Founding Attorney
Every month an out-of-state company transacts business in Texas without registering for authorization to do so is a month of accumulating exposure. Texas requires foreign corporations, LLCs, limited partnerships, and other entities to file an application for registration with the Secretary of State before they begin transacting business in the state. Skipping that step can prevent the company from filing suit in Texas court and expose the company to civil penalties and back fees. An Austin business law attorney can confirm whether registration applies and handle the filing.
Which Out-of-State Businesses Have to Register in Texas?
A foreign entity is any business that was formed under the law of a jurisdiction other than Texas. Section 9.001 of the Texas Business Organizations Code (BOC) requires the following types of foreign entities to register if they are transacting business in Texas:
- Foreign corporations
- Limited liability companies
- Limited partnerships
- Business trusts
- Real estate investment trusts
- Professional associations
- Cooperatives
- Foreign public or private limited company
- Limited liability partnerships (note: LLP registration must be renewed annually, unlike most other entity types)
- Any foreign entity that affords limited liability under the law where it was formed
A handful of other situations can also trigger a registration requirement. For example, the Texas Finance Code requires out-of-state financial institutions to register before opening a Texas branch. If your company falls into one of these categories, registration is not optional.
What Counts as “Transacting Business” in Texas?
Texas statutes do not define “transacting business” with a single bright line. Instead, Section 9.251 of the Texas Business Organizations Code lists 16 activities that, by themselves, do not constitute transacting business. The carve-outs include defending or settling a Texas lawsuit, holding internal meetings, maintaining a Texas bank account, selling through an independent contractor, creating or holding a security interest in Texas property, and owning Texas real or personal property without more. The list is narrower than it looks. If your company has even a borderline footprint here, treating that uncertainty as a green light may be a costly mistake.
The general rule from the Secretary of State is that a foreign entity is transacting business in Texas if it has an office or an employee in the state, or if it is otherwise pursuing one of its business purposes here.
How Does a Foreign Entity Register in Texas?
Registration is a one-time filing with the Texas Secretary of State, made through SOSDirect or by mail. The form you use depends on the entity type. Each application asks for the entity’s legal name, jurisdiction and date of formation, federal employer identification number, principal office address, registered agent and registered office in Texas, and the names of governing persons.
A few practical points before filing:
- The standard registration fee is $750 for most for-profit entities and $25 for nonprofit corporations and cooperative associations. LLP fees are calculated by the number of general partners, capped at $750.
- Every domestic and foreign filing entity must designate and continuously maintain a registered agent and a registered office at a Texas street address.
- If the entity’s legal name is not available in Texas, it must register under an assumed name and file an assumed name certificate.
- A Texas series LLC formed elsewhere registers as a single entity, not series-by-series, on Form 313.
Once the application is filed and approved, the foreign entity receives a certificate of registration and is authorized to transact business in Texas. The registration remains effective as long as the entity maintains its registered agent and files its required reports with the Secretary of State.
What Are the Penalties for Failing to Register?
A foreign entity that transacts business in Texas without registering faces four distinct consequences:
- It cannot maintain an action, suit, or proceeding in any Texas court until it registers. That includes routine collection lawsuits and contract disputes, no matter how strong the underlying claim is.
- The Texas Attorney General can seek a court order enjoining the entity from transacting any further business in the state.
- The entity is subject to a civil penalty equal to all fees and taxes it would have paid had it registered when first required.
- After 90 days of unregistered activity, the entity owes a late filing fee equal to the registration fee for every calendar year, or part of a year, that it transacted business without being registered. For example, a foreign LLC that has been operating in Texas for three calendar years would owe roughly $2,250 in late fees on top of the $750 registration fee.
There is one piece of relief to note. A 90-day grace period exists from the date the entity first transacts business in Texas. An entity that registers within that window is not charged late filing fees.
What Comes After Registration?
Registration starts a continuing compliance relationship with the state. The entity must maintain its registered agent and office in Texas, update those records when they change, and stay current with the Texas Comptroller’s reporting requirements. Failure to maintain a registered agent or office can be grounds for the Secretary of State to revoke the entity’s Texas registration.
Talk to an Austin Business Attorney Before Your Texas Launch
Foreign entity registration is straightforward when it is handled before the company starts transacting business in Texas, but it is a much bigger problem when it is not. An attorney with the Kumar Law Firm PLLC can help out-of-state founders, growing companies, and established businesses register, designate registered agents, and stay in good standing in Texas. Contact our office to discuss your Texas plans before you transact your first day of business here.