By: Hancock  S.B. No. 1969
         (In the Senate - Filed March 7, 2019; March 19, 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. 1969 By:  Hancock
 
 
A BILL TO BE ENTITLED
 
AN ACT
 
  relating to ratification of defective corporate acts of nonprofit
  corporations; authorizing a fee.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Chapter 22, Business Organizations Code, is
  amended by adding Subchapter J to read as follows:
  SUBCHAPTER J. RATIFICATION OF DEFECTIVE CORPORATE ACTS;
  PROCEEDINGS
         Sec. 22.501.  DEFINITIONS.  In this subchapter:
               (1)  "Corporate statute," with respect to an action or
  filing, means this code, the former Texas Non-Profit Corporation
  Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes), or
  any predecessor statute of this state that governed the action or
  the filing.
               (2)  "Defective corporate act" means:
                     (A)  an election or appointment of directors that
  is void or voidable due to a failure of authorization; or
                     (B)  any act or transaction purportedly taken by
  or on behalf of the corporation that is, and at the time the act or
  transaction was purportedly taken would have been, within the power
  of a corporation to take under the corporate statute, but is void or
  voidable due to a failure of authorization.
               (3)  "District court" means a district court in:
                     (A)  the county in which the corporation's
  principal office in this state is located; or
                     (B)  the county in which the corporation's
  registered office in this state is located, if the corporation does
  not have a principal office in this state.
               (4)  "Failure of authorization" means:
                     (A)  the failure to authorize or effect an act or
  transaction in compliance with the provisions of the corporate
  statute, the governing documents of the corporation, a corporate
  resolution, or any plan or agreement to which the corporation is a
  party, if and to the extent the failure would render the act or
  transaction void or voidable; or
                     (B)  the failure of the board of directors or an
  officer of the corporation to authorize or approve an act or
  transaction taken by or on behalf of the corporation that required
  the prior authorization or approval of the board of directors or the
  officer.
               (5)  "Time of the defective corporate act" means the
  date and time the defective corporate act was purported to have been
  taken or the approximate date and time, if the exact date is
  unknown.
               (6)  "Validation effective time" or "effective time of
  the validation," with respect to any defective corporate act
  ratified under this subchapter, means the latest of:
                     (A)  the time at which the defective corporate act
  submitted to the members for approval under Section 22.505 is
  approved by the members or, if the corporation has no members or has
  no members with voting rights or if no member approval is required,
  the time at which the board of directors adopts the resolutions
  required by Section 22.503;
                     (B)  if a certificate of validation is not
  required to be filed under Section 22.508, the time, if any,
  specified by the board of directors or the members in the
  resolutions adopted under Section 22.503, which may not precede the
  time at which the resolutions are adopted; or
                     (C)  the time at which any certificate of
  validation filed under Section 22.508 takes effect in accordance
  with Chapter 4.
         Sec. 22.502.  RATIFICATION OF DEFECTIVE CORPORATE ACT.  
  Subject to Section 22.509, a defective corporate act is not void or
  voidable solely as a result of a failure of authorization if the act
  is:
               (1)  ratified in accordance with this subchapter; or
               (2)  validated by the district court in a proceeding
  brought under Section 22.512.
         Sec. 22.503.  RATIFICATION OF DEFECTIVE CORPORATE ACT;
  ADOPTION OF RESOLUTIONS.  (a)  To ratify one or more defective
  corporate acts, the board of directors of the corporation shall
  adopt resolutions stating:
               (1)  the defective corporate act or acts to be
  ratified;
               (2)  the date of each defective corporate act;
               (3)  the nature of the failure of authorization with
  respect to each defective corporate act to be ratified; and
               (4)  that the board of directors approves the
  ratification of the defective corporate act or acts.
         (b)  If the corporation has members with voting rights, a
  resolution may also state that, notwithstanding member approval of
  the ratification of a defective corporate act that is a subject of
  the resolution, the board of directors may, with respect to the
  defective corporate act, abandon the ratification of the defective
  corporate act at any time before the validation effective time
  without further member action.
