Relating to the formation of decentralized unincorporated nonprofit associations and the use of distributed ledger or blockchain technology for certain business purposes; authorizing fees.

89(R) HB 4518 - Engrossed version - Bill Text

By: Cook

H.B. No. 4518

A BILL TO BE ENTITLED

AN ACT

relating to the formation of decentralized unincorporated

nonprofit associations and the use of distributed ledger or

blockchain technology for certain business purposes; authorizing

fees.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Title 6, Business Organizations Code, is amended

by adding Chapter 253 to read as follows:

CHAPTER 253. DECENTRALIZED UNINCORPORATED NONPROFIT ASSOCIATIONS

Sec. 253.001. DEFINITIONS. In this chapter:

(1)

"Administrator" means a member authorized by vote

of the membership to fulfill administrative or operational tasks.

(2)

"Decentralized unincorporated nonprofit

association" means an unincorporated association:

(A)

consisting of at least 100 members joined by

mutual consent under an agreement, that may be in writing or

inferred from conduct, for a common nonprofit purpose;

(B)

that has elected to be formed under this

chapter; and

(C)

that is not formed under any other law

governing the association's organization and operation.

(3)

"Distributed ledger technology" means a software

protocol that:

(A)

governs the rules, operations, and

communication between intersection and connection points in a

telecommunications network and supporting infrastructure;

(B)

includes the computer software or hardware or

collections of computer software or hardware that use or enable a

distributed ledger, including blockchain; and

(C)

uses a distributed, shared, and replicated

ledger, which may:

(i) be public or private;

(ii) be permissioned or permissionless; and

(iii)

include the use of a digital asset as

a medium of electronic exchange.

(4)

"Established practices" means the practices used

by a decentralized unincorporated nonprofit association without

material change during:

(A)

the most recent five years of the

association's existence; or

(B)

the association's entire existence, if the

association has existed for less than five years.

(5)

"Governing principles" means all agreements and

any amendment or restatement of those agreements, including any

association agreements, consensus formation algorithms, or enacted

governance proposals, that govern the purpose or operation of a

decentralized unincorporated nonprofit association and the rights

and obligations of the association's members and administrators,

whether contained in a record, implied from the association's

established practices, or both.

(6)

"Member" means a person that, under the governing

principles of a decentralized unincorporated nonprofit

association, may participate in:

(A)

the development of the policies and

activities of the association; and

(B)

the selection of the association's

administrators.

(7)

"Membership interest" means a member's voting

right in a decentralized unincorporated nonprofit association as

determined by the association's governing principles.

(8)

"Record" means information that is inscribed on a

tangible medium or that is stored in an electronic or other medium

and is retrievable in a perceivable form, including information

inscribed on blockchain or distributed ledger technology.

(9)

"Smart contract" means a computational process

that executes on distributed ledger technology used to automate a

transaction, including a transaction that:

(A)

takes custody over and instructs transfer of

assets on that ledger;

(B) creates and transmits digital assets;

(C) synchronizes information; or

(D)

authenticates user rights and conveys access

to software applications.

Sec.

253.0015.

APPLICABILITY OF CODE TO ASSOCIATIONS.

Except as provided by Sections 253.024(e) and 253.025, the only

provisions of this code that apply to or govern a decentralized

unincorporated nonprofit association are:

(1) this chapter;

(2) Chapters 1, 2, 4, and 10; and

(3)

if a decentralized unincorporated nonprofit

association designates an agent for service of process, Subchapter

E, Chapter 5.

Sec.

253.002.

SUPPLEMENTARY GENERAL PRINCIPLES OF LAW AND

EQUITY. (a) Principles of law and equity supplement this chapter

unless displaced by a particular provision of this chapter.

(b)

This chapter may not be interpreted to repeal or modify

a statute or rule for an entity that does not elect to be formed as a

decentralized unincorporated nonprofit association.

Sec.

253.003.

