[ARTICLE] 1

PRELIMINARY PROVISIONS

Section 101. Short title. This [act] may be cited as the [State] Omnibus Business Organizations Code.

Section 102. Definitions.

(a) Definitions. In this [act]:

(1) “Acquired entity” means the entity, all of one or more classes or series of interests in which are acquired in an interest exchange authorized by sec. 301. [META 102(1)]

(2) “Acquiring entity” means the entity that acquires all of one or more classes or series of interests of the exchanging entity in an interest exchange authorized by sec. 301. [META 102(2)]

(3) “Address” means a mailing address or a street address. [Colorado 7-90-102(1)]
(4) “Annual report” means the report required by xxx. [Colorado 7-90-102(1.3); [Not necessary if no provision for filing annual report (?)].

(5) “Appointment of agent” means a statement appointing an agent for service of process filed by:

(A) a domestic or foreign unincorporated nonprofit association under [Section 10 of the Uniform Unincorporated Nonprofit Association Act]; or

(B) a domestic entity that is not a filing entity or a nonqualified foreign entity under Section 340. [MRAA]

(6) “Approve” means, in the case of an entity, for its governors and interest holders to take whatever steps are necessary under its organic rules, organic law, and other law to:

(A) propose a transaction subject to this [Act];

(B) adopt and approve the terms and conditions of the transaction; and

(C) conduct any required proceedings or otherwise obtain any required votes or consents of the governors or interest holders. [META]

(7) “Articles of incorporation” means, the public organic document of a business or nonprofit corporation. With respect to a business corporation, “articles of incorporation” include the original articles of incorporation, all amendments thereof, any articles of merger, and any other documents with respect to a domestic business corporation filed with the Secretary of State under any provision of this Act except the annual report required by xxx. With respect to a domestic nonprofit corporation subject to the “Revised Nonprofit Corporation Act”, “articles of incorporation” means articles of incorporation as that term is used in the “Revised Nonprofit Corporation Act”. If any document filed under this Act restates the articles in their entirety, thenceforth the articles shall not include any prior documents. With respect to a foreign corporation or foreign nonprofit corporation, “articles of incorporation” means the corresponding document filed with the jurisdiction, under the law of which the corporation or nonprofit corporation is formed. [Adapted from MBCA sec. 1.40(1) and from Colorado 7-90-102(2); the term “public organic document” is a META term.]
(8) “Articles of organization” is the public organic document of a domestic limited cooperative association formed under the Uniform Limited Cooperative Association Act, and means the initial, amended, or restated articles of organization of a limited cooperative association which contain the information required or permitted in Section 302 of the ULCA. In the case of a foreign cooperative, the term includes all records that:

(A) have a function similar to articles of organization under the ULCA; and

(B) are required to be filed in the office of the Secretary of State or other official having custody of articles of organization in the state or country under whose law the foreign cooperative is organized. [ULCA]

(9) “Authorized shares” means the shares of all classes a domestic or foreign corporation is authorized to issue. [MBCA]

(10) ”Business” includes every trade, occupation, and profession. [RUPA]

(11) ”Bylaws” means the code or codes of rules (other than the articles of incorporation) adopted pursuant to this Act for the regulation or management of the affairs of a corporation irrespective of the name or names by which such rules are designated. [MNCA]

(12) “Commercial registered agent” means an individual or a domestic or foreign entity listed under Section 334. [MRAA]

(13) “Conspicuous” means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color, or typing in capitals or underlined, is conspicuous. [MBCA]

(14) “Conversion” means a transaction authorized by section 401. [META]

                        (15)   “Converted entity” means the converting entity as it continues in existence after a conversion. [META]
                        (16) “Converting entity” means the domestic entity that approves a plan of conversion pursuant to Section 403] or the foreign entity that approves a conversion pursuant to the law of its jurisdiction of organization. [META]
                        (17) “Cooperative” means a limited cooperative association formed under the Uniform Limited Cooperative Association Act or an entity organized under any cooperative law of any jurisdiction. [ULCA]

(18) “Corporation,” “domestic corporation” or “domestic business corporation” means, in the case of a business corporation, a corporation for profit, which is not a foreign corporation, incorporated under or subject to the provisions of [the MBCA]. In the case of a nonprofit corporation, “corporation,” “domestic corporation” or “domestic nonprofit corporation” means a public benefit, mutual benefit or religious corporation incorporated under the Model Nonprofit Corporation Act. [MBCA; MNCA]

(19) “Debtor in bankruptcy” means a person who is the subject of:

(i) an order for relief under Title 11 of the United States Code or a comparable order under a successor statute of general application; or

(ii) a comparable order under federal, state, or foreign law governing insolvency. [RUPA]

(20) “Deliver” or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and electronic transmission ; except that delivery to the secretary of state means actual receipt by the secretary of state. “Deliver” to any person by the secretary of state includes delivery or mail to the registered agent address of the person’s registered agent, or to the principal office address of the person, unless otherwise specified in section [provisions for administrative dissolution] or by an organic statute other than this [Act]. “Deliver” by the secretary of state to a person that has neither a principal office address nor a registered agent address includes delivery to the address that such person may have provided to the secretary of state for such purpose, unless otherwise specified by an organic statute other than this [Act]. [MBCA, supplemented by Colorado 7-90-102]
(21) “Distribution” means a transfer of property, including cash, from an entity to an interest holder of the entity in the recipient’s capacity as an interest holder. The term includes a dividend, a redemption or purchase of an ownership interest, or a liquidating distribution. [MBCA and various other acts; cast in generic terms.]

(22) “Dividing entity” means a domestic entity that approves a plan of division pursuant to Section 553 or a foreign entity that approves a division pursuant to the law of its jurisdiction of organization. [META]

(23) “Division” means a transaction authorized by 551. [META]

(24) “Domestic entity” means an entity whose internal affairs are governed by the law of this state. [META]

(25) “Domesticated entity” means the domesticating entity as it continues in existence after a domestication authorized by sec. 541. [META]

(26) “Domesticating entity” means the domestic entity that approves a plan of domestication pursuant to Section 543 or the foreign entity that approves a domestication pursuant to the law of its jurisdiction of organization. [META]

(27) “Domestication” means a transaction authorized by sec. 541. [META]

(28) “Effective date”, when referring to a document filed by the secretary of state, means the time and date determined in accordance with section 204. [MBCA]
(29) “Entity” means a person that has a separate legal existence or has the power to acquire an interest in real property in its own name other than:

(A) an individual;

(B) a testamentary, inter vivos, or charitable trust, with the exception of a business trust or similar trust;

[Section 202(c) of the Uniform Partnership Act (1997)] or a similar provision of the law of any other jurisdiction;

(D) a decedent’s estate; or

(E) a government, a governmental subdivision, agency, or instrumentality, or a quasi-governmental instrumentality. [META]

                        (30) “Filed document” means any document filed by the secretary of state pursuant to this title, whether or not effective. [Colorado]
                        (31) “Filing entity” means an entity that is created by filing of a public organic document. [META]
                        (32) “Foreign entity” means an entity other than a domestic entity. [META]

                        (33) “Foreign qualification document” means an application for a certificate of authority or other foreign qualification filing with the [Secretary of State] by a foreign entity. [MRAA]
                        (34) “General partner” means a partner in a general partnership and a general partner in a limited partnership. [Colorado]
                        (35) “General partnership” means a domestic general partnership or a foreign general partnership. [Colorado]

(36) “Governance interest” means the right under the organic law or organic rules of an entity, other than as a governor, agent, assignee, or proxy, to:

(A) receive or demand access to information concerning, or the books and records of, the entity;

(B) vote for the election of the governors of the entity; or

(37) “Governor” means a person by or under whose authority the powers of an entity are exercised and under whose direction the business and affairs of the entity are managed pursuant to the organic law and organic rules of the entity. [META]

(38) “Include” or its variants, when used in reference to any definition or list, indicates that the definition or list is partial and not exclusive. [MBCA; Colorado]
(39) “Individual” means a natural person. [MBCA]

(40) “Interest” means:

(A) a governance interest in an unincorporated entity;

(B) a transferable interest in an unincorporated entity; or

(41) “Interest exchange” means a transaction authorized by [Article] 3.

(42) “Interest holder” means a direct holder of an interest.

(43) “Interest holder liability” means personal liability for a liability of an entity that is imposed on a person:

(A) solely by reason of the status of the person as an interest holder; or

                                    (B) by the organic rules of the entity pursuant to a provision of the organic law authorizing the organic rules to make one or more specified interest holders or categories of interest holders liable in their capacity as interest holders for all or specified liabilities of the entity.
                        (44) “Jurisdiction” includes the United States, a state of the United States, a foreign country or other foreign governmental authority, and any agency, instrumentality, or subdivision thereof. [Colorado]
                        (45) “Jurisdiction of organization” of an entity means the jurisdiction whose law includes the organic law of the entity. [META]

                        (46) “Liability” means a debt, obligation, or any other liability arising in any manner, whether or not it is secured. [META]
                        (47) “Limited liability company” means a domestic limited liability company or a foreign limited liability company. [Colorado]
                        (48) “Limited liability limited partnership” means a domestic limited liability limited partnership or a foreign limited liability limited partnership. [Colorado]
                        (49) “Limited liability partnership” means a domestic limited liability partnership or a foreign limited liability partnership. [Colorado]
                        (50) “Limited partner” means a limited partner in a limited partnership. [Colorado]
                        (51) “Limited partnership” means a domestic limited partnership or a foreign limited partnership.
                        (52) “Mail” means deposit in the United States mail, properly addressed, first class postage prepaid, and includes registered, certified, express, or priority mail for which the proper fee has been paid.
                        (53) “Mailing address” means, with respect to any person, a physical location to which mail for such person may be delivered, which physical location shall be described by its street name and number or post office box number, city, state, and (if not the United States) country, and the postal code, if any, for delivery of mail to the location. If the person has no post office box and, by reason of rural location or otherwise, a street name and number, city, or town does not exist, “mailing address” shall mean an appropriate description fixing as nearly as possible the actual physical location to which mail for that person is delivered, but, for all locations in the United States, the county or parish and, if any, the rural free delivery route and the United States postal code shall be included. (Colorado)
                        (54) “Manager” means a person that under the operating agreement of a manager-managed limited liability company is responsible, alone or in concert with others, for performing the management functions stated in Section 407(c) of the Revised Uniform Limited Liability Company Act.. [ULLCA]

(55) “Manager-managed limited liability company” means a limited liability company that qualifies under Section 407(a) of the Revised Uniform Limited Liability Company Act. [ULLCA]

(56) “Means” denotes an exhaustive definition or list. [MBCA]
(57) “Member” means:

                                    (a) In the case of a limited liability company, a person that has become a member of a limited liability company under Section 401 ULLCA and has not dissociated under Section 602 ULLCA. [ULLCA]
                                    (b) In the case of limited cooperative association, a patron member or investor member of the limited cooperative association who has not dissociated as a member. “Member’s interest,” in the case of a limited cooperative association, means the interest of a patron member of investor member under section 501 of the Uniform Limited Cooperative Association Act, and “members’ meeting” means an annual or special members’ meeting.[ULCA]
                                    (c) In the case of a nonprofit association, a person who, under the rules or practices of a nonprofit association, may participate in the selection of persons authorized to manage the affairs of the nonprofit association or in the development of policy of the nonprofit association. [UNAA]

(d) In the case of a nonprofit corporation (without regard to what a person is called in the articles or bylaws) any person or persons who on more than one occasion, pursuant to a provision of a corporation’s articles or bylaws, have the right to vote for the election of a director or directors. A person is not a member by virtue of any of the following:

(i) any rights such person has as a delegate;

(ii) any rights such person has to designate a director or directors; or

(iii) any rights such person has as a director. [MNCA]

“Membership,” in the case of a nonprofit corporation, refers to the rights and obligations a member or members have pursuant to the nonprofit corporation’s articles, bylaws and this Act.

(58) “Merger” means a transaction authorized by sec. 511. [META}
(59) “Merging entity” means an entity that is a party to a merger and exists immediately before the merger takes place. [META]

(60) “Noncommercial registered agent” means a person that is not listed as a commercial registered agent under Section 334 and that is:

(A) an individual or a domestic or foreign entity that serves in this state as the agent for service of process of an entity; or

(B) the individual who holds the office or other position in an entity that is designated as the agent for service of process pursuant to Section 333(a)(2)(B). {MRAA]

(61) “Nonfiling entity” means an unincorporated entity that is of a type that is not created by filing a public organic document.

                        (62) “Nonprofit association” means a domestic nonprofit association formed under the Uniform Nonprofit Association Act or a foreign nonprofit association.[Colorado]
                        (63) “Nonprofit corporation” means a domestic nonprofit corporation formed under the Model Nonprofit Corporation Act or a foreign nonprofit corporation. [Colorado]
                        (64) “Nonprofit entity” means a nonprofit corporation or a nonprofit association. [Colorado]

(65) “Nonqualified foreign entity” means a foreign entity that is not authorized to transact business in this state pursuant to a filing with the [Secretary of State]. [MRAA]

(66) “Nonresident LLP statement” means:

(A) a statement of qualification of a domestic limited liability partnership that does not have an office in this state; or

(B) a statement of foreign qualification of a foreign limited liability partnership that does not have an office in this state. [MRAA]

(67) “Operating agreement” means the agreement, whether or not referred to as an operating agreement and whether oral, in a record, implied, or in any combination thereof, of all the members of a limited liability company, including a sole member, concerning the matters described in Section 110(a) of the Uniform Limited Liability Company Act. The term includes the agreement as amended or restated. [ULLCA]
(68) “Organic law” means the statutes, if any, other than this [Act], governing the internal affairs of an entity. [META]

(69) “Organic rules” means the public organic document and private organic rules of an entity. [META]

                        (70) “Partner” means a general partner and a limited partner. [Colorado]
                        (71) “Partnership” means a domestic general partnership, a foreign general partnership, a domestic limited partnership, or a foreign limited partnership. [Colorado]
                        (72) “Partnership agreement” means the partnership agreement of a domestic general partnership or a domestic limited partnership, or the functional equivalent for a foreign general partnership or a foreign limited partnership . The “partnership agreement” constitutes the “organic rules” of a partnership.   [Colorado, with added reference to “organic rules.”]

