BUSINESS ENTITIES: Schedule C Requirements

Transcription

1 BUSINESS ENTITIES: Schedule C Requirements 2015 Texas Land Title Institute Stephen R. Streiff Texas State Counsel Old Republic National Title Insurance Company Houston, TX

2 Stephen R. Streiff is the Texas State Counsel for Old Republic National Title Insurance Company. He joined Old Republic as Underwriting Counsel in Steve has a wide range of experience in the title insurance industry having examined and closed transactions, handled document preparation and managed title operations. He is active in the Texas Land Title Association and is a frequent speaker at continuing education events. Steve graduated from Louisiana State University with a B.S. in Business Administration and received his J.D. from the University of Houston.

3 Business Entities: Requirements Introduction: This paper is intended to focus on requirements made on title insurance commitments issued in Texas with respect to entities. In order to provide a better basis for discussion, some background regarding entity structures is provided and certain presumptions are made. Only arm s length, fair market transactions involving bona fide purchasers or mortgagees are considered. Insider transactions or potentially fraudulent transfers are not discussed in detail. The statutory framework for entities in Texas is primarily set forth in the Business Organizations Code. Most entities created in Texas must file Certificates of Formation with the Secretary of State. There are specific forms of Certificate of Formation depending on the type of entity being created. These forms are available and viewable at the Texas Secretary of State website. Since terminology has evolved, synonymous terms were codified in Section of the Business Organizations Code. The Texas Secretary of State also offers on line access for filing documents and searching business organization records for a fee. Most business organizations are subject to franchise taxes in Texas that are collected by the Texas Comptroller of Public Accounts. The Comptroller will issue a Franchise Tax Account Status to determine whether a taxable entity's right to transact business remains intact. This information may be searched and obtained online for no charge at the Texas Comptroller's website. "Certificates of Good Standing" are no longer available in Texas although that terminology is still regularly used in this state. For purposes of these materials, references to "good standing" will mean a Franchise Tax Account Status from the Texas Comptroller reflecting "Active" status for the right to transact business in Texas. If the entity is domiciled in a foreign jurisdiction and not registered in Texas, evidence of good standing must be obtained from the proper authority in that jurisdiction. I. ASSUMED NAMES An assumed name is not in itself an entity. Sole proprietors often have a misunderstanding about the legal effect. An assumed name certificate may be filed by the registrant in the Office of the County Clerk and/or with the Secretary of State as provided for in Chapter 71 of the Business and Commerce Code Texas Land Title Institute Business Entities 1

4 Assumed name filings are valid for up to 10 years. The assumed name does not exist separate and apart from its registrant, but rather that party is simply notifying the public of its intent to conduct business under the assumed name rather than its legal name. An example would be John Smith d/b/a John's Food Market. A corporation or other actual legal entity may also file an assumed name certificate. Title is often found solely in an assumed name. However, any documents that transfer title to the property must reflect the registrant's legal name doing business as the assumed name and those instruments must be executed by the registrant. In the example above, title may have been taken as "John's Food Market", but title must be conveyed as John Smith d/b/a John's Food Market". John Smith must execute the documents using his legal name and have his personal acknowledgment taken. Unfortunately, this often creates confusion and consternation amongst registrants. However, it is not acceptable to insure title based upon deeds, mortgages or any other documents executed solely under the assumed name as if it was an entity. Rather, all documents must reflect and be signed by the registrant. Since the assumed name is not a distinct legal entity, the registrant's name must also be searched for any involuntary liens or other matters. Obtain Assumed Name Certificate; All documents must reflect and be executed by the registrant; Registrant's legal name must be searched for potential adverse matters; Additional requirements if registrant is an entity. II. GENERAL PARTNERSHIPS A partnership is an association of two or more persons to carry on a business as owners for a profit. Partnership agreements may be oral or written. There are two basic forms of partnership, the general partnership and the limited partnership. If the name doesn't use "Limited Partnership", or end with "Ltd."; "L.P."; or "Limited", then it's a general partnership. A general partnership does not necessarily have to register with the Secretary of State nor is it subject to state franchise taxes. Chapter 152 of the Business Organizations Code provides the framework for general partnerships in Texas. The general partnership is possibly the most flexible of the types of entities which can hold and convey title. It is an entity distinct from its partners, but is also the entity where the owners will have the most liability. Each partner is jointly and severally liable for all the debts and obligations of the partnership. A partner is liable not only for his own actions in connection with the operation of 2015 Texas Land Title Institute Business Entities 2

