BILL ANALYSIS

Senate Research Center	H.B. 4518
	By: Cook (Parker)
	Business & Commerce
	5/21/2025
	Engrossed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

The bill author has informed the committee that, in recent years, decentralized technologies, particularly blockchain, have enabled new forms of digital collaboration and governance and that one emerging model is the decentralized unincorporated nonprofit association, which allows online communities to organize as nonprofit entities without a traditional hierarchical structure and make decisions through member participation and digital tools like smart contracts. The bill author has also informed the committee that in 2024, Wyoming became the first state to formally recognize decentralized unincorporated nonprofit associations, providing a legal framework that blends the flexibility of decentralized systems with the protections of nonprofit status. The bill author has further informed the committee that, as blockchain-based organizations grow in scale and impact, Texas has an opportunity to lead in creating modern, innovation-friendly laws while ensuring transparency, accountability, and legal clarity. H.B. 4518 seeks to establish a legal framework for the formation and governance of decentralized unincorporated nonprofit associations by enabling the formation of these associations and the use of distributed ledger or blockchain technology for certain business purposes, ensuring that Texas offers legal clarity and protection for decentralized nonprofit structures and encourages innovation while maintaining safeguards for members and the public.

H.B. 4518 amends current law relating to the formation of decentralized unincorporated nonprofit associations and the use of distributed ledger or blockchain technology for certain business purposes and authorizes fees.

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 Title 6, Business Organizations Code, by adding Chapter 253, as follows:

CHAPTER 253. DECENTRALIZED UNINCORPORATED NONPROFIT ASSOCIATIONS

Sec. 253.001. DEFINITIONS. Defines "administrator," "decentralized unincorporated nonprofit association," "distributed ledger technology," "established practices," "governing principals," "member," "membership interest," "record," and "smart contract."

Sec. 253.0015. APPLICABILITY OF CODE TO ASSOCIATIONS. Provides that, except as provided by Sections 253.024(e) and 253.025, the only provisions of the Business Organizations Code that apply to or govern a decentralized unincorporated nonprofit association (association) are this chapter, Chapters 1 (Definitions and Other General Provisions), 2 (Purposes and Power of Domestic Entity), 4 (Filings), and 10 (Mergers, Interest Exchanges, Conversions, and Sales of Assets), and, if an association designates an agent for service of process, Subchapter E (Registered Agents and Registered Offices), Chapter 5 (Names of Entities; Registered Agents and Registered Offices).

Sec. 253.002. SUPPLEMENTARY GENERAL PRINCIPLES OF LAW AND EQUITY. (a) Provides that principles of law and equity supplement this chapter unless displaced by a particular provision of this chapter.

(b) Provides that this chapter is prohibited from being interpreted to repeal or modify a statute or rule for an entity that does not elect to be formed as an association.

Sec. 253.003. GOVERNING LAW; TERRITORIAL APPLICATION. (a) Provides that the law of this state governs any association that is formed in this state.

(b) Requires that an association's governing principles identify the jurisdiction in which the association is formed.

Sec. 253.004. DISTRIBUTION TO MEMBERS PROHIBITED; COMPENSATION AND OTHER PERMITTED PAYMENTS. (a) Authorizes an association to carry on any business activity in which the association may lawfully engage and apply any profit that results from the business activity toward the association's common nonprofit purpose in accordance with Subsection (c).

(b) Prohibits an association, except as provided by Subsection (c), from paying dividends or distributing any part of the association's income or profit to the association's members or administrators.

(1) pay reasonable compensation or reimburse reasonable expenses to the association's members, administrators, or persons outside the association for services rendered to or for the benefit of the association, including for the administration and operation of the association, including for the provision of collateral for the self-insurance of the association, voting, and participation;

(2) confer benefits on the association's members or administrators in conformity with the association's common nonprofit purpose or purposes;

(3) repurchase membership interests to the extent authorized by the association's governing principles; and

(4) make distributions of property to members on winding up and termination to the extent provided by Section 253.027.

Sec. 253.005. LEGAL ENTITY; PERPETUAL EXISTENCE. (a) Provides that an association is a legal entity distinct from the association's members and administrators.

(b) Provides that an association has perpetual duration unless the association's governing principles otherwise specify.

Sec. 253.006. REAL AND PERSONAL PROPERTY; DECENTRALIZED UNINCORPORATED NONPROFIT ASSOCIATION AS BENEFICIARY, LEGATEE, OR DEVISEE. (a) Authorizes an association, in the name of the association, to acquire, hold, encumber, or transfer an estate or interest in real or personal property.

