Formation and Filing
One of the first hurdles a practitioner must overcome is the Texas Secretary of State’s review of the business entity name selected by the client. The availability of an entity name remains the most frequently deliberated, and heavily contested, reason for rejection of a filing instrument.
General Standards for Name Availability: Section 5.053 of the Texas Business Organizations Code (TBOC) sets forth the general standards for name availability, namely that a filing entity must be distinguishable in the records of the secretary of state from the name of another existing filing entity or an entity name that is reserved or registered with the secretary of state. See Tex. Bus. Orgs. Code § 5.053(a). Administrative rules on the availability of names of entities filed with the secretary of state are contained in 1 Tex. Admin. Code §§ 79.30–.54 and may be viewed at www.sos.state.tx.us/tac/index.shtml.
Entity names may consist of letters of the Roman alphabet, Arabic numerals, or symbols capable of being reproduced on a standard English-language keyboard. No distinction will be made between typeface, font, superscript, or subscript. 1 Tex. Admin. Code § 79.32. Any words not in English will not be translated. 1 Tex. Admin. Code § 79.35.
PRACTICE TIP: On June 1, 2018, the test that an entity name be “distinguishable in the records” replaced the previous test that an entity name not be “deceptively similar” to another entity name. The intention of this revision was to simplify the naming convention of business entities. See Tex. Bus. Orgs. Code § 5.053; Acts 2017, 85th Leg., R.S., ch. 503, § 3 (H.B. 2856), eff. June 1, 2018.
Applicability: Chapter 79, subchapter C, of the Texas Administrative Code applies to all name availability determinations made for foreign and domestic corporations (for-profit, professional, and nonprofit), limited liability companies, limited partnerships, and professional associations. See 1 Tex. Admin. Code § 79.31; see also Tex. Bus. Orgs. Code §§ 5.052, 5.053, 9.004(b)(1). The name availability rules do not apply to limited liability partnerships. Tex. Bus. Orgs. Code § 5.063(b).
Name Availability: A proposed name is available for filing if it is distinguishable from an existing, reserved, or registered entity name. See Tex. Bus. Orgs. Code § 5.053(a). Names are distinguishable if a comparison of the names reveals sufficient differences or if one or more of the following conditions exist:
1.A difference of at least one key word.
a.“Sunshine Community Development” is distinguishable from “Sunshine Community Properties.”
b.“United” is distinguishable from “United One.”
c.“Real Homes of Austin” is distinguishable from “Real Homes.”
d.“Texas Cowboys” is the same as “The Texas Cowboys.”
2.The key words are the same but are in a different order.
a.“Summit Energy” is distinguishable from “Energy Summit.”
b.“Global One” is distinguishable from “One Global.”
c.“Austin Auto Parts” is distinguishable from “Auto Parts of Austin.”
3.The key words or contractions of key words are derived from the same root word.
a.“Great Products” is distinguishable from “Great Productions.”
b.“Magic Professionals” is distinguishable from “Magical Professionals.”
4.The key words are the same but are in a different language.
a.“Casa Blanca Productions” is distinguishable from “White House Productions.”
b.“Tejas Enterprises” is distinguishable from “Texas Enterprises.”
c.“El Rodeo” is the same as “Rodeo” or “The Rodeo.”
5.The key word or words sound the same, but at least one word, on its face, has a different meaning or connotation.
a.“Jones Tires” is distinguishable from “Joan’s Tires.”
b.“Capitol Investments” is distinguishable from “Capital Investments.”
c.“Express Auto” is the same as “Xpress Auto.”
d.“One World” is the same as “1 World.”
6.The key word or words are the same except for the addition, substitution, or omission of prepositions that alter the names sufficiently to make the names distinguishable.
a.“In the Know” is distinguishable from “Know.”
b.“Friends” is distinguishable from “Between Friends.”
c.“Books for People” is distinguishable from “Books by People.”
d.“Look to the Future” is the same as “Look toward the Future.”