5 the partnership, but also for the acts of all of the other partners and agents of the partnership. The partnership can hold title in its own name or in the name of the partners. A general partnership agreement may be oral or written. In the case of an oral agreement, the closer will need to secure an affidavit that should name all of the partners, and detail the history of the partnership and its holdings. The affidavit should be signed by all of the partners to insure that none are omitted. Underwriting approval to rely on such an affidavit is almost always necessary. Conveyances: Joinder of all partners is necessary absent any written agreement to the contrary. A written partnership agreement may grant one or more of the partners the full authority to sign on behalf of the partnership. If such a written agreement is provided, most underwriters will also require a separate estoppel or ratification from the other partners with respect to the proposed transaction. An affidavit that the written partnership agreement tendered to the title company is a true and correct copy of the agreement, that it has not been modified or otherwise changed, that the partnership is still operational and has filed all documents necessary to comply with the law is advisable. All partners should be identified in the affidavit and the names should correspond to the partners named in the partnership agreement. Any variance between the partners named and those in the agreement should be submitted to the examiner and/or underwriter for further requirements. Involuntary liens: Partnership interests are personal property interests. Therefore, involuntary liens against individual partners do not attach to the partnership property. Dissolution: Title to the partnership property passes to the partners in accordance with the respective interests upon dissolution or termination. In such case, partners then become joint tenants and all former partners would be required to join in a conveyance or mortgage of the property. Further, because the property rests in the individual partners if the partnership terminates or dissolves, and because it is not always clear from the records whether the partnership has suffered an event of termination or dissolution, examiners will often show judgments against the individual partners disclosed in the property records on the title commitment. In such cases, upon satisfactory 2015 Texas Land Title Institute Business Entities 3

6 proof of affidavits showing the partnership's continued existence, the exception to individual judgements can be removed by the examiner or by counsel. Copy of the Partnership Agreement, as amended (if written); Supporting affidavit identifying all partners and stating true and correct copy that remains in effect; If oral, an Affidavit of Partnership (if approved by the Underwriter); Execution of the documents by all partners (unless the Partnership Agreement and company counsel provide otherwise); If documents not signed by all partners, ratifications from other partners III. JOINT VENTURE Joint Ventures are the product of an agreement between two or more parties, formed for a particular purpose generally to do a single transaction or a series of transactions related to a single development or investment. A joint venture is most often considered in the nature of a partnership in Texas, usually a general partnership. B. Conveyances: If the joint venture is a general partnership, the agreement may be oral or written. If there is no written agreement, an affidavit must be secured naming all of the joint venturers and all must join in any conveyance or mortgage of the property. Usually there is a written joint venture agreement, so consultation with the underwriter would be advisable prior to relying on an affidavit. In a written agreement, a venturer may be designated as the manager and the manager given authority to convey the venture property. In that case, the signature of that manager may be acceptable. Ratification and/or estoppels from other joint venturers is advisable in such a situation as is underwriter approval. If the Joint Venture Agreement is not recorded, the conveyance should be executed by all joint venturers. If it is recorded and provides for execution of conveyances by less than all joint venturers, the agreement must be carefully reviewed to determine that not all venturers need to sign and consultation with the underwriter may be necessary Texas Land Title Institute Business Entities 4

