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2019 Legislative Session Update

The following bills, which were passed during the Regular Session of the 86th Legislature, impact procedures, filings, or other duties and responsibilities of the Texas Secretary of State.

Bills Relating to Business Entity Filings

House Bill 303 (PDF): Amended Chapter 507 of the Local Government Code by expanding the entities that are eligible to authorize the formation of a spaceport development corporation. Prior to the enactment of HB 303, a municipality was required to partner with one or more counties to be eligible to form a spaceport development corporation. HB 303 amended Chapter 507 to permit a municipality with a population of two million or more to authorize the formation of a spaceport development corporation. The bill became effective on May 23, 2019.

House Bill 3609 (PDF): HB 3609 amends Chapter 71 of the Business & Commerce Code to eliminate the county-level filing requirement for business entities that file an assumed name certificate with the Office of the Secretary of State. The changes made by HB 3609 become effective September 1, 2019, and apply to assumed name certificates filed by corporations, limited partnerships, limited liability companies, limited liability partnerships and foreign filing entities. Please note that no change was made to the content of an assumed name certificate filed with the secretary of state. County-level filings of assumed name certificates would continue to be required for joint ventures, general partnerships, domestic real estate investment trusts, estates, sole proprietors and trusts.

Senate Bill 1623 (PDF): SB 1623 becomes effective September 1, 2019, and amends Chapter 961 of the Texas Insurance Code. Chapter 961 relates to the creation and operation of a Texas nonprofit legal services corporation. A nonprofit legal services corporation is created for the sole purpose of establishing, maintaining, and operating a nonprofit legal services plan under which the corporation contracts for and obtains legal services for participants through contracting attorneys in consideration of each participant's payment of a definite amount to fund the payment of the contracting attorneys' fees. SB 1623 repeals certain Chapter 961 provisions and amends other Chapter 961 provisions to remove nonprofit legal services corporations from Texas Department of Insurance oversight/regulation.

Senate Bill 1859 (PDF): SB 1859, which becomes effective September 1, 2019, makes both substantive and technical amendments to the Business Organizations Code (BOC). Among other amendments made to the BOC, the bill amends provisions relating to the effectiveness of a filing instrument. Currently, the provisions of Subchapter B of Chapter 4 of the BOC permit the effectiveness of a filing instrument to be: (1) delayed until a specific date and time, not more than 90 days from the date the instrument is signed, or (2) conditioned on the occurrence of a future event or fact, including the act of any person (delayed effective condition).

SB 1859 amends Sections 4.052, 4.053, 4.054, 4.055, and 4.056 of the BOC to clarify that the effectiveness of a filing instrument may be delayed to a specific date or to a specific date and time, and to clarify the information required to be provided in a filing instrument the effectiveness of which has been delayed. The amendments also expand the ways in which the effectiveness of a filing instrument may be delayed when the effectiveness is conditioned on the occurrence of a future event or fact, including the act of another person.

Effective September 1, 2019, a filing instrument the effectiveness of which is conditioned on the occurrence of a future event or fact, including the act of another person, may be delayed:

Although the delayed effectiveness provisions of the BOC have been amended, the evidence of filing generated by the secretary of state will remain the same. The certificate of filing for an instrument with a delayed effective date will display the effective date without a specified time. A certificate of filing for an instrument with a delayed effective date and time will provide the delayed effective date and time. A certificate of filing for an instrument that has a delayed effective condition, as noted above, will state “Effective: Condition”.

Senate Bill 1969 (PDF): SB 1969, which becomes effective September 1, 2019, amends the Business Organizations Code to specify procedures for the ratification of void or voidable acts of a domestic nonprofit corporation. Currently, there are procedures in place for a for-profit corporation to ratify a void or voidable corporate act. SB 1969 amends Chapter 22 to add new Subchapter J, which establishes similar provisions for nonprofit corporations, authorizes the filing of a certificate of validation with the secretary of state, sets forth the circumstances under which an additional filing instrument may be required to be attached to a certificate of validation, and establishes a filing fee for a nonprofit certificate of validation.

