Guidelines for Certificate of Formation and Entity Registration

1. Formation Filings Business and Public Filings Division

2. Certificates of Formation • Domestic filing entities are formed by filing a certificate of formation with the filing officer. • Any certificate of formation filed with an effective date on or after January 1, 2006: • creates a BOC entity • must comply with BOC filing requirements • is subject to the new BOC fee schedule Business and Public Filings Division

3. Certificates of formation are governed by § 3.001 et seq. • Every certificate of formation must contain: • The name of the filing entity to be formed • The type of filing entity to be formed (e.g., for-profit corp) • Purpose (except for LPs) • Duration, if not perpetual (except for LPs) • Registered office street address; registered agent’s name • Name and address of organizers (e.g., general partner, or trust manager) Business and Public Filings Division

4. Supplemental requirements for certificates of formations are set out for: • For-profit corporations § 3.007 • Close corporations § 3.008 • Nonprofit corporations § 3.009 • Limited Liability Companies § 3.010 • Limited Partnerships § 3.011 • Real Estate Investment Trusts § 3.012 • Cooperative Associations § 3.013 • Professional Entities § 3.014 • Professional Associations § 3.015 Business and Public Filings Division

5. Names • Name availability standards and rules remain the same. § 5.001 et seq. • LP name can include name of limited partner. • “Limited” and “Ltd.” are acceptable organizational indicators for for-profit, nonprofit, and professional corporations. § 5.054(1) Business and Public Filings Division

6. Business and Public Filings Division Names Cont’d • LPs that are registered as LLPs can use “limited liability limited partnership” or “LLLP” in their name. §§ 5.055(b) & 5.063. • For LP named ABC, SOS accepts the following, on the theory that the LP might register as LLP: • ABC Limited Partnership, ABC Ltd., or ABC LP • ABC Limited Liability Partnership or ABC LLP • ABC Limited Liability Limited Partnership or ABC LLLP • ABC Limited Partnership Limited Liability Partnership, ABC Ltd, Limited Liability Partnership, or other abbreviations.

7. Duration • A domestic entity’s duration is assumed to be perpetual unless stated otherwise in its governing documents. § 3.003 • If a domestic entity’s duration is not perpetual, its certificate of formation must state the period of duration. (Except for LPs) § 3.005(4) • SOS forms for certificates of formation do not include a duration clause. Limited durations can be set out in the “Supplemental Text” area of the forms. Business and Public Filings Division

8. Purpose • LPs still do not have to state a purpose. § 3.005(3) • Joint practice between optometrists, therapeutic optometrists, medical doctors, and doctors of osteopathy is specifically allowed. § 301.012(c) • Professional entities can provide more than one professional service only if specifically authorized by law governing professions. Business and Public Filings Division

9. Purpose Cont’d • LLCs can have a specific nonprofit purpose. §§1.002(60), 2.002 et seq. • An LLC with a nonprofit purpose is distinct from a nonprofit corporation or other nonprofit association. • SOS will not distinguish between LLCs created for a for-profit purpose and LLCs created for a nonprofit purpose. (LLC fees apply to all LLCs regardless of purpose.) Business and Public Filings Division

10. Purpose Cont’d • Nonprofit corporations can state a general nonprofit purpose. Specifying the nonprofit purpose is no longer required for formation. § 22.051 • BOC provisions specifically applicable to nonprofit corporations do not apply to other nonprofit entities. • Power to act as trustee in § 2.106 • Default tax provisions of § 2.107 Business and Public Filings Division

11. Registered Agent Requirements • Registered Agent may be: • an individual resident of Texas, or • a domestic or foreign entity that is registered to do business in Texas. • Registered agent’s business office address must be the same address as the registered office. Business and Public Filings Division

12. Registered Office Requirements • Registered Office: • Must be located at a street address where process may be personally served on the registered agent; • Is not required to be the business office address of the represented entity; and • May not be solely a mailbox service or telephone answering service. Business and Public Filings Division

13. Professional Entities Under the BOC Business and Public Filings Division

14. Professional Entities Under the BOC Each professional entity is governed by title 1, title 7 and the title(s) applicable to the entity type. Business and Public Filings Division

15. Professional Entities Under the BOC Professional Corporations, Title 1, Title 2, and Title 7. Professional Associations, Title 1, Title 2, and Title 7. Professional LLCs, Title 1, Title 3, and Title 7. Title 7 provisions will prevail over a conflicting provision of Titles 1, 2, or 3. Business and Public Filings Division