GOVERNING LAW; TERRITORIAL APPLICATION. (a)

The law of this state governs any decentralized unincorporated

nonprofit association that is formed in this state.

(b)

A decentralized unincorporated nonprofit association's

governing principles must identify the jurisdiction in which the

decentralized unincorporated nonprofit association is formed.

Sec.

253.004.

DISTRIBUTION TO MEMBERS PROHIBITED;

COMPENSATION AND OTHER PERMITTED PAYMENTS. (a) A decentralized

unincorporated nonprofit association may carry on any business

activity in which the association may lawfully engage and apply any

profit that results from the business activity toward the

association's common nonprofit purpose in accordance with

Subsection (c).

(b)

Except as provided by Subsection (c), a decentralized

unincorporated nonprofit association may not pay dividends or

distribute any part of the association's income or profit to the

association's members or administrators.

(c)

A decentralized unincorporated nonprofit association

may:

(1)

pay reasonable compensation or reimburse

reasonable expenses to the association's members, administrators,

or persons outside the association for services rendered to or for

the benefit of the association, including for the administration

and operation of the association, including for:

(A)

the provision of collateral for the

self-insurance of the association;

(B) voting; and

(C) participation;

(2)

confer benefits on the association's members or

administrators in conformity with the association's common

nonprofit purpose or purposes;

(3)

repurchase membership interests to the extent

authorized by the association's governing principles; and

(4)

make distributions of property to members on

winding up and termination to the extent provided by Section

253.027.

Sec.

253.005.

LEGAL ENTITY; PERPETUAL EXISTENCE. (a) A

decentralized unincorporated nonprofit association is a legal

entity distinct from the association's members and administrators.

(b)

A decentralized unincorporated nonprofit association

has perpetual duration unless the association's governing

principles otherwise specify.

Sec.

253.006.

REAL AND PERSONAL PROPERTY; DECENTRALIZED

UNINCORPORATED NONPROFIT ASSOCIATION AS BENEFICIARY, LEGATEE, OR

DEVISEE. (a) A decentralized unincorporated nonprofit association

may, in the name of the association, acquire, hold, encumber, or

transfer an estate or interest in real or personal property.

(b)

A decentralized unincorporated nonprofit association

may be a beneficiary of a trust or contract, legatee, or devisee.

Sec.

253.007.

STATEMENT OF AUTHORITY AS TO REAL PROPERTY.

(a) A decentralized unincorporated nonprofit association shall

execute and record a statement of authority to transfer an estate or

interest in real property in the name of the association.

(b)

An estate or interest in real property in the name of a

decentralized unincorporated nonprofit association may be

transferred by a person authorized in a statement of authority

recorded in the office of the county clerk in which a transfer of

the property would be recorded.

(c) A statement of authority must contain:

(1)

the legal description and address in this state,

including the street address, if any, of the real property;

(2)

the name of the decentralized unincorporated

nonprofit association;

(3)

the address in this state, including the street

address, if any, of the association, or, if the association does not

have an address in this state, the association's address out of

state;

(4)

the name or title of the person authorized to

transfer an estate or interest in real property held in the name of

the association; and

(5)

the action, procedure, or vote of the association

that authorizes the person to transfer the real property of the

association and to execute the statement of authority.

(d)

A statement of authority must be executed in the same

manner as a deed. The person who executes the statement of

authority may not be the person named in the statement of authority

as authorized to transfer the estate or interest.

(e)

The county clerk may collect a fee for recording the

statement of authority in the amount authorized for recording a

transfer of real property.

(f)

An amendment, including a cancellation, of a statement

of authority must meet the requirements for execution and recording

of an original statement. Unless canceled earlier, a recorded

statement of authority or the most recent amendment to the

statement is canceled by operation of law on the fifth anniversary

of the date of the most recent recording.

(g)

If the record title to real property is in the name of a

decentralized unincorporated nonprofit association and the

statement of authority is recorded in the office of the county clerk

in which a transfer of real property would be recorded, the

authority of the person named in a statement of authority is

conclusive in favor of a transferee who gives value without notice

that the person named in the statement of authority lacks

authority.