Senate Bill 1971 (PDF): SB 1971, effective September 1, 2019, makes substantive and non-substantive revisions to the Business Organizations Code (BOC). The amendments made to the BOC include: (1) revising the provisions relating to a two-step tender or exchange offer-merger of a for-profit corporation to be subject to the exceptions to dissenters’ rights applicable to other mergers and makes conforming changes to bring the provisions in line with similar Delaware provisions; (2) defining “director” of a nonprofit corporation to exclude an honorary, ex-officio, or similar non-voting member of the board of directors; (3) clarifying that meetings of directors and members of a nonprofit corporation may be held via telephone conference or other electronic communication system; (4) clarifying that the time period for sending notices of redemption by a for-profit corporation to holders of its redeemable shares may be specified in the terms of the series or class of shares; and (5) clarifying several provisions governing the ratification of defective corporate acts to conform with recent changes to the Delaware law on which these provisions were modeled.

Other Legislation of Interest

House Bill 402 (PDF): HB 402, which becomes effective September 1, 2019, amends Chapter 2051 of the Government Code by adding new Subchapter E, and adopts the Uniform Electronic Legal Material Act (UELMA). UELMA provides for the authentication and preservation of electronic legal materials. The Act designates the Texas Legislative Council as the official publisher of the Texas constitution and the Secretary of State as the official publisher of the general or special laws passed by the Legislature and state agency rules. The bill provides that if the official publisher publishes legal material only in an electronic record, the publisher must designate the electronic record as official and comply with provisions regarding the authentication of an official electronic record, the preservation and security of legal material in an official electronic record, and public access to legal material in an electronic record.

The bill applies to all legal material in an electronic record that is designated as official by the official publisher and is first published electronically by the official publisher on or after January 1, 2021, and establishes that the official publisher is not required to publish legal material on or before the date on which the legal material takes effect. While the bill is effective September 1, 2019, an implementation plan is to be provided to the legislature no later than September 1, 2020.

House Bill 1159 (PDF): HB 1159, which becomes effective September 1, 2019, amends Chapter 121 of the Texas Civil Practice and Remedies Code to provide for a short form acknowledgement form for a written instrument executed on behalf of a limited liability company and to make modifications to the short form acknowledgement form for a written instrument signed on behalf of a partnership.

House Bill 3603 (PDF): HB 3603, which becomes effective September 1, 2019, makes both substantive and technical amendments to the Business Organizations Code (BOC) provisions relating to for-profit corporations, limited liability companies (LLCs), and limited partnerships (LPs) and the ability of the owners of such entities to bring a derivative proceeding. A derivative proceeding is a legal action brought by a business entity owner on behalf of the entity against a third-party.

The BOC provides for derivative actions with respect to for-profit corporations, LLCs, and LPs. The amendments made by HB 3603 harmonize the BOC provisions relating to derivative proceedings brought on behalf of these entities to make them consistent in application. The amendments also narrow the exception to the conditions of a derivative proceeding for closely held for-profit corporations and LLCs, and create an exception for LPs with 35 or fewer owners by specifying that the exception applies only to a claim or derivative proceeding by an owner against a governing person, officer, or owner of the entity.

Senate Bill 2128 (PDF): SB 2128, which becomes effective September 1, 2019, amends Section 193.003(b) of the Local Government Code, and Chapter 12 of the Property Code to address the recording by a county clerk of a paper document concerning real or personal property that is a paper or tangible copy of an electronic record. To be recorded in the real property records, the paper copy must: (1) contain an image of an electronic signature or signatures that are acknowledged, sworn to with a jurat, or proved according to law; and (2) include, as an attachment, an executed “Declaration of Authenticity.” The attached declaration of authenticity is made under penalty of perjury by a notary public (or other officer who may take an acknowledgment under Section 121.001, Civil Practice and Remedies Code). The notary’s declaration includes a statement that, at the time of printing of the copy of the electronic document, no security features present on the electronic record indicated any changes or errors in the electronic signature or other information in the electronic record after the electronic record’s creation or execution. Provisions relating to the recording of a paper or tangible copy of an electronic record and requirements of a declaration of authenticity are found in new Section 12.0013, as added by SB 2128.