What Is a Texas Notice of Intent to Forfeit Right to Transact Business?

Businesses in Texas must comply with state tax and reporting requirements to maintain their legal status. When a company falls behind on these obligations, the Texas Comptroller may issue a Notice of Intent to Forfeit Right to Transact Business, putting the company at risk of losing its ability to operate legally.

Ignoring the notice can result in business suspension and personal liability for company debts. Understanding why these notices are issued and how to address them helps business owners avoid disruptions.

Common Filing and Tax Delinquencies

Texas businesses must file reports and pay state taxes to remain in good standing. A common reason for receiving a Notice of Intent to Forfeit Right to Transact Business is failure to submit the Texas Franchise Tax Report. This tax applies to most entities, including corporations, LLCs, and limited partnerships, and is due annually on May 15. If a business does not file or pay, penalties begin accruing immediately, starting with a 5% late fee that increases to 10% after 30 days.

Another frequent issue is failing to submit the Public Information Report (PIR), which accompanies the franchise tax filing. This report updates company officer, director, and registered agent details. Noncompliance can lead to forfeiture.

Payroll tax delinquencies also create compliance risks. Employers must remit state unemployment taxes to the Texas Workforce Commission. Late payments result in escalating penalties and interest charges, adding to financial strain.

State Comptroller’s Role in Issuing Notices

The Texas Comptroller enforces tax and reporting compliance. When a business falls behind, internal reviews and automated systems identify discrepancies. Preliminary warning letters may be sent to encourage resolution before formal action.

If issues remain unresolved, the Comptroller issues an official notice, mailed to the company’s registered address, detailing violations and deadlines for compliance. Unlike general delinquency notices, this one signals potential loss of legal standing.

The Comptroller works with the Texas Secretary of State to track at-risk businesses. If a company does not act in time, the Comptroller notifies the Secretary of State, who proceeds with forfeiture. This interagency coordination ensures businesses meet regulatory obligations.

Key Deadlines for Resolving the Notice

Once a business receives a Notice of Intent to Forfeit Right to Transact Business, it has 45 days to correct compliance failures. Missing this deadline results in automatic forfeiture, leading to legal and financial consequences.

Unpaid franchise taxes accrue interest at a rate set annually by the Texas Comptroller. As of 2024, the rate is 7.25%, applied monthly until full payment is made. Delays increase financial burdens.

If a company disputes the notice, it must formally contest it before the deadline. This requires submitting documentation proving compliance or filing an appeal through the State Office of Administrative Hearings. Appeals demand detailed financial records and legal arguments, making professional assistance advisable. Failure to act leads to automatic forfeiture.

Effects on Business Operations

Forfeiture immediately disrupts business functions. Contracts become unenforceable, preventing the company from initiating lawsuits or defending itself in court. Counterparties may use forfeiture as grounds to terminate agreements or withhold payments.

Financial institutions monitor business standing, and forfeiture can lead to credit restrictions or loan defaults. Many banks require businesses to maintain active registration to keep accounts open. A forfeited entity may face account freezes, making it difficult to meet payroll, pay suppliers, or process customer transactions. Businesses that require state-issued licenses or permits may see those suspended until reinstatement.

Reinstatement Procedures

Reinstating a forfeited business requires resolving outstanding tax liabilities, submitting required filings, and filing for reinstatement through the Texas Comptroller and Secretary of State.

The business must first pay all overdue franchise taxes, penalties, and interest. Delinquent Franchise Tax Reports must be filed before the Comptroller issues a Tax Clearance Letter, certifying compliance. This letter, along with an Application for Reinstatement, must be submitted to the Secretary of State. If forfeiture was due to a missing Public Information Report, that must also be filed.

Once submitted, the Secretary of State reviews the application. If approved, the business is restored to active status. However, reinstatement does not erase the forfeiture period, meaning contracts made during that time may still be unenforceable. Officers and directors may also remain personally liable for debts incurred while the business was forfeited.

Liabilities for Officers

Forfeiture exposes officers and directors to personal financial risk. Under Texas Tax Code Section 171.255, they can be held personally liable for debts incurred during the forfeiture period, including unpaid taxes, penalties, and interest.

Liability extends beyond taxes to other financial obligations, including vendor invoices, lease payments, and loans. Creditors may bypass corporate protections and seek repayment directly from executives. Officers who continue conducting business after forfeiture, such as signing contracts or issuing payments, increase their risk, as these actions may be seen as knowingly operating an unauthorized entity.