BUSINESS ORGANIZATIONS CODE
CHAPTER 2. PURPOSES AND POWER OF DOMESTIC ENTITY
SUBCHAPTER A. PURPOSES OF DOMESTIC ENTITY
§ 2.001. GENERAL SCOPE OF PERMISSIBLE PURPOSES. A
domestic entity has any lawful purpose or purposes, unless
otherwise provided by this code.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.002. PURPOSES OF NONPROFIT ENTITY. The purpose or
purposes of a domestic nonprofit entity may include one or more of
the following purposes:
(1) serving charitable, benevolent, religious,
eleemosynary, patriotic, civic, missionary, educational,
scientific, social, fraternal, athletic, aesthetic, agricultural,
and horticultural purposes;
(2) operating or managing a professional, commercial,
or trade association or labor union;
(3) providing animal husbandry; or
(4) operating on a nonprofit cooperative basis for the
benefit of its members.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.003. GENERAL PROHIBITED PURPOSES. A domestic
entity may not:
(1) engage in a business or activity that:
(A) is expressly unlawful or prohibited by a law
of this state;
(B) cannot lawfully be engaged in by that entity
under state law; or
(C) may not be engaged in by an entity without
first obtaining a license under the laws of this state to engage in
that business or activity and a license cannot lawfully be granted
to the entity; or
(2) operate as a:
(A) bank;
(B) trust company;
(C) savings association;
(D) insurance company;
(E) railroad company;
(F) cemetery organization; or
(G) abstract or title company governed by Chapter
9, Insurance Code.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.004. LIMITATION ON PURPOSES OF PROFESSIONAL
ENTITY. Except as provided in Title 7, a professional entity may
engage in only:
(1) one type of professional service, unless the
entity is expressly authorized to provide more than one type of
professional service under state law regulating the professional
services; and
(2) services ancillary to that type of professional
service.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.005. LIMITATION IN GOVERNING DOCUMENTS. The
governing documents of a domestic entity may contain limitations on
the entity's purposes.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.006. PERMISSIBLE PURPOSE OF FOR-PROFIT CORPORATION
RELATED TO RAILROADS. Notwithstanding Section 2.003(2)(E), a
for-profit corporation may:
(1) construct, acquire, maintain, and operate street
railways, suburban railways, and belt lines of railways in or near
municipalities to transport freight and passengers;
(2) construct, own, and operate union depots;
(3) buy, sell, and convey rights-of-way on which to
construct railroads;
(4) construct, acquire, maintain, and operate lines of
electric, gas, or gasoline, denatured alcohol, or naphtha motor
railways in and between municipalities, and interurban railways in
and between municipalities in this state to transport freight or
passengers;
(5) build, maintain, and operate a line of railroads
to mines, gins, quarries, manufacturing plants, or mills;
(6) construct, maintain, and operate terminal
railways; or
(7) operate a railroad passenger service by
contracting with a railroad corporation or other company that does
not construct, own, or maintain a railroad track.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.007. ADDITIONAL PROHIBITED ACTIVITIES OF FOR-PROFIT
CORPORATION. A for-profit corporation may not:
(1) operate a cooperative association, limited
cooperative association, or labor union;
(2) transact a combination of the businesses of:
(A) raising cattle and owning land for the
raising of cattle, other than operating and owning feedlots and
feeding cattle; and
(B) operating stockyards and slaughtering,
refrigerating, canning, curing, or packing meat; or
(3) engage in a combination of:
(A) the petroleum oil producing business in this
state; and
(B) the oil pipeline business in this state other
than through stock ownership in a for-profit corporation engaged in
the oil pipeline business and other than the ownership or operation
of private pipelines in and about the corporation's refineries,
fields, or stations.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.008. NONPROFIT CORPORATIONS. A corporation formed
for the purpose of operating a nonprofit institution, including an
institution devoted to a charitable, benevolent, religious,
patriotic, civic, cultural, missionary, educational, scientific,
social, fraternal, athletic, or aesthetic purpose, may be formed
and governed only as a nonprofit corporation under this code and not
as a for-profit corporation under this code.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.009. PERMISSIBLE PURPOSE OF NONPROFIT CORPORATION
RELATED TO ORGANIZED LABOR. Subject to Chapter 101, Labor Code, a
nonprofit corporation may be formed to organize laborers, workers,
or wage earners to protect themselves in their various pursuits.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.010. PROHIBITED ACTIVITIES OF NONPROFIT
CORPORATION. A nonprofit corporation may not be organized or
registered under this code to conduct its affairs in this state to:
(1) engage in or operate as a group hospital service,
rural credit union, agricultural and livestock pool, mutual loan
corporation, cooperative association under Chapter 251,
cooperative credit association, farmers' cooperative society,
Co-operative Marketing Act corporation, rural electric cooperative
corporation, telephone cooperative corporation, or fraternal
organization operating under the lodge system and incorporated
under Subchapter C, Chapter 23; or
(2) engage in water supply or sewer service as an
entity incorporated under Chapter 67, Water Code.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.011. PURPOSES OF COOPERATIVE ASSOCIATION. (a) A
person may organize a cooperative association under this code to
acquire, produce, build, operate, manufacture, furnish, exchange,
or distribute any type of property, commodities, goods, or services
for the primary and mutual benefit of the members of the cooperative
association.
