Expose Business That Will Not Comply with the Federal Law

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There is a new law governing business entities which affects all Texas business entities
and their owners. It takes effect January 1, 2010. Understand what actions you need
to take to ensure your business is in compliance in the New Year.

                                          THE ART OF WORKING SMART

                        On January 1, 2010, the current laws that apply to all Texas business entities
                        (corporations, limited liability companies, limited partnerships, etc.) will be replaced with
                        a single new statute called the “Texas Business Organization Code” or “TBOC.” Accord-
                        ingly, it will be important to update your business entity governing documents (articles
                        of incorporation, bylaws, certificates of limited partnership, partnership agreements,
                                 etc.) to comply with the TBOC. The different types of Texas business entities
                                 have been governed by separate statutes enacted over the last few decades and
                                 some of those statutes have become out of date in relation to the conduct of
                                 modern business and the more current laws of other states. The Texas legisla-
                                 ture has completely replaced the old business entity statutes with the TBOC.

                                 The TBOC already is applicable to all business entities created on or after
                                 January 1, 2006 and some transactions, such as a mergers and conversions,
                                 may cause business entities formed prior to that date to become subject to the
                                 TBOC. Business entities created prior to January 1, 2006 could electively be-
                        come subject to the new TBOC prior to the January 1, 2010 deadline by filing a $15
                        election with the Texas Secretary of State and updating their governing documents to
                        comply with the TBOC. The TBOC will become applicable to all Texas business enti-
                        ties on the January 1, 2010 deadline.

                        If the TBOC is applicable to a business entity, all actions (meetings, votes, written con-
                        sents, etc.) taken by its managerial officials (officers, directors, managers, etc.) and
                        owners (shareholders, members, partners, etc.) generally must comply with the TBOC
                        and all transactions, contracts, and other acts by the business entity will be subject to
                        the TBOC. The TBOC will also govern any proposed indemnification, whether the
                        events on which the indemnification is based occurred before or after the January 1,
                        2010 deadline. A business entity’s actions in connection with a sale of its assets,
                        merger, reorganization, conversion, or termination must comply with the TBOC.

                        Further, there are many substantive improvements in the TBOC that were not found in
                        the prior business entity statutes. For example, the TBOC contains detailed provisions

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                               for notices via electronic transmission (email, facsimile, etc.) and voting via electronic
                               means (email, teleconferencing, etc.).

                               Another important reason to comply with the TBOC is that claims are sometimes made
                               by plaintiffs against a business entity to “pierce the corporate veil” to disregard the lim-
                               ited liability protection offered by a business entity and bring a claim against its individ-
                               ual owners and managers. One factor in favor of disregarding the separate existence of a
                               business entity from its owners and managers is the failure of the business entity to prop-
                               erly maintain its records and documents. A business entity with governing documents
                               that do not comply with current business entity law may be seen as evidence that the
                               business was not maintained as a separate entity from its owners and management and
                               possibly expose those individuals to the liabilities and obligations of the business.

                               If you would like to discuss updating your business entity documents to comply with the
                               TBOC, please give me a call. I look forward to hearing from you.

                               For more than 80 years, the attorneys at Shannon, Gracey, Ratliff & Miller, LLP have
                               steadily built a legacy of working smart, helping our clients make better decisions as they
                               navigate complex legal challenges and a changing business environment.

                               We are a highly diversified Texas firm with offices in Arlington, Austin, Dallas, Fort
                               Worth, and Houston. Our attorneys have provided comprehensive, long-term and
                               practical solutions to complex business and/or litigation problems including banking,
                               real estate, employment law, health care, litigation in state and federal courts, appel-
                               late, corporate, securities, mergers and acquisitions, estate planning & probate, oil &
                               gas, intellectual property, tax and government. We listen to our clients and antici-
                               pate trends to help them navigate potential roadblocks.
Sabina C. Bramlett      
                               At Shannon Gracey, we look at legal challenges practically, allowing us to provide
                               our clients with cost efficient, creative and effective solutions.

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