Sec.

253.008.

LIABILITY. (a) Except as otherwise provided

by this chapter, the debts, obligations, and liabilities of a

decentralized unincorporated nonprofit association, whether

arising in contract, tort, or otherwise, are solely the debts,

obligations, and liabilities of the association. A member or

administrator of a decentralized unincorporated nonprofit

association may not be obligated personally for any debt,

obligation, or liability of the association solely by reason of

being a member or acting as an administrator of the association.

(b)

Notwithstanding Subsection (a), a member or

administrator of a decentralized unincorporated nonprofit

association may, under the governing principles of the association

or under another agreement, agree to be obligated personally for

any or all of the debts, obligations, and liabilities of the

association.

(c)

The failure of a decentralized unincorporated nonprofit

association to observe formalities relating to the exercise of the

association's powers or administration of the association's

activities and affairs may not be considered a ground for imposing

liability on a member or administrator of the association for a

debt, obligation, or other liability of the association.

Sec.

253.009.

CAPACITY TO ASSERT AND DEFEND; STANDING. (a)

A decentralized unincorporated nonprofit association, in the

association's name, may institute, defend, intervene, or

participate in a judicial, administrative, or other governmental

proceeding or in an arbitration, mediation, or any other form of

alternative dispute resolution.

(b)

A member or administrator may assert a claim the member

or administrator has against the decentralized unincorporated

nonprofit association. An association may assert a claim the

association has against a member or administrator.

Sec.

253.010.

EFFECT OF JUDGMENT OR ORDER. A judgment or

order against a decentralized unincorporated nonprofit association

is not by itself a judgment or order against a member or

administrator of the association.

Sec.

253.011.

APPOINTMENT OF AGENT TO RECEIVE SERVICE OF

PROCESS. (a) A decentralized unincorporated nonprofit association

may file in the office of the secretary of state a statement

appointing an agent authorized to receive service of process.

(b) A statement appointing an agent must contain:

(1)

the name of the decentralized unincorporated

nonprofit association;

(2)

if applicable, the employer identification number

of the decentralized unincorporated nonprofit association;

(3)

the address in this state, including the street

address, if any, of the decentralized unincorporated nonprofit

association, or, if the association does not have an address in this

state, the association's address out of state; and

(4)

the name of the person in this state authorized to

receive service of process and the person's address, including the

street address, in this state.

(c)

A statement appointing an agent must be signed and

acknowledged by a person authorized to manage the affairs of the

decentralized unincorporated nonprofit association. The statement

must also be signed and acknowledged by the person appointed agent,

who by signing accepts the appointment. The appointed agent may

resign by filing a resignation in the office of the secretary of

state and giving notice to the decentralized unincorporated

nonprofit association.

(d)

The secretary of state may collect a fee for filing a

statement appointing an agent to receive service of process, an

amendment, or a resignation under this section.

(e)

An amendment to a statement appointing an agent to

receive service of process must meet the requirements for execution

of an original statement.

(f)

If the secretary of state refuses to file a statement

appointing an agent, the secretary of state shall return it to the

decentralized unincorporated nonprofit association or the

association's representative not later than the 30th day after the

date the statement was delivered and include a brief explanation in

writing of the reason for the refusal.

Sec.

253.012.

SERVICE OF PROCESS. In an action or

proceeding against a decentralized unincorporated nonprofit

association, a summons and complaint or other process shall be

served on:

(1)

an agent authorized by appointment to receive

service of process;

(2) an appointed administrator of the association; or

(3)

a member, but only if the agent or administrator

described by Subdivisions (1) and (2) cannot be served.

Sec.

253.013.

CLAIM NOT ABATED BY CHANGE OF MEMBERS OR

ADMINISTRATORS. A claim for relief against a decentralized

unincorporated nonprofit association does not abate merely because

of a change in the members or administrators of the association.