(73) “Person” means an individual, corporation, estate, trust, partnership, limited liability company, statutory trust, association, joint venture, public corporation, government, or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity. [META]

(74) “Plan” means a plan of merger, interest exchange, conversion, domestication, or division under META. [META]
(75) “Principal office” means the office, in or outside this state, designated by an entity as its principal office in the document most recently delivered by the principal office to the secretary of state for filing and filed by the secretary of state providing such information, including any statement of change of principal office. [Colorado; see also MBCA]

(76) “Private organic document” means any document (other than the public organic document, if any) that determines the internal governance of an unincorporated entity. Where a private organic document has been amended or restated, the term means the private organic document as last amended or restated. [MBCA]

(77) “Private organic rules” mean the rules, whether or not in a record, that govern the internal affairs of an entity, are binding on all of its interest holders, and are not part of its public organic document, if any. [META]

(78) “Proceeding” includes a civil suit, arbitration, or mediation and a criminal, administrative, or investigatory action. [MBCA]

(79) “Protected agreement” means:

(A) a debt security, note, or similar evidence of indebtedness for money borrowed, whether secured or unsecured, issued or signed by an entity which is unpaid, in whole or in part, on the effective date of this [Act];

(B) an agreement that is binding on an entity on the effective date of this

[Act];

[Act]; or

(D) an agreement that is binding on any of the governors or interest holders of an entity on the effective date of this [Act]. [META]

(80) “Public organic document” means the public record the filing of which creates an entity, and any amendment or restatement of that record. [META; compare MBCA] (81) “Qualified foreign entity” means a foreign entity that is authorized to transact business in this state pursuant to a filing with the [Secretary of State]. [META]

(82) “Receive”, when used in reference to receipt of a writing or other document by an entity, means that the entity actually obtains the writing or other document. [Colorado]

(83) “Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. [META]
(84) “Registered agent” means a commercial registered agent or a noncommercial registered agent required to be maintained by an entity pursuant to Article 3 of this [Act]. [MRAA; Colorado]

(85) “Registered agent filing” means:

(A) the public organic document of a domestic filing entity;

(B) a nonresident LLP statement;

(D) an appointment of agent. [MRAA]

(86) “Represented entity” means:

(A) a domestic filing entity;

(B) a domestic or qualified foreign limited liability partnership that does not have an office in this state;

(D) a domestic or foreign unincorporated nonprofit association for which an appointment of agent has been filed;

(E) a domestic entity that is not a filing entity for which an appointment of agent has been filed; or

(F) a nonqualified foreign entity for which an appointment of agent has been filed. [MRAA]

                        (87) “Resulting entity” means an entity that continues in existence after, or is created by, a division. [META]
                        (88) “State”, when referring to a part of the United States, includes the following:
                                    (a) A state;
                                    (b) A commonwealth;
                                    (c) The District of Columbia;
                                    (d) All agencies, instrumentalities, and subdivisions of a state, a commonwealth, or the District of Columbia; or
                                    (e) Any territory or insular possessions of the United States together with all agencies and governmental subdivisions thereof. [Colorado]
                        (89) “Sign” means, with present intent to authenticate or adopt a record:

(A) to execute or adopt a tangible symbol; or

(B) to attach to or logically associate with the record an electronic sound, symbol, or process. [META]

(90) “Street address” means, with respect to a physical location, the street name and number, city, state, and (if not the United States) country, and the postal code, if any, that is required for delivery of mail to the location. If, by reason of rural location or otherwise, a street name and number, city, or town does not exist, “street address” shall mean an appropriate description fixing as nearly as possible the actual physical location, but, for all locations in the United States, the county or parish and, if any, the rural free delivery route and the United States postal code shall be included. [Colorado]
(91) “Surviving entity” means the entity that continues in existence after or is created by a merger. [META]

(92) “Transferable interest” means the right under an entity’s organic law to receive distributions from the entity.

(93) “Type,” with regard to an entity, means a generic form of entity:

(A) recognized at common law; or

(B) organized under an organic law, whether or not some entities organized under that organic law are subject to provisions of that law that create different categories of the form of entity. [META]

Comment

This section is largely a “cut-and-paste” exercise. (As is this Draft, generally). The sources from which definitions have been imported are indicated in brackets. Deference has been given to definitions in the Model Entity Transactions Act (META), both because of its recent finalization, and because it represents a starting point in the entire project of multi-entity rationalization. META also represented a collaboration between NCCUSL and the ABA, which is another reason to draw upon its definitions. If that were not sufficient reason, a final reason is that the Study Group report recommends that META be included in this Act, and it has been as Article 6.

Many META definitions in turn appear in another recent milestone in that effort, the Model Registered Agents Act (MRAA). The comments below are taken from the Comments to the Definitions Section of the MRAA.

Other definition provisions have also been drawn on. The respective sources are indicated in brackets above.

The comments below deal with definitions drawn from META, as carried forward in MRAA.

In general. Many of the definitions in this section were developed for use in the Model Entity Transactions Act (META). States that have adopted META should consider arranging their entity laws in such a manner that the definitions in META will apply more broadly and do not need to be repeated in other laws. The definitions that are common to this Act and META are:

“domestic entity”

“entity”

“filing entity”

“foreign entity”

“governance interest”

“governor”

“interest”

“interest holder”

“jurisdiction of organization”

“organic law”

“organic rules”

“person”

“private organic rules”

“public organic document”

“qualified foreign entity”

“record”

“sign”

“transferable interest”

“type”

The comments below with respect to defined terms taken from META are substantively the same as the corresponding comments in META.

“Appointment of agent.” – An appointment of agent is an optional filing that may be made by an entity that does not otherwise make a public filing in the state naming an agent for service of process. If a state has not enacted the Uniform Unincorporated Nonprofit Association Act, paragraph (A) of this definition should be omitted.

“Commercial registered agent.” – A commercial registered agent is an individual or entity that is in the business of serving as a registered agent in the state and that files a listing statement under Section 6. Being listed as a commercial registered agent is voluntary and persons serving as registered agents are not required to be listed under Section 334. The benefits to the registered agent of being listed under Section 334, however, are substantial and most registered agents will elect to be so listed. Although this definition and Section 334 do not expressly require that a foreign entity that is listed as a commercial registered agent be qualified to do business in the state, the activity of serving as a registered agent is one that requires such registration.

“Domestic entity.” – The term “domestic entity” in this Act means an entity whose internal affairs are governed by the organic laws of the adopting state. Except in the case of general partnerships and unincorporated nonprofit associations, this will mean an entity that is formed, organized, or incorporated under domestic law. In the case of a general partnership organized under the Uniform Partnership Act (1997) (RUPA), it will mean a general partnership whose governing law under RUPA § 106 is the law of the adopting state. Under RUPA § 106 the governing law is determined by the location of the partnership’s chief executive office, except for limited liability partnerships where the governing law is the state where the statement of qualification is filed. It is a factual question whether the activities and organization of an unincorporated nonprofit association make it a domestic or foreign entity.

This definition is patterned after Model Entity Transactions Act § 102(9) (“domestic entity”).

“Entity.” – The term “entity” includes:

· Business corporation.

· Business or statutory trust.

· General partnership, whether or not a limited liability partnership.

· Limited liability company.

· Limited partnership, whether or not a limited liability limited partnership.

· Nonprofit corporation.

· Unincorporated nonprofit association.

The term does not include a sole proprietorship.

This definition is intended to include all forms of private organizations, regardless of whether organized for profit, and artificial legal persons other than those excluded by paragraphs (A) through (E). Thus, this definition is broader than the definition of “business entity” in, e.g., Code of Ala. § 10-15-2(2) which does not include nonprofit entities. This definition does not exclude regulated entities such as public utilities, banks and insurance companies.

Inter vivos and testamentary trusts are treated in many states as having a separate legal existence, but they have been excluded from the definition of “entity.” Trusts that carry on a business, however, such as a Massachusetts trust, real estate investment trust, Illinois land trust, or other common law or statutory business trusts are “entities.”

Section 4 of the Uniform Unincorporated Nonprofit Association Act gives an unincorporated nonprofit association the power to acquire an estate in real property and thus an unincorporated nonprofit association organized in a state that has adopted that act will be an “entity.” At common law, an unincorporated nonprofit association was not a legal entity and did not have the power to acquire real property. Most states that have not adopted the Uniform Act have nonetheless modified the common law rule, but states that have not adopted the Uniform Act should analyze whether they should modify the definition of “entity” to add an express reference to unincorporated nonprofit associations.

There is some question as to whether a partnership subject to the Uniform Partnership Act (1914) (UPA) is an entity or merely an aggregation of its partners. That question has been resolved by Section 201 of the Uniform Partnership Act (1997) (RUPA), which makes clear that a general partnership is an entity with its own separate legal existence. Section 8 of UPA gives partnerships subject to it the power to acquire estates in real property and thus such a partnership will be an “entity.” As a result, all general partnerships will be “entities” regardless of whether the state in which they are organized has adopted RUPA.

Paragraph (C) of this definition excludes from the concept of an “entity” any form of co-ownership of property or sharing of returns from property that is not a partnership under RUPA. In that connection, Section 202(c) of RUPA provides in part:

In determining whether a partnership is formed, the following rules apply:

(1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property.

(2) The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.

Limited liability partnerships and limited liability limited partnerships are “entities” because they are general partnerships and limited partnerships, respectively, that have made the additional required election claiming LLP or LLLP status. A limited liability partnership is not, therefore, a separate type of entity from the underlying general or limited partnership that has elected limited liability partnership status.

This definition is patterned after Model Entity Transactions Act § 102(13) (“entity”).

“Filing entity.” – Whether an entity is a filing entity is determined by reference to whether its legal existence is attributable to the filing of a document with the state filing officer. While the statute refers to an entity that is “created,” it is intended to encompass corporations which are “incorporated,” limited liability companies which are “organized,” and limited partnerships which are “formed” by a filing required by the organic law governing the entity. Business trusts (sometimes referred to as “statutory trusts”) present a special problem. In some states, for example, a business trust is a filing entity, while in other states business trusts are recognized only by common law.

The term does not include a limited liability partnership because an election filed by a general partnership claiming that status (e.g., a statement of qualification under Uniform Partnership Act (1997), § 1001) does not create the entity. A limited liability limited partnership, on the other hand, is a filing entity because the underlying limited partnership is created by filing a certificate of limited partnership.

This definition is patterned after Model Entity Transactions Act § 102(14) (“filing entity”). See also Model Business Corporation Act § 1.40(9B) (“filing entity”).

“Foreign entity.” – The term “foreign entity” includes any non-domestic entity of any type. Where a foreign entity is a filing entity, the entity is governed by the laws of the state of filing. A nonfiling foreign entity is governed by the laws of the state governing its internal affairs. It is a factual question whether a general partnership whose internal affairs are governed by the Uniform Partnership Act (1914) (UPA) is a domestic or foreign partnership. A UPA partnership will likely be deemed to be a domestic entity where the greatest nexus of contacts are found. Similar issues arise with respect to determining the domestic or foreign status of unincorporated nonprofit associations. The domestic or foreign characterization of partnerships under the Uniform Partnership Act (1997) (RUPA) that have not registered as limited liability partnerships will be governed by RUPA § 106(a) (“state where the partnership’s chief executive office is located”).

This definition is patterned after Model Entity Transactions Act § 102(15) (“foreign entity”).

“Foreign qualification document.” – This definition should be construed broadly to include filings in the state that are required when a foreign entity is conducting activities in the state, regardless of whether the process is referred to as “obtaining a certificate of authority to do business,” “qualifying to do business,” “being authorized to transact business,” or some other formulation.

“Governance interest.” – A governance interest is typically only part of the interest that a person will hold in an entity and is usually coupled with a transferable interest (or economic rights). However, memberships in some nonprofit corporations and unincorporated nonprofit associations consist solely of governance interests and memberships in other nonprofit entities may not include either governance interests or transferable interests. In some unincorporated business entities, there is a more limited right to transfer governance interests than there is to transfer transferable interests. An interest holder in such an unincorporated business entity who transfers only a transferable interest and retains the governance interest will also retain the status of an interest holder. Whether a transferee who acquires only a transferable interest will acquire the status of an interest holder is determined by the definition of “interest holder.”

Shares in a business corporation that are nonvoting nonetheless have a governance interest because they entitle the holder to certain rights of access to information and to certain statutory voting rights on amendments of the articles of incorporation.

Governors of an entity have the kinds of rights listed in the definition of “governance interest” by reason of their position with the entity. For a governor to have a “governance interest,” however, requires that the governor also have those rights for a reason other than the governor’s status as such. A manager who is not a member in a limited liability company, for example, will not have a governance interest, but a manager who is a member will have a governance interest arising from the ownership of a membership interest.

This definition is patterned after Model Entity Transactions Act § 102(16) (“governance interest”).

“Governor.” – This term has been chosen to provide a way of referring to a person who has the authority under an entity’s organic law to make management decisions regarding the entity that is different from any of the existing terms used in connection with particular types of entities. Compare Colo. § 7-90-102(35.7) which uses the term “manager” to refer to this concept, even though “manager” is also a term of art in connection with limited liability companies. Depending on the type of entity or its organic rules, the governors of an entity may have the power to act on their own authority, or they may be organized as a board or similar group and only have the power to act collectively, and then only through a designated agent. In other words, a person having only the power to bind the organization pursuant to the instruction of the governors is not a governor. Under the organic rules, particularly those of unincorporated entities, most or all of the management decisions may be reserved to the members or partners. Thus, if a manager of a limited liability company were limited to having authority to execute management decisions made by the members and did not have any authority to make independent management decisions, the manager would not be a governor under this definition.