         (c)  If the management of the affairs of the corporation is
  vested in its members under Section 22.202, the members of the
  corporation shall adopt resolutions stating:
               (1)  the defective corporate act or acts to be
  ratified;
               (2)  the date of each defective corporate act;
               (3)  the nature of the failure of authorization with
  respect to each corporate act to be ratified; and
               (4)  that the members approve the ratification of the
  defective corporate act or acts.
         Sec. 22.504.  QUORUM AND VOTING REQUIREMENTS FOR ADOPTION OF
  RESOLUTIONS.  (a)  The quorum and voting requirements applicable to
  the adoption of the resolutions to ratify a defective corporate act
  under Section 22.503 are the same as the quorum and voting
  requirements applicable at the time of the adoption of the
  resolutions for the type of defective corporate act proposed to be
  ratified.
         (b)  Notwithstanding Subsection (a) and except as provided
  by Subsection (c), if in order for a quorum to be present or to
  approve the defective corporate act, the presence or approval of a
  larger number or portion of the governing authority would have been
  required by the governing documents of the corporation, any plan or
  agreement to which the corporation was a party, or any provision of
  the corporate statute, each as in effect at the time of the
  defective corporate act, then the presence or approval of the
  larger number or portion of such governing authority must be
  required for a quorum to be present or to adopt the resolutions to
  ratify the defective corporate act, as applicable.
         (c)  If the corporation has members with voting rights or if
  the corporation had members with voting rights at the time of the
  taking of the defective corporate act, the presence or approval of
  any director elected, appointed, or nominated by a class of members
  that no longer exists, or by any person that is no longer a member,
  shall not be required for a quorum to be present or to adopt the
  resolutions.
         Sec. 22.505.  APPROVAL OF RATIFIED DEFECTIVE CORPORATE ACT
  BY MEMBERS WITH VOTING RIGHTS REQUIRED; EXCEPTION.  If the
  corporation has members with voting rights, each defective
  corporate act ratified under Section 22.503(a) must be submitted to
  such members of the corporation for approval as provided by
  Sections 22.506 and 22.507, unless no other provision of the
  corporate statute, no provision of the corporation's governing
  documents, and no provision of any plan or agreement to which the
  corporation is a party would have required approval by such members
  of:
               (1)  the defective corporate act to be ratified at the
  time of that defective corporate act; or
               (2)  the type of defective corporate act to be ratified
  at the time the board of directors adopts the resolutions ratifying
  that defective corporate act under Section 22.503.
         Sec. 22.506.  NOTICE REQUIREMENTS FOR RATIFIED DEFECTIVE
  CORPORATE ACT SUBMITTED FOR APPROVAL OF MEMBERS WITH VOTING RIGHTS.  
  (a)  If a corporation has members with voting rights and if the
  ratification of a defective corporate act is required to be
  submitted to such members for approval under Section 22.505, notice
  of the time, place, if any, and purpose of the meeting shall be
  given at least 20 days before the date of the meeting to:
               (1)  each member with voting rights as of the record
  date of the meeting, at the address of the member as it appears or
  most recently appeared, as appropriate, on the corporation's
  records; and
               (2)  each member with voting rights as of the time of
  the defective corporate act, except that notice is not required to
  be given to a member whose identity or address cannot be ascertained
  from the corporation's records.
         (b)  The notice must contain:
               (1)  copies of the resolutions adopted by the board of
  directors under Section 22.503 or the information required by
  Sections 22.503(a)(1)-(4); and
               (2)  a statement that, on member approval of the
  ratification of the defective corporate act made in accordance with
  this subchapter, the member's right to challenge the defective
  corporate act is limited to an action claiming that a court of
  appropriate jurisdiction, in its discretion, should declare:
                     (A)  that the ratification not take effect or that
  it take effect only on certain conditions, if that action is filed
  with the court not later than the 120th day after the applicable
  validation effective time; or
                     (B)  that the ratification was not accomplished in
  accordance with this subchapter.
         Sec. 22.507.  QUORUM AND VOTING FOR APPROVAL OF RATIFIED
  DEFECTIVE CORPORATE ACT AT MEETING OF MEMBERS WITH VOTING RIGHTS.  