7 C. Involuntary Liens: An involuntary lien against an individual joint venturer is not a lien against the real estate held by the joint venture. This is analogous to the law of a partnership. However, if title is vested in the individual names of the joint venturers rather than the name of the joint venture, or if the joint venture agreement is determined to be deficient in some way, a court could construe that title vested in the individuals rather than the entity. In that case, an involuntary lien against an individual joint venturer would attach to the joint venture property. Copy of Joint Venture Agreement; If oral agreement affidavit and underwriter approval; Joinder of all Joint Venturers; If agreement provides for managing venturer estoppels/ratifications and underwriter approval. IV. LIMITED PARTNERSHIPS Limited partnerships have one or more general partners and one or more limited partners. To form a limited partnership, a certificate of formation must be filed with the Secretary of State naming the general partner, the registered agent, and its registered office. Foreign limited partnerships must also register with the Secretary of State to do business in Texas. Limited partnerships are governed by Chapter 153 of the Business Organizations Code and are subject to franchise tax in Texas. Limited partnerships must use the word "limited" or "limited partnership" or an abbreviation of that phrase. In a limited partnership, the general partner (or general partners) is vested with the day to day management and control of the partnership. The general partner has unlimited liability for all of the debts, obligations, and responsibilities of the limited partnership in both contract and tort. Limited partners, on the other hand, are not liable for the obligations of the partnership, and only the amount of their individual investment is at risk. However, the limited liability provisions inuring to the benefit of the limited partners may be lost, if the limited partner begins to play an active role in the business of the limited partnership. B. Conveyances: The general partner usually has authority under the partnership agreement to execute documents binding the entity. However, the consent of limited partners may be necessary under the terms of the partnership agreement for certain acts Texas Land Title Institute Business Entities 5

8 In such cases, those consents should be obtained in writing from all limited partners. Often a corporation or limited liability company is named as the general partner of a limited partnership. In those instances, the authority for the entity acting as general partner will also need to be established. A partnership resolution should also be obtained to further evidence the requisite authority to bind the partnership. Evidence the limited partnership is in "good standing" should also be obtained. C. Dissolution: The surviving general partner may be able to dispose of property as winding up upon dissolution or termination. If there is no surviving general partner, the law does not provide for a limited partner to wind up affairs. In this case, the partnership must apply to the court for appointment of a person to act in the capacity of a liquidating partner. If a partnership has dissolved or is otherwise terminated, consulting with the underwriter is advisable. Copy of the Limited Partnership Agreement; Copy of the Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory proof that the Limited Partnership is in good standing; Consents of the Limited Partners, as needed; Partnership Resolution as appropriate; Possible additional requirements if General Partner is an entity. V. LIMITED LIABILITY PARTNERSHIPS A limited liability partnership is a partnership registered with the Secretary of State, which provides that no partner is individually liable, directly or indirectly, by contribution, indemnity or otherwise, for the debts and obligations of the partnership or for the debts and obligations of any other individual partner. Limited liability partnerships are most often used by professionals such as physicians or accountants. The partnership name must contain the words "limited liability partnership" or an abbreviation of the phrase. A limited liability partnership must register with the Secretary of State by application. Subchapter J (Sect et seq.) of the Business Organizations Code governs limited liability partnerships in Texas Texas Land Title Institute Business Entities 6

