Taking shortcuts with your business and legal strategies can get you in trouble. If you are an out-of-state company doing business in Texas, you are a “foreign corporation” that must register with the State of Texas and acquire a certificate of authority under the Texas Business Corporation Act. While some companies may consider shortcutting this requirement, failure to register your foreign corporation will have costly consequences.
First, your company’s contracts are still valid, BUT, you cannot enforce your contracts with any claim or action in a Texas court. Any successor or assignee of your company will also have no right to pursue your claims in a Texas court until you are properly registered. You are still able to defend yourself in any action against you in any Texas court, but this is cold comfort.
Second, the Attorney General can bring suit to recover all fees and franchise taxes that you attempted to avoid with your shortcut. Not only do you ultimately have to pay these expenses, there is also a fine of between $100 and $5,000 for each month that you transacted business in Texas without a certificate.
For any prudent out-of-state company conducting business affairs in Texas, the answer is clear: the administrative burden and cost of registering your company is tiny compared to the liabilities you risk when you try to take a shortcut.
James Blake is a growth-oriented business attorney who strives to be a creative business partner, to identify value-add opportunities, and to crystallize the relationships, structures, and processes that will drive your commercial success. James Blake practices law in Texas and Hawaii, and has protected the interests of businesses across a broad range of industries, including technology, construction, service and retail, food and beverage, franchisors and franchisees, product manufacturers, and investors.
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