Texas Business Organizations Code 2.104 – Power to Make Guaranties
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(a) In this section, “guaranty” means a guaranty, mortgage, pledge, security agreement, or other agreement making the domestic entity or its assets liable for another person‘s contract, security, or other obligation.
(b) Unless otherwise provided by its governing documents or this code, a domestic entity may:
(1) make a guaranty on behalf of a parent, subsidiary, or affiliate of the entity; or
(2) make a guaranty of the indebtedness of another person if the guaranty may reasonably be expected directly or indirectly to benefit the entity.
Terms Used In Texas Business Organizations Code 2.104
- Affiliate: means a person who controls, is controlled by, or is under common control with another person. See Texas Business Organizations Code 1.002
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Business: means a trade, occupation, profession, or other commercial activity. See Texas Business Organizations Code 1.002
- Contract: A legal written agreement that becomes binding when signed.
- Damages: Money paid by defendants to successful plaintiffs in civil cases to compensate the plaintiffs for their injuries.
- Domestic: means , with respect to an entity, that the entity is formed under this code or the entity's internal affairs are governed by this code. See Texas Business Organizations Code 1.002
- Domestic entity: means an organization formed under or the internal affairs of which are governed by this code. See Texas Business Organizations Code 1.002
- Entity: means a domestic entity or foreign entity. See Texas Business Organizations Code 1.002
- Fraud: Intentional deception resulting in injury to another.
- Governing authority: means a person or group of persons who are entitled to manage and direct the affairs of an entity under this code and the governing documents of the entity, except that if the governing documents of the entity or this code divide the authority to manage and direct the affairs of the entity among different persons or groups of persons according to different matters, "governing authority" means the person or group of persons entitled to manage and direct the affairs of the entity with respect to a matter under the governing documents of the entity or this code. See Texas Business Organizations Code 1.002
- Governing documents: means :
(A) in the case of a domestic entity:
(i) the certificate of formation for a domestic filing entity or the document or agreement under which a domestic nonfiling entity is formed; and
(ii) the other documents or agreements adopted by the entity under this code to govern the formation or the internal affairs of the entity; or
(B) in the case of a foreign entity, the instruments, documents, or agreements adopted under the law of its jurisdiction of formation to govern the formation or the internal affairs of the entity. See Texas Business Organizations Code 1.002 - Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Parent: means an organization that, directly or indirectly through or with one or more of its subsidiaries:
(A) owns at least 50 percent of the outstanding ownership or membership interests of another organization; or
(B) possesses at least 50 percent of the voting power of the owners or members of another organization. See Texas Business Organizations Code 1.002 - Person: means an individual or a corporation, partnership, limited liability company, business trust, trust, association, or other organization, estate, government or governmental subdivision or agency, or other legal entity, or a protected series or registered series of a domestic limited liability company or foreign entity. See Texas Business Organizations Code 1.002
- Subsidiary: means an organization for which another organization, either directly or indirectly through or with one or more of its other subsidiaries:
(A) owns at least 50 percent of the outstanding ownership or membership interests of the organization; or
(B) possesses at least 50 percent of the voting power of the owners or members of the organization. See Texas Business Organizations Code 1.002 - Trustee: A person or institution holding and administering property in trust.
(c) For purposes of Subsection (b)(2), a decision by the governing authority of the domestic entity that a guaranty may reasonably be expected to benefit the entity is conclusive and not subject to attack by any person, except:
(1) a guaranty may not be enforced by a person who participated in a fraud on the domestic entity resulting in the making of the guaranty or by a person who had notice of that fraud at the time the person acquired rights under the guaranty;
(2) a proposed guaranty may be enjoined at the request of an owner of the domestic entity on the ground that the guaranty cannot reasonably be expected to benefit the domestic entity; or
(3) the domestic entity, whether acting directly or through a receiver, trustee, or other legal representative, or through an owner on behalf of the domestic entity, may bring suit for damages against the managerial officials, owners, or members who authorized the guaranty on the ground that the guaranty could not reasonably be expected to benefit the domestic entity.
(d) This section does not:
(1) apply to a domestic entity governed by the Insurance Code; or
(2) authorize a domestic entity that is not governed by the Insurance Code to engage in a business or transaction regulated by the Insurance Code.