16. Professional Entities Under the BOC Title 7 (Chapters 301-304) of the BOC contains specific provisions relating to professional entities. Definitions that specifically apply to professional entities are found in Title 7 rather than Title 1 of the BOC. “Professional Entity” means a professional association, professional corporation, and a professional limited liability company. This does not include partnerships. Business and Public Filings Division

17. Professional Entities--Definitions “Professional Corporation” means a corporation formed for the purpose of providing a professional service that by law a for-profit corporation is prohibited from rendering. “Professional LLC” means a LLC formed for the purpose of providing a professional service. Business and Public Filings Division

18. Professional Entities--Definitions “Professional Service” means any type of service that requires, as a condition precedent to the rendering of the service, the obtaining of a license in Texas. Professional Services Services provided by architects, lawyers, dentists, physicians, veterinarians, CPAs, optometrists, nurses, audiologists, etc. Business and Public Filings Division

19. Professional Associations Prior to 1999, the only professionals permitted to form PAs were doctors of medicine, osteopathy, and podiatry. Due to the progressive legislative expansion of permitted professionals authorized to form PAs, many of the conversions seen in recent years have been conversions from a professional corporation to a professional association. Business and Public Filings Division

20. Professional Associations As of June 20, 2003, the following professionals were authorized to form professional associations: doctors of medicine; doctors of osteopathy; podiatrists; dentists; mental health professionals (such as psychologists and family therapists); optometrists and therapeutic optometrists; chiropractors, and veterinarians. Business and Public Filings Division

21. Professional Associations Existing law (article 1528f, TPAA) did not specifically define a “professional association.” Section 2 of the TPAA merely states that “any one or more persons duly licensed to practice a profession, including podiatry... ...may form a professional association.” Business and Public Filings Division

22. Professional Associations Title 7 of the BOC contains a specific definition of a professional association that defines a domestic “professional association” as: An entity formed “for the purpose of providing the professional service rendered by a doctor of medicine, doctor of osteopathy, doctor of podiatry, dentist, chiropractor, optometrist, therapeutic optometrist, veterinarian, or licensed mental health professional.” Business and Public Filings Division

23. Professional Associations Formation Issues--Changes 1. Filing fee increased to reflect the fact that these entities do not pay state franchise tax. $750. 2. There are still limitations on the perpetual duration of a professional association; however, these limitations are set forth as a matter of law and are not required to be stated in the certificate of formation. Business and Public Filings Division

24. Professional Associations Formation Issues--Changes 3. Certificate of formation of a professional association is not required to provide an association address, but we will continue to accept a certificate of formation that provides this information. 4. Organizational designators are “professional association,” “associated,” “associates” or “association.” Business and Public Filings Division

25. Professional Associations Formation Issues--Changes 5. Certificate of formation of a professional association is not required to provide information relating to the initial management structure of the professional association. However, a certificate of formation still requires name, address, and execution of each original member. Business and Public Filings Division

26. Professional Associations Formation Issues--Changes The SOS Form (204) still includes an article to provide initial management structure and information for purposes of generating the initial annual statement sent to the professional association. Business and Public Filings Division

27. Limited Legal Purposes • Existing law permits a professional entity to render only one type of professional service (and any ancillary services). • This is still the general rule under the BOC. Business and Public Filings Division

28. Joint Practice Provisions • Under the TPAA and the TLLCA, doctors of medicine, osteopathy, and podiatry can form a PA or a PLLC and have a joint practice. This is also permitted by the BOC. • Under the TPCA and TLLCA, persons in a related mental health field (e.g., psychologists and licensed professional counselors) can have a joint practice. This is also permitted by the BOC. Business and Public Filings Division

29. Joint Practice Provisions • Under the Occupations Code, a physician, an optometrist, and a therapeutic optometrist may have a joint practice. However, neither the TPAA nor the TLLCA authorized this joint practice. • The BOC implements the provisions of the Occupations Code and specifically authorizes this as a permissible joint practice. Business and Public Filings Division

30. Joint Practice Provisions • Section 301.012 of the BOC lists various professionals that are authorized to have a joint practice as a professional entity. • This is not intended to be an exclusive list. Business and Public Filings Division

31. Joint Practice Provisions • Section 2.004 of the BOC states that a professional entity may engage in only type of professional service unless the entity is expressly authorized to provide more than one type of professional service under the state law regulating the professional services. Business and Public Filings Division