9 B. Conveyances: Except for the liability limitations, limited liability partnerships are treated the same as general partnerships. A limited liability partnership may become a limited partnership by complying with Chapter 15 of the Business Organization Code. Often joinder of all partners will be required as a general partnership. Copy of the Partnership Agreement; Further requirements based on whether the LLP is organized as a General Partnership or Limited Partnership. VI. CORPORATIONS A corporation is a separate and distinct business entity owned by its shareholders, managed by its directors (who are elected by the shareholders) and operated day to day by officers (who are selected or hired by the directors). Corporations file their own tax returns and hold title in their own name. A "Domestic Corporation" is a corporation formed and domiciled in the State of Texas. A corporation is formed by filing a Certificate of Formation with the Secretary of State. The day to day rules governing its operation are contained in the by laws of the corporation. Chapter 21 of the Business Organizations Code provides the statutory framework for for profit corporations in Texas. B. Conveyances: A conveyance of corporate property by an officer of the corporation must be supported by a proper resolution by its Board of Directors authorizing the conveyance. Typically, that must resolution must be specific to the property and/or transaction. However, if the property is being conveyed in the corporation's ordinary course of business (i.e. homebuilder) there might be a standing resolution or specific indication in the by laws or articles of incorporation authorizing such a conveyance. If the corporation is in the business of conveying property, and such fact is stated in its articles or by laws, a corporate resolution specific as to a particular property is not necessary. If a corporation sells and conveys real property in its ordinary course of business, a standing resolution naming the officer(s) with authority to execute settlement documents and convey property will typically suffice if the resolution was adopted within the last year Texas Land Title Institute Business Entities 7

10 A corporate conveyance or mortgage may be executed by any officer of the corporation, provided there is a satisfactory resolution supporting it. But, usually the President or Vice President is authorized and attestation by another officer of the company may be required under the corporation by laws. When substantially all of the property and assets of the corporation are being sold or encumbered, outside of the regular course of business, a resolution containing the affirmative vote of at least 2/3rds of the shareholders is also required. On occasion, there may be a change of name of the corporation resulting from a conversion, merger, or other succession. In this situation copies of the appropriate filings, such as a certificate of conversion or certificate of merger, must be secured. The best practice is to obtain certified copies from the Secretary of State and have the same recorded in the real property records where the property is situated to complete the chain of title and tie the two entities together. Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory evidence of good standing. Corporate resolution authorizing the transaction Identification of the proper officer(s), in the resolution or a Certificate of Incumbency C. Foreign Corporations A corporation incorporated in a state other than Texas is known as a foreign corporation. A foreign corporation that wants to conduct business in Texas must register with the Secretary of State by filing a Certificate of Authority. Thereafter, all of the usual requirements of reviewing the certificate of formation, bylaws as needed, evidence of good standing, corporate resolution and certificate of incumbency must be secured just as with any corporation. Activities that do not constitute transacting business in Texas by a foreign company include owning real estate and creating a mortgage (Tex. Bus. Org ). Same as Domestic Corporation except corporation may be required to register with the Texas Secretary of State check with your underwriter Texas Land Title Institute Business Entities 8

11 Alien Corporation A corporation incorporated outside of the United States is referred to as an alien corporation. The underwriter should be contacted for specific requirements. Most will want proof the corporation was duly formed in its jurisdiction, the proposed acts are within its charter, the transaction is duly authorized and the signatories identified. This usually entails obtaining opinions from qualified attorneys. Underwriter guidance is critical. CONSULT UNDERWRITER Minimum similar to Domestic Corporation usually supported by attorney opinion(s) and subject to additional requirements D. Corporate Forfeiture: If a corporation's charter has been forfeited, it must be determined whether the corporation is an ongoing business or if it is in liquidation. If the corporation is an on going business, the charter needs to be re instated. Specific requirements from the Comptroller may be given to the corporation and upon the filing of the proper papers its will be revived. If, however, the corporation is in liquidation, the officers or directors may convey the property up to 3 years after forfeiture of the charter as winding up of the corporate affairs. After the 3 years have passed, joinder of all shareholders would be required. If the corporation has filed articles of dissolution, those must also be reviewed. The underwriter should be consulted for further guidance when a corporation is dissolute. Reinstatement if corporation is still ongoing concern IF NO REINSTATEMENT, CONSULT THE UNDERWRITER Possible reliance on wind up powers of officers or directors Possible title vested in shareholders VII. LIMITED LIABILITY COMPANIES A. Definition: A limited liability company (LLC) is an entity created by a statue as somewhat of a hybrid between a partnership and a corporation. The phrase "limited liability 2015 Texas Land Title Institute Business Entities 9