Except as described above, the term “governor” includes:

· Director of a business corporation.

· Director or trustee of a nonprofit corporation.

· General partner of a general partnership.

· General partner of a limited partnership.

· Manager of a limited liability company.

· Member of a member-managed limited liability company.

· Trustee of a business or statutory trust.

This definition is patterned after Model Entity Transactions Act § 102(17) (“governor”).

“Interest.” – In the usual case, the interest held by an interest holder will include both a governance interest and a transferable interest (or economic rights). Members in many nonprofit corporations or unincorporated nonprofit associations do not have a transferable interest because they do not receive distributions, but they nonetheless may hold a governance interest in which case they would have the status of interest holders under the Act. An interest holder in an unincorporated business entity may transfer all or part of the interest holder’s transferable interest without the transferee acquiring the governance interest of the transferor. In that case, whether the transferor will retain the status of an interest holder will be determined by the applicable organic law and the transferee will have the status of an interest holder under paragraph (B) of this definition. That paragraph will also apply to subsequent transferees from the original transferee.

The term “interest” includes:

· Beneficial interest in a business or statutory trust.

· Membership in a nonprofit corporation.

· Membership in an unincorporated nonprofit association.

· Membership interest in a limited liability company.

· Partnership interest in a general partnership.

· Partnership interest in a limited partnership.

· Shares in a business corporation.

This definition is patterned after Model Entity Transactions Act § 102(18) (“interest”).

“Interest holder.” – This Act does not refer to “equity” interests or “equity” owners or holders because the term “equity” could be confusing in the case of a nonprofit entity whose members do not have an interest in the assets or results of operations of the entity but only have a right to vote on its internal affairs. Compare Code of Ala. § 10-15-2(4) (“equity owner”).

The term “interest holder” includes:

· Beneficiary of a business or statutory trust.

· General partner of a general partnership.

· General partner of a limited partnership.

· Limited partner of a limited partnership.

· Member of a limited liability company.

· Member of a nonprofit corporation.

· Member of an unincorporated nonprofit association.

· Shareholder of a business corporation.

This definition is patterned after Model Entity Transactions Act § 102(20) (“interest holder”). See also Model Business Corporation Act § 1.40(13B) (“interest holder”).

“Jurisdiction of organization.” – The term “jurisdiction of organization” refers to the jurisdiction whose laws include the organic law of the entity.

This definition is patterned after Model Entity Transactions Act § 102(22) (“jurisdiction of organization”).

“Noncommercial registered agent.” – A noncommercial registered agent is a person that serves as an agent for service of process but that is not listed under Section 334. All agents for service of process that are not commercial registered agents are noncommercial registered agents.

“Nonqualified foreign entity.” – A nonqualified foreign entity is a foreign entity for which there is no foreign qualification document in effect in the adopting state.

“Nonresident LLP statement.” – A nonresident LLP statement is the filing that is made by a limited liability partnership under Section 1001 of the Uniform Partnership Act (1997).

“Organic law.” – Organic law means statutes other than this Act that govern the internal affairs of an entity. Entity laws in a few states purport to require that some of their internal governance rules applicable to a domestic entity also apply to a foreign entity with significant ties to the state. See, e.g., Cal. Gen. Corp. Law § 2115, N.Y. N-PCL §§ 1318-1321, 15 Pa.C.S. § 6145. Such a “sticky fingers” law is included within the definition of “organic law” for purposes of the Act.

If a state has adopted the Model Entity Transactions Act, it should amend this definition to also exclude that act from the term “organic law.”

This definition is patterned after Model Entity Transactions Act § 102(26) (“organic law”). See also Model Business Corporation Act § 1.40(15B) (“organic law”).

“Organic rules.” – The term “organic rules” means an entity’s public organic document and its private organic rules.

This definition is patterned after Model Entity Transactions Act § 102(27) (“organic rules”).

“Person.” – The term “person” has the standard meaning of that term in uniform acts.

“Private organic rules.” – The term private “organic rules” is intended to include all governing rules of an entity that are binding on all of its interest holders, whether or not in written form, except for the provisions of the entity’s public organic document, if any. The term is intended to include agreements in “record” form as well as oral partnership agreements and oral operating agreements among LLC members. Where private organic rules have been amended or restated, the term means the private organic rules as last amended or restated.

The term “private organic rules” includes:

· Bylaws of a business corporation.

· Bylaws of a business or statutory trust.

· Bylaws of a nonprofit corporation.

· Constitution and bylaws of an unincorporated nonprofit association.

· Operating agreement of a limited liability company.

· Partnership agreement of a general partnership.

· Partnership agreement of a limited partnership.

This definition is patterned after Model Entity Transactions Act § 102(30) (“private organic rules”). Compare Model Business Corporation Act § 1.40(17A) (“private organic document”).

“Public organic document.” – A “public organic document” is a document that is filed of public record to form, organize, incorporate, or otherwise create an entity. The term does not include a statement of partnership authority filed under Section 303 of the Uniform Partnership Act (1997) or any of the other statements that may be filed under that act since those statements do not create a new entity. A limited liability partnership is the same entity as the partnership that files the statement. For the same reason, the term also does not include a statement of qualification filed under Section 1001 of that act to become a limited liability partnership. Similarly, the term does not include a statement of authority filed under Section 5 of the Uniform Unincorporated Nonprofit Association Act or a statement appointing an agent filed under Section 10 of that act. Where a public organic document has been amended or restated, the term means the public organic document as last amended or restated.

The term “public organic document” includes:

· Articles of incorporation of a business corporation.

· Articles of incorporation of a nonprofit corporation.

· Certificate of limited partnership.

· Certificate of organization of a limited liability company.

In those states where a deed of trust or other instrument is publicly filed to create a business trust, that filing will constitute a public organic document. But in those states where a business trust is not created by a public filing, the deed of trust or similar document will be part of the private organic rules of the business trust.

This definition is patterned after Model Entity Transactions Act § 102(32) (“public organic document”).

“Qualified foreign entity.” – A qualified foreign entity is a foreign entity for which there is a foreign qualification document in effect in the adopting state.

This definition is patterned after Model Entity Transactions Act § 102(33) (“qualified foreign entity”).

“Record.” – The term “record” has the standard meaning of that term in uniform acts.

“Registered agent.” – This term is used in the Act to refer to agents for service of process in contexts where it is not necessary to differentiate between commercial registered agents and noncommercial registered agents.

“Registered agent filing.” – Some states require that filings in addition to those listed in this definition, such as articles of amendment or articles of merger, state the registered agent information of the entity making the filing. In states where that is the case, this definition should be amended to add the following additional provision:

“(E) any other filing with the [Secretary of State] under an entity’s organic law that must include the information required by Section 5(a).”

“Represented entity.” – This definition lists the various classes of entities for which registered agents act as agents for service of process.

“Sign.” – The term “sign” has the standard meaning of that term in uniform acts.

“Transferable interest.” – The term “transferable interest” is taken from Section 102(22) of the Uniform Limited Partnership Act (2001).

This definition is patterned after Model Entity Transactions Act § 102(38) (“transferable interest”).

“Type.” – The term “type” has been developed in an attempt to distinguish different legal forms of entities. It is sometimes difficult to decide whether one is dealing with a different form of entity or a variation of the same form. For example, a limited partnership, although it has been defined as a partnership, is a different type of entity from a general partnership, while a limited liability partnership is not a different type of entity from a general partnership. In some states cooperative corporations are categories of business corporations or nonprofit corporations, while in other states cooperatives are a separate type of entity.

This definition is patterned after Model Entity Transactions Act § 102(39) (“type”).

[ARTICLE] 2

MECHANICS OF FILING; ADMINISTRATIVE POWERS OF
THE SECRETARY OF STATE

Section 201. REQUIREMENTS FOR DOCUMENTS.

(a) To be entitled to filing by the [Secretary of State], a document must satisfy the following requirements and the requirements of any other provision of this [Act] that adds to or varies these requirements:

(1) This [Act] requires or permits filing the document in the office of the [Secretary of State].

(2) The document contains the information required by this [Act] and may contain other information.

(3) The document is in a record.

(4) The document is in the English language, but the name of an entity need not be in English if written in English letters or Arabic or Roman numerals.

(5) The document is signed:

(A) by an officer of a domestic or foreign corporation;

(B) by a person authorized by a domestic or foreign entity that is not a corporation; or

(6) The document must state the name and capacity of the person that signed it. The document may contain a corporate seal, attestation, acknowledgment, or verification.

(7) The document must be delivered to the office of the [Secretary of State] for filing. Delivery may be made by electronic transmission if and to the extent permitted by the [Secretary of State]. If a document is filed in typewritten or printed form and not transmitted electronically, the [Secretary of State] may require one exact or conformed copy to be delivered with the document.

(b) When a document is delivered to the office of the [Secretary of State] for filing, the correct filing fee, and any franchise tax, license fee, or penalty required to be paid therewith by this [Act] or other law must be paid or provision for payment made in a manner permitted by the [Secretary of State].

Comment

The provisions of this Article are derived from Appendix A-1 of META. The comments are the comments to the sections of META Appendix A-1.

1. Form of documents.

A document may be filed in typewritten or printed form through physical delivery to the Secretary of State or by electronic transmission. Electronic transmission includes the evolving methods of electronic delivery, including facsimile transmissions, electronic transmissions between computers via modems and filings through delivery of magnetic tapes or computer diskettes, all as may be permitted by the Secretary of State. To be eligible for filing, a document must be typed or printed or electronically transmitted in a format that can be retrieved or reproduced in typewritten or printed form and in the English language (except to the limited extent permitted by subsection (a)(4)). The Secretary of State is not authorized to prescribe forms (except to the extent permitted by Section 202) and as a result may not reject documents on the basis of form (see Section 206) if they contain the information called for by the specific statutory requirement and meet the minimal formal requirements of this section.

2. Signature.

To be filed a document must be signed by the appropriate person. No specific officer is designated as the appropriate person to sign in the case of a corporation. Similarly, an unincorporated entity is given the authority to designate the person to sign on its behalf. See Section 102 for a description of the manner in which a document may be “signed.”

The requirement in some state statutes that documents must be acknowledged or verified as a condition for filing has been eliminated. These requirements serve little purpose in connection with documents filed under organic laws. On the other hand, many organizations, like lenders or title companies, may desire that specific documents include acknowledgements, verifications, or seals; subsection (a)(6) therefore provides that the addition of these forms of execution does not affect the eligibility of the document for filing.

3. Contents.

A document must be filed by the Secretary of State if it contains the information required by this Act. The document may contain additional information or statements and their presence is not ground for the Secretary of State to reject the document for filing. These documents must be accepted for filing even though the Secretary of State believes that the language is illegal or unenforceable. In view of this very limited discretion granted to Secretaries of State under this section, Section 206(d) defines the Secretary of State’s role as “ministerial” and provides that no inference or presumption arises from the fact that the Secretary of State accepted a document for filing. See the Comments to Sections 206 and 208.

4. Number of copies.

The Secretary of State is permitted to require an exact or conformed copy if the document is being filed in typewritten or printed form, providing the secretary of state flexibility to determine whether or not such copies serve any purpose. There is no such requirement with respect to documents transmitted electronically. Under subsection (a)(7) an “exact” copy is a reproduction of the executed original document; a “conformed” copy is a copy on which the existence of signatures is entered or noted on the copy.

Section 202. forms. The [Secretary of State] may prescribe and furnish on request forms for documents required or permitted to be filed by this [Act] but their use is not mandatory.

Comment

As described in the Comments to Section 201, documents are entitled to filing if they meet the substantive and formal requirements of this Act; they may also contain additional information if the person submitting the document so elects. In these circumstances it is not appropriate to vest the Secretary of State with general authority to establish mandatory forms for use under the Act. This section authorizes (but does not require) the Secretary of State to prepare forms suitable for filing under the Act. However, the use of these forms is permissive and cannot be required by the Secretary of State.

SECTION 203. FILING, SERVICE, AND COPYING FEES.

(a) The [Secretary of State] shall collect a fee of $___ each time process is served on the [Secretary of State] under this [Act]. The party to a proceeding causing service of process may recover this fee as costs if the party prevails in the proceeding.

(b) The [Secretary of State] shall collect the following fees for copying and certifying the copy of any document filed under this [Act]:

(1) $____ a page for copying; and

(2) $____ for the certificate.

(1) Statement of merger ...................................................... $____

(2) Statement of abandonment of merger............................ $____

(3) Statement of interest exchange....................................... $____

(4) Statement of abandonment of interest exchange…........ $____

(5) Statement of conversion ................................................ $____

(6) Statement of abandonment of conversion….................. $____

(7) Statement of domestication ........................................... $____

(8) Statement of abandonment of domestication................. $____

(9) Statement of division..................................................... $____

(10) Statement of abandonment of division........................ $____

[To be Supplemented]

Comment

This section establishes the filing fees for all documents that may be filed under the Act. The dollar amounts for each document should be inserted by each state as it adopts the Act.

Subsection (b) establishes standard fees for copying filed documents and certifying that the copies are true copies. The dollar amounts for these services should be conformed to the fees charged for similar services under other provisions of law.

The documents filed under this Act are referred to as “statements” in order to differentiate them from filings under corporation laws, which are typically referred to as “articles,” and from filings under partnership and other unincorporated entity laws, which are typically referred to as “certificates.”

