Texas franchise tax forfeiture, and how to fix it

There are two forfeitures and they are not the same thing

Almost every conversation about this starts with the two being mixed up, so start here. Subchapter F of Chapter 171 of the Tax Code governs forfeiture of the right to transact business. The Comptroller does that one, without any court involved. Subchapter G governs forfeiture of the charter or certificate of formation, which happens later and is done by the Secretary of State or, rarely, by a district court on a suit brought by the Attorney General.

When someone says their LLC got forfeited they nearly always mean the first one. The entity still exists. The Secretary of State's records still show it. What it has lost is the right to do business, and that loss carries the two consequences that matter: it cannot get affirmative relief in a Texas court, and its officers and directors may be personally liable for certain debts.

The second forfeiture is the one that ends the entity, and it does not arrive quickly. The gap between them is a hundred and twenty days, and that gap is the whole opportunity.

The timeline, and where the exits are

May 15. The annual report is due. Where that falls on a weekend or holiday it moves to the next business day. Notice. The Comptroller sends notice of forfeiture at least forty-five days before it happens, under § 171.256(c). One change worth knowing: since September 1, 2023 that notice may be sent electronically rather than mailed, if the entity elected electronic contact. An owner who has not looked at that mailbox in a year may get the only warning there is by email. Forty-five days later. If the report has not been filed or the tax has not been paid, the Comptroller forfeits the right to transact business under §§ 171.251 and 171.2515. Section 171.257 says it plainly: this is effected without a judicial proceeding. Nobody sues you. It simply happens. A hundred and twenty days after that. The Comptroller certifies the entity's name to the Attorney General and the Secretary of State under § 171.302. The Secretary of State may then forfeit the charter or certificate under § 171.309, again with no judicial proceeding, and records it by writing the words Charter Forfeited or Certificate Forfeited on the entity's record. The exit at every stage is the same. File what is missing and pay what is owed. Before the charter goes, § 171.258 requires the Comptroller to revive the privileges on payment, with no Secretary of State filing and no fee.

Section 171.255, and the two things everyone gets wrong about it

This is the provision that turns an administrative lapse into a personal problem. Under § 171.255(a), where privileges are forfeited for failure to file or pay, each director and officer is liable for each debt of the entity created or incurred in Texas after a certain date, and subsection (b) makes that liability work as though they were a partner and the company a partnership.

It reaches LLCs, but not because the section says so. The section says corporation throughout. Section 171.2515(b) is the hook, and it carries Subchapter F, naming § 171.255 expressly, over to any taxable entity. Texas courts have applied it to LLC managers and members.

The first thing people get wrong makes the exposure larger than they think. The clock does not start on the date of forfeiture. It starts on the date the report, tax or penalty was due. Forfeiture has to happen for the liability to exist, but once it does, the window reaches back. In Breakwater Advanced Manufacturing v. East Texas Machine Works, No. 12-19-00013-CV (Tex. App.—Tyler Feb. 19, 2020), the court collected the authority on this and adopted the broader reading. Content that tells you liability starts at forfeiture is understating it. The second thing makes the exposure much smaller than most creditors hope. Texas courts treat § 171.255 as penal and construe it strictly in favour of the person facing liability, and they hold that a contract debt is created when the contract is signed, not when it is breached and not when judgment is entered. In Rossmann v. Bishop Colorado Retail Plaza, 455 S.W.3d 797 (Tex. App.—Dallas 2015), leases signed in 2010 produced damages after a 2012 forfeiture and the officer was not liable, because the debt dated from the leases. Hovel v. Batzri, No. 01-14-00305-CV (Tex. App.—Houston [1st Dist.] Mar. 1, 2016), reached the same result for a manager where the contract, the breach and the conduct all predated forfeiture.

Two more limits worth knowing. Liability attaches only to people who held office when the debt was created, which the Fourteenth Court confirmed in Bruce v. Freeman Decorating Services, No. 14-10-00611-CV (Tex. App.—Houston [14th Dist.] Aug. 16, 2011). And § 171.255(c) excuses a director who shows the debt was created over their objection, or without their knowledge where reasonable diligence would not have revealed the intention to create it. Read that second one carefully. It is conjunctive. Not having looked is not the same as diligence having failed.

