Q: Must a Delaware private nonprofit foundation register in the states it wants to donate to nonprofits and individuals?

A: Thanks for your inquiry. Without getting into the issue of the appropriate entity type and state for your planned foundation, let’s just focus on the issue of whether you would need to register your planned Delaware entity as a foreign entity in Texas.

First, it is important to consider the importance of registration. We can review this by evaluating the consequences of failing to register if authorities later determine that should have done so. The penalties for failing to register include:

Inability to maintain an action, suit, or proceeding in a Texas court until you are registered;

Risk of injunction from transacting business in Texas;

Civil penalty equal to all fees and taxes that would have been imposed if the entity had registered when first required; and

Late filing fees owed to the secretary of state by an entity registering more than 90 days after first transacting business in Texas.

Note that you can move the Secretary of State to limit the fee and penalty assessments you owe for past years if you can show that you eventually did make a still valid registration and have otherwise satisfied all tax and similar reporting and payment obligations for your entity. The Secretary of State site should have more guidance on fees, penalties, and ways to limit same if you need current specifics.

Second, let’s consider whether you need to register in the first place. That your entity is charitable does not factor as the Texas Business Organizations Code (“TBOC”) makes no distinction between for-profit and non-profits entities with respect to the foreign entity registration requirements. The proper inquiry is whether you are “transacting business” in Texas. Interestingly, the statutes do not actually define what constitutes transacting business. Instead, the TBOC and Attorney General Opinions offer some guidance on what does NOT constitute transacting business. For example, the Attorney General’s office has issued an opinion confirming the following, citing relevant TBOC provisions:

The Legislature has not affirmatively defined what it means to be transacting business in this state, but it has articulated a list of "activities that [standing alone] do not constitute transaction of business in this state." Id. § 9.251 (emphasis added). Among other activities, that list specifically includes:

(2) holding a meeting of the entity's managerial officials, owners, or members or carrying on another activity concerning the entity's internal affairs;

(4) maintaining an office or agency for:

(A) transferring, exchanging, or registering securities the entity issues; or

(B) appointing or maintaining a trustee or depositary related to the entity's securities;

(9) transacting business in interstate commerce;

(10) conducting an isolated transaction that:

(A) is completed within a period of 30 days; and

(B) is not in the course of a number of repeated, similar transactions;

Opinion No. GA-0726, citing TBOC§ 9.251

The Attorney General opinion goes on to note that the above list is non-exhaustive; there are plenty of other interactions with Texas and Texans that do not constitute transacting business in Texas.

The bottom line is whether your entity’s activities in Texas constitute “transacting business” is a fact-dependent inquiry. Your post mentions donating to entities in Texas, but it is not clear how isolated vs. systematic or ongoing these activities are, or whether there is more, e.g., location of headquarters, hiring of employees, etc. To properly determine if you need to register your foundation as a foreign entity in Texas, we recommend you consult with an attorney and be prepared to discuss different factual scenarios regarding your planned operations. Only a more detailed consultation such as this could provide you with the guidance needed to determine whether your plans need to include foreign entity registration in Texas or not.