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Business Associations/Corporations
South Texas College of Law Houston
Ricks, Val D.

Corporations

Ricks

Spring 2014

Chapter 1. Formation of Corporations

Statutes

TBOC §§ 1.002(14), (25), (26), (35), (37), (63), (64), (69-b), (81); 2.001; 2.002; 2.008; 2.101; 3.001; 3.003; 3.004; 3.005; 3.007; 3.101; 4.001; 4.002; 4.004; 4.051; 4.152(1); 5.053; 5.054; 22.051; 22.053; 22.054; 1.101; 1.102

Sec. 1.002. DEFINITIONS.

In this code:

(14) “Corporation” means an entity governed as a corporation under Title 24 or 7.5 The term includes a for-profit corporation, nonprofit corporation, and professional corporation.

(25) “For-profit corporation” means a corporation governed as a for-profit corporation under Chapter 21.

(26) “For-profit entity” means an entity other than a nonprofit entity.

(35)

(A) “Governing authority” means a person or group of persons who are entitled to manage and direct the affairs of an entity under this code and the governing documents of the entity, except that if the governing documents of the entity or this code divide the authority to manage and direct the affairs of the entity among different persons or groups of persons according to different matters, “governing authority” means the person or group of persons entitled to manage and direct the affairs of the entity with respect to a matter under the governing documents of the entity or this code. The term includes:

(i) the board of directors of a corporation or other persons authorized to perform the functions of the board of directors of a corporation;

(ii) the general partners of a general partnership or limited partnership;

(iii) the managers of a limited liability company that is managed by managers;

(iv) the members of a limited liability company that is managed by members who are entitled to manage the company;

(v) the board of directors of a cooperative association; and

(vi) the trust managers of a real estate investment trust.

(B) The term does not include an officer who is acting in the capacity of an officer.

(37) “Governing person” means a person serving as part of the governing authority of an entity.

(63) “Owner,” for purposes of Title 1, 7, or 8, means:

(A) with respect to a foreign or domestic for-profit corporation or real estate investment trust, a shareholder;

(B) with respect to a foreign or domestic partnership, a partner;

(C) with respect to a foreign or domestic limited liability company or professional association, a member; or

(D) with respect to another foreign or domestic entity, an owner of an equity interest in that entity.

(64) “Ownership interest” means an owner’s interest in an entity. The term includes the owner’s share of profits and losses or similar items and the right to receive distributions. The term does not include an owner’s right to participate in management.

(69-b) “Person” means an individual or a corporation, partnership, limited liability company, business trust, trust, association, or other organization, estate, government or governmental subdivision or agency, or other legal entity.

(81) “Shareholder” or “holder of shares” means:

(A) the person in whose name shares issued by a for-profit corporation, professional corporation, or real estate investment trust are registered in the share transfer records maintained by the for-profit corporation, professional corporation, or real estate investment trust; or

(B) the beneficial owner of shares issued by a for-profit corporation, whose shares are held in a voting trust or by a nominee on the beneficial owner’s behalf, to the extent of the rights granted by a nominee statement on file with the for-profit corporation in accordance with Sections 21.201(b) and (c).

Sec. 2.001. GENERAL SCOPE OF PERMISSIBLE PURPOSES.

A domestic entity has any lawful purpose or purposes, unless otherwise provided by this code.

Sec. 2.002. PURPOSES OF NONPROFIT ENTITY.

The purpose or purposes of a domestic nonprofit entity may include one or more of the following purposes:

(1) serving charitable, benevolent, religious, eleemosynary, patriotic, civic, missionary, educational, scientific, social, fraternal, athletic, aesthetic, agricultural, and horticultural purposes;

(2) operating or managing a professional, commercial, or trade association or labor union;

(3) providing animal husbandry; or

(4) operating on a nonprofit cooperative basis for the benefit of its members.

Sec. 2.008. NONPROFIT CORPORATIONS.

A corporation formed for the purpose of operating a nonprofit institution, including an institution devoted to a charitable, benevolent, religious, patriotic, civic, cultural, missionary, educational, scientific, social, fraternal, athletic, or aesthetic purpose, may be formed and governed only as a nonprofit corporation under this code and not as a for-profit corporation under this code.