What it does to a lawsuit

Section 171.252 denies a forfeited entity the right to sue or defend in a Texas court, and § 171.253 provides that affirmative relief may not be granted to it on a cause of action arising before the forfeiture unless privileges are revived.

In practice Texas courts have read that more narrowly than it sounds. The line they have drawn is between prosecuting a claim and standing in a defensive posture, and several courts have held the statute bars cross-actions and affirmative relief rather than barring a defendant from defending at all. The purpose of the provision is tax collection rather than closing the courthouse.

Do not build a strategy on that. The safe reading is that a forfeited entity cannot enforce anything, including its own contracts, until it revives, and that whether it can defend is a fight you do not want to be having. If litigation is coming, reviving is cheaper than briefing the question.

Reinstatement, and the part that does not come back

If only the privileges are gone, file the delinquent reports, including the Public Information Report or Ownership Information Report, and pay the tax, penalty and interest. Section 171.258 requires the Comptroller to revive. No Secretary of State form, no filing fee. If the charter or certificate is gone, it takes more. A shareholder, director or officer as of the forfeiture date requests, in the entity's name, that the Secretary of State set the forfeiture aside under § 171.313. That is Form 801, and the fee is $75, waived for nonprofit corporations. It has to be accompanied by a tax clearance letter from the Comptroller confirming the franchise tax liabilities are satisfied. Allow a few business days after payment before requesting it. There is no deadline for this one. The Secretary of State's own instructions say the request may be submitted at any time after forfeiture so long as the entity would otherwise have continued to exist. The three-year rule people cite belongs to a different statute, the Business Organizations Code's involuntary termination provisions, which is a separate track with its own form and its own clock.

One thing to check before filing: if the name has been taken while you were forfeited, you have to amend to an available one, and the amendment goes in at the same time as the reinstatement.

If you are about to sign something with a Texas entity

Two systems, two different questions, and an entity can look fine in one and not the other. The Comptroller's Franchise Tax Account Status tells you whether the right to transact business is intact. The Secretary of State's records tell you whether the certificate of formation still exists. Check both.

Note the vocabulary has moved. The Comptroller no longer issues anything called a certificate of good standing; the product is Franchise Tax Account Status, which the agency itself notes was previously referred to as good standing. Asking a counterparty for a good standing certificate in 2026 marks you as working from an old checklist.

The asymmetry is worth understanding from both sides. If the other party is forfeited, they cannot obtain affirmative relief in a Texas court until they revive, which is real leverage. If you are the forfeited one, you cannot sue to enforce the agreement you are signing. And a creditor who assumes that a forfeiture means the officers are automatically on the hook is often wrong, because if the contract predates the window, Rossmann and Hovel say the debt was created when it was signed.

If the entity is one you are buying, this belongs in diligence rather than in the closing binder. It is cheap to check and expensive to discover afterward.

Five things published about this that are wrong

1. That you file a No Tax Due Report if you are under the threshold. It was discontinued for the 2024 report year and beyond, and the underlying statutory subsection was repealed effective January 1, 2024. What is due is a Public Information Report or an Ownership Information Report. 2. That being under the threshold means filing nothing. It means owing nothing. This is the single most common route to a forfeiture that surprises the owner. 3. That Section 171.255 covers debts incurred after forfeiture. It runs from the date the report or tax was due. This understates the exposure. 4. That once forfeited, officers are liable for the company's debts. Far too broad. It ignores relation-back for contracts signed before the window, the statutory defence in subsection (c), and the rule that only people holding office when the debt was created are reached. 5. That you have three years to reinstate. Not for a tax forfeiture. There is no time limit on that one.

A sixth, quieter one: that notice arrives by mail. Since September 2023 it may arrive electronically.

Figures and forms current for the 2026 report year, checked August 15, 2026. This is general information about Texas law and not advice about your company. If your entity is forfeited and a deadline or a lawsuit is involved, the sequence matters and it is worth a conversation rather than a form.