SECTION 204. EFFECTIVE TIME AND DATE OF DOCUMENT. Except as provided in Section 205, a document accepted for filing is effective:

(1) at the date and time of filing, as evidenced by the means used by the [Secretary of State] for recording the date and time of filing;

(2) at the time specified in the document as its effective time on the date it is filed;

(3) at a specified delayed effective time and date if permitted by this [Act]; or

(4) if a delayed effective date but no time is specified, at the close of business on the date specified.

Comment

Documents accepted for filing become effective at the date and time of filing, or at another specified time on that date, unless a delayed effective date is selected. This section gives express statutory authority to the common practice of most Secretaries of State of ignoring processing time and treating a document as effective as of the date it is submitted for filing even though it may not be reviewed and accepted for filing until several days later.

This section requires Secretaries of State to maintain some means of recording the date and time of filing of documents and provides that documents become effective at the recorded time on the date of filing. This provision should eliminate any doubt about situations involving same-day transactions in which a document, for example, a statement of merger, is filed on the morning of the date the merger is to become effective. This section contemplates that the time of filing, as well as the date, will be routinely recorded.

Paragraph (3) does not authorize or contemplate the retroactive establishment of an effective date before the date of filing.

SECTION 205. CORRECTING FILED DOCUMENT.

(a) A domestic or foreign entity may correct a document filed by the [Secretary of State] if:

(1) the document contains an inaccuracy;

(2) the document was defectively signed; or

(3) the electronic transmission of the document to the [Secretary of State] was defective.

(b) A document is corrected by filing with the [Secretary of State] a statement of correction that:

(1) describes the document to be corrected and states its filing date or has attached a copy of the document;

(2) specifies the inaccuracy or defect to be corrected; and

(3) corrects the inaccuracy or defect.

(c) A statement of correction is effective on the effective date of the document it corrects except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, a statement of correction is effective when filed.

Comment

This section permits making corrections in filed documents without refiling the entire document. Under subsection (c), the correction relates back to the original effective date of the document being corrected, except as to persons relying on the original document and adversely affected by the correction. As to these persons, the effective date of the statement of correction is the date the statement is filed.

A document may be corrected either because it contains an inaccuracy or because it was defectively executed (including defects in optional forms of execution that do not affect the eligibility of the original document for filing). In addition, the document may be corrected if its electronic transmission was defective. This is intended to cover the situation where an electronic filing is made but, due to a defect in transmission, the filed document is later discovered to be inconsistent with the document intended to be filed. If no filing is made because of a defect in transmission, a statement of correction may not be used to make a retroactive filing. Therefore, an entity making an electronic filing should take steps to confirm that the filing was received by the Secretary of State.

A provision in a document setting an effective date may be corrected under this section, but the corrected effective date must comply with the requirements of this Act limiting delayed effective dates to within 90 days after filing. A corrected effective date is thus measured from the date of the original filing of the document being corrected, i.e., it cannot be before the date of filing of the document or more than 90 day thereafter.

SECTION 206. FILING DUTY OF [SECRETARY OF STATE].

(a) A document delivered to the office of the [Secretary of State] for filing that satisfies the requirements of Section 201 must be filed by the [Secretary of State].

(b) The [Secretary of State] files a document by recording it as filed on the date and time of receipt. After filing a document, the [Secretary of State] shall deliver to the domestic or foreign entity or its representative a copy of the document with an acknowledgement of the date and time of filing.

(c) If the [Secretary of State] refuses to file a document, the [Secretary of State] shall return the document to the domestic or foreign entity or its representative within five days after the document was delivered, together with a brief, written explanation of the reason for the refusal.

(d) The duty of the [Secretary of State] to file documents under this section is ministerial. The filing or refusal to file a document does not:

(1) affect the validity or invalidity of the document in whole or in part;

(2) relate to the correctness or incorrectness of information contained in the document; or

(3) create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect.

Comment

1. Filing duty in general.

Under this section the Secretary of State is required to file a document if it “satisfies the requirements of Section 201.” The purpose of this language is to limit the discretion of the Secretary of State to a ministerial role in reviewing the contents of documents. If the document submitted is in the form prescribed and contains the information required by Section 201 and the applicable provision of this Act, the Secretary of State must file it even though it contains additional provisions the Secretary of State may feel are irrelevant or not authorized by the Act or by general legal principles. Consistently with this approach, subsection (d) states that the

filing duty of the Secretary of State is ministerial and provides that filing a document with the Secretary of State does not affect the validity or invalidity of any provision contained in the document and does not create any presumption with respect to any provision. Persons adversely affected by provisions in a document may test their validity in a proceeding appropriate for that purpose. Similarly, the attorney general of the state may also question the validity of provisions of documents filed with the Secretary of State in an independent suit brought for that purpose; in neither case should any presumption or interference be drawn about the validity of the provision from the fact that the Secretary of State accepted the document for filing.

2. Mechanics of filing.

Subsection (b) provides that when the Secretary of State files a document, the Secretary of State records it as filed on the date and time of receipt, retains the original document for the state’s records, and delivers a copy of the document to the entity or its representative with an acknowledgement of the date and time of filing. In the case of a document transmitted electronically, delivery may be made by electronic transmission. The copy returned will be the exact or conformed copy if one has been required by the Secretary of State, or will be a copy made by the Secretary of State if an exact of conformed copy was not required. Of course, a person desiring a certified copy of any filed document may obtain it from the office of the Secretary of State by paying the fee prescribed in Section 203(b).

3. Elimination of certificates and similar documents.

Subsection (b) provides that acceptance of a filing is evidenced merely by the issuance of a fee receipt or acknowledgement of receipt if no fee is required. The Act does not provide for the Secretary of State to issue a formal certificate of filing. A single document – the fee receipt or acknowledgement – should sufficiently indicate that the document has been accepted for filing.

4. Rejection of document by Secretary of State.

Because of the simplification of formal filing requirements and the limited discretion granted to the Secretary of State by this Act, it is probable that rejection of documents for filing will occur only rarely. Subsection (c) provides that if the Secretary of State does reject a document for filing, the Secretary of State must return it to the entity or its representative within five days together with a brief written explanation of the reason for rejection. In the case of a document transmitted electronically, rejection of the document may be made electronically by the Secretary of State or by a mailing to the entity. A rejection may be the basis of judicial review under Section 207.

SECTION 207. APPEAL FROM REFUSAL TO FILE A DOCUMENT.

(a) If the [Secretary of State] refuses to file a document delivered for filing, the domestic or foreign entity that submitted the document for filing may appeal the refusal within 30 days after the return of the document to the [name or describe] court [of the county where the entity’s principal office (or, if none in this state, its registered office) is or will be located] [of ______ county]. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the explanation of the [Secretary of State] for the refusal to file.

(b) The court may summarily order the [Secretary of State] to file the document or take other action the court considers appropriate.

Comment

1. The court with jurisdiction to hear appeals from the Secretary of State.

The identity of the specific court with jurisdiction to hear appeals from the Secretary of State under this section must be supplied by each state when enacting this section. It is intended that this should be a court of general civil jurisdiction. It may either be the court located in the capital of the state or the court in the county where the entity’s principal business office is located in the state or, if the entity does not have a principal office in the state, the court located in the county in which its registered office is located.

2. “Summary” orders.

In view of the limited discretion of the Secretary of State under the Act, a “summary” order appears to be appropriate under this section. The word “summary” is not used in a technical sense but to refer to a class of cases where the court might appropriately order that action be taken on the face of the pleadings or after an oral hearing but without any need to resolve disputed factual issues.

3. Burden of proof and review standard.

The Act does not address either the burden of proof or the standard for review in judicial proceedings challenging action of the Secretary of State. It is contemplated that these matters will be governed by general principles of judicial review of agency action in each adopting state.

SECTION 208. EVIDENTIARY EFFECT OF COPY OF FILED DOCUMENT. A certificate from the [Secretary of State], delivered with a copy of a document filed by the [Secretary of State], conclusively establishes that the original document is on file with the [Secretary of State].

Comment

The Secretary of State may be requested to certify that a specific document has been filed upon payment of the fees specified in Section 203(c). This section provides that the certificate is conclusive evidence only that the document is on file. The limited effect of the certificate is consistent with the ministerial filing obligation imposed on the Secretary of State under the Act. The certificate from the Secretary of State, as well as the copy of the document, may be delivered by electronic transmission.

SECTION 209. PENALTY FOR SIGNING FALSE DOCUMENT. A person

commits a [_____] misdemeanor [punishable by a fine of not to exceed $___] if the person signs a document the person knows is false in any material respect with intent that the document be delivered to the [Secretary of State] for filing.

Comment

This section makes it a criminal offense for any person to sign a document that he knows is false in any material respect with intent that the document be submitted for filing to the secretary of state. As provided in Section 102, “sign” includes any manual, facsimile, conformed or electronic signature.

This section is keyed to the classification of offenses provided by the Model Penal Code. If a state has not adopted this classification, the dollar amount of the fine should be substituted for the misdemeanor classification.

SECTION 210. POWERS OF [SECRETARY OF STATE]. The [Secretary of

State] has the power reasonably necessary to perform the duties required by this [Act].

Comment

This section is intended to grant the Secretary of State the authority necessary for the efficient performance of the filing and other duties imposed by the Act, but is not intended to provide general authority to establish public policy. The most important aspects of modern organic laws relate to the creation and maintenance of relationships among persons interested in or involved with an entity; these relationships basically should be a matter of concern to the parties involved and not subject to regulation or interpretation by the Secretary of State.

[ARTICLE] 3

NAMES OF ENTITIES; REGISTERED AGENTS AND REGISTERED OFFICES

CHAPTER A

NAMES OF ENTITIES

SECTION 301. UNAUTHORIZED PURPOSE IN NAME PROHIBITED. A filing entity or a foreign filing entity may not have a name that contains any word or phrase that indicates or implies that the entity is engaged in a business that the entity is not authorized by law to pursue.

SECTION 302. NAMES PROHIBITED.

(a) A filing entity may not have a name, and a foreign filing entity may not register to transact business in this state under a name that is the same as or not distinguishable on the records of the [Secretary of state] from:

(1) the name of another existing filing entity or registered limited liability partnership with an effective current registration;

(2) the name of a foreign filing entity that is registered under Article 5;

(3) a name that is reserved under Chapter B; or

(4) a name that is registered under Chapter C.

(b) Subsection (a) does not apply if the other entity or the person for whom the name is reserved or registered, as appropriate, consents in writing to the use of a name not distinguishable on the records of the [Secretary of State], and submits an undertaking in form satisfactory to the [Secretary of State] to change its name to a name that is distinguishable on the records of the [Secretary of State] from the name applied for.

(c) In determining whether a name is the same as or not distinguishable on the records of the [Secretary of State] from the name of another entity, words, phrases, or abbreviations indicating the type of entity, such as “corporation”, “corp.”, “incorporated”, “Inc.”, “limited partnership”, “limited liability partnership”, “LLP”, “registered limited liability partnership”, “RLLP”, “limited liability company”, or “LLC” shall not be taken into account unless waived by the incumbent holder of the name.

SECTION 303. NAME OF CORPORATION OR FOREIGN CORPORATION. The name of a corporation or foreign corporation must contain: the word “corporation,” “incorporated,” “company,” or “limited,” or the abbreviation “corp.,” “inc.,” “co.,” or “ltd.,” or words or abbreviations of like import in another language.

Comment

This provision is drawn from Model Business Corporation Act, section 4.01(a).

Note that section 401 of the Revised Model NonProfit Corporation Act, the “Names” provision of that Act, does not have a parallel “corporateness” language requirement.

SECTION 304. NAME OF LIMITED PARTNERSHIP OR FOREIGN LIMITED PARTNERSHIP.

(a) The name of a limited partnership may contain the name of any partner.

(b) The name of a limited partnership that is not a limited liability limited partnership must contain the phrase “limited partnership” or the abbreviation “L.P.” or “LP” and may not contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.”.

(c) The name of a limited liability limited partnership must contain the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.” and must not contain the abbreviation “L.P.” or “LP.”

Comment

This provision is drawn from Uniform Limited Partnership Act (2001), section 108(a)-(c). Predecessor law, Revised Uniform Limited Partnership Act (RULPA) (1985) Section 102, prohibited the use of a limited partner’s name in the name of a limited partnership except in unusual circumstances. That approach derived from the 1916 Uniform Limited Partnership Act and has become antiquated. In 1916, most business organizations were either unshielded (e.g., general partnerships) or partially shielded (e.g., limited partnerships), and it was reasonable for third parties to believe that an individual whose own name appeared in the name of a business would “stand behind” the business. Today most businesses have a full shield (e.g., corporations, limited liability companies, most limited liability partnerships), and corporate, LLC and LLP statutes generally pose no barrier to the use of an owner’s name in the name of the entity. This Act eliminates RULPA’s restriction and puts limited partnerships on equal footing with these other “shielded” entities.

SECTION 305. NAME OF LIMITED LIABILITY COMPANY OR FOREIGN LIMITED LIABILITY COMPANY. The name of a limited liability company must contain the words “limited liability company” or “limited company” or the abbreviation “L.L.C.”, “LLC”, “L.C.”, or “LC”. “Limited” may be abbreviated as “Ltd.”, and “company” may be abbreviated as “Co.”.

Comment

This provision is drawn from Revised Uniform Limited Liability Company Act (2006), section 108(a).

SECTION 306. NAME OF REGISTERED LIMITED LIABILITY PARTNERSHIP. The name of a limited liability partnership must end with “Registered Limited Liability Partnership,” “R.L.L.P.,” “L.L.P.,” “RLLP,” or “LLP.”

Comment

This section is drawn from Uniform Partnership Act (1997) (RUPA), section 1002.