(b) A cooperative association may not be organized to:
(1) serve or function as a health maintenance
organization;
(2) furnish medical or health care; or
(3) employ or contract with a health care provider in a
manner prohibited by the statute under which the provider is
licensed.
(c) A cooperative association may not directly or
indirectly engage in a health maintenance organization or a prepaid
legal service corporation.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.012. LIMITATION ON PURPOSES OF REAL ESTATE
INVESTMENT TRUST. The purposes of a real estate investment trust
are limited by Section 3.012.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
SUBCHAPTER B. POWERS OF DOMESTIC ENTITY
§ 2.101. GENERAL POWERS. Except as otherwise provided
by this code, a domestic entity has the same powers as an individual
to take action necessary or convenient to carry out its business and
affairs. Except as otherwise provided by this code, the powers of a
domestic entity include the power to:
(1) sue, be sued, and defend suit in the entity's
business name;
(2) have and alter a seal and use the seal or a
facsimile of it by impressing, affixing, or reproducing it;
(3) acquire, receive, own, hold, improve, use, and
deal in and with property or an interest in property;
(4) sell, convey, mortgage, pledge, lease, exchange,
and otherwise dispose of property;
(5) make contracts and guarantees;
(6) incur liabilities, borrow money, issue notes,
bonds, or other obligations, which may be convertible into, or
include the option to purchase, other securities or ownership
interests in the entity, and secure its obligations by mortgaging
or pledging its property, franchises, or income;
(7) lend money, invest its funds, and receive and hold
property as security for repayment if the loan or assistance
reasonably may be expected to benefit, directly or indirectly, the
entity;
(8) acquire its own bonds, debentures, or other
evidences of indebtedness or obligations;
(9) acquire its own ownership interests, regardless of
whether redeemable, and hold the ownership interests as treasury
ownership interests or cancel or dispose of the ownership
interests;
(10) be a promoter, organizer, owner, partner, member,
associate, or manager of an organization;
(11) acquire, receive, own, hold, vote, use, pledge,
and dispose of ownership interests in or securities issued by
another person;
(12) conduct its business, locate its offices, and
exercise the powers granted by this code to further its purposes, in
or out of this state;
(13) lend money to, and otherwise assist, its
managerial officials, owners, members, or employees as necessary or
appropriate;
(14) elect or appoint officers and agents of the
entity, establish the length of their terms, define their duties,
and fix their compensation;
(15) pay pensions and establish pension plans, pension
trusts, profit-sharing plans, bonus plans, and incentive plans for
managerial officials, owners, members, or employees or former
managerial officials, owners, members, or employees;
(16) indemnify and maintain liability insurance for
managerial officials, owners, members, employees, and agents of the
entity or the entity's affiliate;
(17) adopt and amend governing documents for managing
the affairs of the entity subject to applicable law;
(18) make donations for the public welfare or for a
charitable, scientific, or educational purpose;
(19) voluntarily wind up its business and activities
and terminate its existence;
(20) transact business or take action that will aid
governmental policy; and
(21) take other action necessary or appropriate to
further the purposes of the entity.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.102. ADDITIONAL POWERS OF NONPROFIT ENTITY OR
INSTITUTION. To effect its purposes, a domestic nonprofit entity
or institution formed for a religious, charitable, educational, or
eleemosynary purpose may acquire, own, hold, mortgage, and dispose
of and invest its funds in property for the use and benefit of,
under the discretion of, and in trust for a convention, conference,
or association organized under the laws of this state or another
state with which it is affiliated or by which it is controlled.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.103. POWER TO INCUR INDEBTEDNESS. (a) Unless
otherwise provided by its governing documents or this code, a
domestic entity may create indebtedness for any consideration the
entity considers appropriate, including:
(1) cash;
(2) property;
(3) a contract to receive property;
(4) a debt or other obligation of the entity or of
another person;
(5) services performed or a contract for services to
be performed; or
(6) a direct or indirect benefit realized by the
entity.
