5.06 Entities

5.06.1

Formation in General

 CERTIFICATE OF FORMATION:

In Texas, all filing entities (e.g. corporations, limited partnerships, limited liability companies or associations) must submit a Certificate of Formation to the Secretary of State and pay any applicable fees. 

The requirements for the Certificate of Formation are as follows:

   (a) The certificate of formation must state:
 
   (1) the name of the filing entity being formed;
 
   (2) the type of filing entity being formed;
 
   (3) for filing entities other than limited partnerships, the purpose or
   purposes for which the filing entity is formed, which may be stated to
   be or include any lawful purpose for that type of entity;
 
   (4) for filing entities other than limited partnerships, the period of
   duration, if the entity is not formed to exist perpetually;
 
   (5) the street address of the initial registered office of the filing
   entity and the name of the initial registered agent of the filing
   entity at the office;
 
   (6) the name and address of each:
 
     (A) organizer for the filing entity, unless the entity is formed
     under a plan of conversion or merger;
 
     (B) general partner, if the filing entity is a limited partnership;
     or
 
     (C) trust manager, if the filing entity is a real estate investment
     trust;
 
   (7) if the filing entity is formed under a plan of conversion or
   merger, a statement to that effect and, if formed under a plan of
   conversion, the name, address, date of formation, prior form of
   organization, and jurisdiction of formation of the converting entity;
   and
 
   (8) any other information required by this code to be included in the
   certificate of formation for the filing entity.
 
   (b) The certificate of formation may contain other provisions not inconsistent with law relating to the organization, ownership, governance, business, or affairs of the filing entity.
 
   (c) Except as provided by Section 3.004, Chapter 4 governs the signing and filing of a certificate of formation for a domestic entity.

 

See Tex. Business Organizations Code § 3.005.

 

ACTION BY SECRETARY OF STATE

 

If the secretary of state finds that a filing instrument delivered conforms to the provisions of this code that apply to the entity and to applicable rules adopted under Section 12.001 of the Texas Business Organizations Code and that all required fees have been paid, the secretary of state shall:
 
   (1) file the instrument by accepting it into the filing system adopted
   by the secretary of state and assigning the instrument a date of
   filing; and
 
   (2) deliver a written or electronic acknowledgment of filing to the
   entity or its representative.

 

See Tex. Business Organizations Code § 4.002. 

 

CERTIFICATES OR CERTIFIED COPIES


 A court, public office, or official body shall accept a certificate issued as provided by this code by the secretary of state or a copy of a filing instrument accepted by the secretary of state for filing as provided by this code that is certified by the secretary of state as prima facie evidence of the facts stated in the certificate or instrument.
 
 A court, public office, or official body may record a certificate or certified copy described by Subsection (a).
 
A court, public office, or official body shall accept a certificate issued under an official seal by the secretary of state as to the existence or nonexistence of facts that relate to an entity that would not appear from a certified copy of a filing instrumentas prima facie evidence of the existence or nonexistence of the facts stated in the certificate. See Tex. Business Organizations Code § 4.002. 

5.06.2

CORPORATIONS: (XYZ, Inc.; LMN, Corp., ABC, Co.)

Description –

A corporation is made up of shareholders, directors and officers.  The law treats the corporation itself as a person who can sue and be sued, hold title to and convey real property in its own name.  The law calls a corporation an “artificial person”.

Formation -     

In Texas, corporations are formed by filing a certificate of formation signed by an officer of the corporation with the Secretary of State.  See Tex. Business Organizations Code § 20.001.  After the filing of a certificate of formation takes effect, an organization meeting shall be held at the call of the majority of the initial board of directors or the persons named in the certificate of formation under Section 3.007(a)(4) for the purpose of adopting bylaws, electing officers, and transacting other business. See Tex. Business Organizations Code § 21.059 (b).

The board of directors of a corporation shall adopt initial bylaws.  The bylaws may contain provisions for the regulation and management of the affairs of the corporation that are consistent with law and the corporation's certificate of formation.See Tex. Business Organizations Code § 21.057

Title Insurance Requirements –                   

When dealing with a transaction involving a Texas corporation, agents must determine that the corporation exists and is in good standing with the Secretary of State.  Agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the certificate of formation, bylaws and corporate resolution executed by the board of directors.

NON-PROFIT CORPORATIONS:           

Description – 

A corporation formed for some charitable or benevolent purpose and not for profit making.  This type of corporation will have a board of directors and officers, but no shareholders.

Formation –

In Texas, a religious society, a charitable, benevolent, literary, or social association, or a church may incorporate as a corporation governed by this chapter with the consent of a majority of its members. Those members shall authorize the organizers to execute the certificate of formation.  See Tex. Business Organizations Code § 22.101.

