BUSINESS LAW CHANGES

The 79^th Texas Legislature made significant changes in the area of Business Law.  This article only touches upon some of the issues addressed by the Legislature.  Please contact Janis if you would like a more complete overview of the business law changes.  To see the actual text of any of these new laws, follow this link:  http://www.capitol.state.tx.us/

1.                  LLC and Partnership Amendments.  H.B. 1154 amends various sections of the Texas Limited Liability Company Act (“TLLCA”), the Texas Revised Limited Partnership Act (“TRLPA”), and the Texas Revised Partnership Act (“TRPA”).  These acts will all continue until 2010, to govern domestic partnerships and LLC’s formed prior to January 1, 2006, which is the date when the BOC will take effect.  The bill’s modifications are technical and they make corrections, clarifications, and changes to the TTLCA, TRLPA, and TRPA, with the aim to more closely resemble the BOC.  These amendments in part pertain to the (1) dissolution of an LLC and amendments of its articles of organization; (2) revocation of a voluntary cancellation of a limited partnership; (3) the filing of articles of conversion of a limited partnership; (4) supplying a definition of “merger”; (4) continuing the existence of the limited partnership until filing of the certificate of cancellation; and (5) authorizing a certificate of merger for a general partnership to contain a specified statement instead of a plan of merger.  These amendments also relate to procedures involving filings with the Secretary of State and are intended to mitigate confusion that would otherwise arise if there were a different set of procedures under the BOC and the statutes amended by the bill.

2.                  Filings with the Secretary of State.  H.B. 1507 amends the Texas Business Corporation Act (“TBCA”) in the procedures involving filings with the Secretary of State, & making some technical clarifications and corrections.  These changes also conform the TBCA in certain areas to the BOC.  These amendments specifically relate to:

·                    Reserving corporate names

·                    Eliminating ancillary documents that have to be filed with Articles of Incorporation

·                    Requirements for merger plans

·                    The valuation of shares of shareholders exercising their rights to dissent

·                    When the existence of a corporation ceases after a court decree of dissolution

·                    Changes in the purpose of a foreign corporation

·                    Venue in some actions under TBCA Article 8.18

3.                  Business Organizations Code.  H.B. 1319 is more than 80 pages long and it makes modifications to many sections of the Business Organizations Code (“BOC”).  The new laws take effect when the BOC becomes effective on January 1, 2006.  (The BOC was adopted by the 78^th Legislature in 2003)  In general, H.B. 1319 is designed to: 

·                    Correct mistakes contained in the BOC;

·                    Incorporate changes made in the source laws of the BOC that were adopted by the 2003 legislature;

·                    Simplify the procedures for filing certain types of documents;

·                    Clarify BOC provisions and inconsistencies;

·                    Fill in coverage gaps in the BOC; and

·                    Clarify transition rules for applying the BOC’s provisions as opposed to the source laws’ provisions.

4.                  Privacy Policies Now Mandated.  Chapter 35, Subchapter D of the B&CC was amended by H.B. 1130 by adding new §35.581, which requires persons who insist upon disclosure of a Social Security number as a prerequisite to enter into a business transaction to adopt and publish a privacy policy.  This policy shall include how the personal information is collected, how and when the personal information is used, how the personal information is protected, who has access to the personal information, and how the personal information is disposed.  The exemptions to this bill are:  (1) a person who is required to maintain and disseminate a privacy policy under the Gramm-Leach-Bliley Act (15 U.S.C. §§6801 to 6809), the Family Educational Rights and Privacy Act (20 U.S.C. §1232g), or the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. §§1320d, et seq.); (2) a governmental body, as defined by §552.003, Governmental Code; or (3) a covered entity under the rules adopted by the Texas Insurance Commissioner; or (4) a person with respect to a loan transaction who is NOT in the lending business.  A violation of the law results in a civil fine limited to $500 for each calendar month in which one or more violations occur.

NOTE:  I have been writing privacy policies for years, relating to website privacy and online privacy issues.  For those of my clients who have privacy policies that I have prepared for you in the past, those policies comply with this new legal requirement.  If you have concerns, however, and want me to review your policy, please do not hesitate to call me.  And, for other clients who need a privacy policy, please call to discuss your operations and the impact that this new statute will have upon your business!

5.                  Identity Theft and Protections of Personal Information.  Due to the increase in identity theft, particularly Internet-based identity theft, the Texas legislature adopted several new laws intended to criminalize identity theft and to protect Texans.  Some of the most important of those laws include:

·                    H.B. 2223 amends Chapter 35, Subchapter D of the Business & Commerce Code (“B&CC) to give victims of identity theft the right to have his or her financial institution return any checks drawn on his or her closed account and marked as a “forgery” according to the financial institution’s “customary procedures” if the victim:  (1) closes the account as a result of identity theft; (2) notifies the financial institution of the identity theft; (3) provides the financial institution with a copy of the victim’s criminal complaint; and (4) requests that the checks be returned with the “forgery” notation.  The victim may not assert that the institution is liable for wrongfully dishonoring a check returned after the victim makes the request and must indemnify the financial institution.

·                    H.B. 698 is an amendment to Chapter 35, Section 35.48 of the B&CC.  It is designed to reduce the likelihood of a corporate employee’s identity being stolen.  More specifically, the bill directs a business on what “personally identifying information” is and what methods should be incorporated to dispose of this information.  A business must modify, shred, or use other means to render the personal information undecipherable when the entity is disposing of the documents.  Failure to comply with these requirements could result in a $500 civil penalty per record in addition to authorized equitable remedies and attorneys fees.  If the modified or shredded record is reconstructed via “extraordinary means,” no liability for the civil penalty will exist.  Furthermore, no record modification is necessary if (1) the entity is required to retain the records under another law, or (2) the records are of historical significance and there is no potential for theft or fraud while these records are under control of the business or a “professionally managed historical repository.”  There are limited exceptions authorized for some financial institutions and insurance companies.

6.                  Identity theft measures, protections, and remedies are added to Chapter 48 of the B&CC by S.B. 122.  This new law has several purposes, including: (1) requiring authorized consent from a person for use of their “personally identifying information” to obtain a good, service, insurance, extension of credit, or anything of value in their name; (2) establishing a duty for businesses to protect personally identifying information through the establishment and maintenance of reasonable procedures and to properly destroy such information that is not being retained; and (3) requiring  notification of a breach of security of electronic data to the Texas residents whose information has been, or is reasonably believed to have been, acquired by an unauthorized person.  Both civil penalties, up to $50,000 per violation, and equitable remedies are authorized.  Financial institutions, as defined by 15 U.S.C. §6809, are exempted.  A violation of Section 48.101 is also actionable as a deceptive trade practice.

7.                  Identity Theft Insurance and Credit Cards.  S.B. 99 adds new §35.585 to Subchapter C, Chapter 35 of the B&CC and also adds Chapter 706 to the Insurance Code.  This bill provides additional protections against identity theft by (1) preventing victims of identity theft from being denied credit on the basis of the theft, and (2) allowing insurers to offer policies for identity theft coverage.