Names That Are the Same: The secretary may not accept for filing proposed entity names that are the same. 1 Tex. Admin. Code § 79.31(c). Names are considered the same if a comparison of the names reveals no differences or if the only difference between the proposed name and the existing names is one or more of the following conditions:
1.The use of uppercase or lowercase letters, distinctive lettering or typeface, or the use of superscript or subscript letters or numerals.
a.“ACE Woodworks” is the same as “Ace Woodworks.”
b.“H2O Supplies” is the same as “H2O Supplies.”
c.“NXNW” is the same as “NxNw.”
2.The addition, substitution, or omission of punctuation marks, accent marks, periods, spaces, or symbols that do not alter the name sufficiently to make the names distinguishable.
a.“A.F.G. Consulting” is the same as “AFG Consulting.”
b.“Explore!” is the same as “Explore.”
c.“Crossroads Productions” is the same as “Cross Roads Productions.”
d.“Gotham” is distinguishable from “Got Ham.”
3.Except as provided by 1 Tex. Admin. Code § 79.43 (relating to alphabet names), the addition, substitution, or omission of different articles or conjunctions.
a.“The Truck Stop” is the same as “Truck Stop.”
b.“Fair View, a Rest Home” is the same as “Fairview Rest Home.”
4.The repetition, absence, or difference in letters that does not alter the names sufficiently to make the names distinguishable.
a.“Texxas Strong” is the same as “Texas Strong.”
b.“Going Strong” is the same as “Goin’ Strong.”
c.“XX Tires” is distinguishable from “X Tires.”
Names Available with Consent: If the secretary of state determines that a proposed name is not the same as, but is also not distinguishable from, an existing, reserved, or registered entity name, the proposed name may be available with consent from the existing entity. See Tex. Bus. Orgs. Code § 5.053(b); 1 Tex. Admin. Code § 79.31(c). A proposed name is available with consent from the existing entity under one or more of the following conditions:
1.The existence, addition, substitution, or absence of a word, phrase, or abbreviation that identifies or indicates different types of entities.
a.“Sampson, Inc.” is available with consent from “Sampson, PLLC.”
b.“Adventure Unlimited, a Limited Liability Company” is available with consent from “Adventure Unlimited, LP.”
c.“Love Foundation” is the same as “Love Foundation, Inc.”
d.“ABC, LLC” is the same as “ABC Limited Liability Company.”
e.“Wild West, Inc.” is distinguishable from “Wild West Companies, Ltd.”
2.The use of a common abbreviation of the same word.
a.“Smith Brothers Plumbing” is available with consent from “Smith Bros. Plumbing.”
b.“Steel Manufacturing Supplies” is available with consent from “Steel Mfg. Supplies.”
c.“Sweet Treats of Dallas Ft. Worth” is available with consent from “Sweet Treats of DFW.”
d.“United States Enterprises” is available with consent from “U.S.A. Enterprises.”
3.The use of the singular, plural, or possessive form of a word if the difference does not alter the name sufficiently to make the names distinguishable.
a.“On the Banks” is available with consent from “On the Bank.”
b.“Child’s Play” is distinguishable from “Children’s Play.”
4.The addition or omission of a state to a name that already includes a city and that does not alter the name sufficiently to make the names distinguishable.
a.“Resources of Austin, Texas” is available with consent from “Resources of Austin.”
b.“Atlanta Feed Company” is available with consent from “Atlanta, Georgia Feed Co.”
c.“Elite Realty of Athens, TX” is distinguishable from “Elite Realty of Athens, GA.”
1 Tex. Admin. Code § 79.40. The consent must accompany the document to which the consent relates at the time of submission. Upon the simultaneous submission of any filing instruments relating to the formation of two or more related entities, consent for the use of a name requiring consent will be implied. For example, consent is not required for the simultaneous formation of a Texas limited partnership named ABC Ventures, Ltd., and its general partner, ABC Ventures, LLC. If a proposed entity name conflicts with more than one entity name, the secretary of state will request that consent be obtained from the entity or name registrant, as applicable, with the longest continuous use of the entity name as determined by the records of the secretary of state. 1 Tex. Admin. Code § 79.41(b)–(d).