12 company", "limited company" or an abbreviation of that phrase must be used. A LLC must register with the Texas Secretary of State and is subject to franchise tax. Chapter 101 of the Business Organizations Code governs LLCs in Texas. The limited liability company is owned by its members and may be managed by its members, managers and/or officers. Management of the LLC will be governed by the managers if the Certificate of Formation states there will be managers or members if the certificate of formation states the LLC will not have managers. Officers, agents, managers, and members of the LLC have the authority to act and the duties to perform established by the Company Agreement. Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory evidence of Good Standing Copy of and Compliance with Company Agreement Company Resolution VIII. NON PROFIT CORPORATIONS A. Definition: A non profit corporation is basically the same as a for profit corporation but no part of its income is distributable to its members, directors, or officers. Procedures for non profit corporations are the same as those applicable to regular corporations. Chapter 22 of the Texas Business Organizations Code governs non profit corporations in Texas. Management of the non profit corporation may be vested in the members of the corporation in its certificate of formation. Otherwise, management power is deemed to vest in the board of directors subject to limitations in the certificate if formation or by laws. Any officer of a non profit corporation may convey land by deed. The same person cannot be both President and Secretary while a properly designated committee may perform the functions of any two or more officers, including President and Secretary. B. Conveyances: A conveyance of real estate by a non profit corporation should be executed by the duly authorized officer(s) and supported resolution of the Board of Directors or its members Texas Land Title Institute Business Entities 10

13 A sale, lease, or exchanges or all or substantially all of the property and assets of a non profit corporation requires a recommendation of the Board of Directors and if the members have voting rights, a vote of at least 2/3rds of the members present at a meeting convened to resolve such issue. Interestingly however, unless otherwise provided in the Articles of Incorporation, the Board of Directors may authorize a pledge, mortgage or against corporate property in real estate without the authorization or consent of the members. When the corporation is insolvent, a sale, lease or exchange of all or substantially all of the property and assets of the corporation is authorized upon the vote of a majority of directors in office. Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory evidence of good standing. Corporate resolution authorizing the transaction Identification of the authorized officers in the resolution or a Certificate of Incumbency Possible additional requirements if the Manager or Member is an entity. IX. TRUSTS "Trust" as discussed herein, refers only to an express trust as defined under Texas law. An express trust means a fiduciary relationship with respect to property which arises as a manifestation by the settlor of an intention to create the relationship and which subjects the person holding title to the property to equitable duties to deal with the property for the benefit of another person. These materials do not address a resulting trust, a constructive trust, a business trust, or a deed of trust. Chapters 101, and 111 through 115, inclusive, of the Texas Property Code should be referred to when handling transactions involving trusts. A trust created during the lifetime of the trustor or settlor, it is called an inter vivos trust. A trust created in a will is called a testamentary trust. Trusts can be revocable or irrevocable. A revocable trust may be revoked by the settlor or trustor while the settlor or trustor may not revoke an irrevocable trust. A spendthrift trust is one in which the settlor provides terms in the trust that the interest of a beneficiary in the income or in the principal or in both may not be 2015 Texas Land Title Institute Business Entities 11

