Entity Conversions and Redomestication

Texas law lets a Texas entity convert into another type of entity or into an entity formed in another state, and lets an out-of-state entity become a Texas entity. The owners approve a written plan of conversion that names the entity before and after and sets how ownership interests convert.

The company then files a certificate of conversion with the Texas Secretary of State, using the form for that kind of conversion. The filing must include a Comptroller certificate showing franchise taxes are paid, or state that the converted entity is liable for them. A Texas company converting to Delaware also files in Delaware, and registers in Texas if it will keep doing business here.

Delaware has long been the usual home for venture-backed companies, and many institutional investors still expect it. See our pages on venture capital financing and business entity formation.

The Texas Legislature has amended the Business Organizations Code to draw more companies to Texas. The changes codified the business judgment rule for Texas corporations with listed shares and those that opt in, let listed corporations and certain larger opt-in corporations set a minimum ownership stake for bringing a derivative suit, allowed governing documents to waive jury trials for internal disputes, and narrowed some shareholder records demands. The Legislature also expanded the cases the Texas Business Court can hear.

Several of these changes apply only to public companies or companies that opt in, so their effect on a private company depends on its documents. The choice also turns on the company's investors, its plans for raising money or selling, and the cost of operating in two states. We explain how each state's rules apply, and the owners decide.