  (a)  If the corporation has members with voting rights, at the
  meeting of such members, the quorum and voting requirements
  applicable to the approval of the ratification of a defective
  corporate act under Section 22.505 are the same as the quorum and
  voting requirements applicable at the time of the approval by the
  members of the ratification for the type of ratified defective
  corporate act proposed to be approved, except as provided by this
  section.
         (b)  If the presence or approval of a larger number of
  members or of any class of members would have been required for a
  quorum to be present or to approve the defective corporate act, as
  applicable, by the corporation's governing documents, any plan or
  agreement to which the corporation was a party, or any provision of
  the corporate statute, each as in effect at the time of the
  defective corporate act, then the presence or approval of the
  larger number of members or of the class of members shall be
  required for a quorum to be present or to approve the ratification
  of the defective corporate act, as applicable, except that the
  presence or approval of any class that is no longer in existence or
  has no members, or of any person that is no longer a member with
  voting rights, is not required.
         (c)  The approval by the members with voting rights of the
  ratification of the election of a director requires the affirmative
  vote of the majority of members present at the meeting and entitled
  to vote on the election of the director at the time of the approval,
  unless the governing documents of the corporation then in effect or
  in effect at the time of the defective election require or required
  a larger number of members with voting rights or of any class of
  members with voting rights to elect the director, in which case the
  affirmative vote of the larger number of members or of the class of
  members is required to ratify the election of the director, except
  that the presence or approval of any class that is no longer in
  existence or has no members, or of any person that is no longer a
  member with voting rights, is not required.
         Sec. 22.508.  CERTIFICATE OF VALIDATION.  (a)  If a
  defective corporate act ratified under this subchapter would have
  required under any other provision of the corporate statute the
  filing of a filing instrument or other document with the filing
  officer, the corporation shall file a certificate of validation
  with respect to the defective corporate act in accordance with
  Chapter 4, regardless of whether a filing instrument or other
  document was previously filed with respect to the defective
  corporate act.  The filing of another filing instrument or document
  is not required.
         (b)  A separate certificate of validation is required for
  each defective corporate act for which a certificate of validation
  is required under this section, except that two or more defective
  corporate acts may be included in a single certificate of
  validation if the corporation filed, or to comply with the
  applicable provisions of this code could have filed, a single
  filing instrument or other document under another provision of this
  code to effect the acts.
         (c)  The certificate of validation must include:
               (1)  each defective corporate act that is a subject of
  the certificate of validation, including:
                     (A)  the date of the defective corporate act; and
                     (B)  the nature of the failure of authorization
  with respect to the defective corporate act;
               (2)  a statement that each defective corporate act was
  ratified in accordance with this subchapter, including:
                     (A)  the date on which the board of directors
  ratified each defective corporate act; and
                     (B)  if the corporation has members with voting
  rights, the date, if any, on which the members approved the
  ratification of each defective corporate act or, if the management
  of the affairs of the corporation is vested in its members under
  Section 22.202, the date on which the members ratified each
  defective corporate act; and
               (3)  as appropriate:
                     (A)  if a filing instrument was previously filed
  with a filing officer under the corporate statute with respect to
  the defective corporate act and no change to the filing instrument
  is required to give effect to the defective corporate act as
  ratified in accordance with this subchapter:
                           (i)  the name, title, and filing date of the
  previously filed filing instrument and of any certificate of
  correction to the filing instrument; and
                           (ii)  a statement that a copy of the
  previously filed filing instrument, together with any certificate
  of correction to the filing instrument, is attached as an exhibit to
  the certificate of validation;
                     (B)  if a filing instrument was previously filed
  with a filing officer under the corporate statute with respect to
  the defective corporate act and the filing instrument requires any
  change to give effect to the defective corporate act as ratified in
  accordance with this subchapter, including a change to the date and
  time of the effectiveness of the filing instrument:
                           (i)  the name, title, and filing date of the
  previously filed filing instrument and of any certificate of
  correction to the filing instrument;
                           (ii)  a statement that a filing instrument
  containing all the information required to be included under the
  applicable provisions of this code to give effect to the ratified
  defective corporate act is attached as an exhibit to the
  certificate of validation; and
                           (iii)  the date and time that the attached
  filing instrument is considered to have become effective under this
  subchapter; or
                     (C)  if a filing instrument was not previously
  filed with a filing officer under the corporate statute with
  respect to the defective corporate act and the defective corporate
  act as ratified under this subchapter would have required under the
  other applicable provisions of this code the filing of a filing
  instrument in accordance with Chapter 4, if the defective corporate
  act had occurred when this code was in effect:
                           (i)  a statement that a filing instrument
  containing all the information required to be included under the
  applicable provisions of this code to give effect to the defective
  corporate act, as if the defective corporate act had occurred when
  this code was in effect, is attached as an exhibit to the
  certificate of validation; and
                           (ii)  the date and time that the attached
  filing instrument is considered to have become effective under this
  subchapter.
