When and Why Do I Need to Register My Company to Transact Business in Hoston, Texas?

When and Why Do I Need to Register My Company
to Transact Business in Houston, Texas?

www.thesolomonlawfirm.com

When and Why Do I Need to Register My Company to Transact Business
in Texas?
» If you have a company that is incorporated in a state other than Texas (it
is called a “foreign corporation”), it can still transact business in Texas
legally if you follow the rules. There is a requirement that it first register
to do business in Texas.
» If a foreign corporation transacts business in Texas without first obtaining
a certificate of authority, the penalties are severe, as discussed later in
this article. In addition to other penalties, there can be a forfeiture
imposed in the amount of $100 to $5000 for each month or portion of a
month that the foreign corporation operated unlawfully in Texas.


What a foreign corporation must do before transacting business in Texas is
obtain a certificate of authority from the Texas Secretary of State that
authorizes it to transact business in Texas. The law is very clear, and it is
found in Article 8.01 of the Texas Business Corporation Act:

“No foreign corporation shall have the right to transact business in
this State until it shall have procured a certificate of authority so to do
from the Secretary of State.”


» Now there are certain activities that are not considered to be
transacting business in Texas because the statute specifically excludes
them.
» The statutory list is not necessarily exclusive, so it is sometimes also
necessary to look at case law to see how courts have treated other kinds
of activities.

The statutory list of activities that are allowed to be done in Texas without
registering is as follows:

1 Maintaining or defending any action or suit or any administrative or
1
arbitration proceedings, or effecting the settlement thereof or the
settlement of claims or disputes to which it is a party;

2 Holding meetings of its directors or shareholders or carrying on other
2
activities concerning its internal affairs;

3 Maintaining bank accounts;
3


4 Maintaining offices or agencies for the transfer, exchange, and
4
registration of securities issued by it, or appointing and maintaining
trustees or depositaries with relation to its securities;

5 Voting the stock of any corporation which it has lawfully acquired;
5

6 Effecting sales through independent contractors;
6


7 Creating as borrower or lender, or acquiring, indebtedness or
7
mortgages or other security interests in real or personal property;

8 Transacting any business in interstate commerce;
8

9 Conducting an isolated transaction completed within a period of thirty
9
(30) days and not in the course of a number of repeated transactions
of like nature;


10 Exercising the powers of executor or administrator of the estate of a
10
non-resident decedent under ancillary letters issued by a court of this
state, or exercising the powers of a trustee under the will of a non-
resident decedent, or under trust created by one or more non-
residents of this state, or by one or more foreign corporations, if the
exercise of such powers, in any such case, will not involve activities
which would be deemed to constitute the transacting of business in
this state in the case of a foreign corporation acting in its own right;


11 Acquiring, in transactions outside Texas, or in interstate commerce, of
11
debts secured by mortgages or liens on real or personal property in
Texas, collecting or adjusting of principal and interest payments
thereon, enforcing or adjusting any rights and property securing said
debts, taking any actions necessary to preserve and protect the
interest of the mortgagee in said security, or any combination of such
transactions;

12 Investing in or acquiring, in transactions outside of Texas, royalties
12
and other non-operating mineral interests, and the execution of
division orders, contracts of sale and other instruments incidental to
the ownership of such non-operating mineral interests.


» If a foreign corporation properly registers to do business in Texas, then
it will receive a certificate of authority to do business in this State.
» There are many benefits that are derived from that certificate of
authority, yet a foreign corporation that properly registers to do business
in Texas is not totally subject the corporate laws in Texas, as is made clear
in Article 8.02 of the Texas Business Corporation Act:

Texas


“Until that certificate of authority has been revoked or withdrawn, the
foreign corporation will enjoy the same, but no greater, rights and
privileges as a domestic corporation organized for the purposes set forth in
the application pursuant to which such certificate of authority is issued;
and, as to all matters affecting the transaction of intrastate business in this
State, it and its officers and directors shall be subject to the same duties,
restrictions, penalties, and liabilities now or hereafter imposed upon a
domestic corporation of like character and its officers and directors;
provided, however, that only the laws of the jurisdiction of incorporation
of a foreign corporation shall govern
a) The internal affairs of the foreign corporation, including but not limited
to the rights, powers, and duties of its board of directors and
shareholders and matters relating to its shares, and
b) The liability, if any, of shareholders of the foreign corporation for the
debts, liabilities, and obligations of the foreign corporation for which
they are not otherwise liable by statute or agreement.”


But what are the penalties for transacting business in Texas as a foreign
corporation without a certificate of authority? They are substantial, as
set forth in Article 8.18 of the Texas Business Corporation Act:


1 “No foreign corporation which is transacting, or has transacted,
1
business in this State without a certificate of authority shall be
permitted to maintain any action, suit, or proceeding in any court of
this State (whether brought directly by the corporation or in the form
of a derivative action by a shareholder) on any cause of action arising
out of the transaction of business in this State, until such corporation
shall have obtained a certificate of authority.
Nor shall any action, suit, or proceeding on any such cause of action be
maintained in any court of this State by any successor, assignee, or legal
representative of such foreign corporation, until a certificate of authority
shall have been obtained by such corporation or by a foreign corporation
which has acquired all or substantially all of its assets.
It is expressly provided, however, that the provisions of this article shall
not affect the rights of any assignee of the foreign corporation as the
holder in due course of a negotiable promissory note, check, or bill of
exchange, or as the bona fide purchaser for value of a warehouse receipt,
stock certificate, or other instrument made negotiable by law.

2 The failure of a foreign corporation to obtain a certificate of authority
2
to transact business in this State shall not impair the validity of any
contract or act of such corporation, and shall not prevent such
corporation from defending any action, suit or proceeding in any court
in this State.


3 A foreign corporation which transacts business in this State without a
3
certificate of authority shall be liable to this State, for the years or
parts thereof during which it transacted business in this State without
a certificate of authority, in an amount equal to all fees and franchise
taxes which would have been imposed by law upon such corporation
had it duly applied for and received a certificate of authority to
transact business in this State as required by law and thereafter filed
all reports required by law, plus all penalties imposed by law for failure
to pay such fees and franchise taxes.


4 In addition to the penalties and payments thus prescribed, such
4
corporation shall forfeit to this State an amount not less than One
Hundred Dollars ($100) nor more than Five Thousand Dollars ($5,000)
for each month or fraction thereof it shall have transacted business in
this State without a certificate. The Attorney General shall bring suit to
recover all amounts due this State under the provisions of this
section.”


» So what will it cost me to do it right, you say? That is a good question
to ask when you consider the penalties for not obtaining a certificate
of authority to transact business in Texas.
» The current filing fee to obtain a certificate of authority to transact
business in Texas is Seven Hundred Fifty Dollars ($750). That is not an
insignificant amount of money, but it is nothing when compared to the
possible penalties for not complying with the law.

Texas


CONTACT THE SOLOMON LAW FIRM, P.C.
Main Office
510 Bering Drive, Suite 300
Houston, Texas 77057
Toll Free 888.777.6391
Fax to 713.358.5513


When and Why Do I Need to Register My Company to Transact Business in Hoston, Texas?

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When and Why Do I Need to Register My Company to Transact Business in Hoston, Texas?