The Texas legislature has followed the State of Delaware’s lead by providing for a new type of series LLC, a “registered series,” which is formed by filing a certificate of registration with the Texas Secretary of State.
Since 2009, Texas law has permitted the creation and use of series LLCs, a unique form of limited liability company in which the articles of formation allow for unlimited segregation of membership interests, assets, and operations into independent series. Until recently, however, LLCs in Texas did not have a mechanism to register their series with the Texas Secretary of State or to obtain a certificate of good standing (called a certificate of fact) from the Secretary of State for a series. This lack of transparency often caused consternation from third parties transacting with such series.
Effective (21)
Gray Area (4)
No Legislation (28)
In 2021, the Texas legislature passed Senate Bill 1523 to address this issue. The legislation, effective June 1, 2022, provides LLCs with the option of formally registering their series with the Texas Secretary of State through the filing of a certificate of registration. The existence of a registered series will be confirmable in the Secretary of State’s public records, and interested parties will be able to obtain a certificate of fact from the Secretary of State for each registered series. The legislature anticipates that this legislation will enhance the attractiveness and improve the functionality of series LLCs in Texas. The original type of series will remain available and has been renamed a “protected series.”
Readers will note that this legislation is very similar to legislation passed in Delaware in 2019, which allowed for the formation of registered series through a filing with the Delaware Secretary of State and acted as a model for the Texas bill.
Series LLCs are becoming an increasingly popular option for businesses as more and more states pass legislation authorizing their creation and use. Currently, around twenty states (plus Washington, D.C.) have adopted statutes permitting series LLCs.
What is behind this increase in popularity? Series LLCs offer a method of liability segregation without the cost and upkeep of forming multiple LLCs. Instead, they permit a single LLC to be formed with the designation that it will allow for series to be created within the limited liability company agreement. Thereafter, each individual series will operate like a separate entity with a unique name, bank account, and separate books and records. Each series within the LLC may enter into contracts, sue or be sued, and hold title to real and personal property, and the assets owned by each series are shielded from the risk of liability of the other series within the same series LLC.
Business Organizations Code Amendments
The Texas Legislature recently amended the Business Organizations Code to provide that acting as a governing person of a domestic or foreign entity that is registered to transact business in Texas is not an activity that constitutes transacting business in the state. A “governing person” is a person entitled to manage and direct the affairs of an entity and the governing documents of the entity. This change, effective September 1, 2021, is meant to address any contrary implication created by a 1983 Texas attorney general opinion. Another notable change to the Business Organizations Code is the requirement that certificates of formation include the initial mailing address of the filing entity. A “filing entity” is a domestic corporation, limited partnership, limited liability company, professional association, cooperative, or real estate investment trust. This change, effective January 1, 2022, was requested by the Texas Comptroller’s office to enhance its ability to communicate with new filing entities and assure franchise tax reporting compliance.
Let Our Client Dashboard Be Your Virtual Assistant
While working during the pandemic many people have continued to seek e-solutions that can better assist them as they are needing to work remotely. We’d like to remind you that access to tools like Corporate Entity Manager, UCC Filing Manager, Forms Library, bill pay, registered agent addresses in all 50 states, quick links to websites, and more are available to you 24/7 through your Client Dashboard at www.capitolservices.com.
Our UCC Filing Manager allows you to securely prepare, submit, and manage your UCC filings portfolio nationwide. This guided system takes the guess-work out of form preparation, prompting you to enter the required data based on the filing jurisdiction selected. When using UCC Filing Manager to prepare, transmit, and file your UCCs, your historical records and filing evidence are then stored for your easy access. You will receive notices of pending expiration for all UCC-1s submitted through Filing Manager. Our expiration notices allow for quick and easy preparation of continuation filings. Note that historical record data is also able to be uploaded, allowing UCC-1s filed outside of the UCC Filing Manager to receive the same notice of expiration e-benefits.
You’re also able to manage your registered agent services remotely. View the most up-to-date list of Capitol Services’ registered agent addresses nationwide, update client contact information, appoint new contacts, and request a change of agent, all at your convenience and on your timeline.
Our Corporate Entity Manager allows you to view, update, and manage corporate entity information and generate reports with the click of a button. This tool can be used to search for legal service of process records, tax notices, and annual report management filings. A spreadsheet of upcoming annual report due dates based on each jurisdiction’s corporate calendar is provided for each of your entities.
Placing your corporate and lien orders directly through your Client Dashboard allows the benefit of order tracking, order status updates, order history, and an archive of order evidence.
If you have questions regarding your online access feel free to reach out to us for a quick online demo or more information. We’re here to make your job easier.
Consequences of failing to file your annual reports can be significant.
Penalties include:
• Administrative dissolution or revocation
• Loss of right to use your corporate name
• Tax liens against you for unpaid taxes
• Voidable contracts if entered into while in bad standing
• Breach or default of duties under financing agreements
Keeping up with reporting requirements and due dates can be a headache. The task isn’t made any easier with so many states ceasing to send reminders of annual report due dates. Business owners are left to fend for themselves resulting in many companies falling out of good standing each year.
Don’t put your business at risk. Sign up for our Annual Report Management Service (ARMS), and let us manage your filings! ARMS is an auxiliary service offered to companies that have appointed us as their registered agent. We can help take the pain out of annual report compliance.