         (d)  A filing instrument attached to a certificate of
  validation under Subsection (c)(3)(B) or (C) does not need to be
  executed separately and does not need to include any statement
  required by any other provision of this code that the instrument has
  been approved and adopted in accordance with that provision.
         Sec. 22.509.  ADOPTION OF RESOLUTIONS; EFFECT ON DEFECTIVE
  CORPORATE ACT.  On or after the validation effective time, unless
  determined otherwise in an action brought under Section 22.512,
  each defective corporate act ratified in accordance with this
  subchapter may not be considered void or voidable as a result of the
  failure of authorization described by the resolutions adopted under
  Sections 22.503 and 22.504, and the effect shall be retroactive to
  the time of the defective corporate act.
         Sec. 22.510.  NOTICE TO MEMBERS FOLLOWING RATIFICATION OF
  DEFECTIVE CORPORATE ACT.  (a)  If the management of the affairs of a
  corporation is vested in its members under Section 22.202 or if a
  corporation has members with voting rights, for each defective
  corporate act ratified by the governing authority under Sections
  22.503 and 22.504, notice of the ratification shall be given
  promptly to:
               (1)  each member having voting rights as of the date the
  governing authority adopted the resolutions ratifying the
  defective corporate act; or
               (2)  each member having voting rights as of a date not
  later than the 60th day after the date of adoption, as established
  by the governing authority.
         (b)  Notice under this section shall be sent to the address
  of a member described by Subsection (a)(1) or (a)(2) as the address
  appears or most recently appeared, as appropriate, on the records
  of the corporation.
         (c)  Notice under this section shall also be given to each
  member having voting rights as of the time of the defective
  corporate act, except that notice is not required to be given to a
  member whose identity or address cannot be ascertained from the
  corporation's records.
         (d)  The notice must contain:
               (1)  copies of the resolutions adopted by the governing
  authority under Section 22.503 or the information required by
  Sections 22.503(a)(1)-(4) or 22.503(c)(1)-(4), as applicable; and
               (2)  a statement that, on ratification of the defective
  corporate act made in accordance with this subchapter, the member's
  right to challenge the defective corporate act is limited to an
  action claiming that a court of appropriate jurisdiction, in its
  discretion, should declare:
                     (A)  that the ratification not take effect or that
  it take effect only on certain conditions, if the action is filed
  not later than the 120th day after the later of the applicable
  validation effective time or the time at which the notice required
  by this section is given; or
                     (B)  that the ratification was not accomplished in
  accordance with this subchapter.
         (e)  Notwithstanding Subsections (a)-(d), notice is not
  required to be given under this section to a person if notice of the
  ratification of the defective corporate act is given to that person
  in accordance with Section 22.506.
         (f)  For purposes of Sections 22.505, 22.506, and 22.507 and
  this section, notice to members with voting rights as of the time of
  the defective corporate act shall be treated as notice to such
  members for purposes of Sections 6.051, 6.052, 6.053, 6.201, 6.202,
  6.203, 6.204, 6.205, and 22.156.
         (g)  If the ratification of a defective corporate act has
  been approved by the members acting under Section 6.202, the notice
  required by this section may be included in any notice required to
  be given under Section 6.202(d) and, if included:
               (1)  shall be sent to the members entitled to the notice
  under Section 6.202(d) and all other members otherwise entitled to
  the notice under Subsection (a); and
               (2)  is not required to be sent to members who signed a
  consent described by Section 6.202(b).