32. Joint Practice Provisions • SOS will not be in the business of researching what is specifically permissible under the state law regulating the various professions. • If a formation document contains a joint practice purpose not specifically provided for in the BOC, the legal practitioner should be prepared to provide reference to the specific law permitting the joint practice. Business and Public Filings Division

33. Limitations/Restrictions • Under existing law, ownership in a professional corporation (other than a professional legal corporation), is limited to individualswho are licensed to render the same professional purpose as the PC. • Ownership of a professional corporation formed under the BOC may be held by a “professional organization.” Business and Public Filings Division

34. Limitations/Restrictions • A “professional organization” is a foreign or domestic legal entity (whether for-profit or nonprofit) that renders the same professional service as the professional corporation or professional limited liability company only through owners, members, managerial officials, employees, or agents, each of whom is a professional individual or professional organization. Business and Public Filings Division

35. Other Limitations/Restrictions • A professional corporation’s officers and directors must still be licensed individuals. • Ownership and management in a professional association is still limited to individuals who are licensed to perform the professional service for which the professional association is formed. Business and Public Filings Division

36. Existing LawForeign Professional Entities • Only a foreign professional legal corporation could obtain a certificate of authority to transact business in Texas. Tex. Att’y Gen. Op. JM-7 (1983) • Those foreign professional entities that were not professional legal corporations that desired to transact business in Texas qualified as foreign professional limited liability companies. Business and Public Filings Division

37. Foreign Professional Entities • The BOC requires a foreign professional entity to register under Chapter 9 of the BOC. • Under the BOC, a foreign professional corporation providing accounting services qualifies as a foreign professional corporation and not as a foreign LLC. Business and Public Filings Division

38. Foreign Professional Entities • The SOS has promulgated application for registration forms for use by foreign professional entities. • An application for registration must state that the jurisdiction of formation of the foreign entity permits reciprocal admission of a professional entity formed under the BOC. • Filing fees similar to foreign for-profit corporation or foreign LLC. Business and Public Filings Division

39. Foreign Professional Associations • If the professional entity is characterized in its home jurisdiction as a professional association, it should identify itself as a foreign professional association in its application for registration. • A foreign professional association: • Will be required to file an annual statement in the same manner as a domestic professional association. • May be subject to franchise tax. Business and Public Filings Division

40. Foreign Professional Associations • The SOS will not determine whether the foreign professional association is classified as a corporation in its home jurisdiction. • The determination of whether the foreign professional association is to be taxed as a corporation for franchise tax purposes will be left to the Comptroller of Public Accounts. Business and Public Filings Division

41. Foreign Professional PC Filed as “LLC” • A foreign professional corporation that previously qualified as a foreign professional limited liability company may: • File an early election to adopt the BOC ($15), and • File an application for amended registration to identify itself as it is characterized in its home jurisdiction ($150). Business and Public Filings Division

42. Foreign Entities Doing Business in Texas After January 1, 2006 Business and Public Filings Division

43. Foreign Entities Title 1, Chapter 9 of the BOC New terminology, such as “registration” and “foreign filing entity.” Simplifies the test of the type of entity required to register and makes it mandatory. Business and Public Filings Division

44. Foreign Entities Required to Register • A foreign entity must register to transact business in Texas if: • The entity affords limited liability under the laws of its jurisdiction of formation for any member or owner, unless the foreign entity is authorized to transact business under other state law. Business and Public Filings Division

45. What is “Transacting Business” ? • Terminology is not defined. We can’t say. • List of “not-transacting business” activities same as those provided under prior law. • We do not issue formal legal opinions. Business and Public Filings Division

46. What is Considered Foreign in Texas? A. Anything outside of Austin. B. Anything outside of Texas. C. Anything outside of the United States. D. Both B & C. Business and Public Filings Division

47. What is Considered Transacting Business in Texas? • Employee residing in Texas. • Pursuing its purpose in Texas. • Owning & receiving income from property in Texas. Business and Public Filings Division

48. How Does the SOS Know? • Public Information Reports • Competitors or unhappy customers • Questions from the business • Other state agencies require registration Business and Public Filings Division

49. Our Response • Over 1,000 letters sent out 2005 • Over 200 entities filed in Texas • $140,785 in filing fees collected for the general revenue • Current database of letter recipients is 2,086 businesses Business and Public Filings Division

50. Foreign Entities Now Required to File Foreign cooperatives Foreign business trusts Foreign real estate investment trusts Foreign public and private limited company Foreign professional corporations & associations Business and Public Filings Division