SECTION 307. NAME OF STATUTORY TRUST. The name of a statutory trust set forth in its certificate of trust may contain the words: “company”, “association”, “club”, “foundation”, “fund”, “institute”, “society”, “union”, “syndicate”, “limited”, or “trust”, or words or abbreviations of similar import, and may contain the name of a beneficial owner, a trustee, or any other person.

Comment

This section is drawn from the 2006 Draft of the Uniform Statutory Trust Act, section 209(b). The drafting committee comments indicate that it considered, but opted not to require, a traditional limited liability appellation. Such a requirement would be inconsistent with current practice under the Delaware Act. For example, the names of mutual funds typically do not contain a limited liability appellation, though Section 35(d) of the Investment Company Act of 1940, which is applicable to a statutory trust that is a registered investment company, prohibits “materially deceptive or misleading” names. 15 U.S.C. §80a-34(d). See also Rule 35d-1, 17 C.F.R. §270.35d-1 (listing types of names that have been deemed “materially deceptive or misleading”).

SECTION 308. NAME OF LIMITED COOPEARATIVE ASSOCIATION. The name of a limited cooperative association must contain the words “limited cooperative association” or “limited cooperative” or the abbreviation “L.C.A.” or “LCA”. “Limited” may be abbreviated as “Ltd.”. “Cooperative” may be abbreviated as “Co-op” or “Coop”. “Association” may be abbreviated as “Assoc.” or “Assn.”.

Comment

This section is drawn from section 109(b) of the March 9-11 Draft of the Uniform Limited Cooperative Association Act.

SECTION 309. NAME OF PROFESSIONAL ENTITY; CONFLICT WITH OTHER LAW OR ETHICAL RULE. The name of a professional entity must be consistent with any statute or regulation that governs a person who provides a professional service through the professional entity, including a rule of professional ethics.

Comment

This provision is drawn from Texas Business Organizations Code section 5.060.

CHAPTER B

RESERVATION OF NAMES

SECTION 311. APPLICATION FOR RESERVATION OF NAME.

(a) A person may reserve the exclusive use of an entity name, including a fictitious name for a foreign entity whose corporate name is not available, by delivering an application to the [Secretary of State] for filing. The application must set forth the name and address of the applicant and the name proposed to be reserved. If the [Secretary of State] finds that the entity name applied for is available, he shall reserve the name for the applicant’s exclusive use for a nonrenewable 120-day period.

(b) The owner of a reserved entity name may transfer the reservation to another person by delivering to the [Secretary of State] a signed notice of the transfer that states the name and address of the transferee.

(c) The name may also be reserved by telephone or other electronic means, subject to such requirements as the [Secretary of State] may establish for reservation of names by such means, including requirements for payment of the fee for name reservation.

Comment

This section is patterned on Model Business Corporation Act section 4.02. Subsection (c) is drawn from Alabama Business and Nonprofit Entity Code section 10A-1-5.11(c). It should be noted that the Texas Business Organizations Code, section 5.105, unlike the Model Business Corporations Act, allows renewal of reservation of names for successive 120 day periods, by filing an application for renewal during the 30 day period preceding expiration of the reservation.

CHAPTER C

RESERVATION OF NAMES

SECTION 321. REGISTRATION OF NAMES. A foreign filing entity not registered to do business in this state under Article xx may register its entity name, or its entity name with any addition required by section xxx, if the name is distinguishable upon the records of the [Secretary of State] from the entity names that are not available under section 302..

Section 322. APPLICATION FOR REGISTRATION OF NAME. A foreign filing entity registers its entity name, or its entity name with any addition required by section xxx, by delivering to the [Secretary of State] for filing an application:

(a) setting forth its entity name, or its entity name with any addition required by section xxx, the state or country and date of its formation, and a brief description of the nature of the business in which it is engaged; and

(b) accompanied by a certificate of existence (or a document of similar import) from the state or country of formation.

The name is registered for the applicant’s exclusive use upon the effective date of the application.

SECTION 323. DURATION OF REGISTRATION OF NAME. The registration of a name under this [Act] is effective until the end of the calendar year following the year in which the application was filed.

SECTION 324. RENEWAL OF REGISTRATION. A foreign entity whose registration is effective may renew it for successive years by delivering to the [Secretary of State] for filing a renewal application, which complies with the requirements of Section 322, between October 1 and December 31 of the preceding year. The renewal application when filed renews the registration for the following calendar year.

SECTION 325. QUALIFICATION AS FOREIGN ENTITY OR CONSENT TO USE OF REGISTERED NAME. A foreign entity whose registration is effective may thereafter qualify as a foreign filing entity under the registered name or consent in writing to the use of that name by a domestic filing entity thereafter formed under this [Act] or by another foreign filing entity thereafter authorized to transact business in this state. The registration terminates when the domestic filing entity is formed or the foreign filing entity qualifies or consents to the qualification of another foreign filing entity under the registered name.

CHAPTER D

REGISTERED AGENTS AND REGISTERED OFFICES;

SERVICE OF PROCESS ON ENTITIES

SECTION 331. ENTITIES REQUIRED TO DESIGNATE AND MAINTAIN REGISTERED AGENT AND REGISTERED OFFICE. Each domestic filing entity, each foreign filing entity qualified to business in this state, each foreign registered limited liability partnership qualified to do business in this state pursuant to Article xx, and any domestic registered limited liability partnership that does not maintain a place of business in this state shall designate and continuously maintain in this state:

(1) a registered agent; and

(2) a registered office.

Comment

This section is derived from Texas Business Organizations Code section 5.201(a). A similar provision appears in the Draft Alabama Business and Nonprofit Entity Code as section 10A-1-5.31. The Model Registered Agents Act, from which this Division of this draft is largely drawn, does not contain a provision mandating which entities must designate a registered agent and registered office, leaving that to the specific entity statutes. The Texas statute and the Alabama Draft attempt to do that in the “Hub”. This would ultimately entail deletions in the respective entity statutes.

Like the Texas statute, this section covers domestic and qualified foreign filing entities. It also covers, as does the Alabama Draft, registered limited liability partnerships in the circumstances in which RLLPs are required to maintain an agent for service of process under RUPA section 1001 (c)(3) (domestic RLLP) or RUPA section 1102(a)(3) (foreign RLLP), even though those sections do not use the term “registered agent.”

Notice that the Model Registered Agent does provide for elective designation of a registered agent by domestic nonfiling entities and by nonqualifed foreign entities. MRAA section 12. Those provisions have been imported into this Act as section 340, below.

Section 332. Addresses in filings. Whenever a provision of this [act] other than Section 339(a)(4) requires that a filing state an address, the filing must state:

(1) an actual street address or rural route box number in this state; and

(2) a mailing address in this state, if different from the address under paragraph (1).

Comment

When this Act requires that a filing state an address, the address used must always be a geographic location. Where a person uses a post office box as its mailing address, paragraph (2) requires that the post office box address also be stated.

This section, and the accompanying Comment, is derived from MRAA section 4.

Section 333. Appointment of registered agent.

(a) A registered agent filing must state:

(1) the name of the represented entity’s commercial registered agent; or

(2) if the entity does not have a commercial registered agent:

(A) the name and address of the entity’s noncommercial registered agent; or

(B) the title of an office or other position with the entity if service of process is to be sent to the person holding that office or position, and the address of the business office of that person.

(b) The appointment of a registered agent pursuant to subsection (a)(1) or (2)(A) is an affirmation by the represented entity that the agent has consented to serve as such.

(c) The [Secretary of State] shall make available in a record as soon as practicable a daily list of filings that contain the name of a registered agent. The list must:

(1) be available for at least 14 calendar days;

(2) list in alphabetical order the names of the registered agents; and

(3) state the type of filing and name of the represented entity making the filing.

Legislative note: Subsection (c) may be omitted if (i) the records of the Secretary of State are searchable electronically in a manner that permits filings to be identified by the date of the filing and by the name of the registered agent named in the filing, and (ii) the searchable database is updated frequently.

Comment

Subsection (a)(1) gives an entity the option of listing just the name of its commercial registered agent in a registered agent filing and omitting the address of the registered agent. If the commercial registered agent subsequently changes its address, that change will be reflected in the filing made by the agent under Section 6, as amended under Section 338, but no change will be necessary in the registered agent filing of any of the entities represented by the commercial registered agent. The address of an entity’s commercial registered agent may be ascertained from the records of the Secretary of State by consulting its listing under Section 334.

The address of an entity’s noncommercial registered agent is usually not a business address of the represented entity. On the other hand, subsection 333(a)(2)(B) permits an entity to designate a person within the organization, such as its general counsel, to serve as its registered agent; and in that circumstance the address of the registered agent may very well be a business address of the represented entity.

The addresses required by subsection (a) to be stated in a registered agent filing must satisfy the requirements in Section 332.

Subsection (b) avoids the need to include with a registered agent filing a consent of the registered agent to serve as such.

Subsection (c) creates a procedure that will permit registered agents to determine if they have been named in filings of which they were not aware by periodically consulting the list prepared by the Secretary of State. Subsection (c) requires the registered agents to be listed in alphabetical order to facilitate the use of the list by registered agents and also to indicate the type of filing (e.g., articles of incorporation, certificates of limited partnership, appointments of agents under Section 340 of this Act, etc.) in which each registered agent is named. Subsection (c) will not be necessary under the circumstances described in the Legislative Note because registered agents may consult the regular database maintained by the Secretary of State to verify when they have been named as a registered agent.

Subsection (a) is a generalization of Section 5.01 of the Model Business Corporation Act, Section 114 of the Uniform Limited Partnership Act, and Section 108 of the Uniform Limited Liability Company Act.

This section and the accompanying Comment is derived from Section 5 of the Model Registered Agents Act.

Section 334. LISTING of commercial registered agent.

(a) An individual or a domestic or foreign entity may become listed as a commercial registered agent by filing with the [Secretary of State] a commercial registered agent listing statement signed by or on behalf of the person which states:

(1) the name of the individual or the name, type, and jurisdiction of organization of the entity;

(2) that the person is in the business of serving as a commercial registered agent in this state; and

(3) the address of a place of business of the person in this state to which service of process and other notice and documents being served on or sent to entities represented by it may be delivered.

(b) A commercial registered agent listing statement may include the information regarding acceptance of service of process in a record by the commercial registered agent provided for in Section 341(d).

(c) If the name of a person filing a commercial registered agent listing statement is not distinguishable on the records of the [Secretary of State] from the name of another commercial registered agent listed under this section, the person must adopt a fictitious name that is distinguishable and use that name in its statement and when it does business in this state as a commercial registered agent.

(d) A commercial registered agent listing statement takes effect on filing.

(e) The [Secretary of State] shall note the filing of the commercial registered agent listing statement in the index of filings maintained by the [Secretary of State] for each entity represented by the registered agent at the time of the filing. The statement has the effect of deleting the address of the registered agent from the registered agent filing of each of those entities.

Legislative note: If the Secretary of State is not able to identify from the records maintained by the Secretary of State all of the entities represented by a registered agent, subsection (e) should be amended to read:

“(e) The commercial registered agent listing statement must be accompanied by a list in alphabetical order of the entities represented by the person. The [Secretary of State] shall note the filing of the commercial registered agent listing statement in the index of filings maintained by the [Secretary of State] for each listed entity. The statement has the effect of deleting the address of the registered agent from the registered agent filing of each of those entities.”

Comment

This section is a substantial simplification of practice because it removes the need to amend the filed record of every entity represented by a commercial registered agent when the agent changes its address.

Subsection (a)(3) only permits a commercial registered agent to list one address where service of process and other notices may be sent to entities represented by the agent. This may require a change in practice for registered agents who have previously maintained more than one address in a state and have permitted represented entities to choose which address they would use in their registered agent filings. A corporation, for example, located in one part of a state might include in its articles of incorporation an address for its registered agent which is the address of an office of the agent located close to the corporation and which is different than the address used by a corporation in another part of the state which has the same registered agent but uses a different office of the agent. In the example given, the registered agent will need to pick just one address in the state where all service of process will be sent to it. If a commercial registered agent wishes to maintain more than one office in a state where service of process will be received by it, it can accomplish that result by organizing separate entities to conduct its business in the state and filing separate statements for each entity under this section.

The address required by subsection (a)(3) to be stated in a commercial registered agent listing statement must satisfy the requirements in Section 332 above.

Subsection (e) is a transitional provision that deals with the effect on the entities represented by a registered agent at the time the agent is first listed under this section. The effect is to amend the registered agent filing of each such entity to delete the address of the registered agent consistent with Section 333(a)(1).

This section is drawn from Section 6 of the Model Registered Agents Act, which in turn is patterned generally after 15 Pennsylvania Consolidated Statutes. § 109.

Section 335. TERMINATION of LISTING OF commercial Registered agent.

(a) A commercial registered agent may terminate its listing as a commercial registered agent by filing with the [Secretary of State] a commercial registered agent termination statement signed by or on behalf of the agent which states:

(1) the name of the agent as currently listed under Section 6; and

(2) that the agent is no longer in the business of serving as a commercial registered agent in this state.

(b) A commercial registered agent termination statement takes effect on the 31st day after the day on which it is filed.

(c) The commercial registered agent shall promptly furnish each entity represented by it with notice in a record of the filing of the commercial registered agent termination statement.

(d) When a commercial registered agent termination statement takes effect, the registered agent ceases to be an agent for service of process on each entity formerly represented by it. Until an entity formerly represented by a terminated commercial registered agent appoints a new registered agent, service of process may be made on the entity as provided in Section 341. Termination of the listing of a commercial registered agent under this section does not affect any contractual rights a represented entity may have against the agent or that the agent may have against the entity.

Comment

This section provides a procedure for a commercial registered agent to withdraw from the business of providing registered agent services. Use of the procedure in this section will terminate the status of the registered agent as the agent for service of process of all the entities represented by the agent. Thus, the procedure in this section differs from the procedure in Section 11, which permits a registered agent to resign with respect to just a single represented entity instead of resigning generally with respect to all of its represented entities.