Sec.

253.014.

VENUE. Unless provided otherwise by other

law, venue of an action against a decentralized unincorporated

nonprofit association brought in this state is determined in

accordance with the law applicable to an action brought in the

county in which the association has appointed an agent for service

of process under Section 253.011.

Sec.

253.015.

MEMBER NOT AN AGENT. A member of a

decentralized unincorporated nonprofit association is not an agent

of the association solely by reason of being a member.

Sec.

253.016.

APPROVAL BY MEMBERS. (a) Except as otherwise

provided by a decentralized unincorporated nonprofit association's

governing principles, the association must have the approval of the

association's members, attained in accordance with its governing

principles, to:

(1) suspend, dismiss, or expel a member;

(2) select or dismiss an administrator;

(3) adopt, amend, or repeal the governing principles;

(4)

sell, lease, exchange, or otherwise dispose of

all, or substantially all, of the association's property outside

the ordinary course of the association's activities, regardless of

the association's goodwill;

(5) dissolve the association under Section 253.026;

(6)

merge or convert the association as provided by

Section 253.028;

(7)

undertake any act outside the ordinary course of

the association's activities; or

(8)

determine the policy or purpose of the

association.

(b)

A decentralized unincorporated nonprofit association

must have the approval of the members in accordance with its

governing principles to act or exercise a right for which the

association's governing principles require member approval.

(c)

Unless otherwise provided for in a decentralized

unincorporated nonprofit association's governing principles,

membership interest in a decentralized unincorporated nonprofit

association is calculated in proportion to the person's membership

interest or other property that confers onto the person a voting

right in the association.

Sec.

253.017.

USE OF DISTRIBUTED LEDGER TECHNOLOGY. (a) A

decentralized unincorporated nonprofit association may provide for

the association's governance, wholly or partly, through

distributed ledger technology, including through a smart contract.

(b)

The governing principles for a decentralized

unincorporated nonprofit association may:

(1)

specify whether any distributed ledger technology

used or enabled by the association is:

(A)

immutable or subject to change by the

association; and

(B)

fully or partially public or private,

including the extent of members' access to information; and

(2)

adopt voting procedures, which may include a smart

contract deployed to distributed ledger technology, that provide

for:

(A)

proposals from members or administrators in

the decentralized unincorporated nonprofit association for

upgrades, modifications, or additions to software systems or

protocols;

(B)

proposed changes to the decentralized

unincorporated nonprofit association's governing principles; and

(C)

any other matter of governance or relating to

the activities of the association that is within the purpose of the

association.

Sec.

253.018.

CONSENSUS FORMATION ALGORITHMS AND

GOVERNANCE PROCESS. In accordance with the association's governing

principles, a decentralized unincorporated nonprofit association

may:

(1)

adopt a reasonable algorithmic means for

establishing consensus for:

(A) the validation of records;

(B)

the establishment of requirements,

processes, and procedures for conducting operations; and

(C)

making organizational decisions with respect

to the distributed ledger technology used by the association; and

(2)

in accordance with a procedure adopted by the

association under Section 253.017, if any, and in compliance with

the requirements of law and the governing principles of the

decentralized unincorporated nonprofit association:

(A)

modify the consensus mechanism, including

the requirements, processes, and procedures for that mechanism; or

(B)

substitute a new consensus mechanism,

including the requirements, processes, or procedures for that

mechanism.

Sec.

253.019.

DUTIES OF MEMBERS. (a)

A member of a

decentralized unincorporated nonprofit association does not owe a

fiduciary duty to the association or to any another member of the

association solely by virtue of the person's membership in the

association.

(b)

A member of a decentralized unincorporated nonprofit

association shall discharge the duties and obligations under this

chapter or under the governing principles of the association and

exercise the member's rights in a manner consistent with the

contractual obligation of good faith and fair dealing.

Sec.

253.020.