(b) In the absence of fraud in the transaction, the judgment
of the governing authority of a domestic entity as to the value of
the consideration received by the entity for indebtedness is
conclusive.
(c) The consideration for the indebtedness may be received
either directly or indirectly by the domestic entity, including by
a domestic or foreign organization that is wholly or partially
owned, directly or indirectly, by the domestic entity.
(d) This section does not apply to indebtedness created by a
domestic entity that is incurred by reason of the authorization or
payment of a distribution.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.104. POWER TO MAKE GUARANTIES. (a) In this
section, " guaranty" means a mortgage, pledge, security agreement,
or other agreement making the domestic entity or its assets
secondarily liable for another person's contract, security, or
other obligation.
(b) Unless otherwise provided by its governing documents or
this code, a domestic entity may:
(1) make a guaranty on behalf of a parent, subsidiary,
or affiliate of the entity; or
(2) make a guaranty of the indebtedness of another
person if the guaranty may reasonably be expected directly or
indirectly to benefit the entity.
(c) For purposes of Subsection (b)(2), a decision by the
governing authority of the domestic entity that a guaranty may
reasonably be expected to benefit the entity is conclusive and not
subject to attack by any person, except:
(1) a guaranty may not be enforced by a person who
participated in a fraud on the domestic entity resulting in the
making of the guaranty or by a person who had notice of that fraud at
the time the person acquired rights under the guaranty;
(2) a proposed guaranty may be enjoined at the request
of an owner of the domestic entity on the ground that the guaranty
cannot reasonably be expected to benefit the domestic entity; or
(3) the domestic entity, whether acting directly or
through a receiver, trustee, or other legal representative, or
through an owner on behalf of the domestic entity, may bring suit
for damages against the managerial officials, owners, or members
who authorized the guaranty on the ground that the guaranty could
not reasonably be expected to benefit the domestic entity.
(d) This section does not:
(1) apply to a domestic entity governed by the
Insurance Code; or
(2) authorize a domestic entity that is not governed
by the Insurance Code to engage in a business or transaction
regulated by the Insurance Code.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.105. ADDITIONAL POWERS OF CERTAIN PIPELINE
BUSINESSES. In addition to the powers provided by the other
sections of this subchapter, a corporation, general partnership,
limited partnership, limited liability company, or other
combination of those entities engaged as a common carrier in the
pipeline business for the purpose of transporting oil, oil
products, gas, carbon dioxide, salt brine, fuller's earth, sand,
clay, liquefied minerals, or other mineral solutions has all the
rights and powers conferred on a common carrier by Sections
111.019-111.022, Natural Resources Code.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.106. POWER OF NONPROFIT CORPORATION TO SERVE AS
TRUSTEE. (a) A nonprofit corporation that is described by
Section 501(c)(3) or 170(c), Internal Revenue Code, or a
corresponding provision of a subsequent federal tax law, or a
nonprofit corporation listed by the Internal Revenue Service in the
Cumulative List of Organizations Described in Section 170(c) of the
Internal Revenue Code of 1986, I.R.S. Publication 78, or any
successor I.R.S. publication, may serve as the trustee of a trust:
(1) of which the nonprofit corporation is a
beneficiary; or
(2) benefiting another organization described by one
of those sections of the Internal Revenue Code, or a corresponding
provision of a subsequent federal tax law, or listed by the Internal
Revenue Service in the Cumulative List of Organizations Described
in Section 170(c) of the Internal Revenue Code of 1986, I.R.S.
Publication 78, or any successor I.R.S. publication.