(b) Authorizes an association to be a beneficiary of a trust or contract, legatee, or devisee.

Sec. 253.007. STATEMENT OF AUTHORITY AS TO REAL PROPERTY. (a) Requires an association to execute and record a statement of authority to transfer an estate or interest in real property in the name of the association.

(b) Authorizes an estate or interest in real property in the name of an association to be transferred by a person authorized in a statement of authority recorded in the office of the county clerk in which a transfer of the property would be recorded.

(d) Requires that a statement of authority be executed in the same manner as a deed. Prohibits the person who executes the statement of authority from being the person named in the statement of authority as authorized to transfer the estate or interest.

(e) Authorizes the county clerk to collect a fee for recording the statement of authority in the amount authorized for recording a transfer of real property.

(f) Requires that an amendment, including a cancellation, of a statement of authority meet the requirements for execution and recording of an original statement. Provides that, unless canceled earlier, a recorded statement of authority or the most recent amendment to the statement is canceled by operation of law on the fifth anniversary of the date of the most recent recording.

(g) Provides that, if the record title to real property is in the name of an association and the statement of authority is recorded in the office of the county clerk in which a transfer of real property would be recorded, the authority of the person named in a statement of authority is conclusive in favor of a transferee who gives value without notice that the person named in the statement of authority lacks authority.

Sec. 253.008. LIABILITY. (a) Provides that, except as otherwise provided by this chapter, the debts, obligations, and liabilities of an association, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the association. Prohibits a member or administrator of an association from being obligated personally for any debt, obligation, or liability of the association solely by reason of being a member or acting as an administrator of the association.

(b) Authorizes a member or administrator of an association, notwithstanding Subsection (a), under the governing principles of the association or under another agreement, to agree to be obligated personally for any or all of the debts, obligations, and liabilities of the association.

(c) Prohibits the failure of an association to observe formalities relating to the exercise of the association's powers or administration of the association's activities and affairs from being considered a ground for imposing liability on a member or administrator of the association for a debt, obligation, or other liability of the association.

Sec. 253.009. CAPACITY TO ASSERT AND DEFEND; STANDING. (a) Authorizes an association, in the association's name, to institute, defend, intervene, or participate in a judicial, administrative, or other governmental proceeding or in an arbitration, mediation, or any other form of alternative dispute resolution.

(b) Authorizes a member or administrator to assert a claim the member or administrator has against the association. Authorizes an association to assert a claim the association has against a member or administrator.

Sec. 253.010. EFFECT OF JUDGMENT OR ORDER. Provides that a judgment or order against an association is not by itself a judgment or order against a member or administrator of the association.

Sec. 253.011. APPOINTMENT OF AGENT TO RECEIVE SERVICE OF PROCESS. (a) Authorizes an association to file in the Office of the Secretary of State (office) a statement appointing an agent authorized to receive service of process.

(b) Requires that a statement appointing an agent contain certain information.

(c) Requires that a statement appointing an agent be signed and acknowledged by a person authorized to manage the affairs of the association. Requires that the statement also be signed and acknowledged by the person appointed agent, who by signing accepts the appointment. Authorizes the appointed agent to resign by filing a resignation in the office and giving notice to the association.

(d) Authorizes the Secretary of State (SOS) to collect a fee for filing a statement appointing an agent to receive service of process, an amendment, or a resignation under this section.

(e) Requires that an amendment to a statement appointing an agent to receive service of process meet the requirements for execution of an original statement.

(f) Requires SOS, if SOS refuses to file a statement appointing an agent, to return it to the association or the association's representative not later than the 30th day after the date the statement was delivered and include a brief explanation in writing of the reason for the refusal.

Sec. 253.012. SERVICE OF PROCESS. Requires that a summons and complaint or other process, in an action or proceeding against an association, be served on:

(1) an agent authorized by appointment to receive service of process;

(2) an appointed administrator of the association; or

(3) a member, but only if the agent or administrator described by Subdivisions (1) and (2) cannot be served.

Sec. 253.013. CLAIM NOT ABATED BY CHANGE OF MEMBERS OR ADMINISTRATORS. Provides that a claim for relief against an association does not abate merely because of a change in the members or administrators of the association.