Did you know that we have two companies (with different names) dedicated to separate lines of our business? Capitol Services houses our transactional business (corporate and UCC) and Capitol Corporate Services houses our registered agent business. This is why some of your invoices will contain different names or types of invoice numbers. Although CCS is generally our name for agent services, sometimes we provide the agent services under a different name due to name availability issues. To ensure that you list the correct name on your filing, please contact us before appointing us as agent or view the up-to-date list of names and addresses on your Client Dashboard.
With business success no longer defined by profit alone, the number of social enterprise businesses continues to grow. In addition to financial performance, businesses today are valued by their impact on society. As a result, one or more social enterprise business entities are now recognized in most jurisdictions.
Benefit Corporations
Making an initial appearance in 2010, benefit corporations are a fairly new type of business entity. This type of social enterprise entity is currently recognized in 43 states as well as D.C. and Puerto Rico. Benefit corporations pursue a mission that goes beyond that of the traditional corporation of solely making money for the shareholders. A benefit corporation’s leadership is required to achieve a public purpose while balancing shareholder interests with those of the employees, community, and environment.
In jurisdictions where benefit corporations are recognized, formation is achieved by filing traditional articles of incorporation that include a statement that the corporation is formed to provide for a general public benefit. With shareholder approval, an existing corporation can morph into a benefit corporation by filing amended or restated articles of incorporation. A corporation in a jurisdiction with no legislation permitting benefit corporations can domesticate to become a benefit corporation or form a new benefit corporation altogether in a jurisdiction where benefit corporations are recognized.
A “general public benefit” is defined as one having a material, positive impact on the environment or society. Several jurisdictions require a more stringent “specific public benefit” and define or give examples of permissible specific public benefits in their statutes. Other jurisdictions permit a combination of general benefit and one or more specific benefits.
In addition to meeting the same legal requirements as other for-profit entities, benefit corporations have to voluntarily and formally meet higher standards of corporate purpose, accountability, and transparency. One such transparency provision requires benefit corporations to publish annual benefit reports of their social and environmental performance as assessed by an independent, third-party standard. There is no legislative standard, but guidelines require it to be comprehensive, credible, transparent, and developed by an independent entity that has no material or financial interest in the use of the standard. Some jurisdictions have dropped the third-party standard requirement entirely. Currently there are several companies available to perform these third-party standard assessments, including some that cater to benefit corporations only.
Furthermore, some jurisdictions have an additional requirement that a benefit corporation file its annual benefit report at the Secretary of State along with its regular annual report. This extra filing often includes a fee. When the additional filing is required, noncompliance ranges from no penalty whatsoever to loss of status as a benefit corporation.
Delaware Public Benefit Corporation
Due to the importance of Delaware corporate law, it is worth noting that Delaware’s benefit corporation law differs from the majority. Not only does Delaware’s statute refer to a benefit corporation as a public benefit corporation (“PBC”), it mandates that a PBC pursue not only a general public benefit but designate a specific public benefit in its charter as well. Delaware also requires that a benefit report be made available biennially to shareholders rather than made publicly available. Delaware’s statute also allows the board to define its own standard for assessment of corporate activities and does not require a third-party assessment.
Social Purpose Corporations
A more flexible type of social enterprise entity is the social purpose corporation (“SPC”). SPCs are currently only recognized in a handful of states. Much like the benefit corporation, an SPC is required to consider factors other than shareholder profit. However, unlike the benefit corporation, the SPC does not require a general public benefit and is only required to consider special purposes as stated in its articles of incorporation, giving directors more flexibility in assigning different weight to factors as they deem appropriate. An SPC does not have a third-party assessment requirement but is required to post its annual social report on its website as well as distribute it to its shareholders.
Benefit LLC
The benefit LLC (“BLLC”), a lesser-known social enterprise entity type, also emerged in 2010 with analogous requirements to that of the benefit corporation. With a much slower adoption rate, BLLCs were only recognized in four states until 2018 when Delaware enacted its own public benefit LLC (“PBLLC”) legislation. Delaware’s PBLLC statute closely tracks its PBC statute, mandating both general and specific public benefits. While there is currently no pending BLLC legislation, it is reasonable to expect other jurisdictions will follow Delaware’s lead.
B Corps
Benefit corporations are often referred to as “B Corps.” However, a benefit corporation and a Certified B Corp are not one in the same. A benefit corporation is a business entity created under state law, similar to a traditional corporation. A Certified B Corp is a business that has been certified by B Lab, a non-profit organization. A business does not need to acquire a B Lab certification to form or convert to a benefit corporation. Additionally, any type of business entity in any jurisdiction can apply for B Lab certification.
Continuing to gain momentum, with legislation introduced in several states, social enterprise business entities provide a safe harbor for directors to pursue social benefits over profit. Additionally, they allow for the duration and protection of company values through unforeseen leadership change or acquisition. However, because not all jurisdictions recognize the different types of social enterprise entities, and because of the varied laws of those that do, there is still much unchartered legal territory in the world of social enterprise entities.
Jurisdictions that recognize (or have recently enacted legislation) benefit corporations or public benefit corporations are AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, MA, MD, ME, MN, MT, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, PR, RI, SC, TN, TX, UT, VA, VT, WI, and WV. Jurisdictions that recognize social purpose corporations are CA, FL, TX, and WA. Jurisdictions that recognize BLLCs or PBLLCs are DE, MD, OK, OR, PA, and UT.