The consent must be in writing and signed by an officer or authorized agent of the consenting entity. The signature of the person providing consent must be notarized. Consent given orally cannot be accepted. Consent from more than one entity may be required in some instances. Consent must not state conditions; it must give unequivocal consent. 1 Tex. Admin. Code § 79.42. SOS Form 509 (form 3-1 in this manual) may be used to document an existing entity’s consent.
Effect of Name Clearance: Formation under a given name does not give the newly organized entity the right to use the name in violation of another person’s rights. In fact, the certificate issued by the secretary of state to a domestic filing entity under the TBOC specifically includes a statement that the issuance of the certificate of filing for the formation of an entity or the reservation of an entity name does not authorize the use of the entity name in this state in violation of the rights of another under the federal Trademark Act of 1946 (15 U.S.C. §§ 1051–1127), the Texas trademark law (Tex. Bus. & Com. Code ch. 16), or the common law. This restatement of the common law is codified in TBOC section 5.001. See Tex. Bus. Orgs. Code § 5.001.
When the secretary of state is requested to give advice about the availability of an entity name, the secretary of state is reviewing only the names of active domestic and foreign filing entities, as well as name reservations and name registrations on file with the secretary of state. The secretary of state does not consider state or federal trademark registrations, assumed names filed with the county or the secretary of state under chapter 71 of the Texas Business and Commerce Code, names of limited liability partnerships registered with the secretary of state, or other sources that might indicate common-law usage or reveal possible trade name or trademark infringement.
Troublesome Words: Not all entity name issues involve an existing conflicting entity name. Other statutory provisions may prohibit or place restrictions on the use of terms within a business name. Words that might imply a purpose for which the entity could not be organized should not be included in a business entity name. See Tex. Bus. Orgs. Code § 5.052. These troublesome words include the following:
1.Insurance must be accompanied by other words, such as agency, that remove the implication that the purpose of the entity is to be an insurer. Persons forming a Texas captive insurance company under chapter 964 of the Texas Insurance Code or domesticating a foreign captive insurance company should contact the legal staff at the corporations section of the secretary of state’s office regarding submission procedures if the company will include the term insurance in its entity name.
2.Bail bonds and surety imply that the entity has insurance powers and should be formed under the Texas Insurance Code.
3.Bank and derivatives of that term may not be used in a context that implies the purpose to exercise the powers of a bank. See Tex. Fin. Code § 31.005. The Texas Department of Banking can advise practitioners on the use of the words bank, banc, and the like and will issue a letter of no objection for use when filing documents with the secretary of state.
a.Persons seeking a letter of no objection are to contact the corporate activities division of the Texas Department of Banking.
b.Submission of a written request and provision of certain information, together with (currently) a $100 filing fee, is required for consideration of the proposed name regardless of whether approval is granted. Submission of the materials and fee is not a guarantee that the name will be approved. Contact the corporate activities division for current processing time for a letter of no objection.
For additional information, see the department’s website at www.dob.texas.gov/.
4.Trust generally implies that the entity has trust powers; accordingly, prior approval of the Department of Banking is required. A foreign business trust or foreign real estate investment trust registering under the provisions of the TBOC that uses the term trust in its name is not required to obtain a letter of no objection for purposes of filing the application for registration.
5.Cooperative and co-op should be used only by an entity operating on a cooperative basis. A firm or business that uses such a term in its business name or that represents itself as conducting business on a cooperative basis when not authorized by law to do so commits an offense. The offense is classified as a misdemeanor that is punishable by the imposition of fines, confinement in the county jail, or both. See Tex. Bus. Orgs. Code §§ 5.057, 251.452.
6.Perpetual care or endowment care, or any other terms that suggest “perpetual care” or “endowment care” standards, should be used only in the name of a cemetery that operates as a perpetual care cemetery in accordance with Texas Health and Safety Code chapter 712. See Tex. Health & Safety Code § 711.021(h).
