Monday, October 17, 2016

Identical or Deceptively Similar Entity Names in Texas - A Change For the Better?

Among the corporate law changes enacted by the 2015 Texas Legislature is a new requirement that consents to use similar entity names must now be notarized prior to filing.

The Texas Business Organizations Code (TBOC) prohibits each Texas entity (and each out-of-state entity registering to do business in Texas) from having a name that is the same as, or deceptively similar to, an existing Texas entity (or an existing out-of-state entity registered to do business in Texas). Texas law has long recognized an exception to that rule if the existing entity consented to the use of a similar name in writing. Under the amended law, a consent to use a similar name must be notarized and filed with the Texas Secretary of State. This change impacted Section 5.053, 5.102 and 5.153 of the TBOC.

According to the bill's author, the purpose of this change was to protect existing Texas companies from new entities who might forge documents claiming that they have the consent of the existing entity to the use of a similar name when in fact no consent has been given.

While I agree that the notarization requirement does make it more difficult for a new entity to forge and file a consent to the use of a similar name, I am skeptical that this change in law was actually necessary or an improvement on existing law.  I have not heard or read about an epidemic of Texas companies who have suffered forged consents to the use of similar names. And existing law already made it a crime for a party to file an instrument known to be materially false with the Texas Secretary of State's office. Section 4.008 of the TBOC makes such a false filing a Class A misdemeanor - unless the offender had the intent to defraud or harm another, in which case the offense is a felony.

The bill's author acknowledged in the Bill Analysis submitted with this bill that a forgery is a crime, but argues that a forgery victim "likely will have a difficult time convincing a law enforcement agency to prosecute the crime."  That may well be the case - our law enforcement officials may choose to employ their limited resources in prosecuting other crimes. But Section 4.007 of the TBOC already grants forgery victims a private right of action against any party who signs or files a forged document in violation of Section 4.008 of the TBOC.

The new notary requirement will add a layer of administrative hassle to both new entities requesting consents and existing entities granting consents.  I can imagine a scenario where an existing entity might be willing to grant its consent, but not at the cost of locating and engaging a notary to witness a consent signing.

Nonetheless, the notary requirement is now law in Texas.

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