This section and its accompanying comment is derived from Section 7 of the Model Registered Agents Act.

Section 336. Change of registered agent by entity.

(a) A represented entity may change the information currently on file under Section 333(a) by filing with the [Secretary of State] a statement of change signed on behalf of the entity which states:

(1) the name of the entity; and

(2) the information that is to be in effect as a result of the filing of the statement of change.

(b) The interest holders or governors of a domestic entity need not approve the filing of:

(1) a statement of change under this section; or

(2) a similar filing changing the registered agent or registered office of the entity in any other jurisdiction.

(c) The appointment of a registered agent pursuant to subsection (a) is an affirmation by the represented entity that the agent has consented to serve as such.

(d) A statement of change filed under this section takes effect on filing.

(e) As an alternative to using the procedures in this section, a represented entity may change the information currently on file under Section 333(a) by amending its most recent registered agent filing in the manner provided by the laws of this state other than this [act] for amending that filing.

Comment

Changes of the registered agent or the office address of a registered agent are usually routine matters that do not affect the rights of the interest holders of the represented entity. This section permits those changes to be made without a formal amendment of an entity’s public organic document, without approval of its interest holders, and, indeed, even without formal approval by its governors (i.e., the persons managing the entity’s affairs, such as the board of directors of a corporation).

Subsection (c) avoids the need to file with a statement of change a consent of the new registered agent being designated.

Subsection (e) makes clear that the procedures in this section are not exclusive. A common way in which an entity changes its registered agent or registered office is to include the change in an amendment of its public organic document.

Subsection (a) is a generalization of Section 5.02(a) of the Model Business Corporation Act, Section 115 of the Uniform Limited Partnership Act, and Section 109 of the Uniform Limited Liability Company Act. As to subsection (c), compare Section 5.02(a)(5) of the Model Business Corporation Act. Subsection (d) is patterned after Section 115(b) of the Uniform Limited Partnership Act.

This section, and the accompanying comment, is derived from Section 8 of the Model Registered Agents Act.

Section 337. Change of name OR address by NONCOMMERCIAL registered agent.

(a) If a noncommercial registered agent changes its name or its address as currently in effect with respect to a represented entity pursuant to Section 333(a), the agent shall file with the [Secretary of State], with respect to each entity represented by the agent, a statement of change signed by or on behalf of the agent which states:

(1) the name of the entity;

(2) the name and address of the agent as currently in effect with respect to the entity;

(3) if the name of the agent has changed, its new name; and

(4) if the address of the agent has changed, the new address.

(b) A statement of change filed under this section takes effect on filing.

(c) A noncommercial registered agent shall promptly furnish the represented entity with notice in a record of the filing of a statement of change and the changes made by the filing.

Comment

This section permits a noncommercial registered agent to change the name and address of the agent that appears in the registered agent filing of an entity represented by the agent. Because the noncommercial registered agent is not listed under Section 334, the agent will not be able to use the procedures in Section 338 which permit commercial registered agents to make only one filing to change their name and address for all entities represented by them. Thus the noncommercial registered agent will need to make a filing under this section for each entity represented by the agent.

An address included in a statement of change must satisfy the requirements in Section 332.

This section is derived from Model Registered Agent Act section 9, which in turn is patterned after 15 Pa Consol. Stat. § 108.

Section 338. Change of name, address, OR TYPE OF ORGANIZATION by commercial registered agent.

(a) If a commercial registered agent changes its name, its address as currently listed under Section 6(a), or its type or jurisdiction of organization, the agent shall file with the [Secretary of State] a statement of change signed by or on behalf of the agent which states:

(1) the name of the agent as currently listed under Section 334(a);

(2) if the name of the agent has changed, its new name;

(3) if the address of the agent has changed, the new address; and

(4) if the type or jurisdiction of organization of the agent has changed, the new type or jurisdiction of organization.

(b) The filing of a statement of change under subsection (a) is effective to change the information regarding the commercial registered agent with respect to each entity represented by the agent.

(d) A commercial registered agent shall promptly furnish each entity represented by it with notice in a record of the filing of a statement of change relating to the name or address of the agent and the changes made by the filing.

(e) If a commercial registered agent changes its address without filing a statement of change as required by this section, the [Secretary of State] may cancel the listing of the agent under Section 334. A cancellation under this subsection has the same effect as a termination under Section 335. Promptly after canceling the listing of an agent, the [Secretary of State] shall serve notice in a record in the manner provided in Section 341(b) or (c) on:

(1) each entity represented by the agent, stating that the agent has ceased to be an agent for service of process on the entity and that, until the entity appoints a new registered agent, service of process may be made on the entity as provided in Section 341; and

(2) the agent, stating that the listing of the agent has been canceled under this section.

Comment

This section permits a commercial registered agent to make a single filing that has the effect of changing the name or address of the agent for all of the entities represented by it.

An address included in a statement of change must satisfy the requirements in Section 332.

Subsection (e) provides a procedure by which the Secretary of State may cancel the listing of a commercial registered agent when the Secretary of State learns that the agent has changed its address without amending its listing as a commercial registered agent. When the Secretary of State acts to cancel the listing of a commercial registered agent, the Secretary of State is required to notify both (i) the entities represented by the agent that they no longer have a valid registered agent and (ii) the agent that it no longer is listed as a commercial registered agent. Unlike in the case of a resignation under Section 11 which is initiated by the registered agent and thus does not require a notice from the Secretary of State to the agent, notice by the Secretary of State to the agent is needed under this section so that the agent has notice that its representation of the entities it previously represented has terminated under Section 335.

This section is derived from section 10 of the Model Registered Agents Act, which in turn is patterned after 15 Pa.Consol. Stat. § 109(b).

Section 339. Resignation of registered agent.

(a) A registered agent may resign at any time with respect to a represented entity by filing with the [Secretary of State] a statement of resignation signed by or on behalf of the agent which states:

(1) the name of the entity;

(2) the name of the agent;

(3) that the agent resigns from serving as agent for service of process for the entity; and

(4) the name and address of the person to which the agent will send the notice required by subsection (c).

(b) A statement of resignation takes effect on the earlier of the 31st day after the day on which it is filed or the appointment of a new registered agent for the represented entity.

(c) The registered agent shall promptly furnish the represented entity notice in a record of the date on which a statement of resignation was filed.

(d) When a statement of resignation takes effect, the registered agent ceases to have responsibility for any matter tendered to it as agent for the represented entity. A resignation under this section does not affect any contractual rights the entity has against the agent or that the agent has against the entity.

(e) A registered agent may resign with respect to a represented entity whether or not the entity is in good standing.

Comment

Resignation under this section may be accomplished solely by action of the registered agent and does not require the cooperation or consent of the represented entity. Whether a resignation violates a contract between the registered agent and the represented entity is beyond the scope of this Act and subsection (d) preserves whatever claims a represented entity may have against its registered agent for a wrongful termination. Even if a resignation were to violate such a contract, the resignation would still be effective if the provisions of this section are followed.

Resignation under this section relates only to the entity named in the statement of resignation. Thus, the procedure in this section differs from the procedure in Section 7 which terminates the status of the agent as agent for all of the entities represented by it.

The requirements of Section 332 with respect to addresses do not apply to subsection (a)(4) because the registered agent may not have all the required information available.

Subsection (b) delays the effectiveness of a statement of resignation for 31 days to allow the notice of the resignation that must be sent under subsection (c) to reach the represented entity and to allow the represented entity to arrange for a substitute registered agent.

Subsection (e) makes clear that a registered agent may resign with respect to an entity that is not in good standing and supersedes the contrary administrative practice in some states of refusing to accept any filings with respect to an entity that is not in good standing until the problem with the entity’s standing is cured.

Subsection (a) is a generalization of Section 5.03(a) of the Model Business Corporation Act, Section 116(a) of the Uniform Limited Partnership Act, and Section 110(a) of the Uniform Limited Liability Company Act. Subsection (b) is a generalization of Section 5.03(c) of the Model Business Corporation Act, Section 116(c) of the Uniform Limited Partnership Act, and Section 110(c) of the Uniform Limited Liability Company Act. Subsection (c) is derived from Section 5.03(b) of the Model Business Corporation Act, Section 116(b) of the Uniform Limited Partnership Act, and Section 110(b) of the Uniform Limited Liability Company Act, except that notice under this Act is to be given by the resigning registered agent rather than the Secretary of State.

This section and the accompanying comment are derived from section 11 of the Model Registered Agents Act.

Section 340. APPOINTMENT of agent BY NONFILING OR NONQUALIFIED FOREIGN ENTITY.

(a) A domestic entity that is not a filing entity or a nonqualified foreign entity may file with the [Secretary of State] a statement appointing an agent for service of process signed on behalf of the entity which states:

(1) the name, type, and jurisdiction of organization of the entity; and

(2) the information required by Section 333(a).

(b) A statement appointing an agent for service of process takes effect on filing.

(c) The appointment of a registered agent under this section does not qualify a nonqualified foreign entity to do business in this state and is not sufficient alone to create personal jurisdiction over the nonqualified foreign entity in this state.

(d) A statement appointing an agent for service of process may not be rejected for filing because the name of the entity filing the statement is not distinguishable on the records of the [Secretary of State] from the name of another entity appearing in those records. The filing of a statement appointing an agent for service of process does not make the name of the entity filing the statement unavailable for use by another entity.

(e) An entity that has filed a statement appointing an agent for service of process may cancel the statement by filing a statement of cancellation, which shall take effect upon filing, and must state the name of the entity and that the entity is canceling its appointment of an agent for service of process in this state. A statement appointing an agent for service of process which has not been canceled earlier is effective for a period of five years after the date of filing.

(f) A statement appointing an agent for service of process for a nonqualified foreign entity terminates automatically on the date the entity becomes a qualified foreign entity.

Comment

Filing under this section is elective, and no inference should be drawn from the failure of an entity to make such a filing.

This section and the accompanying comment are drawn from Section 12 of the Model Registered Agents Act. Subsection (a), in turn, is patterned after Section 10 of the Uniform Unincorporated Nonprofit Association Act.

Section 341. Service of process on entities.

(a) A registered agent is an agent of the represented entity authorized to receive service of any process, notice, or demand required or permitted by law to be served on the entity.

(b) If an entity that previously filed a registered agent filing with the [Secretary of State] no longer has a registered agent, or if its registered agent cannot with reasonable diligence be served, the entity may be served by registered or certified mail, return receipt requested, addressed to the governors of the entity by name at its principal office in accordance with any applicable judicial rules and procedures. The names of the governors and the address of the principal office may be as shown in the most recent annual report filed with the [Secretary of State]. Service is perfected under this subsection at the earliest of:

(1) the date the entity receives the mail;

(2) the date shown on the return receipt, if signed on behalf of the entity; or

(3) five days after its deposit with the United States Postal Service, if correctly addressed and with sufficient postage.

(c) If process, notice, or demand cannot be served on an entity pursuant to subsection (a) or (b), service of process may be made by handing a copy to the manager, clerk, or other person in charge of any regular place of business or activity of the entity if the person served is not a plaintiff in the action.

(d) Service of process, notice, or demand on a registered agent must be in the form of a written document, except that service may be made on a commercial registered agent in such other forms of a record, and subject to such requirements as the agent has stated from time to time in its listing under Section 334 that it will accept.

(e) Service of process, notice, or demand may be perfected by any other means prescribed by law other than this [act].

Legislative Note: The conforming amendments in the Appendix to the Act recommend that provisions similar to subsections (b) through (e) be repealed to the extent they appear in a state’s individual entity organic laws. In a state with that statutory scheme, subsections (b) through (e) will be needed to replace the repealed provisions. On the other hand, a state that does not have provisions similar to subsections (b) through (e) in its individual entity organic laws, and instead provides rules for service of process on entities in a statute separate from its entity organic laws or in rules of court, should omit subsections (b) through (e). If subsections (b) through (e) are omitted, a conforming change must be made to Section 10(e).

Comment

Subsection (c) provides a means for serving process on an entity that cannot be served under subsection (a) or (b). Some entity organic laws require that service of process in that circumstance be made on the Secretary of State, but that leaves unanswered the question of what the Secretary of State should do with the process. Subsection (c) is patterned after Pa. R.Civ.Proc. 423(3) and 424(2). A similar approach is taken by Fed. R.Civ.Proc. 4(h)(1).

Subsections (a) and (d) are a generalization of Section 5.04(a) and (c) of the Model Business Corporation Act, Section 117(a) and (f) of the Uniform Limited Partnership Act, and Section 111(a) and (e) of the Uniform Limited Liability Company Act. Subsection (b) is a generalization of Section 5.04(b) of the Model Business Corporation Act.

This section is derived from Section 13 of the Model Registered Agents Act.

Section 342. DutIES of registered agent. The only duties under this [act] of a registered agent that has complied with this [act] are:

(1) to forward to the represented entity at the address most recently supplied to the agent by the entity any process, notice, or demand that is served on the agent;

(2) to provide the notices required by this [act] to the entity at the address most recently supplied to the agent by the entity;

(3) if the agent is a noncommercial registered agent, to keep current the information required by Section 333(a) in the most recent registered agent filing for the entity; and

(4) if the agent is a commercial registered agent, to keep current the information listed for it under Section 334(a).

Comment

This section is limited to prescribing the duties of a registered agent under this Act. An agent may undertake other responsibilities to a represented entity, such as by contract or course of dealing, but those duties will be determined under other law.

The Delaware General Corporation Law has been amended to add a new Section 132(b)(1), 8 Del. Code § 132(b)(1), requiring a registered agent to be generally available in the state to accept service of process. It was not considered necessary to include that provision in the Act because Section 341 provides alternative means of serving process if a registered agent cannot with reasonable diligence be served.