ADMISSION, SUSPENSION, DISMISSAL, OR

EXPULSION OF MEMBERS. (a) A person becomes a member of a

decentralized unincorporated nonprofit association in accordance

with the governing principles of the association. If there are no

applicable governing principles, a person:

(1)

is considered a member on the purchase or

assumption of a right of ownership of a membership interest or other

property or instrument that confers on the person a voting right in

the association; and

(2)

continues as a member of the association until the

earlier of the member's:

(A) resignation under Section 253.021; or

(B)

suspension, dismissal, or expulsion under

Subsection (b).

(b)

A member may be suspended, dismissed, or expelled in

accordance with the governing principles of the decentralized

unincorporated nonprofit association. If there are no applicable

governing principles, the member may be suspended, dismissed, or

expelled from an association only by a majority vote of the

association's members.

(c)

Unless the governing principles of a decentralized

unincorporated nonprofit association provide otherwise, the

suspension, dismissal, or expulsion of a member does not relieve

the member from any obligation incurred or commitment made by the

member in connection with membership in the association before the

member's suspension, dismissal, or expulsion.

Sec.

253.021.

RESIGNATION OF MEMBER. (a) A member may

resign as a member of a decentralized unincorporated nonprofit

association in accordance with the governing principles of the

association. In the absence of applicable governing principles, a

member is considered to have resigned on the voluntary or

involuntary disposal of all membership interest or other property

or instruments that confer on the person a voting right in the

association.

(b)

Unless a decentralized unincorporated nonprofit

association's governing principles provide otherwise, resignation

of a member does not relieve the member of any obligation incurred

or commitment made by the member before the member's resignation.

Sec.

253.022.

MEMBERSHIP INTEREST TRANSFERABLE. Except as

otherwise provided in the decentralized unincorporated nonprofit

association's governing principles, a member's interest or a right

conferred in the association is freely transferable to another

person through conveyance of the membership interest or other

property that confers on a person a voting right in the association.

Sec.

253.023.

SELECTION OF ADMINISTRATORS; RIGHTS AND

DUTIES OF ADMINISTRATORS. (a) Except as otherwise provided by this

chapter or a decentralized unincorporated nonprofit association's

governing principles, the members of an association may select the

association's administrators in accordance with Section 253.016.

(b)

If no administrators are selected, no member of the

decentralized unincorporated nonprofit association is an

administrator.

(c)

A decentralized unincorporated nonprofit association is

not required to have an administrator. There are no default

obligations of an administrator of a decentralized unincorporated

nonprofit association. The rights and duties of an administrator

of a decentralized unincorporated nonprofit association must be

established as part of the selection process for an administrator

or administrators of the association.

(d)

An administrator of a decentralized unincorporated

nonprofit association does not have the authority to act on behalf

of the association beyond the specific authority granted in the

selection process of the administrator established under

Subsection (c).

(e)

The governing principles of a decentralized

unincorporated nonprofit association may, in a record, limit or

eliminate the liability of an administrator to the association or

the association's members for money damages for an action taken, or

for failure to take an action, as an administrator, except

liability for:

(1)

the amount of a financial benefit improperly

received by an administrator;

(2)

an intentional infliction of harm on the

association or the association's members;

(3) an intentional violation of criminal law;

(4)

a breach of the duty of loyalty should one exist,

unless a full disclosure of all material facts, a specific act, or a

transaction that would otherwise violate the duty of loyalty by an

agent is authorized or ratified by approval of the disinterested

members in accordance with Section 253.016; or

(5) an improper distribution.

Sec.

253.024.

RECORDS. (a) Except as provided by

Subsection (b), on reasonable notice, a member or administrator of

a decentralized unincorporated nonprofit association is entitled

to an electronic record of any record maintained by the association

regarding the association's activities, financial condition, or

other circumstances to the extent the information contained in the

record is material to the member's or administrator's rights and

duties under the association's governing principles or this

chapter.