14 voluntarily or involuntarily transferred before payment or delivery of the interest to the beneficiary by the trustee. No consideration is necessary to create a trust. A trustee of a trust holds legal title and the beneficiary holds equitable title. A trustee holds certain statutory powers, but the terms of the trust agreement can limit those powers. A trustee holds a fiduciary relationship and owes duties to the beneficiaries, including compliance with the prudent investor rule except as otherwise provided in the trust agreement (Tex. Prop ). B. Conveyances: Generally, a trust is not a legal entity capable of holding title to real property and the title will be vested in the name of the trustee of the trust. If an express trust agreement is silent, the trustee has the power to sell or borrow money on the trust property. Generally, the trustee has powers to do anything with real estate that an owner would do, and it is up to the trust agreement to limit the powers of the trustee. A copy of the Trust Agreement is necessary to review in order to determine authority. However, in 2007 legislation was adopted to expand Section of the Property Code to protect anyone dealing with a Trustee so long as they deal with the Trustee in good faith and obtain a certification of Trust or a copy of the Trust Agreement. Section of the Property Code was added to set out the information to be included in the Certification of Trust: 1. a statement the Trust exists and the date the agreement was executed; 2. the identity of the Seller; 3. the identity and current address of the Trustee; 4. the powers of the Trustee; 5. whether the Trust is revocable or irrevocable and the name of any person who can revoke the Trust; 6. the authority of co Trustees and whether all or some are required to bind the Trust; 7. the manner in which title to the Trust property should be taken and that the Trust has not been revoked, modified, or amended. The Certificate of Trust may contain other information other than set out above. Any recipient of a Certification of Trust may require copies of excerpts from the original Trust Agreement that designate the Trustee and confer on the Trustee the authority to bind the Trust in the current transaction. However, Sec (h) provides that a person making a demand for the Trust Agreement in addition to the Certification of Trust may be liable for damages if the Court determines that the person did not act in good faith in making the demand Texas Land Title Institute Business Entities 12

15 A trustee may delegate certain functions provided specified standards are satisfied. Mechanical and ministerial functions may be delegated and trustees can employ professionals such as attorneys and accountants as reasonably necessary. However, the general rule is that delegation of a fiduciary duty is not permissible, particularly powers that require discretion. Most underwriters will not rely on an attempt by the trustee to delegate authority in connection with a real estate transaction, often attempted through power of attorney. "Blind Trusts": The recorded deed may provide that title is vested in an individual as trustee and not disclose the name of the beneficiary. In such case, title is said to be held in a "blind trust". When title to property is held in a blind trust, the trustee may convey, transfer or encumber the title without disclosing the beneficiary. However, if the beneficiary is discovered or disclosed to third parties, the property is no longer in a blind trust and the written trust agreement must be provided to determine the capacity of the trustee to convey and the extent of his/her powers. Involuntary Liens: Judgments against a named trustee should not attach if there is a written express trust agreement for the benefit of third parties and it can be satisfactorily established that the trustee does not hold a beneficial interest. Judgments against a beneficiary of an express trust created by third parties should also not attach. Judgments against disclosed beneficiaries may be problematic, particularly if the beneficiary is the settlor and/or trust does not have a spendthrift provision and/or is revocable. While the general rule is that involuntary liens against a beneficiary do not attach to trust property and that garnishment would be the appropriate remedy for a creditor, consultation with the underwriter in these situations is advisable. Involuntary liens are a peculiar problem in the cases of blind trusts. When title is held by the trustee in a blind trust, the title company must assume that the trustee is also a beneficiary. To disregard the adverse matter, the trustee must disclose the trust and provide the written trust agreement to evidence that the trustee holds title in trust only and has no beneficial interest. If a blind trustee provides such information, consult with the underwriter to determine if any liens abstracted against the trustee individually can be deemed not to attach to the trust property. However, as previously stated, once the beneficiary is disclosed, the trustee no longer holds property in blind trust Texas Land Title Institute Business Entities 13

16 A complete copy of the Trust Agreement, as amended; or A current Certification of Trust in accordance with Sec of the Texas Property Code together with relevant excerpts as deemed necessary. X. POWER OF ATTORNEY Any attempt to rely on a power of attorney for a transaction by an entity must be carefully scrutinized. There are certain rare situations or scenarios where an underwriter may be willing to rely upon a power of attorney in connection with a sale or mortgage by a corporation or other entity. This most often occurs when the power to grant a substantive, not ministerial, power of attorney is expressly authorized in organizational documents, sophisticated large entities are involved, and/or express grants of authority are made in duly authorized and binding resolutions. However, reliance upon a power of attorney by an entity is rare and underwriter approval should be obtained. The general rule is that a fiduciary may not delegate fiduciary duties and use of a power of attorney in connection with the sale or mortgage of real property by an entity is not an acceptable practice Texas Land Title Institute Business Entities 14

