Thursday, April 21, 2016

Does Big Board = Big Problem for Texas LLC?

Texas limited liability companies have tremendous flexibility in choosing how they may be governed. That can be a blessing and a curse.  Let me explain.

Each Texas LLC must elect to be member-managed or manager-managed in its certificate of formation.  Then the LLC's company agreement generally determines if the company may or may not have officers representing the company and how the management rights will be allocated among the officers (if any), managers (if any), and members.  The benefits of this flexibility are easy to see: the LLC can choose to slice-and-dice the management and control functions of the company in any number of ways that suit its interests.  For example:

  • officer(s) might be responsible for day-to-day management of the company in the ordinary course; 
  • manager(s) approval might be required for more substantial matters, such as taking out a loan or entering into a material contract; and
  • member(s) approval might be required for major decisions, such as entering into a merger, accepting a new member, or amending the company agreement.    
LLCs often seek to establish a Board of Managers which would be analogous to a Board of Directors of a corporation. In that case, it is not unusual for the LLC's company agreement to provide that no individual manager has the power or authority to bind the company (much like a single director of a corporation with multiple directors would not be able to bind the corporation).  Such a provision would be effective to deny any particular manger the actual authority to bind the company.

But might a rogue manager nonetheless have apparent authority to bind the LLC? Probably so. Recall that a manager-managed Texas LLC must identify its initial managers in its certificate of formation. So the world would be on notice as to the identity of the mangers - but not necessarily the scope of their authority, which in this example is limited by the company agreement which is not publicly filed. The default presumption under the Texas Limited Liability Company Law is that a manager is an agent that may bind the LLC (see Section 101.254 of the Texas Business Organizations Code).

Bottom line, a Texas LLC has at least some risk that a rogue manager might act without actual authority (but with apparent authority) to bind the company.  That's a risk a Texas corporation does not face - a director of a corporation generally does not have apparent authority to bind a corporation because corporations generally act through their officers, not their directors.

Thanks to Allen Sparkman for highlighting this issue in a paper he presented to the UT-CLE Securities Regulation and Business Law Conference.

Wednesday, April 6, 2016

“Take It to the Limit” in your next M&A Deal

Thanks to Fort Worth Business for publishing my M&A article on its website here. In the article, I use Eagles lyrics as a jumping off point to discuss key lessons for folks involved in merger or acquisition transactions.  The best part of writing the article was spending an afternoon listening to Eagles Radio on Pandora to "research" this project.  I hope you have as much fun reading it as I did writing it.

Rest in Peace(ful Easy Feeling), Glenn Frey.

Friday, March 25, 2016

The Ongoing Death of Paper - Delaware UCC Filings

Bad news for the paper industry and for those of you still filing your Uniform Commercial Code (UCC) financing statements by paper - the State of Delaware is no longer accepting paper UCC filings. Effective December 1, 2015, a person wishing to make a UCC filing with the Delaware Secretary of State's office must now either file electronically or deliver its paper UCC filing to an "Authorized UCC Filer" who in turn will file the UCC electronically.

For those of you still wedded to pen and paper, you can access a list of Delaware Authorized UCC Filers here.

If you are headed to the beach, you might consider taking along the Delaware Secretary of State's complete administrative rules which are available here.

Friday, March 11, 2016

TECH Talk - TEXAS Style Radio Show Appearance

Today I had the pleasure of being a guest on TECH Talk - TEXAS Style radio podcast sponsored by TECH Fort Worth and hosted by Sarah Zink.  Today's topic was Real Estate Leasing Essentials for your Small Business.  We discussed some of the key issues small business's should be aware of before entering into a commercial real estate lease agreement.

This was my third time as a guest on this program.  On my first appearance we discussed "What to Know When Selling Your Business."  My second appearance covered similar territory with "10 Things You Should Know Before Selling Your Business."

All three radio podcasts are available for your listening pleasure at TECH Talk - TEXAS Style's homepage on Blog Talk Radio's website here.

Monday, January 4, 2016

Fort Worth, Texas magazine's 2015 Top Attorney

I'd like to thank Fort Worth, Texas magazine for including me on their annual list of Top Attorneys for 2015.  I was among those honored in the Corporate Finance/Mergers and Acquisitions category. 

This is the second year I have been included on their list. Among the perks of being selected for this award is being invited to their annual reception for award winners at the Fort Worth Club.  The event was well organized and a lot of fun to attend.

Here's what the magazine cover looks like:

Sunday, October 18, 2015

Texas Transfer on Death Deed

Effective September 1, 2015, Texas has adopted the Texas Real Property Transfer on Death Act ("TODA") (codified as Chapter 114 of the Texas Estates Code), which authorizes people to convey real property in Texas by means of a Transfer-on-Death Deed ("TODD").

TODDs are expected to be attractive to Texans with modest estates because TODDs allow people to transfer real property outside of the (sometimes expensive) probate process. By signing a TODD and filing it with the county real property records, the TODD creates a transfer of the real property which becomes effective upon the transferor's death, regardless of any contrary provisions in the transferor's will. Accordingly, TODDs are similar to bank accounts which are "Payable on Death" in their ability to avoid the probate process,

TODDs may be made or revoked by the transferor at any time prior to his or her death, but may not be created by a power of attorney. To be effective, the revocation must be signed after the TODD being revoked and filed in the county records before the transferor's death.

For a TODD to be effective, its beneficiary is not required to be notified of the TODD, to be delivered the TODD, or to accept the TODD, during the transferor's lifetime.  However, a designated beneficiary may disclaim all or part of such beneficiary's interest in the property once the designated beneficiary learns of the TODD.  The beneficiary must survive the death of the transferor by 120 hours. If the beneficiary accepts the property, the beneficiary takes the property subject to any existing liens, encumbrances, mortgages or other third party interests.

TODDs are effective only if signed on or after September 1, 2015, by a transferor who dies on or after September 1, 2015.

The complete text of the Texas Real Property Transfer on Death Act, including an optional form of TODD and an optional form of revocation of a TODD (each of which is included in Subchapter D of the TODA), is available here.

Sunday, October 11, 2015

Praise for "The Boom"

Last month I had the pleasure of attending an event at TCU at which Russell Gold was the keynote speaker.  The event was part of the "Leaders in Energy" speaker series sponsored by the TCU Energy Institute.  Russell Gold is the Senior Energy Editor at the Wall Street Journal and the best-selling author of "The Boom: How Fracking Ignited the American Energy Revolution and Changed the World."

I read "The Boom" recently and cannot recommend it highly enough for anyone interested in the energy industry, technology, the environment, the North Texas history and economy, or the world economy. The book explores history, technology, and personalities that have developed and exploited hydraulic fracturing (a/k/a "fracking") to change the oil and gas industry, which is in turn changing the world. Although it no doubt increases my interest in the book that some of our own clients and my own friends are mentioned and quoted in its pages, I suspect that most readers would find the material in the book interesting and well organized and presented.

It is hard to believe how much the world has changed since the first successful modern frack of a natural gas well in shale rock was conducted by Mitchell Energy on the S.H. Griffin #4 well in Ponder, Texas on June 11, 1998.

Given that generally everybody in the oil and gas business credits George P. Mitchell of Mitchell Energy with being the father of modern fracking, this blogger cannot help but wonder why more public buildings, roads or other public structures have not been named after him, especially here in Tarrant County, the heart of Barnett Shale country.

Here's a picture of Mr. Gold signing my copy of "The Boom":