Sec. 253.014. VENUE. Provides that, unless provided otherwise by other law, venue of an action against an association brought in this state is determined in accordance with the law applicable to an action brought in the county in which the association has appointed an agent for service of process under Section 253.011.

Sec. 253.015. MEMBER NOT AN AGENT. Provides that a member of an association is not an agent of the association solely by reason of being a member.

Sec. 253.016. APPROVAL BY MEMBERS. (a) Requires an association, except as otherwise provided by an association's governing principles, to have the approval of the association's members, attained in accordance with its governing principles, to take certain actions.

Sec. 253.017. USE OF DISTRIBUTED LEDGER TECHNOLOGY. (a) Authorizes an association to provide for the association's governance, wholly or partly, through distributed ledger technology, including through a smart contract.

(b) Authorizes the governing principles for an association to:

(1) specify whether any distributed ledger technology used or enabled by the association is immutable or subject to change by the association and fully or partially public or private, including the extent of members' access to information; and

(2) adopt voting procedures, which are authorized to include a smart contract deployed to distributed ledger technology, that provide for proposals from members or administrators in the association for upgrades, modifications, or additions to software systems or protocols, proposed changes to the association's governing principles, and any other matter of governance or relating to the activities of the association that is within the purpose of the association.

Sec. 253.018. CONSENSUS FORMATION ALGORITHMS AND GOVERNANCE PROCESS. Authorizes an association, in accordance with the association's governing principles, to:

(1) adopt a reasonable algorithmic means for establishing consensus for the validation of records, the establishment of requirements, processes, and procedures for conducting operations, and making organizational decisions with respect to the distributed ledger technology used by the association; and

(2) in accordance with a procedure adopted by the association under Section 253.017, if any, and in compliance with the requirements of law and the governing principles of the association, modify the consensus mechanism, including the requirements, processes, and procedures for that mechanism or substitute a new consensus mechanism, including the requirements, processes, or procedures for that mechanism.

Sec. 253.019. DUTIES OF MEMBERS. (a) Provides that a member of an association does not owe a fiduciary duty to the association or to any another member of the association solely by virtue of the person's membership in the association.

(b) Requires a member of an association to discharge the duties and obligations under this chapter or under the governing principles of the association and exercise the member's rights in a manner consistent with the contractual obligation of good faith and fair dealing.

Sec. 253.020. ADMISSION, SUSPENSION, DISMISSAL, OR EXPULSION OF MEMBERS. (a) Provides that a person becomes a member of an association in accordance with the governing principles of the association. Provides that, if there are no applicable governing principles, a person is considered a member on the purchase or assumption of a right of ownership of a membership interest or other property or instrument that confers on the person a voting right in the association and continues as a member of the association until the earlier of the member's resignation under Section 253.021 or suspension, dismissal, or expulsion under Subsection (b).

(b) Authorizes a member to be suspended, dismissed, or expelled in accordance with the governing principles of the association. Provides that the member, if there are no applicable governing principles, is authorized to be suspended, dismissed, or expelled from an association only by a majority vote of the association's members.

(c) Provides that, unless the governing principles of an association provide otherwise, the suspension, dismissal, or expulsion of a member does not relieve the member from any obligation incurred or commitment made by the member in connection with membership in the association before the member's suspension, dismissal, or expulsion.

Sec. 253.021. RESIGNATION OF MEMBER. (a) Authorizes a member to resign as a member of an association in accordance with the governing principles of the association. Provides that, in the absence of applicable governing principles, a member is considered to have resigned on the voluntary or involuntary disposal of all membership interest or other property or instruments that confer on the person a voting right in the association.

(b) Provides that, unless an association's governing principles provide otherwise, resignation of a member does not relieve the member of any obligation incurred or commitment made by the member before the member's resignation.

Sec. 253.022. MEMBERSHIP INTEREST TRANSFERRABLE. Provides that, except as otherwise provided in the association's governing principles, a member's interest or a right conferred in the association is freely transferable to another person through conveyance of the membership interest or other property that confers on a person a voting right in the association.

Sec. 253.023. SELECTION OF ADMINISTRATORS; RIGHTS AND DUTIES OF ADMINISTRATORS. (a) Authorizes the members of an association, except as otherwise provided by this chapter or an association's governing principles, to select the association's administrators in accordance with Section 253.016.

(b) Provides that, if no administrators are selected, no member of the association is an administrator.