         Sec. 22.511.  RATIFICATION PROCEDURES OR COURT PROCEEDINGS
  CONCERNING VALIDATION NOT EXCLUSIVE.  (a)  Ratification of an act
  or transaction under this subchapter or validation of an act or
  transaction as provided by Sections 22.512 through 22.515 is not
  the exclusive means of ratifying or validating any act or
  transaction taken by or on behalf of the corporation, including any
  defective corporate act, or of adopting or endorsing any act or
  transaction taken by or in the name of the corporation before the
  corporation exists.
         (b)  The absence or failure of ratification of an act or
  transaction in accordance with this subchapter or of validation of
  an act or transaction as provided by Sections 22.512 through 22.515
  does not, of itself, affect the validity or effectiveness of any act
  or transaction properly ratified under common law or otherwise, nor
  does it create a presumption that any such act or transaction is or
  was a defective corporate act.
         Sec. 22.512.  PROCEEDING REGARDING VALIDITY OF DEFECTIVE
  CORPORATE ACTS.  (a)  The following may bring an action under this
  section:
               (1)  the corporation;
               (2)  any successor entity to the corporation;
               (3)  any member of the corporation's board of directors
  or other person having fiduciary responsibility in relation to the
  actions of the corporation;
               (4)  any member with voting rights; or
               (5)  any record member with voting rights as of the time
  a defective corporate act was ratified in accordance with this
  subchapter.
         (b)  Subject to Section 22.515, the district court, on
  application by a person described by Subsection (a), may:
               (1)  determine the validity and effectiveness of any
  defective corporate act ratified in accordance with this
  subchapter;
               (2)  determine the validity and effectiveness of the
  ratification of any defective corporate act in accordance with this
  subchapter;
               (3)  determine the validity and effectiveness of:
                     (A)  any defective corporate act not ratified
  under this subchapter; or
                     (B)  any defective corporate act not ratified
  effectively under this subchapter;
               (4)  determine the validity of any corporate act or
  transaction; and
               (5)  modify or waive any of the procedures set forth in
  Sections 22.501 through 22.511 to ratify a defective corporate act.
         (c)  In connection with an action brought under this section,
  the district court may:
               (1)  declare that a ratification in accordance with and
  pursuant to this subchapter is not effective or that the
  ratification is effective only at a time or on conditions as
  specified by the district court;
               (2)  validate and declare effective any defective
  corporate act and impose conditions on such a validation;
               (3)  require measures to remedy or avoid harm to any
  person substantially and adversely affected by a ratification under
  this subchapter or from any order of the district court pursuant to
  this section, excluding any harm that would have resulted had the
  defective corporate act been valid when approved or effectuated;
               (4)  order the filing officer to accept for filing an
  instrument with an effective date and time as specified by the
  court, which may be before or subsequent to the time of the order;
               (5)  if the corporation has members with voting rights,
  order that a meeting of such members be held and determine the right
  and power of persons to vote at the meeting;
               (6)  declare that a defective corporate act validated
  by the court is effective as of the time of the defective corporate
  act or at such other time as determined by the court; and
               (7)  make any other order regarding such matters as the
  court considers appropriate under the circumstances.
         (d)  In connection with the resolution of matters under
  Subsections (b) and (c), the district court may consider:
               (1)  whether the defective corporate act was originally
  approved or effectuated with the belief that the approval or
  effectuation was in compliance with the provisions of the corporate
  statute or the governing documents of the corporation;
               (2)  whether the corporation and the corporation's
  board of directors have treated the defective corporate act as a
  valid act or transaction and whether any person has acted in
  reliance on the public record that the defective corporate act was
  valid;
               (3)  whether any person will be or was harmed by the
  ratification or validation of the defective corporate act,
  excluding any harm that would have resulted had the defective
  corporate act been valid when it was approved or took effect;
               (4)  whether any person will be harmed by the failure to
  ratify or validate the defective corporate act; and
               (5)  any other factors or considerations the district
  court considers just and equitable.
         Sec. 22.513.  EXCLUSIVE JURISDICTION.  The district court
  has exclusive jurisdiction to hear and determine any action brought
  under Section 22.512.
         Sec. 22.514.  SERVICE.  (a)  Service of an application filed
  under Section 22.512 on the registered agent of a corporation or in
  any other manner permitted by applicable law is considered to be
  service on the corporation, and no other party need be joined in
  order for the district court to adjudicate the matter.
