Organization
Note: The commentary in this chapter addresses reporting, merger, and conversion topics involving corporations. For information on business entity formation and organizational filing requirements generally, see the commentary in chapter 1 of this manual.
§ 2.1Periodic Reports for Nonprofit Corporations
Domestic and foreign nonprofit corporations are subject to periodic reporting requirements with the secretary of state.
A nonprofit corporation is required by Texas Business Organizations Code section 22.357 to file a periodic report that lists the names and addresses of its current registered agent and office and its current officers and directors. The Texas secretary of state is authorized to require a nonprofit corporation to file the report (SOS Form 802, form 6-11 in this manual) not more than once every four years. See Tex. Bus. Orgs. Code § 22.357.
The report is due no later than the thirtieth day after the date the secretary of state sends notice to the corporation that the report is due. See Tex. Bus. Orgs. Code § 22.359. The secretary of state sends all notices relating to the filing of the periodic report, including any notice of forfeiture or delinquency, to the designated registered agent at the registered office address on file. See Tex. Bus. Orgs. Code § 22.358.
The notice sent by the secretary includes a preprinted periodic report form that includes the current information of record.
PRACTICE TIP: There is no “anniversary date” for the filing of a nonprofit periodic report. A nonprofit corporation may avoid the consequences of noncompliance, however, by voluntarily submitting a periodic report to the secretary of state on a routine basis on an “anniversary date” of its own choosing. Periodic reports also may be filed electronically through the secretary of state’s online access system, SOSDirect.
Certain restrictions and limitations apply to mergers involving Texas nonprofit corporations.
Pursuant to Texas Business Organizations Code section 10.010(a), a nonprofit corporation may not merge into another entity if the nonprofit corporation would lose or impair its charitable status because of the merger. Tex. Bus. Orgs. Code § 10.010(a). Note, however, that the secretary of state does not determine whether a proposed merger will affect a nonprofit corporation’s charitable status.
One or more domestic or foreign for-profit entities or non-code organizations may merge into one or more domestic nonprofit corporations if the nonprofit corporations continue as the surviving entity or entities. Tex. Bus. Orgs. Code § 10.010(b). A nonprofit corporation may merge with a foreign for-profit entity, but only if the nonprofit corporation continues as the surviving entity. Tex. Bus. Orgs. Code § 10.010(c). One or more nonprofit corporations and non-code organizations may merge into one or more foreign nonprofit entities that continue as the surviving entity or entities. Tex. Bus. Orgs. Code § 10.010(d).
Although an unincorporated nonprofit association is a Business Organizations Code entity, it is not authorized to engage in a statutory merger under chapter 10 of the code. Section 252.017 specifically provides that the only provisions of the Business Organizations Code that apply to an unincorporated nonprofit association are chapters 1 and 4 and, if a nonprofit association has designated an agent for service of process, the provisions of subchapter E of chapter 5. Pursuant to section 1.106(c), this specific provision of chapter 252 would supersede the provisions of chapter 10. See Tex. Bus. Orgs. Code § 1.106(c).
The fee for filing a merger transaction of a nonprofit corporation with a for-profit entity is $300. The fee for filing a merger transaction where the only parties to the merger are nonprofit corporations is $50.
§ 2.3Conversion of Nonprofit Corporations
§ 2.3:1Conversion of Nonprofit into For-Profit Entity Prohibited
Section 10.108 specifically prohibits the conversion of a nonprofit corporation to a for-profit entity. See Tex. Bus. Orgs. Code § 10.108.
§ 2.3:2Conversion of Nonprofit Corporations into Other Entities
While section 10.108 prohibits a nonprofit corporation from converting into a for-profit entity, the secretary of state will accept a certificate of conversion that converts a domestic nonprofit corporation to a nonprofit limited liability company, a nonprofit corporation created under another Texas statute, or a foreign nonprofit corporation.
§ 2.4Failure to File Periodic Report—Chapter 22 BOC Involuntary Terminations
§ 2.4:1Effect of Failure to File Periodic Report
Failure to file the nonprofit periodic report when due results in the forfeiture of the corporation’s right to conduct its affairs in Texas. See Tex. Bus. Orgs. Code § 22.360(a). Notice of forfeiture is mailed to the corporation’s registered agent at the registered office address. See Tex. Bus. Orgs. Code § 22.361.
Forfeiture of the corporation’s right to conduct its affairs does not impair the validity of a contract or act of the corporation or prevent the corporation from defending an action, suit, or proceeding in a court of this state, but the corporation may not maintain an action, suit, or proceeding in a court of this state. See Tex. Bus. Orgs. Code § 22.362(c).
A Texas nonprofit corporation that fails to file the delinquent periodic report and revive its right to conduct business within 120 days of the mailing of the notice of forfeiture is involuntarily terminated by the secretary of state. See Tex. Bus. Orgs. Code §§ 22.363, 22.364.
A nonprofit corporation that has involuntarily terminated its existence for its failure to file a periodic report is reinstated by following the specific reinstatement procedures set forth in Business Organizations Code section 22.365 and not the procedures established under section 11.253. See Tex. Bus. Orgs. Code § 22.365.
A nonprofit corporation involuntarily terminated under Business Organizations Code section 22.364 would file the delinquent report together with the maximum filing fee of $25. The corporation would not submit a certificate of reinstatement.
Business Organizations Code section 22.365 does not set forth a time frame within which the delinquent report must be filed and the corporation reinstated.
Section 22.365(a) requires the secretary of state to determine whether the corporation has paid all fees, taxes, penalties, and interest due and accruing before the termination and an amount equal to the total taxes from the date of termination to the date of reinstatement that would have been payable if the corporation had not been terminated. See Tex. Bus. Orgs. Code § 22.365(a). If the nonprofit corporation is not tax-exempt, a tax clearance letter issued by the comptroller of public accounts stating that the entity is in good standing for purposes of reinstatement fulfills this requirement. The tax clearance letter must accompany the delinquent report and must be valid through the date of filing of the report.