(b) Any corporation (or person or entity assisting such
corporation) described in this section shall have immunity from
suit (including both a defense to liability and the right not to
bear the cost, burden, and risk of discovery and trial) as to any
claim alleging that the corporation's role as trustee of a trust
described in this section constitutes engaging in the trust
business in a manner requiring a state charter as defined in Section
181.002(a)(9), Finance Code. An interlocutory appeal may be taken
if a court denies or otherwise fails to grant a motion for summary
judgment that is based on an assertion of the immunity provided in
this subsection.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.107. STANDARD TAX PROVISIONS FOR CERTAIN CHARITABLE
NONPROFIT CORPORATIONS; POWER TO EXCLUDE. (a) Notwithstanding
any conflicting provision of this chapter, Chapter 3, or the
certificate of formation and except as provided by Subsection (b),
the certificate of formation of each corporation that is a private
foundation as defined by Section 509, Internal Revenue Code, is
considered to contain the following provisions: "The corporation
shall make distributions at the time and in the manner as not to
subject it to tax under Section 4942 of the Internal Revenue Code of
1986; the corporation shall not engage in any act of self-dealing
which would be subject to tax under Section 4941 of the Code; the
corporation shall not retain any excess business holdings which
would subject it to tax under Section 4943 of the Code; the
corporation shall not make any investments which would subject it
to tax under Section 4944 of the Code; and the corporation shall
not make any taxable expenditures which would subject it to tax
under Section 4945 of the Code."
(b) A nonprofit corporation described by Subsection (a) may
amend the certificate of formation of the corporation to expressly
exclude the application of Subsection (a).
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.108. POWERS OF PROFESSIONAL ASSOCIATION. Except as
provided by Title 7, a professional association has the same
powers, privileges, duties, restrictions, and liabilities as a
for-profit corporation.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.109. POWERS OF PROFESSIONAL CORPORATION. Except as
provided by Title 7, a professional corporation has the same
powers, privileges, duties, restrictions, and liabilities as a
for-profit corporation.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.110. POWERS OF COOPERATIVE
ASSOCIATION. (a) Except as provided by Chapter 251, a
cooperative association may exercise the same powers and privileges
and is subject to the same duties, restrictions, and liabilities as
a nonprofit corporation.
(b) A cooperative association may:
(1) own and hold membership in other associations or
corporations;
(2) own and hold share capital of other associations
or corporations;
(3) own and exercise ownership rights in bonds or
other obligations;
(4) make agreements of mutual aid or federation with
other associations, other groups organized on a cooperative basis,
or other nonprofit groups; and
(5) deliver money to a scholarship fund for rural
students.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.111. LIMITATION ON POWERS OF COOPERATIVE
ASSOCIATION. Except for the payment of necessary legal fees or
promotion expenses, a cooperative association may not directly or
indirectly use its funds, issue shares, or incur indebtedness for
the payment of compensation for the organization of the cooperative
association in excess of five percent of the amount paid for the
shares or membership certificates involved in the promotion
transaction.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.112. STATED POWERS IN SUBCHAPTER SUFFICIENT. A
domestic entity is not required to state any of the powers provided
to the entity by this subchapter in its governing documents.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.113. LIMITATION ON POWERS. (a) This subchapter
does not authorize a domestic entity or a managerial official of a
domestic entity to exercise a power in a manner inconsistent with a
limitation on the purposes or powers of the entity contained in its
governing documents, this code, or other law of this state.
(b) This code does not authorize any action in violation of
the antitrust laws of this state.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
§ 2.114. CERTIFICATED INDEBTEDNESS; MANNER OF ISSUANCE;
SIGNATURE AND SEAL. (a) Except as otherwise provided by the
governing documents of the domestic entity, this code, or other
law, on the issuance by a domestic entity of a bond, debenture, or
other evidence of indebtedness in certificated form, the seal of
the entity, if the entity has adopted a seal, may be a facsimile
that may be engraved or printed on the certificate.
(b) Except as otherwise provided by the governing documents
of the domestic entity, this code, or other law, if a security
described by Subsection (a) is authenticated with the manual
signature of an authorized officer of the domestic entity or an
authorized officer or representative, to the extent permitted by
law, of a transfer agent or trustee appointed or named by an
indenture of trust or other agreement under which the security is
issued, the signature of any officer of the domestic entity may be a
facsimile signature.
(c) A security described by Subsection (a) that contains the
manual or facsimile signature of a person who is no longer an
officer when the security is delivered by the entity may be adopted,
issued, and delivered by the entity in the same manner and to the
same extent as if the person had remained an officer of the entity.
Acts 2003, 78th Leg., ch. 182, § 1, eff. Jan. 1, 2006.