Words That Require Prior Approval: Entities desiring to use the terms college, university, school of medicine, medical school, health science center, school of law, law school, law center, and words of similar meaning must obtain prior approval of the Texas Higher Education Coordinating Board. See Tex. Educ. Code § 61.313.
Entities desiring to use the terms veteran, legion, foreign, Spanish, disabled, war, or world war in a manner that might imply that the entity is a veterans organization should obtain written approval from a congressionally recognized veterans organization. See Tex. Bus. Orgs. Code § 5.062.
Prohibited Words: A domestic or foreign filing entity may not use the term lotto or lottery in its entity name. See Tex. Bus. Orgs. Code § 5.061.
State and federal law generally precludes the use of the words olympic, olympiad, olympian, and olympus unless authorized by the United States Olympic Committee. See Tex. Bus. & Com. Code § 16.105; 36 U.S.C. ch. 2205.
If there will be a delay between the name selection and the submission of the filing instrument, the practitioner should submit an application to reserve the name (SOS Form 501, form 3-2 in this manual).
Name Reservation Process: The Texas Business Organizations Code provisions relating to name reservations apply to all filing entity types; consequently, a name reservation may be used in connection with a document submitted by any foreign or domestic filing entity.
Although a name reservation is not limited to a specific entity type, the selection of a specific entity type when submitting a name reservation application in person or by mail will facilitate review of the entity name. A proposed entity name for one entity type may imply or indicate an unlawful purpose for another entity type. For example, the entity name Derma Medical Services implies an unlawful purpose for a for-profit corporation but does not imply an unlawful purpose for a professional limited liability company. The current filing fee for a name reservation is a standard fee of $40.
PRACTICE TIP: Once an application for name reservation is filed, the name reservation is recorded exclusively in the name of the person named as the applicant. An application for name reservation that names the practitioner, a service company, or a law firm as the applicant may result in the unexpected rejection of the certificate of formation if the secretary of state cannot determine the connection between the certificate’s submitter, or parties named in the certificate of formation, and the applicant shown in the existing name reservation. Consequently, consider who should be named as the applicant of the name reservation. Pursuant to TBOC section 5.101(b), the application for name reservation may be signed by the applicant or by the agent or attorney of the applicant.
Renewal of Name Reservation: TBOC section 5.105 permits the renewal of a current name reservation. The reservation may be renewed for an additional 120-day period by filing a new application for name reservation during the 30-day period preceding the expiration of the current reservation. See Tex. Bus. Orgs. Code § 5.105. The current filing fee for a renewal of name reservation is $40.
The applicant of record must submit the name reservation renewal. If the renewal of reservation lists an applicant other than the applicant of record with the secretary of state, a transfer of the name reservation will be required. See Tex. Bus. Orgs. Code § 5.106. The current fee for a transfer of name reservation is $15.
Termination of Name Reservation: An applicant seeking to terminate a name reservation before the expiration of its 120-day term should file a withdrawal of the name reservation pursuant to TBOC section 5.104(2). There is no fee for filing a withdrawal of a name reservation. See Tex. Bus. Orgs. Code § 5.1041.
Date of Record for Name Reservation: In general, the date of filing of a filing instrument that conforms to law is the date of its receipt by the secretary of state. See 1 Tex. Admin. Code § 79.9(b). This general rule does not, however, apply to an application for name reservation or to a withdrawal of name reservation. The file date of record for these filings reflects the date the secretary of state actually processes the application or withdrawal and enters the filing into the business entity database.
Section 5.051 of the TBOC authorizes the use of an assumed name by a domestic or foreign entity having authority to transact business in Texas. See Tex. Bus. Orgs. Code § 5.051.
Definition and Filing Requirements: The secretary of state does not check an assumed name for purposes of availability; however, the secretary of state will reject an assumed name certificate if the name shown in the certificate does not meet the definition of an assumed name.
