Inspection of Corporate Books in Texas

Texas law states that a shareholder has the right to examine corporate books and records. The Texas Business Organizations Code defines the terms under which shareholders are entitled to examine and copy the corporation’s books and records. The Business Organizations Code also includes a statutory right of examination for corporate directors.

Texas law states that any person who has held shares in the corporation for at least six months immediately preceding the demand to examine and copy corporate books and records, or who holds at least 5 percent of all of the outstanding shares of the corporation, is entitled to examine and copy, at a reasonable time, the corporation’s relevant books, records of account, minutes, and share transfer records.  The examination may be conducted by the shareholder in person or through an agent.

Pursuant to Texas law, a shareholder must make a written demand for examination and copying, which states a proper purpose. If the corporation refuses to comply with the demand, the shareholder may file suit to enforce the shareholder’s right of examination. A shareholder who prevails in the action is entitled to recover attorney’s fees and costs from the corporation. The corporation’s liability for these fees and costs is in addition to other damages or remedies afforded to the shareholder by law.

Texas law states that it is a defense to an action for failure to allow examination that the person suing: (1) has, within the two years preceding the date the action is brought, sold or offered for sale a list of shareholders or of holders of voting trust certificates for shares of the corporation or any other corporation; (2) has aided or abetted a person in procuring a list of shareholders or of holders of voting trust certificates for the purpose described by part (1) above; (3) has improperly used information obtained through a prior examination of the books and account records, minutes, or share transfer records of the corporation or any other corporation; or (4) was not acting in good faith or for a proper purpose in making the person’s request for examination.

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Judgments in Texas

An advantage of having a professional registered agent in Texas is that any service of process will be on the registered agent, who should ensure that the appropriate party is notified.  This helps business entities avoid having default judgments taken against them.  If a judgment is taken, it is important for business entities to know whether that judgment is final.  A “final” judgment has important consequences, because Texas law states that generally an appeal can only be made from a final judgment.  Additionally, Texas law states that the date the final judgment or final order disposing of the case is signed begins the deadlines for filing any post-judgment motions and appeals deadlines. Texas law also states that  the period in which the court that signed the judgment still has power of the judgment is also calculated from the date the final judgment or order disposing of the case is signed.

In Texas, the law states that a judgment is final only if it disposes of all parties and all claims in the lawsuit.  If a judgment resolves all claims, it is final even it says that it is not.  In Texas the law states that a judgment issued without a conventional trial is final for the purpose of appeal if and only if either it actually disposes of all parties and all claims then before the court, regardless of its language, or it states with unmistakable clarity that it is a final judgment as to all claims and all parties.  On the other hand, an order does not dispose of all parties and claims simply because it is titled “final.”  In Texas, there is a presumption that a judgment signed following a conventional trial on the merits disposes of all claims and is final.


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Officer and Director Duties During Insolvency

During times of solvency, directors and officers owe a fiduciary duty to an entity and its owners.  Additionally, during times of solvency, a creditor’s relationship with an entity is a contractual relationship, and a fiduciary relationship does not exist between the officers/directors and the creditors of an entity.

In Texas, an entity becomes insolvent when it cannot pay its bills as they come due or when its total liabilities exceed its total assets.  Under Texas law, when an entity becomes insolvent, the officers and directors owe the entity’s creditors a fiduciary duty because the creditors have essentially become the owners of the entity.  Upon or during insolvency, the officers and directors of an entity have a fiduciary duty to administer the entity’s assets as a trust fund for the creditors.  The officers and directors may not prefer one creditor over another.  Additionally, the officers and directors may not engage in acts of self dealing to the detriment of the entity’s creditors.  Texas recognizes a cause of action by creditors against the officers and directors of an entity for breach of fiduciary duty.

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Texas Registered Agent Requirements

Every corporation, limited liability company, limited partnership, general partnership, professional corporation and professional association must have a registered agent and registered office in the state of Texas. This is true even when the corporation, company or partnership is a foreign entity. The registered agent allows the entity to be contacted, and receive:

– Lawsuits, citations, and petitions if the entity is sued;
– Notices regarding the status of the entity and its right to do business in Texas;
– Tax notices; and
– Notices and correspondence from the Texas Secretary of State and Texas Comptroller.

If an entity does business in Texas, the entity must haves someone act as a registered agent and keep a registered office in Texas. This is true even if the entity is not based in Texas or has no office in Texas.  Entities that are located in Texas often hire a registered agent so they do not have to have an employee perform that function and so that notices, lawsuits, etc. are not overlooked.

Failure to properly designate a registered agent may foreclose or hinder the entity’s ability to legally enter into contracts and/or gain access to Texas state courts. Also, failure to maintain a registered agent in Texas may cause the entity to fall out of good standing with the state of Texas. If an entity falls out of good standing, it could result in personal liability to the officers or owners of that entity.

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Business Entities

A “C” Corporation is the default choice for business corporations. Publicly traded corporations are “C” Corporations. Corporations provide shareholders protection from being held personally liable for a corporation’s debts in many situations. If the corporation is sued or files for bankruptcy, the shareholders are not held personally liable for the debts of the corporation (unless there are guarantees or extenuating circumstances). This is true whether you choose “C” or “S” tax treatment.

Every entity doing business in Texas, including but not limited to corporations, limited liability companies, limited partnership, general partnerships, professional corporations and professional associations are required to have a registered agent and registered office in the state of Texas.

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