Are you wondering what a Texas Notice of Intent to Forfeit Right to Transact Business is? If YES, then here is everything you need to know about it in 2023. A registered business entity in Texas may lose its ability to do business in Texas if it is involuntarily forfeited or voluntarily terminated.
In general, the Texas Secretary of State will mail notices before beginning the forfeiture or involuntary termination process against any business entity, and these notices are referred to as Texas Notice of Intent to Forfeit Right to Transact Business.
However, if your business entity in Texas is considered inactive, you are first expected to determine the reason why. A good number of business entities in Texas are either forfeited via tax forfeiture statutes under the Texas Tax Code or involuntarily terminated under Chapter 11 of the Texas Business Organizations Code (BOC).
In Texas, a business that is lawfully formed may do business so long as the entity’s charter remains intact. But under the Texas Tax Code, Section 171.301–.3015, the State Comptroller reserves the right to cause the involuntary forfeiture of an entity for failure to pay its franchise tax.
Under Section 171.309, the Texas Secretary of State may also forfeit an entity’s charter, certificate, or registration for the same purpose.
If the Texas Comptroller forfeits an entity’s ability to do business in the state, the entity loses its right to sue, and the entity’s director and officers can be personally held liable for the debts of the entity, including taxes. Once corporate privileges are reinstated, the “rights relate back to the point of the delinquency.
Also, it is quite imperative to note that the Texas Tax Code does not mandate the Texas Secretary of State to notify any taxable entity of the forfeiture. The Tax Code simply expresses that the taxable entity receives notice regarding the forfeiture of its ability to conduct business in Texas from the Texas Comptroller of Public Accounts under subchapter F of Chapter 171 of the Texas Tax Code.
Moreover, notice is served on the taxable entity when the Texas Comptroller of Public Accounts sends out past due notices regarding failure to file required reports, pay franchise taxes, and/or other related penalties.
Note that once the Texas Comptroller assesses the effective date of a taxable entity’s forfeiture date and has determined that the LLC or other taxable entity has not revived its privileges to operate in Texas within 120 days after the forfeiture date, the Texas Secretary of State will change the status of the taxable entity from “in existence” to “forfeited existence.”
Also note that a Texas entity may voluntarily relinquish its charter, certificate, or registration. To do so, a business will wind up its affairs and then file a certificate of termination with the Secretary of State, in compliance with Section 11.101 of the Texas Business and Organizations Code, if it is a filing entity.
Additionally, under Section 11.104, entities that were formed for a specific duration that does not extend the duration by amendment or fail to file a certificate of termination will file termination documents with the Secretary of State.
Have it in mind that the Secretary of State may terminate an entity’s existence if it fails to pay all required fees, or for failure to have a registered agent or registered office, Texas Business and Organizations Code, Section 11.251.
Accordingly, the Secretary of State may file for involuntary termination of the entity under Section 11.252 of the Business and Organizations Code, by filing a Certificate of Termination.
Business entities in Texas are voluntarily and involuntarily terminated frequently. Howbeit, it is crucial to state that forfeiture of corporate privileges and voluntary termination of an entity are two wholly separate classifications.
The distinction determines what avenues a potential plaintiff may leverage in resolving disputes against a terminated or forfeited entity. It is necessary that a competent business attorney is hired to pursue claims against any forfeited or terminated entity.
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What to Do When You Receive a Texas Notice of Intent to Forfeit Right to Transact
Note that the Texas Secretary of State still reserves the right to reinstate a Certificate of Formation or Registration of a taxable entity in Texas after forfeiture by the Texas Secretary of State. Instead of the BOC, Sections 171.312 – 171.315 of the Texas Tax Code governs the application for an entity’s reinstatement and request to set aside tax forfeiture.
Have it in mind that a taxable entity such as an LLC, follows the same procedures as a corporation when reinstating an entity under the Texas Tax Code. Also, it’s crucial to note that Chapter 171 of the Texas Tax Code does not specify a specific time frame in which a taxable entity is expected to file an application for reinstatement with the Texas Secretary of State.
Regarding specific tax liability requirements, Section 171.313 of the Texas Tax Code mandates that the Texas Secretary of State determine whether a taxable entity has complied with filing each delinquent report and paid any applicable delinquent tax before filing an application for reinstatement and setting aside the tax forfeiture.
Notably, a tax clearance letter issued by the Texas Comptroller of Public Accounts stating that the taxable entity is in good standing for purposes of reinstatement meets the requirements of Section 171.313, and is expected to be valid through the date of filing the application for reinstatement, and is required when submitting an application for reinstatement and setting aside tax forfeiture.
It’s important to note that the application for reinstatement must be submitted on behalf of and executed by a person who was an owner or managerial official of the entity at the time of tax forfeiture.
The filing fee for an application for reinstatement is currently $75.00. Again, a tax clearance letter from the Texas Comptroller of Public Accounts is required before filing Form 801, which requires filing all delinquent reports and payments of delinquent taxes.
Both Texas-formed and out of state entities registered with the Texas Secretary of State (SOS) must satisfy all state tax filing requirements before they can reinstate, terminate, merge or convert a business. These requirements are detailed below. Note the filing due dates to avoid late penalties.
Submit these items to the Comptroller’s office
- File any Annual Franchise Tax and (Public or Ownership) Information Report forms.
- Pay any tax, penalty and interest payments due.
- All these must be completed before moving to the next step
Complete and submit all reinstatement forms
Form 05-391 is more or the Tax Clearance Letter Request for Reinstatement (PDF) and you can submit to the Secretary of State office via mail or online using Webfile. You will also have to submit Form 05-377, Tax Clearance Letter, once you receive it from the Comptroller’s office.
Pay SOS filing fees
SOS processes filings within three business days of receipt. If a faster turnaround is required, the filing should be presented to SOS with a request to expedite and payment of the $25 (per document) expedite fee in addition to the filing fee. Filings submitted through SOSDirect are generally processed by close of business the next business day.
Most business entities that are set up never file the first franchise tax return and are forfeited between sixteen and twenty months after first established. Once you’ve had your business entity forfeited, you can either reinstate it, or form a new one (although you can’t get the same name again).
Reinstatement requires that you file ALL of the overdue franchise tax and public information returns with the Comptroller’s office and pay a $50/year late fee. Once you’ve done that, you ask the Comptroller’s office for a clearance letter, which you then use to file with the Secretary of State for reinstatement.
There is a fee to the Secretary of State for reinstatement. If you didn’t owe tax on your overdue franchise tax returns, and you have your WebFile ID number, you can file these returns online and pay the late fees online as well. If you don’t have your WebFile ID, you have to go to a Comptroller local office in person to file the no tax due returns.