Pursuant to section 71.002(2) of the Texas Business and Commerce Code, an assumed name is defined as—
1.for a corporation, any name other than the name stated in its certificate of formation or comparable document;
2.for a limited partnership, any name other than the name stated in its certificate of formation;
3.for a limited liability company, any name other than the name stated in its certificate of formation or comparable document, including the name of any series of the limited liability company established by its company agreement; and
4.for a limited liability partnership, any name other than the name on its application for registration or comparable document.
See Tex. Bus. & Com. Code § 71.002(2).
For this reason, a foreign filing entity that must obtain its registration under an assumed name (a.k.a. “fictitious name”) should not submit an assumed name certificate that attempts to list the entity’s legal name as its “assumed name.” Although the TBOC may bar the foreign entity from obtaining a registration under its legal name, the legal name of the entity in its jurisdiction of organization is not an assumed name as defined by section 71.002(2).
The filing requirements for assumed name certificates for limited partnerships, limited liability companies, limited liability partnerships, and foreign filing entities are similar to filing requirements for assumed name certificates filed by an incorporated business or profession.
Execution Requirements: The execution requirements for assumed name certificates filed with the secretary of state differ from county-level filing requirements. The execution requirements are similar to the execution requirements for other documents filed with the secretary of state. Business and Commerce Code chapter 71 authorizes the secretary of state to accept photocopies of originally signed assumed name documents and eliminates the notarization requirement for assumed name documents filed with the secretary of state.
Dual Filing: Dual filing of the assumed name certificate is required when the entity is a corporation, limited liability company, limited partnership, limited liability partnership, or foreign filing entity. An assumed name certificate is filed with the secretary of state and with the county clerk.
An entity that maintains a registered office in this state is required to file its assumed name certificate with the secretary of state and with the county clerk of the county in which the entity’s—
1.registered office is located, if the entity’s principal office is not located in Texas, or
2.principal office is located, if the entity’s principal office is located in Texas.
Tex. Bus. & Com. Code § 71.103(b).
An entity that is not required to or that does not maintain a registered office address, such as a domestic general partnership registered as a limited liability partnership, would file its county-level assumed name certificate in the county in which the entity maintains its office address. See Tex. Bus. & Com. Code § 71.103(c).
PRACTICE TIP: Due to differences in filing requirements, the assumed name certificate form promulgated by the secretary of state (SOS Form 503, form 3-3 in this manual) should not be used to file an assumed name certificate on the county level.
Assumed Name Certificates for Other Kinds of Entities: Business and Commerce Code chapter 71 authorizes the secretary of state to accept and file an assumed name certificate for a foreign real estate investment trust (REIT); foreign business or statutory trust; or foreign entity that is not characterized as a corporation, limited partnership, limited liability company, or limited liability partnership. A domestic REIT is not authorized to file its assumed name certificate with the secretary of state. A domestic REIT doing business under an assumed name would follow county filing requirements established under sections 71.051 through 71.054 of the Business and Commerce Code.
Correction to Assumed Name Certificate: Business and Commerce Code chapter 71 does not provide for the filing of a correction to an assumed name certificate. If the assumed name certificate filed contains incorrect information or a typographical error, the assumed name certificate may be abandoned and a new assumed name certificate filed.
§ 3.2Designation of Registered Agent
§ 3.2:1Registered Agent Consent
Consent Required: Pursuant to TBOC section 5.201(b), a person designated as a registered agent must have consent, in a written or electronic form, to act as registered agent. See Tex. Bus. Orgs. Code § 5.201(b).
Form for Consent: TBOC section 5.201(b) requires the secretary of state to develop the form of the written or electronic consent. Pursuant to Texas Administrative Code title 1, section 79.29, an electronic or written consent must contain the following elements:
(1)the name of the represented entity;
(2)an express statement of consent to serve as the entity’s registered agent;
(3)the name of the registered agent;
(4)the signature of the registered agent; and
(5)the date of execution.