17 11/19/2015 Business Entities Stephen R. Streiff, Old Republic National Title Insurance Company Introduction Texas Business Organizations Code governs business entities Secretary of State Filings Records Search Texas Comptroller Franchise Tax Account Status Websites for both are excellent resources 1

18 11/19/2015 Assumed Names ASSUMED NAME DOES NOT CREATE AN ENTITY Obtain Assumed Name Certificate; All documents must reflect and be executed by the registrant; Registrant's legal name must be searched for potential adverse matters; Additional requirements if registrant is an entity. General Partnerships Flexible and easy to form Copy of the Partnership Agreement, as amended (if written); Supporting affidavit identifying all partners and stating true and correct copy that remains in effect; If oral, an Affidavit of Partnership (if approved by the Underwriter); Execution of the documents by all partners (unless the Partnership Agreement and company counsel provide otherwise); If documents not signed by all partners, ratifications from other partners 2

19 11/19/2015 Joint Venture Agreement for particular purpose and analagous to Gen Partnership Copy of Joint Venture Agreement; If oral agreement affidavit and underwriter approval; Joinder of all Joint Venturers; If agreement provides for managing venturer estoppels/ratifications and underwriter approval. Limited Partnerships Copy of the Limited Partnership Agreement; Copy of the Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory proof that the Limited Partnership is in good standing; Consents of the Limited Partners, as needed; Partnership Resolution as appropriate; Possible additional requirements if General Partner is an entity. 3

20 11/19/2015 Limited Liability Partnerships LLP must file an application with the SOS and may become LP Copy of the Partnership Agreement; Further requirements based on whether the LLP is organized as a General Partnership or Limited Partnership. Corporations Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory evidence of good standing. Corporate resolution authorizing the transaction Identification of the proper officer(s), in the resolution or a Certificate of Incumbency 4

21 11/19/2015 Non-Profit Corporations Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory evidence of good standing. Corporate resolution authorizing the transaction Identification of the authorized officers in the resolution or a Certificate of Incumbency Possible additional requirements if the Manager or Member is an entity. Foreign Corporations Corporation formed in another state Activities that do not constitute transacting business in Texas by a foreign company include owning real estate and creating a mortgage Same as domestic corporation except corporation may be required to register with the Texas Secretary of State check with your underwriter. 5

22 11/19/2015 Alien Corporations Corporation formed outside of the U.S. CONSULT UNDERWRITER Minimum similar to domestic corporation usually supported by attorney opinion(s) and subject to additional requirements Corporate Forfeiture Reinstatement if corporation is still ongoing concern IF NO REINSTATEMENT, CONSULT THE UNDERWRITER Possible reliance on wind up powers of officers or directors Possible title vested in shareholders 6

23 11/19/2015 Limited Liability Companies Certificate of Formation, as amended, filed with the Secretary of State; Satisfactory proof the Texas Secretary of State recognizes the entity is in existence; Satisfactory evidence of Good Standing Copy of and Compliance with Company Agreement Company Resolution Trusts A complete copy of the Trust Agreement, as amended; or A current Certification of Trust in accordance with Sec of the Texas Property Code together with relevant excerpts as deemed necessary. 7

24 11/19/2015 Layered Entities Often management of entities such as LPs or LLCs is layered The General Partner or Manager is an entity; The General Partner or Manager of that entity is an entity; And on and on. Entity requirements often necessary for each layer On occasion, attorney opinion may be necessary Powers of Attorney General rule is that a fiduciary may not delegate fiduciary duties Possibly acceptable when: Power to grant a substantive, not ministerial, power of attorney is expressly authorized in organizational documents; Sophisticated large entities involved; Express grants of authority are made in duly authorized and binding resolutions. CONSULT YOUR UNDERWRITER 8