The Delaware General Corporation has also been amended to require a represented corporation to notify its registered agent when the corporation changes its business address and to permit a registered agent to resign if it is not supplied with current contact information. 8 Del. Code § 132(d). Section 339 of the Act provides registered agents with a broader right to resign than is available under the Delaware amendment.

This section is derived from Section 14 of the Model Registered Agents Act.

Section 343. JURISDICTION AND VENUE. The appointment or maintenance in this state of a registered agent does not by itself create the basis for personal jurisdiction over the represented entity in this state. The address of the agent does not determine venue in an action or proceeding involving the entity.

Comment

As discussed in the Introduction to the Act, one of the purposes of the Act is to eliminate the registered office address as a means of determining where venue is to be laid in an action involving a represented entity. Consistent with that purpose, this section makes clear that the address of a registered agent does not determine venue. This section may be inconsistent with other law or procedural rules in a state, and thus existing law on venue should be reviewed when this Act is considered for adoption in a state. Compare Cooper v. Chevron U.S.A., Inc., 132 N.M. 382, 49 P.3d 61 (N.M. 2002) (applying New Mexico statute permitting venue “in the county where the statutory agent designated by the foreign corporation resides”).

This section is drawn from Section 15 of the Model Registered Agents Act.

[ARTICLE] 4

QUALIFICATION OF FOREIGN ENTITIES

SECTION 401. GOVERNING LAW.

(a) The law of the state or other jurisdiction under which a foreign entity is formed governs:

(1) the internal affairs of the foreign entity; and

(2) the liability of an interest holder as interest holder and governor as governor for the debts, obligations, or other liabilities of the foreign entity.

(b) The [Secretary of State] may not deny a foreign entity a certificate of authority by reason of any difference between the laws of the jurisdiction under which the foreign entity is formed and the laws of this state.

(c) A certificate of authority does not authorize a foreign entity to engage in any business or exercise any power that a domestic entity of the same type may not engage in or exercise in this state.

Comment

This section is a generalized version of ULPA (2001) section 901, Revised Uniform Limited Liability Company Act section 801, Uniform Limited Cooperative Association Act section 1301, (2007 Draft); and Uniform Statutory Trust Act section 701 (2006 Draft). The Model Business Corporation Act and the Model NonProfit Corporation Act do not contain an explicit parallel provision.

SECTION 402. APPLICATION FOR CERTIFICATE OF AUTHORITY.

(a) A foreign filing may apply for a certificate of authority to transact business in this State by delivering an application to the [Secretary of State] for filing. The application must state:

(1) the name of the foreign filing entity and, if the name does not comply with the applicable provisions of Division A, Article 3 of this [Act], an alternate name adopted pursuant to Section 405(a).

(2) the name of the State or other jurisdiction under whose law the foreign filing entity is organized;

(3) the street and mailing address of the foreign filing entity’s principal office and, if the laws of the jurisdiction under which the foreign filing entity is organized require the foreign filing entity to maintain an office in that jurisdiction, the street and mailing address of the required office; and

(4) the name and street and mailing address of the foreign filing entity’s initial agent for service of process in this State.

(b) A foreign limited partnership shall deliver with the completed application a certificate of existence or a record of similar import signed by the [Secretary of State] or other official having custody of the foreign filing entity’s publicly filed records in the State or other jurisdiction under whose law the foreign filing entity is organized.

Comment

This section is a generalized version of Uniform Limited Liability Company
Act Section 802. Similar provisions are found in ULPA (2001) sec. 902, section 702 of the Statutory Trust Act and section 1302 of the Limited Cooperative Association Draft. Similar requirements are imposed on corporations under MBCA sec. 15.03 and MNCA sec. 15.03. In all instances other than the LLC statute and the foreign statutory trust draft, these statutes also require that the governors of the entity also be listed, e.g., the general partners of a limited partnership, the current directors or officers of a corporation, business or nonprofit, or a foreign cooperative. This Draft has followed the lead of the LLC Act and the Statutory Trust Draft in omitting this requirement.

SECTION 403. ACTIVITIES NOT CONSTITUTING TRANSACTING BUSINESS.

(a) Activities of a foreign filing entity which do not constitute transacting business in this state within the meaning of this [Act] include:

(1) maintaining, defending, or settling an action or proceeding;

(2) carrying on any activity concerning its internal affairs, including holding meetings of its interest holders or governors;

(3) maintaining accounts in financial institutions;

(4) maintaining offices or agencies for the transfer, exchange, and registration of the entity’s own interests or maintaining trustees or depositories with respect to those interests;

(5) selling through independent contractors;

(6) soliciting or obtaining orders, whether by mail or electronic means or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;

(7) creating or acquiring indebtedness, mortgages, or security interests in real or personal property;

(8) securing or collecting debts or enforcing mortgages or other security interests in property securing the debts and holding, protecting, or maintaining property so acquired;

(9) conducting an isolated transaction that is completed within 30 days and is not in the course of similar transactions; and

(10) transacting business in interstate commerce.

(b) For purposes of this [Act], the ownership in this state of income-producing real property or tangible personal property, other than property excluded under subsection (a), constitutes transacting business in this state.

(c) This section does not apply in determining the contacts or activities that may subject a foreign filing entity to service of process, taxation, or regulation under law of this state other than this [Act].

Comment

This section is a generalized version of ULLCA section 803. Similar provisions appear in ULPA (2001) section 903; section 704 of the Statutory Trust Act Draft; section 1303 of the Limited Cooperative Association Act Draft; section 15.01(b) of the MBCA; and 15.01(b) of the Model Non-Profit Corporation Act.

SECTION 404. FILING OF CERTIFICATE OF AUTHORITY. Unless the [Secretary of State] determines that an application for a certificate of authority does not comply with the filing requirements of this [act], the [Secretary of State], upon payment of all filing fees, shall file the application of a foreign filing entity, prepare, sign, and file a certificate of authority to transact business in this state, and send a copy of the filed certificate, together with a receipt for the fees, to the foreign filing entity or its representative.

Comment

This section is a generalized version of ULLCA section 804. Parallel provisions are found in ULPA (2001), section 904; section 705 of the Foreign Statutory Trust Draft; section 1304 of the Limited Cooperative Association Draft. The MBCA and the MNCA do not have an express parallel provision.

SECTION 405. NONCOMPLYING NAME OF FOREIGN ENTITY.

(a) A foreign filing entity whose name does not comply with the applicable provisions of Division A, Article 3, for an entity of its type may not obtain a certificate of authority until it adopts, for the purpose of transacting business in this state, an alternate name that complies with Division A, Article 3.. A foreign filing entity that adopts an alternate name under this subsection and obtains a certificate of authority with the alternate name need not comply with [fictitious or assumed name statute]. After obtaining a certificate of authority with an alternate name, a foreign filing entity shall transact business in this state under the alternate name unless the entity is authorized under [fictitious or assumed name statute] to transact business in this state under another name.

(b) If a foreign filing entity authorized to transact business in this state changes its name to one that does not comply with Division A, Article 3, it may not thereafter transact business in this state until it complies with subsection (a) and obtains an amended certificate of authority.

Comment

This section is a generalized version of ULLCA section 805, and of the parallel provisions of other entity statutes.

SECTION 406. REVOCATION OF CERTIFICATE OF AUTHORITY.

(a) A certificate of authority of a foreign filing entity to transact business in this state may be revoked by the [Secretary of State] in the manner provided in subsections (b) and (c) if the entity does not:

(1) pay, within 60 days after the due date, any fee, tax, or penalty due to the [Secretary of State] under this [act] or law other than this [act];

(2) deliver, within 60 days after the due date, the annual report, if any, required of foreign filing entities of its type;

(3) appoint and maintain an agent for service of process as required by Section 331 of this [act]; or

(4) deliver for filing a statement of a change under Article 3 of this [act] within 30 days after a change has occurred in the name or address of the agent.

(b) To revoke a certificate of authority of a foreign filing entity, the [Secretary of State] must prepare, sign, and file a notice of revocation and send a copy to the entity’s agent for service of process in this state, or if the company does not appoint and maintain a proper agent in this state, to the entity’s principal office as designated in section 402(a)(3). The notice must state:

(1) the revocation’s effective date, which must be at least 60 days after the date the [Secretary of State] sends the copy; and

(2) the grounds for revocation under subsection (a).

(c) The authority of a foreign filing entity to transact business in this state ceases on the effective date of the notice of revocation unless before that date the entity cures each ground for revocation stated in the notice filed under subsection (b). If the entity cures each ground, the [Secretary of State] shall file a record so stating.

Comment

This section is a generalized version of Section 806, ULLCA, and parallel provisions of other entity statutes.

SECTION 407. CANCELLATION OF CERTIFICATE OF AUTHORITY. To cancel its certificate of authority to transact business in this state, a foreign filing entity must deliver to the [Secretary of State] for filing a notice of cancellation stating the name of the entity and that the entity desires to cancel its certificate of authority. The certificate is canceled when the notice becomes effective.

Comment

This section is a generalized version of ULLCA sec. 807, and parallel provisions of other entity statutes.

SECTION 408. EFFECT OF FAILURE TO HAVE CERTIFICATE OF AUTHORITY.

(a) A foreign filing entity transacting business in this state may not maintain an action or proceeding in this state unless it has a certificate of authority to transact business in this state.

(b) The failure of a foreign filing entity to have a certificate of authority to transact business in this state does not impair the validity of a contract or act of the entity or prevent the entity from defending an action or proceeding in this state.

(c) A member or manager of a foreign filing entity is not liable for the debts, obligations, or other liabilities of the entity solely because the entity transacted business in this state without a certificate of authority.

(d) If a foreign filing entity transacts business in this state without a certificate of authority or cancels its certificate of authority, it appoints the [Secretary of State] as its agent for service of process for rights of action arising out of the transaction of business in this state.

Comment

This section is a generalized version of ULLCA section 808 and parallel provisions of other entity statutes.

SECTION 409. ACTION BY [ATTORNEY GENERAL]. The [Attorney General] may maintain an action to enjoin a foreign filing entity from transacting business in this state in violation of this [act].

Comment

This section is a generalized version of ULLCA section 809, and parallel provisions of other entity statutes.

ARTICLE 5

MERGERS, CONVERSIONS, DOMESTICATIONS AND DIVISIONS

CHAPTER A

GENERAL PROVISIONS

SECTION 501. RELATIONSHIP OF [ARTICLE] TO OTHER LAWS.

(a) This [Article] does not authorize an act prohibited by, and does not affect the application or requirements of, law other than this [Article].

(b) A transaction effected under this [Act] may not create or impair any right or obligation on the part of a person under a provision of the law of this state other than this [Article] relating to a change in control, takeover, business combination, control-share acquisition, or similar transaction involving a domestic merging, acquired, converting, or domesticating entity unless:

(1) if the entity does not survive the transaction, the transaction satisfies any requirements of the provision; or

(2) if the entity survives the transaction, the approval of the plan is sufficient to create or impair the right or obligation directly under the provision.

Comment

1. General. Subsections (a) and (b) are generalized versions of Section 103(b) and (c) of META. (Subsection (a) is a standard provision of uniform and model acts that the principles of law and equity apply; it should be placed in some other point in this Act. The following comments are drawn from META section 103.

2. Section 501(a) – Subsection (a) preserves existing regulatory law in an adopting state in general terms. Adopting states should consider more carefully integrating this Act with their various regulatory laws. For example, in some states certain professions are limited in their use of limited liability entities. See also Section 532. Laws other than this Article that will apply to transactions under the Article include, for example, the various uniform fraudulent transfer and fraudulent conveyance acts; state insolvency statutes; federal bankruptcy law; and Articles 8 and 9 of the UCC.

3. Section 501(b) – Many states have enacted “antitakeover” statutes intended to make it more difficult to acquire control of a publicly-traded corporation. Those statutes often provide that their application to a particular corporation cannot be changed unless the corporation obtains certain specified approvals, such as a vote of disinterested directors or a supermajority vote by the shareholders. The purpose of the special requirements in subsection (b) on varying the application of an antitakeover statute is to protect against a hostile acquirer or group of shareholders seeking to use the Article to avoid the application of the antitakeover statute. Subsection (b) protects the application of antitakeover statutes from being affected by a transaction under this Article by requiring that the transaction be approved in a manner that would be sufficient to approve changing the application of the antitakeover statute. If a transaction is approved in that manner, there is no policy reason to prohibit the application of the antitakeover statute from being varied by a transaction under this Article. If the application of an antitakeover statute cannot be varied by action of an entity subject to it, then a transaction under this Article will be permissible only if the antitakeover provision continues to apply after the transaction or the transaction itself is permissible under the antitakeover statute.

SECTION 502. REQUIRED NOTICE OR APPROVAL.

(a) A domestic or foreign entity that is required to give notice to, or obtain the approval of, a governmental agency or officer in order to sell some or all of its assets, be a party to a merger, or change its purposes or form of organization shall give the notice, or obtain the approval, to be a party to a transaction under this [Article].

(b) Property held for a charitable purpose under the law of this state by a

domestic or foreign entity immediately before a transaction under this [Article] becomes effective may not, as a result of the transaction, be diverted from the objects for which it was donated, granted, or devised, unless the entity obtains an order of [name of court] [the attorney general] to the extent required by or pursuant to [cite state statutory cy pres or other nondiversion law] specifying the disposition of the property.

Comment

This provision is taken without change from META section 104, as are the following comments:

1. Section 502(a) – Because at least some of the provisions of this Article will be new in most states, it is likely that existing state laws that require regulatory approval of transactions by businesses such as banks, insurance companies, or public utilities may not be worded in a fashion that will include at least some of the transactions authorized by this Article. The purpose of subsection (a) is to ensure that transactions under this Article will be subject to the same regulatory approval as mergers. This section is based on whether a merger by a regulated entity requires prior approval because the transactions authorized by this Act may be effectuated indirectly in many cases under existing law by establishing a wholly-owned subsidiary of the desired type and then merging into it. The consequence of violating subsection (a) should be the same as in the case of a merger consummated without the required approval.