(c) Provides that an association is not required to have an administrator. Provides that there are no default obligations of an administrator of an association. Requires that the rights and duties of an administrator of an association be established as part of the selection process for an administrator or administrators of the association.

(d) Provides that an administrator of an association does not have the authority to act on behalf of the association beyond the specific authority granted in the selection process of the administrator established under Subsection (c).

(e) Authorizes the governing principles of an association, in a record, to limit or eliminate the liability of an administrator to the association or the association's members for money damages for an action taken, or for failure to take an action, as an administrator, except liability for:

(1) the amount of a financial benefit improperly received by an administrator;

(2) an intentional infliction of harm on the association or the association's members;

(3) an intentional violation of criminal law;

(4) a breach of the duty of loyalty should one exist, unless a full disclosure of all material facts, a specific act, or a transaction that would otherwise violate the duty of loyalty by an agent is authorized or ratified by approval of the disinterested members in accordance with Section 253.016; or

(5) an improper distribution.

Sec. 253.024. RECORDS. (a) Provides that, except as provided by Subsection (b), on reasonable notice, a member or administrator of an association is entitled to an electronic record of any record maintained by the association regarding the association's activities, financial condition, or other circumstances to the extent the information contained in the record is material to the member's or administrator's rights and duties under the association's governing principles or this chapter.

(b) Provides that an association is not obligated to provide a record maintained by the association for record requests made through distributed ledger technology, including through a smart contract, to a member or administrator if the member or administrator has access to the information contained in the record in a record made available to the member or administrator on distributed ledger technology.

(c) Authorizes an association to impose reasonable restrictions on access to and use of information that may be provided under this section, including by designating the information confidential and imposing nondisclosure or other safeguarding obligations on the recipient of the information.

(d) Authorizes a former member or administrator to have access to information to which the member or administrator was entitled as a member or administrator if the information relates to the period of time during which the person was a member or administrator, the former member or administrator seeks the information in good faith, and the former member or administrator satisfies the requirements of Subsections (a), (b), and (c) with respect to the information.

(e) Provides that Sections 12.151 (Authority of Attorney General) through 12.154 (Authority to Disclose Information) apply to an association.

(f) Provides that an association has no obligation to collect and maintain a list of members or member information, including the names or addresses of members.

Sec. 253.025. INDEMNIFICATION; ADVANCEMENT OF EXPENSES. Provides that an association is an enterprise, as that term is defined by Section 8.001 (Definitions), for purposes of the requirements related to indemnification and advancement of expenses under Chapter 8 (Indemnification and Insurance).

Sec. 253.026. DISSOLUTION; CONTINUATION OF EXISTENCE. (a) Authorizes an association to be dissolved by any of certain methods.

(b) Provides that, after dissolution, an association continues in existence until the association's activities are wound up and the association is terminated under Section 253.027.

Sec. 253.027. WINDING UP AND TERMINATION. (a) Requires a dissolved association to wind up the association's business. Provides that the association continues in existence after dissolution only for the purpose of winding up under this section.

(b) Provides that, in winding up an association, the members are:

(1) required to discharge the association's debts, obligations, and other liabilities, settle and close the association's business, and marshal and distribute any remaining property:

(A) in a manner required by law, other than this chapter, that requires assets of an association to be distributed to another entity or person with similar nonprofit purposes, if applicable to the association;

(B) in accordance with the association's governing principles, and in the absence of applicable governing principles, to the current members of the association in proportion to their membership interests; or

(C) if property cannot be distributed under Paragraph (A) or (B), under the laws governing unclaimed property for this state; and

(2) authorized to appoint and authorize an administrator to wind up the association in accordance with Section 253.017, preserve the association operations and property as a going concern for a reasonable time, prosecute and defend civil, criminal, or administrative actions and proceedings involving the association, transfer the association's property, settle disputes involving the association by mediation or arbitration, receive reasonable compensation for services rendered to the association in winding up the association, and perform other acts necessary or appropriate to effect the winding up.

(c) Requires the members of an association, if the members do not appoint an administrator to wind up the association's business, to owe the association a duty of care in the conduct or winding up of the association operations to refrain from engaging in grossly negligent or reckless conduct, wilful or intentional misconduct, or a knowing violation of the law.

Sec. 253.028. MERGERS AND CONVERSIONS. Authorizes an association to effect a merger or conversion by complying with the applicable provisions of Chapter 10 and the association's governing principles.

SECTION 2. Effective date: September 1, 2025.