Common questions

What does forfeited mean for a Texas LLC?

Usually that the Comptroller has forfeited the right to transact business under Chapter 171 of the Tax Code. The entity still exists at the Secretary of State. What it has lost is the ability to obtain affirmative relief in a Texas court, and its officers, directors, managers or members may be personally liable for debts created during the forfeiture window.

Can I be personally liable if my LLC is forfeited?

Possibly, under Section 171.255. It reaches LLCs through Section 171.2515. But it is narrower than it reads. It covers debts created after the report or tax came due, it reaches only people who held office when the debt was created, a contract debt is treated as created when the contract was signed, and there is a statutory defence for a director who objected or who did not know and could not reasonably have found out.

Does forfeiture start when I miss the filing or when the state forfeits?

For personal liability purposes the window opens on the date the report, tax or penalty was due, not the date of forfeiture. Forfeiture has to actually happen, but once it does the liability reaches back to the due date.

Can a forfeited entity be sued?

Yes. Nothing stops someone suing it, and Section 171.253 assumes as much. What it cannot do is obtain affirmative relief on a pre-forfeiture claim while it remains forfeited.

How do I reinstate a Texas entity after a tax forfeiture?

If only the privileges were forfeited, file the delinquent reports including the Public Information Report and pay what is owed; Section 171.258 requires the Comptroller to revive. If the charter or certificate was forfeited, file Form 801 with the Secretary of State, $75, with a tax clearance letter from the Comptroller.

Is there a deadline to reinstate after a franchise tax forfeiture?

No. The Secretary of State's instructions say the request may be submitted at any time after forfeiture so long as the entity would otherwise have continued to exist. The three-year deadline people cite applies to involuntary termination under the Business Organizations Code, which is a different track.

Does reinstating remove the personal liability?

No. Section 11.254(b) of the Business Organizations Code and Section 171.255(d) of the Tax Code both say reinstatement has no effect on personal liability for the period between forfeiture and reinstatement. The entity is restored. The exposure is not erased.

Can I be forfeited if I owe no franchise tax?

Yes, and it is the most common way this happens. A missing Public Information Report or Ownership Information Report is a failure to file a report required by Chapter 171, which is a ground for forfeiture on its own. The report is due even where revenue is below the no tax due threshold.

How do I check whether a Texas company is forfeited?

Two places, because they answer different questions. The Comptroller's Franchise Tax Account Status tells you about the right to transact business. The Secretary of State's records tell you whether the certificate of formation still exists. An entity can look current in one and not the other.

Will I get a warning before forfeiture?

Yes. Section 171.256 requires notice at least forty-five days beforehand. Since September 1, 2023 that notice may be sent electronically rather than mailed, where the entity elected electronic contact, so check the email address on file with the Comptroller as well as the mailing address.

If a deadline or a lawsuit is involved, the sequence matters. That is worth a conversation.

The words you'll hear

If this goes further, these are the terms that will come up, from us or from the other side. Each one links to a fuller explanation.

Texas Franchise Tax

A privilege tax imposed by Texas on most taxable entities formed in or doing business in the state.

Certificate of Formation

The public document filed with the Texas Secretary of State to bring a domestic filing entity into legal existence under Texas law.

Registered Agent

The person or organization designated by a Texas filing entity to receive service of process and other official communications on the entity's behalf.

Limited Liability Company

A statutory business entity formed under TBOC Title 3 that combines limited liability for owners (members) with substantial flexibility in management, taxation, and internal governance.

Judicial Dissolution

A court-ordered termination of a Texas business entity's existence.

Veil-Piercing / Alter Ego

The equitable doctrine under which Texas courts disregard the limited-liability shield of a corporation or LLC and hold individual shareholders, members, or affiliates personally liable for....

Summary Judgment

A procedure by which a court resolves a case (or specific claims) without trial, on grounds that there is no genuine dispute of material fact and....

Company Agreement

The principal governance document of a Texas LLC, the contract among members (and managers, if applicable) that establishes the LLC's internal rules.