What Types of Companies Must Register with Texas?
Any company that was not formed in Texas is considered a foreign entity that must file an application for registration with the Texas Secretary of State (SOS) in order to do business in the state. The Texas Secretary of State requires any out-of-state non-U.S. entities and financial institutions to register with Texas in order to transact business in the state.
According to Texas Business Organizations Code (TBOC) Section §9.001, the following foreign entities must register: corporations, limited liability partnerships, limited liability companies, real estate investment trusts, business trusts, cooperatives, public or private limited companies, or any other foreign entity that if formed in the state of Texas would require filing under Chapter 3 for a certificate of formation.
What Qualifies as a Transacting Business in Texas?
In general, a foreign entity is considered to be transacting business in the state of Texas if its offices or employees reside or operate in Texas and is actively pursuing company interests for the purpose of doing business in the state. If a foreign entity’s operations do not clearly fall within these parameters then it is better to air on the side of caution and file with Texas.
While the Texas SOS cannot provide legal opinions on whether registration is required under the TBOC, they are able to offer guidance on what qualifies as a transacting business.
Activities NOT Considered as Transacting Business
Texas statutes do not clearly define what constitutes a “transacting business,” but TBOC Section § 9.251 does list 16 activities that do not qualify as “transacting business.” Activities that are not considered as transacting business include, but are not limited to the following:
- Maintaining a bank account
- Voting the interest of an entity the foreign entity has acquired
- Holding a meeting—or any other action concerning the entity’s internal affairs—between the entity’s managerial officials, owners, or members
- Owning real or personal property in Texas
- Maintaining or defending an action or lawsuit or arbitration proceeding
Once a foreign entity determines its operations qualify as transacting business in Texas, it must take the steps to register with the Texas SOS to the satisfaction of the requirements outlined in Section § 9.004 of the TBOC. LLP registrations must be renewed each year while most foreign entities will only require a one-time registration fee of $750 unless they are a nonprofit organization or cooperative association. These foreign entities are also subject to state franchise taxes as well as certain federal income taxes.
Penalties for Failing to Register with the Secretary of State
According to TBOC § 9.051-.054, any foreign entity that transacts business in Texas without registering with the SOS will face the following penalties:
- The entity will be unable to maintain an action, suit, or legal proceeding in Texas courts.
- The attorney general can enjoin or prohibit the entity from further transacting in Texas.
- The entity will be subject to a civil penalty equal to all fees and taxes that would have otherwise been imposed if the entity had registered when first required.
- The SOS will impose a late fee for transacting business in Texas for more than 90 days without applying for registration.
However, it is worth noting that failing to register does not affect the validity of any contract of act of the foreign filing entity. Additionally, failing to register does not prevent the entity from defending an action or proceeding in a Texas court, nor does it result in any owner, member, or managerial official becoming liable for debts, obligations, or liabilities of the foreign entity.