After the certificate of formation is filed, the board of directors named in the certificate of formation of a corporation shall hold an organization meeting of the board, either in or out of this state, at the call of the incorporators or a majority of the directors to adopt bylaws and elect officers and for other purposes determined by the board at the meeting. See Tex. Business Organizations Code § 22.104

The initial bylaws of a corporation shall be adopted by the corporation's board of directors or, if the management of the corporation is vested in the corporation's members, by the members. See Tex. Business Organizations Code § 22.102

Title Insurance Requirements –

When dealing with a transaction involving a non-profit corporation, agents must determine that the corporation exists and in good standing with the Secretary of State.  In addition, agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the certificate of formation, bylaws and corporate resolution executed by the board of directors.

PROFESSIONAL CORPORATION            (Sally Devine, P.C.)

Description –

A professional corporation is comprised of a group of individuals who render professional services to the public, which requires a license or other legal authority.  A professional corporation is formed like an ordinary corporation, and most professionals will use a professional corporation because of its tax benefits.  Frequently, professional associations include attorneys, architects, CPAs, veterinarians and dentists.

Formation –

In Texas, corporations are formed by filing a certificate of formation signed by an officer of the corporation with the Secretary of State. See Tex. Business Organizations Code § 20.001.  A professional corporation is made up of directors, officers and shareholders.  A professional corporation can be formed by other professional corporations.         

Title Insurance Requirements –

When dealing with a transaction involving a professional corporation, agents must determine that the corporation exists and is in good standing with the Secretary of State.  Agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the certificate of formation, bylaws and corporate resolution executed by the board of directors.

FOREIGN CORPORATION

Description –

A foreign corporation is one that has been incorporated outside of the state of Texas. See Texas Business Corporation Act 8.01 et seq.

Title Insurance Requirements –

When dealing with a transaction involving a foreign corporation, agents must determine that the foreign corporation exists and in good standing with the state or territory where it is incorporated.  Agents must also determine the authority of the person signing on behalf of the foreign corporation by obtaining certified copies of the articles of incorporation, bylaws and corporate resolution executed by the board of directors.

5.06.3

COOPERATIVE ASSOCIATION

 Description – 

A corporation or association organized for the purpose of rendering economic services, without gain to self, to shareholders or members who own and control it. 

Formation –

After a cooperative association's certificate of formation is filed, the cooperative association shall hold an organization meeting. See Tex. Business Organizations Code § 251.051.

Unless the certificate of formation or bylaws of a cooperative association require a greater majority, the bylaws may be adopted, amended, or repealed by a majority vote of the cooperative association's members voting on the matter.  See Tex. Business Organizations Code § 251.053.

Title Insurance Requirements –

Agents must determine the authority of the person signing on behalf of the corporation by obtaining certified copies of the certificate of formation, bylaws and corporate resolution executed by the board of directors.           

UNINCORPORATED NON-PROFIT ASSOCIATION

Description –

Voluntary group of people, without a charter, formed by mutual consent for the purpose of promoting common expertise or prosecuting a common objective.  A non-profit association in its name may acquire, hold, transfer or encumber an estate or interest in real property.  Frequently, churches will hold title as unincorporated non-profit associations.

Formation –

An unincorporated non-profit association does not have to file any documents

with the Secretary of State or pay any fees.

Title Insurance Requirements –

            A nonprofit association may execute and record a statement of authority to

transfer an estate or real interest in property in the name of the association, which

will authorize a person to transact business on behalf of the association.  We will

require copies of any and all organization documents to determine the person who

has authority to act on behalf of the association.  If you are dealing with a church or other religious group, please call a Texas Underwriting Counsel.         

PROFESSIONAL ASSOCIATION            (Dr. Sam Slade, P.A.; Heart Docs Assoc.)

Description –

Any one or more persons licensed to practice a profession under Texas law may form a professional association by associating themselves with the purpose of performing professional services and dividing the gains as stated in the articles of association or bylaws

Formation -     

The certificate of formation must be filed with the Secretary of State. 

Title Insurance Requirements –

                       We will require certified copies of the certificate of formation & any organizational documents.

FOREIGN ASSSOCIATION

Description –

                         A foreign association operating on a cooperative basis and complying with the laws of the state in which it is organized may transact business within Texas. 

                  Formation –

                        A foreign association is formed according to the state laws in which it is associated. 

Title Insurance Requirements –

                        We will require certified copies of the articles of association or bylaws to

determine the authority of the person signing on behalf of a professional

association.

5.06.4

LIMITED LIABILITY COMPANY: (Airline Drive L.C.; 1401 Jones Road, L.L.C.)

Description –

            A limited liability company combines the advantage of the limited liability of

             shareholder in a corporation with the tax benefits of partners in partnerships.

Additionally the limited liability company provides added flexibility in the

management of the company and distribution of profits. 

Formation –        

 In Texas, a limited liability company must file a certificate of formation signed by its organizers with the Secretary of State. See Tex. Business Organizations Code § 3.001.

The Company Agreement governs the activities of a limited liability company. See Tex. Business Organizations Code § 101.052. 

Title Insurance Requirements –

                 When dealing with a transaction involving a limited liability company, agents must determine that the company exists and is in good standing with the state Secretary of State. We will require certified copies of the certificate of formation and company agreement.