         (b)  If an action is brought by a corporation under Section
  22.512, the district court may require that notice of the action be
  provided to other persons identified by the court and permit those
  other persons to intervene in the action.
         Sec. 22.515.  STATUTE OF LIMITATIONS.  (a)  This section
  does not apply to:
               (1)  an action asserting that a ratification was not
  accomplished in accordance with this subchapter; or
               (2)  any person to whom notice of the ratification was
  not given as required by Sections 22.506 and 22.510.
         (b)  Notwithstanding any other provision of this subchapter:
               (1)  an action claiming that a defective corporate act
  is void or voidable due to a failure of authorization identified in
  the resolutions adopted in accordance with Section 22.503 may not
  be filed in or must be dismissed by any court after the applicable
  validation effective time; and
               (2)  an action claiming that a court of appropriate
  jurisdiction, in its discretion, should declare that a ratification
  in accordance with this subchapter not take effect or that the
  ratification take effect only on certain conditions may not be
  filed with the court after the expiration of the 120th day after the
  later of the validation effective time or the time that any notice
  required to be given under Section 22.510 is given with respect to
  the ratification.
         (c)  Except as otherwise provided by a corporation's
  governing documents, for purposes of this section, notice under
  Section 22.510 that is:
               (1)  mailed is considered to be given on the date the
  notice is deposited in the United States mail with postage paid in
  an envelope addressed to the member at the member's address
  appearing or most recently appearing, as appropriate, in the
  records of the corporation; and
               (2)  transmitted by facsimile or electronic message is
  considered to be given when the facsimile or electronic message is
  transmitted to a facsimile number or an electronic message address
  provided by the member, or to which the member consents, for the
  purpose of receiving notice.
         Sec. 22.516.  NOTICE TO ATTORNEY GENERAL. (a)  In this
  section, "charitable entity" has the meaning assigned by Section
  123.001, Property Code.
         (b)  An action brought under Section 22.512 that involves a
  charitable entity is considered a "proceeding involving a
  charitable trust" to which Chapter 123, Property Code, applies. 
         SECTION 2.  Section 4.153, Business Organizations Code, is
  amended to read as follows:
         Sec. 4.153.  FILING FEES:  NONPROFIT CORPORATIONS. For a
  filing by or for a nonprofit corporation, the secretary of state
  shall impose the following fees:
               (1)  for filing a certificate of formation, $25;
               (2)  for filing a certificate of amendment, $25;
               (3)  for filing a certificate of merger, conversion, or
  consolidation, without regard to whether the surviving or new
  corporation is a domestic or foreign corporation, $50;
               (4)  for filing a statement of change of a registered
  office, registered agent, or both, $5;
               (5)  for filing a certificate of termination, $5;
               (6)  for filing an application of a foreign corporation
  for registration to conduct affairs in this state, $25;
               (7)  for filing an application of a foreign corporation
  for an amended registration to conduct affairs in this state, $25;
               (8)  for filing a certificate of withdrawal of a
  foreign corporation, $5;
               (9)  for filing a restated certificate of formation and
  accompanying statement, $50;
               (10)  for filing a statement of change of name or
  address of a registered agent, $15, except that the maximum fee for
  simultaneous filings by a registered agent for more than one
  corporation may not exceed $250;
               (11)  for filing a report under Chapter 22, $5;
               (12)  for filing a report under Chapter 22 to reinstate
  a corporation's right to conduct affairs in this state, $5, plus a
  late fee in the amount of $5 or in the amount of $1 for each month or
  part of a month that the report remains unfiled, whichever amount is
  greater, except that the late fee may not exceed $25;
               (13)  for filing a report under Chapter 22 to reinstate
  a corporation or registration following involuntary termination or
  revocation, $25; [and]
               (14)  for filing a certificate of validation, $5, plus
  the filing fee imposed for filing each new filing instrument that is
  attached as an exhibit to the certificate of validation under
  Section 22.508(c)(3)(C); and
               (15)  for filing any instrument of a domestic or
  foreign corporation as provided by this code for which this section
  does not expressly provide a fee, $5.
         SECTION 3.  This Act takes effect September 1, 2019.
 
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