Sec. 2.101. GENERAL POWERS.

Except as otherwise provided by this code, a domestic entity has the same powers as an individual to take action necessary or convenient to carry out its business and affairs. Except as otherwise provided by this code, the powers of a domestic entity include the power to:

(1) sue, be sued, and defend suit in the entity’s business name;

(2) have and alter a seal and use the seal or a facsimile of it by impressing, affixing, or reproducing it;

(3) acquire, receive, own, hold, improve, use, and deal in and with property or an interest in property;

(4) sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of property;

(5) make contracts and guarantees;

(6) incur liabilities, borrow money, issue notes, bonds, or other obligations, which may be convertible into, or include the option to purchase, other securities or ownership interests in the entity, and secure its obligations by mortgaging or pledging its property, franchises, or income;

(7) lend money, invest its funds, and receive and hold property as security for repayment;

(8) acquire its own bonds, debentures, or other evidences of indebtedness or obligations;

(9) acquire its own ownership interests, regardless of whether redeemable, and hold the ownership interests as treasury ownership interests or cancel or dispose of the ownership interests;

(10) be a promoter, organizer, owner, partner, member, associate, or manager of an organization;

(11) acquire, receive, own, hold, vote, use, pledge, and dispose of ownership interests in or securities issued by another person;

(12) conduct its business, locate its offices, and exercise the powers granted by this code to further its purposes, in or out of this state;

(13) lend money to, and otherwise assist, its managerial officials, owners, members, or employees as necessary or appropriate if the loan or assistance reasonably may be expected to benefit, directly or indirectly, the entity;

(14) elect or appoint officers and agents of the entity, establish the length of their terms, define their duties, and fix their compensation;

(15) pay pensions and establish pension plans, pension trusts, profit-sharing plans, bonus plans, and incentive plans for managerial officials, owners, members, or employees or former managerial officials, owners, members, or employees;

(16) indemnify and maintain liability insurance for managerial officials, owners, m

4 governs the signing and filing of a certificate of formation for a domestic entity.

Sec. 3.007. SUPPLEMENTAL PROVISIONS REQUIRED IN CERTIFICATE OF FORMATION OF FOR-PROFIT OR PROFESSIONAL CORPORATION.

(a) In addition to the information required by Section 3.005, the certificate of formation of a for-profit or professional corporation must state:

(1) the aggregate number of shares the corporation is authorized to issue;

(2) if the shares the corporation is authorized to issue consist of one class of shares only, the par value of each share or a statement that each share is without par value;

(3) if the corporation is to be managed by a board of directors, the number of directors constituting the initial board of directors and the name and address of each person who will serve as director until the first annual meeting of shareholders and until a successor is elected and qualified; and

(4) if the corporation is to be managed pursuant to a shareholders’ agreement in a manner other than by a board of directors, the name and address of each person who will perform the functions required by this code to be performed by the initial board of directors.

(b) If the shares a for-profit or professional corporation is authorized to issue consist of more than one class of shares, the certificate of formation of the corporation must, with respect to each class, state:

(1) the designation of the class;

(2) the aggregate number of shares in the class;

(3) the par value of each share or a statement that each share is without par value;

(4) the preferences, limitations, and relative rights of the shares; and

(5) if the shares in a class the corporation is authorized to issue consist of more than one series, the following with respect to each series:

(A) the designation of the series;

(B) the aggregate number of shares in the series;

(C) any preferences, limitations, and relative rights of the shares to the extent provided in the certificate of formation; and

(D) any authority vested in the board of directors to establish the series and set and determine the preferences, limitations, and relative rights of the series.

(c) If the shareholders of a for-profit or professional corporation are to have a preemptive right or cumulative voting right, the certificate of formation of the corporation must comply with Section 21.203 or 21.360, as appropriate.

(d) Notwithstanding Section 2.008, a for-profit corporation may include one or more social purposes in addition to the purpose or purposes required to be stated in the corporation’s certificate of formation by Section 3.005(a)(3). The corporation may also include in the certificate of formation a provision that the board of directors and officers of the corporation shall consider any social purpose specified in the certificate of formation in discharging the duties of directors or officers under this code or otherwise.