(b)

A decentralized unincorporated nonprofit association is

not obligated to provide a record maintained by the association for

record requests made through distributed ledger technology,

including through a smart contract, to a member or administrator if

the member or administrator has access to the information contained

in the record in a record made available to the member or

administrator on distributed ledger technology.

(c)

A decentralized unincorporated nonprofit association

may impose reasonable restrictions on access to and use of

information that may be provided under this section, including by

designating the information confidential and imposing

nondisclosure or other safeguarding obligations on the recipient of

the information.

(d)

A former member or administrator may have access to

information to which the member or administrator was entitled as a

member or administrator if:

(1)

the information relates to the period of time

during which the person was a member or administrator;

(2)

the former member or administrator seeks the

information in good faith; and

(3)

the former member or administrator satisfies the

requirements of Subsections (a), (b), and (c) with respect to the

information.

(e)

Sections 12.151 through 12.154 apply to a decentralized

unincorporated nonprofit association.

(f)

A decentralized unincorporated nonprofit association

has no obligation to collect and maintain a list of members or

member information, including the names or addresses of members.

Sec.

253.025.

INDEMNIFICATION; ADVANCEMENT OF EXPENSES. A

decentralized unincorporated nonprofit association is an

enterprise, as that term is defined by Section 8.001, for purposes

of the requirements related to indemnification and advancement of

expenses under Chapter 8.

Sec.

253.026.

DISSOLUTION; CONTINUATION OF EXISTENCE. (a)

A decentralized unincorporated nonprofit association may be

dissolved by any of the following methods:

(1)

at a time or by a method for dissolution specified

by the governing principles of the association, if any;

(2)

if the governing principles of the association do

not provide a method for dissolution, with the approval of the

members of the association in accordance with Section 253.016;

(3)

if the number of members of the association is

fewer than 100 and the association is not able to use a merger or

conversion to form another valid entity under Chapter 10; or

(4) by court order to dissolve.

(b)

After dissolution, a decentralized unincorporated

nonprofit association continues in existence until the

association's activities are wound up and the association is

terminated under Section 253.027.

Sec.

253.027.

WINDING UP AND TERMINATION. (a) A dissolved

decentralized unincorporated nonprofit association shall wind up

the association's business. The association continues in existence

after dissolution only for the purpose of winding up under this

section.

(b)

In winding up a decentralized unincorporated nonprofit

association, the members:

(1)

shall discharge the association's debts,

obligations, and other liabilities, settle and close the

association's business, and marshal and distribute any remaining

property:

(A)

in a manner required by law, other than this

chapter, that requires assets of an association to be distributed

to another entity or person with similar nonprofit purposes, if

applicable to the association;

(B)

in accordance with the association's

governing principles, and in the absence of applicable governing

principles, to the current members of the association in proportion

to their membership interests; or

(C)

if property cannot be distributed under

Paragraph (A) or (B), under the laws governing unclaimed property

for this state; and

(2) may:

(A)

appoint and authorize an administrator to

wind up the association in accordance with Section 253.017;

(B)

preserve the association operations and

property as a going concern for a reasonable time;

(C)

prosecute and defend civil, criminal, or

administrative actions and proceedings involving the association;

(D) transfer the association's property;

(E)

settle disputes involving the association by

mediation or arbitration;

(F)

receive reasonable compensation for services

rendered to the association in winding up the association; and

(G)

perform other acts necessary or appropriate

to effect the winding up.

(c)

If the members of a decentralized unincorporated

nonprofit association do not appoint an administrator to wind up

the association's business, the members shall owe the association a

duty of care in the conduct or winding up of the association

operations to refrain from engaging in:

(1) grossly negligent or reckless conduct;

(2) wilful or intentional misconduct; or

(3) a knowing violation of the law.

Sec.

253.028.

MERGERS AND CONVERSIONS. A decentralized

unincorporated nonprofit association may effect a merger or

conversion by complying with the applicable provisions of Chapter

10 and the association's governing principles.

SECTION 2. This Act takes effect September 1, 2025.