FOREIGN LIMITED LIABILITY COMPANY

Description –

            A foreign limited liability company is one that has been organized outside of the state of Texas.

Title Insurance Requirements –

            We will require certified copies of the articles of organization or operating agreement to determine the authority of the person signing on behalf of a limited liability company.

5.06.5

PARTNERSHIPS

LIMITED PARTNERSHIPS (Best Built Homes, L.P.; 1st Burgers, L.L.P.; Last Chance, Ltd.)

Description –

A type of partnership comprised of comprised of one or more general partners who manage business and who are personally liable for the partnership debts, and one or more limited partners who contribute capital and share in profits but who take no part in running the business and incur no liability with respect to partnership liabilities beyond their capital contributions. 

Formation –

A partnership, to become a limited liability partnership, must file an application with the secretary of state.  Each general partner must sign the certificate of formation of a domestic limited partnership and file it with the Secretary of State.

Title Insurance Requirements –

We will require a certified copy of the certificate of formation.  All limited partners should join in the execution of any real estate instrument, unless there is authority for less than all of them to act. This authority to be set forth in the partnership agreement.

GENERAL PARTNERSHIP: (Four Sisters, a Texas Partnership)

Description –

One or more persons carrying on a business as co-owners for profit.  All partners

share the profits and losses as well as the management equally, though their capital contributions may vary. 

Formation –

To form a partnership, one or more people may enter into a partnership agreement.  A partnership agreement governs the relations of the partners and between the partners and the partnership. To the extent that the partnership agreement does not otherwise provide, this chapter 152 of the Texas Business Organizations Code and the other partnership provisions govern the relationship of the partners and between the partners and the partnership.          

Title Insurance Requirements –

The question of the required signatories is dependent upon the partnership agreement.  All general partners should join in the execution of instruments affecting the partnership property unless the recorded statement or certificate of partnership, signed by all the partners, delegates the authority to so execute to less than all or certain of the general partners.

FORIEGN PARTNERSHIPS, LIMITED PARTNERSHIP, LIMITED LIABILITY COMPANY

Definition - 

A partnership formed under the laws of a state or territory outside of Texas.

Formation –

           The laws of a state under which a foreign partnership is formed govern its

 organization and affairs and the liability of the partners for obligations of the

  partnership.

Title Insurance Requirements –

          We will require a formal legal opinion from the attorney for the foreign partnership to determine if the partnership complies with its state statutes.

5.06.6

JOINT VENTURE (5101 Broadway Development)

Description –

A legal entity, which is like a partnership, and is engaged in a particular transaction for mutual profit. 

Formation –

       See General Partnerships Section of this article.

Title Insurance Requirements –

       See General Partnerships Section of this article.

5.06.7

SOLE PROPRIETORSHIP (d/b/a or “doing business as”) (Tom's Tacos; Tom Martin d/b/a Tom's Tacos)

Description – 

A form of business in which one person owns all of the assets of the business and is solely liable for all of the debts of a business.  The individual owner may elect to operate under an assumed name by recording an assumed name certificate in the counties where (s) he does business.

Formation –

A sole proprietorship consists of a single person acting as a business in his/her own name.  A sole proprietorship is not a separate entity.

Title Insurance Requirements –

For a sole proprietorship, agents would do a search just as agents would for an individual person.  Agents will also need to check the homestead status of the property in the transaction.  In addition, do not show an Assumed Name Certificate as an exception in Schedule B of the policy.

Vesting and Named Insured –

Vesting or name of insured in policies should show both the individual’s name as well as the name in which they are doing business. 

For example:
Tom Smith doing business as Tom’s Tacos

5.06.8

REAL ESTATE INVESTMENT TRUST:

 Description – 

     A trust acting as a business or trustees transacting business on behalf of a trust. 

Formation –

     A filing instrument relating to a domestic real estate investment trust must be filed with the county clerk of the county in which the domestic real estate investment trust's principal place of business is located. The certificate of formation of a real estate investment trust is a declaration of trust. The certificate of formation may be titled "declaration of trust" or "certificate of formation.” 

Title Insurance Requirements –

  We will require a copy of the certificate of formation & trust agreement.  Title

should be shown as:  WWH Trust, whose Trustees are A, B and C or A, B, and C,

   Trustees of the WWH Trust.

5.06.2.1

Not in Good Standing

Good standing means generally that a corporation chartered in Texas has filed its annual corporate tax statements and paid the amounts of franchise and similar taxes for all of the years since it received its charter.  Failure to file and pay will cause the entity to not be in good standing and subject the corporation to the loss of its corporate charter.  During the period of time that the corporation is not in good standing, it loses its ability to prosecute claims within the Texas court system but the entity remains in existence.  Once the charter is forfeited, the corporation ceases to have a separate legal identity.

If your examination reveals that the corporation is not in good standing, you must discuss the situation with a Texas underwriter.  It is possible that as long as the closing of a real estate transaction occurs before the charter is forfeited, and you have checked with the Texas Secretary of State to the day of recording of documents, the underwriter may approve the consummation of the transaction. 

This section does not apply to corporations chartered in other states.