1 Tex. Admin. Code § 79.29(a). SOS Form 401-A (form 3-4 in this manual) may be used to document a registered agent’s acceptance of appointment.
The appointment of a person as registered agent by an organizer or managerial official of an entity is an affirmation by that organizer or managerial official that the person has consented to serve in the capacity of registered agent. See Tex. Bus. Orgs. Code § 5.2011(a).
PRACTICE TIP: While not required by the TBOC, the best practice is to maintain the registered agent’s consent in the entity’s records.
§ 3.2:2Verification of Registered Agent upon Sale, Acquisition, or Transfer
Before the sale, acquisition, or transfer of a majority-in-interest or majority interest of the outstanding ownership or membership interests of a represented entity, the governing authority of the entity must verify whether the person designated as registered agent before the sale, acquisition, or transfer has consented to continue to serve the represented entity in that capacity. See Tex. Bus. Orgs. Code § 5.2011(b).
§ 3.2:3Penalty for False Statement Concerning Registered Agent
TBOC section 5.207 provides that sections 4.007 and 4.008 impose liabilities and penalties on a false statement in a filing instrument that designates and appoints a person as the registered agent of an entity without that person’s consent. See Tex. Bus. Orgs. Code § 5.207. Section 4.007 provides for damages, court costs, and reasonable attorney’s fees if a person incurs a loss caused by the false statement. See Tex. Bus. Orgs. Code § 4.007(a). An offense under section 4.008 is a class A misdemeanor unless the person’s intent is to harm or defraud another, in which case the offense is a state jail felony. See Tex. Bus. Orgs. Code § 4.008(b).
§ 3.2:4Filing Registered Agent’s Consent Permitted but Not Required
The signed consent of the registered agent should be sent to and retained by the represented entity. Unless otherwise required by the provisions of the TBOC or other law applicable to the represented entity, the consent of the registered agent is not required to be submitted with or included as part of the filing designating the registered agent (“registered agent filing”). See 1 Tex. Admin. Code § 79.29(c).
However, the appointment of a statutory agent for an unincorporated nonprofit association pursuant to section 252.011(c) of the TBOC requires the signature of the appointed agent to be included with the appointment.
The secretary of state will not reject a filing that includes the consent of registered agent. When the consent of agent is submitted with or included as part of the registered agent filing, the consent will be imaged as part of the original document. See 1 Tex. Admin. Code § 79.29(d).
A statement of consent of registered agent that is submitted separately for purposes of filing with the secretary of state will be indexed in the filing history of the represented entity if the consent is accompanied by a fee of (currently) $15, unless the consent is submitted on behalf of a nonprofit corporation or cooperative association, in which case the current fee is $5. See 1 Tex. Admin. Code § 79.29(e), (f).
§ 3.2:5Rejection of Appointment as Registered Agent
TBOC section 5.206 permits a person designated as a registered agent to reject the appointment as agent if the person was named as registered agent without that person’s consent. A person who has been named as the registered agent of an entity without that person’s consent is not required to perform the duties of a registered agent. See Tex. Bus. Orgs. Code § 5.206(b). SOS Form 428 (form 3-5 in this manual) may be used to file a rejection of appointment of agent. There is no fee for filing a rejection of appointment.
Effect of Filing Rejection of Appointment: The filing of a rejection of appointment by the secretary of state immediately terminates the appointment of the agent and the registered office address. On filing, the secretary of state will notify the organizer or managerial official of the entity of the need to appoint a new registered agent and registered office. Failure to appoint a new registered agent and registered office will result in the involuntary termination of the domestic filing entity or the revocation of the foreign filing entity’s registration to transact business in Texas.
Resignation for Persons Appointed before January 1, 2010: A person who was appointed without consent before January 1, 2010, would file a statement of resignation of agent pursuant to TBOC section 5.204, which is effective on the thirty-first day after the date the secretary of state receives the notice of resignation. See Tex. Bus. Orgs. Code § 5.204(d). There is no fee for filing a resignation of registered agent.