of a specified future event or fact, states the date, or the date and time, at which the filing instrument took effect.

Sec. 4.056. FAILURE TO FILE STATEMENT. (a) If the [effect of a] filing instrument is to take effect on or after [conditioned on] the occurrence of a future event or fact in accordance with Section 4.053(a)(2)[, other than the passage of time,] and the statement required by Section 4.055 is not filed before the expiration of the prescribed time, the filing instrument does not take effect. This section does not preclude the filing of a subsequent filing instrument required by this code to make the action or transaction evidenced by the original filing instrument effective.

(b) If the [effect of a] filing instrument is to take effect on or after [conditioned on] the occurrence of a future event or fact[, other than the passage of time,] and the specified event or fact does not occur and is not waived, the parties to the filing instrument must sign and file a certificate of abandonment as provided by Section 4.057.

SECTION 5. Section 4.057(e), Business Organizations Code, is amended to read as follows:

(e) If in the interim before a certificate of abandonment is filed the name of an entity that is a party to the action or transaction becomes indistinguishable from [the same as or deceptively similar to] the name of another entity already on file or reserved or registered under this code, the filing officer may not file the certificate of abandonment unless the entity by or for whom the certificate is filed changes its name in the manner provided by this code for that entity.

SECTION 6. Section 4.059, Business Organizations Code, is amended to read as follows:

Sec. 4.059. ACKNOWLEDGMENT OF FILING WITH DELAYED EFFECTIVENESS. (a) An acknowledgment of filing issued or other action taken by the secretary of state affirming the filing of a filing instrument that has a specific delayed effective date, or a specific delayed effective date and time, must state the date, or the date and time, at which the instrument takes effect.

(b) An acknowledgment of filing issued or other action taken by the secretary of state affirming the filing of a filing instrument the effectiveness [effect] of which is delayed until on or after the occurrence of a future event or fact must[:

[(1) state that the effective date and time of the filing instrument is conditioned on the occurrence of a future event or fact as described in the filing instrument; or

[(2) otherwise] indicate that the effective date, or the effective date and time, of the instrument is conditioned on the occurrence of a future event or fact.

SECTION 7. Section 6.205(b), Business Organizations Code, is amended to read as follows:

(b) Except as otherwise provided by an entity's governing documents, an electronic transmission of a consent by an owner, member, or governing person to the taking of an action by the entity is considered a signed writing if the transmission contains or is accompanied by information from which it can be determined:

(1) that the electronic transmission was transmitted by or on behalf of the owner, member, or governing person; and

(2) the date on which the electronic transmission was transmitted by or on behalf of the owner, member, or governing person [transmitted the electronic transmission].

SECTION 8. Section 101.302(c), Business Organizations Code, is amended to read as follows:

(c) The number of managers of a limited liability company may be increased or decreased by amendment to, or as provided by, the company agreement[, except that a decrease in the number of managers may not shorten the term of an incumbent manager].

SECTION 9. Section 101.501, Business Organizations Code, is amended by adding Subsection (d) to read as follows:

(d) All books and records required to be maintained by a limited liability company under this section may be maintained in any form and manner permitted under Section 3.151(b).

SECTION 10. Section 101.503(a), Business Organizations Code, is amended to read as follows:

(a) A limited liability company that refuses to allow a member or an assignee of a membership interest to examine and copy, on written request that complies with Section 101.502(a), records or other information described by that section is liable to the member or assignee for any cost or expense, including attorney's fees, incurred in enforcing the member's or assignee's rights under Section 101.502. The liability imposed on a limited liability company under this subsection is in addition to any other damages or remedy afforded to the member or assignee by law.

SECTION 11. Section 101.621, Business Organizations Code, is amended to read as follows:

Sec. 101.621. WINDING UP BY COURT ORDER. A district court in the county in which the registered office or principal place of business in this state of a domestic limited liability company is located, on application by or for a member associated with the series, has jurisdiction to order the winding up and termination of a series if the court determines that:

(1) it is not reasonably practicable to carry on the business of the series in conformity with the company agreement;

(2) the economic purpose of the series is likely to be unreasonably frustrated; or

(3) another member associated with the series has engaged in conduct relating to the series' business that makes it not reasonably practicable to carry on the business with that member.

SECTION 12. Sections 152.306(b) and (c), Business Organizations Code, are amended to read as follows:

(b) Except as provided by Subsection (c), a creditor may proceed against [one or more partners or] the property of one or more [the] partners to satisfy a judgment based on a claim against the partnership only if a judgment:

(1) is [also] obtained against the partner; and

(2) based on the same claim:

(A) is obtained against the partnership;

(B) has not been reversed or vacated; and

(C) remains unsatisfied for 90 days after:

(i) the date on which the judgment is entered; or

(ii) the date on which the stay expires, if the judgment is contested by appropriate proceedings and execution on the judgment is stayed.

(c) Subsection (b)(2) [(b)] does not prohibit a creditor from proceeding directly against [one or more partners or] the property of one or more [the] partners [without first seeking satisfaction from partnership property] if:

(1) the partnership is a debtor in bankruptcy;

(2) the creditor and the partner or partners whose property is the subject of the proceeding brought by the creditor [partnership] agreed that the creditor is not required to comply with Subsection (b)(2) [(b)];

(3) a court orders otherwise, based on a finding that partnership property subject to execution in the state is clearly insufficient to satisfy the judgment or that compliance with Subsection (b)(2) [(b)] is excessively burdensome; or

(4) liability is imposed on the partner by law or contract independently of the person's status as a partner.

SECTION 13. Section 152.606, Business Organizations Code, is amended to read as follows:

Sec. 152.606. INDEMNIFICATION OF WITHDRAWN PARTNER [FOR CERTAIN LIABILITY]. [(a)] A partnership shall indemnify a withdrawn partner whose interest is redeemed against all [a] partnership obligations, whether [liability] incurred before or after the date of withdrawal, except for an obligation [a liability:

[(1) that is unknown to the partnership at the time; or

[(2)] incurred by an act of the withdrawn partner under Section 152.504.

[(b) For purposes of this section, a liability is unknown to the partnership if it is not known to a partner other than the withdrawn partner.]

SECTION 14. Sections 153.551(b) and (c), Business Organizations Code, are amended to read as follows:

(b) All books and records required to be maintained by a [A] limited partnership under this section may be maintained in any form and manner permitted under Section 3.151(b) [shall maintain its records in written form or in another form capable of being converted to written form in a reasonable time].

(c) A limited partnership shall keep in its registered office in this state and make available to a partner on reasonable request the street address of its principal office in the United States in which the records required by this section are maintained or made available.

SECTION 15. This Act takes effect September 1, 2019.

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