Texas is a business-friendly state in a variety of ways, drawing businesses nationally and internationally. Whether the business is a corporation, an LLC, or a limited partnership, if that business chooses to become a Texas entity, it must follow certain guidelines and procedures established by the Texas Business Organizations Code (BOC).
Filing a Plan of Conversion
In order to convert to a Texas business, the foreign or out-of-state business must create a written plan of conversion which includes the name of the converting entity. That plan is then filed with the Texas Secretary of State. BOC §10.103.
The converting entity also must file both a certificate of conversion compliant with BOC § 10.154, and a certificate of formation compliant with BOC, Chapter 3, before the conversion may be approved. SOSDirect provides forms for these certificates. However, the available forms may not reflect the unique needs of each business conversion.
The paperwork is filed in the county where the business intends to relocate. Because not all jurisdictions allow foreign entities to convert to TX entities, the converting business must check with both jurisdictions to ensure that conversion is allowed. It must comply not only with the Texas Business Organizations Code but also with the regulations and requirements of its original state, all of which may require additional fillings.
Verifying Entity Name
While the business name may have been available in its state of origin, the same name may not be available in Texas. If the name is the same as or too similar to an already existent Texas business, the business cannot file for conversion under that name. BOC § 5.053. One option if the original name is not acceptable is to create and operate under a fictitious name in Texas.
Documenting Franchise Taxes
The converting entity must show proof of either its payment of or liability for required franchise taxes in one of two ways; it must provide a certificate of account status provided by the Texas Comptroller of Public Accounts, current through the date of conversion, or it must provide a statement indicating that the converted entity owes franchise taxes.
“The filing fee for a certificate of conversion is $300 ($50 for nonprofit corporation or cooperative association) plus the fee for filing the certificate of formation (typically $300; $25 for nonprofit corporation or cooperative association; $750 for professional association or limited partnership).” Texas Secretary of State.
While the Texas Secretary of State provides helpful information and guidelines, it cautions that it is not a substitute for legal advice. Given the complexities of working with regulations and laws between two states, the first and best step is to seek the counsel of an experienced business attorney and tax specialist.
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