2. Section 502(b) – This Article applies generally to nonprofit corporations and unincorporated nonprofit associations. As in the case of laws regulating particular industries, a state’s laws governing the nondiversion of charitable property to other uses may not cover some of the transactions authorized by this Artcle. To prevent the procedures in this Article from being used to avoid restrictions on the use of property held by nonprofit entities, subsection (b) requires approval of the effect of transactions under this Article by the appropriate arm of government having supervision of nonprofit entities.

3. Application – An approval or order obtained under this section may impose conditions or specify the disposition of assets or liabilities in a manner different than would otherwise be the case. In such an instance, the approval or order will control over the provisions of this Act specifying the effects of a transaction. See Sections 516, 526, 536, 546, and 556.

4. Source – Subsection (a) is patterned after Model Business Corporation Act § 9.02. Subsection (b) is patterned after 15 Pa.C.S. § 5547(b).

SECTION 503. STATUS OF FILINGS. A filing under this [Article] signed by a domestic entity becomes part of the public organic document of the entity if the entity’s organic law provides that similar filings under that law become part of the public organic document of the entity.

Comment

Articles of merger and other similar documents filed under the Model Business

Corporation Act are made a part of the articles of incorporation of each domestic business corporation that is a party to the merger by Section 1.40(1) of the Model Business Corporation Act. This section provides that filings under this Act will similarly become part of the public organic document of a domestic corporation. It should be noted that some state statutes no longer require filed documents to be “signed” in order to facilitate electronic filing. See, e.g, Colorado Rev. Stat. § 7-90-301 et seq. In such cases, this section should be modified to delete the reference to “signed” and merely refer to being filed (or accepted for filing).

SECTION 504. NONEXCLUSIVITY. The fact that a transaction under this [Article] produces a certain result does not preclude the same result from being accomplished in any other manner permitted by law other than this [Act].

Comment

This section allows a transaction that has the same end result as one of the transactions governed by this Article, but that is accomplished in a manner not within the scope of this Article, to be exempt from this Article. For example, a sale of assets and transfer of liabilities by two entities to a third entity followed by the liquidation of the two transferring entities can be accomplished pursuant to sale of assets statutory provisions rather then under Chapter 2 of this Article, even though the end result of the transaction is essentially the same as if the two entities had merged into a third entity. Another example would be a division transaction where a corporation creates a subsidiary and then distributes the equity interests in the subsidiary to its shareholders on a pro rata basis. While this is a classic I.R.C. § 355 spinoff that is in effect a division of the corporation, it is not a division transaction within the scope of Chapter F of this Act. See Section 551.

SECTION 505. REFERENCE TO EXTERNAL FACTS. A plan may refer to facts ascertainable outside of the plan if the manner in which the facts will operate upon the plan is specified in the plan. The facts may include the occurrence of an event or a determination or action by a person, whether or not the event, determination, or action is within the control of a party to the transaction.

Comment

This section is based on, but more concise than, § 1.20(k) of the Model Business Corporation Act.

SECTION 506. ALTERNATIVE MEANS OF APPROVAL OF TRANSACTIONS. Except as otherwise provided in the organic law or organic rules of a domestic entity, approval of a transaction under this [Article] by the unanimous vote or consent of its interest holders satisfies the requirements of this [Article] for approval of the transaction.

Comment

This section makes it clear that a unanimous vote by the interest holders of an entity constitutes the only approval needed of a transaction under this Article. That is consistent with the default rules on approval in Sections 513 (approval of a merger), 523 (approval of an interest exchange), 533 (approval of a conversion), 543 (approval of a domestication), and 553 (approval of a division).

[SECTION 507. APPRAISAL RIGHTS. Except as otherwise provided in the entity’s organic law or organic rules, an interest holder of a domestic merging, acquired, converting, domesticating, or dividing entity is entitled to appraisal rights in connection with the transaction if the interest holder would have been entitled to appraisal rights if the entity were a party to a merger under its organic law.]

Legislative Note: Section 507 is an optional provision that preserves appraisal rights (sometimes referred to as “dissenters’ rights”) granted by other laws. As an alternative to enacting this section, a state may wish to amend the appraisal rights provisions of its organic laws to specify which transactions under this Act will give rise to appraisal rights. [See the suggested amendments in META Appendix 2.] If that alternative approach is adopted, the references to Section 507 in other sections of this Article should be replaced with references to the appropriate provisions of the organic laws granting appraisal rights.

Comment

This Article permits a plan to set forth the terms and conditions of a transaction. A domestic entity may thus choose to grant optional appraisal rights as part of the terms of a transaction in circumstances where appraisal rights would not be available under this section. It was not considered necessary to confirm the possibility of so-called “contractual appraisal rights.” Cf. 6 Del. Code §§ 15-120 (general partnerships), 17-212 (limited partnerships), and 18-210 (limited liability companies) which validate contractual appraisal rights.

[SECTION 508. EXCLUDED ENTITIES AND TRANSACTIONS.

(a) The following entities may not participate in a transaction under this [Article]:

(1)

(2)

(b) This [Article] may not be used to effect a transaction that:

(1)

(2)

(3)]

Legislative Note: Subsection (a) may be used by states that have special statutes restricted to the organization of certain types of entities. A common example is banking statutes that prohibit banks from engaging in transactions other than pursuant to those statutes.

Nonprofit entities may participate in transactions under this Article with for-profit entities, subject to compliance with Section 502(b). If a state desires, however, to exclude entities with a charitable purpose from the scope of the Act, that may be done by referring to those entities in subsection (a).

More limited provisions that exclude certain types of domestic entities just from certain provisions of this Act are set forth in Sections 511(d) (mergers), 521(e) (interest exchanges), 531(d) (conversions), 541(e) (domestications), and 551(e) divisions.

Subsection (b) may be used to exclude certain types of transactions governed by more specific statutes. A common example is the conversion of an insurance company from mutual to stock form. There may be other types of transactions that vary greatly among the states.

[CHAPTER] B

MERGER

SECTION 511. MERGER AUTHORIZED.

(a) Except as otherwise provided in this section, by complying with this [Chapter]:

(1) one or more domestic entities may merge with one or more domestic or foreign entities into a domestic or foreign surviving entity; and

(2) two or more foreign entities may merge into a domestic entity.

(b) Except as otherwise provided in this section, by complying with the provisions of this [Chapter] applicable to foreign entities a foreign entity may be a party to a merger under this [Chapter] or may be the surviving entity in such a merger if the merger is authorized by the law of the foreign entity’s jurisdiction of organization.

(1) [Chapter 11 of the Model Business Corporation Act];

(2) [Chapter 11 of the Model Nonprofit Corporation Act];

(3) [Article 9 of the Uniform Partnership Act (1997)];

(4) [Article 11 of the Uniform Limited Partnership Act (2001)];

(5) [Article 12 of the Prototype Limited Liability Company Act];

(6) [Article 9 of the Uniform Limited Liability Company Act]; or

(7)

[(d) The following entities may not participate in a merger under this [Chapter]:

(1)

(2)]

Comment

This section is derived from Section 201 of META. The following comments are derived from the Comments to that section.

1. In General - The merger transaction authorized by this Act involves the combination of one or more domestic entities with or into one or more other domestic or foreign entities. It also contemplates the consolidation of two or more foreign entities into a single domestic surviving entity. Upon the effective date of the merger, all the assets and liabilities of the constituent entities vest in the surviving entity as a matter of law. As such, mergers require the existence of at least two separate entities before the transaction and only one entity may survive the merger. If independent existence of the constituent entities is desired following the conclusion of the transaction, a restructuring transaction other than a merger must be used to accomplish the transfer of assets and liabilities.

2. Section 511(a) – Subsection (a)(1) states the general rule that subject to the rules set forth in subsections (c) and (d) one or more domestic entities may merge with or into a domestic or foreign surviving entity. Subsection (a)(2) provides that two or more foreign entities may merge into a domestic surviving entity so long as subsection 511(b) is met.

3. Section 511(b) – Subsection (b) states that a foreign entity may be a party to a merger or may be the surviving entity in a merger if the merger is authorized by the laws of the foreign entity’s jurisdiction of organization.

4. Section 511(c) – It is expected that many adopting states will retain provisions on mergers solely between entities of the same type in the organic law governing that type of entity and will add similar provisions to other organic laws. [See the discussion in Section 3 of the META Prefatory Note.] On the other hand, there will be some types of entities where it is unlikely that merger provisions will be added to their organic law, for example, unincorporated nonprofit associations. In cases where the organic law provides for a merger involving entities all of the same type, the organic law and not this Act applies to the transaction; but this Act would apply to any merger involving cross-type entities. In cases where the applicable organic law does not provide for mergers, this Act will serve the important function of authorizing mergers involving entities of that type, as well as cross-type mergers involving entities of that type. Some states have statutes that allow cross-type mergers as well as same-type mergers, in which case the cross-type provisions should be repealed when this Act is enacted. [See Appendix 2.to META]

5. Section 511(d) - Subsection (d) is an optional provision that may be used to exclude certain types of entities from the scope of this article. A provision that excludes certain types of entities from the Act generally is set forth in Section 508.

6. Tax Considerations – This Act authorizes a merger for state law purposes. Federal law and other state law will independently determine how a merger transaction will be taxed.

SECTION 512. PLAN OF MERGER.

(a) A domestic entity may become a party to a merger under this [Article] by approving a plan of merger. The plan must be in a record and contain:

(1) as to each merging entity, its name, jurisdiction of organization, and type;

(2) if the surviving entity is to be created in the merger, a statement to that effect and its name, jurisdiction of organization, and type;

(3) the manner of converting the interests in each party to the merger into interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing;

(4) if the surviving entity exists before the merger, any proposed amendments to its public organic document or to its private organic rules that are, or are proposed to be, in a record;

(5) if the surviving entity is to be created in the merger, its proposed public organic document, if any, and the full text of its private organic rules that are proposed to be in a record;

(6) the other terms and conditions of the merger; and

(7) any other provision required by the law of a merging entity’s jurisdiction of organization or the organic rules of a merging entity.

(b) A plan of merger may contain any other provision not prohibited by law.

Comment

This section is derived from META section 202. The following comments are derived from the Comments to META section 202.

1. Section 512(a) - The requirements for the plan of merger are set forth in Section 512(a). They are similar to plan of merger provisions in corporation statutes. See Model Business Corporation Act § 11.02(c).

2. Section 512(a)(1) - Section 512(a)(1) requires that the plan of merger identify the parties to the merger. The name of a merging entity as it appears in the plan of merger will be its name in its jurisdiction of organization. See Comment 3 to Section 515.

3. Section 512(a)(3) - Section 512(a)(3) enables constituent organizations to provide for continuing interests in a surviving entity for some equity holders and the payment of some other form of consideration for other equity participants. In addition, constituent entities may use a merger to reorganize the capital structure of the surviving entity. Section 512(a)(3) also permits the non-uniform treatment of equity holders in a merger. A non-uniform “equity shuffle” may be accomplished in a merger involving an unincorporated entity and the minority owners of the unincorporated entity will not necessarily be entitled to the statutory appraisal right currently afforded to minority stockholders in merging corporate entities. Any perceived “unfairness” in

the “shuffle” will need to be addressed either (i) under the guise of fiduciary duties, assuming, of course, that such duties have not been contractually modified or eliminated, or (ii) by the exercise of whatever rights the minority owners may have to veto the transaction or to withdraw or to dissociate and be paid the value of their interests.

The consideration paid to the interest holders of the merging parties may be supplied in whole or part by a person who is not a party to the merger.

4. Section 512(b) - Section 512(b) provides the statutory authority for a merging party to include information in a plan of merger that is not specifically listed in Section 512(a). One such possibility is contractual appraisal rights.

SECTION 513. APPROVAL OF MERGER.

(a) A plan of merger is not effective unless it has been approved:

(1) by a domestic merging entity:

(A) in accordance with the requirements, if any, in its organic law and organic rules for approval of a transaction that has the effect of a merger; or

(B) if neither its organic law nor organic rules provide for

approval of a transaction that has the effect of a merger, by all of the interest holders of the entity entitled to vote on or consent to any matter; and

(2) in a record, by each interest holder of a domestic merging entity that will have interest holder liability for liabilities that arise after the merger becomes effective, unless:

(A) the organic rules of the entity provide in a record for the approval of a transaction that has the effect of a merger in which some or all of its interest holders become subject to interest holder liability by the vote or consent of fewer than all of the interest holders; and

(B) the interest holder voted for or consented in a record to that provision of the organic rules or became an interest holder after the adoption of that provision.

(b) A merger involving a foreign merging entity is not effective unless it is approved by the foreign entity in accordance with the law of the foreign entity’s jurisdiction of organization.

Comment

This section is derived from Section 203 of META. The following comments are taken from the Comments to META Section 203.

1. Section 513(a) – Approval under Section 513 includes whatever actions or procedures by the governors and interest holders of an entity are required by its organic law, as modified by its organic rules, to effectuate the merger. If the organic rules of an entity prescribe a procedure for the proposal, adoption and/or approval of a merger, the term “approval” includes compliance with all of those rules. See the definition of “approval” in Section 102. The phrase “transaction that has the effect of a merger” used in subsection (a)(1)(B) is explained in the Comment to the definition of “merger” in Section 102.

If the organic law of an entity is silent with respect to procedures for approval of a merger, the organic rules may be amended to provide those procedures. Otherwise, the default procedure in subsection (a)(1)(B) requires approval by the interest holders entitled to vote on governance matters.

The incorporation into this Chapter of the merger procedures in the organic law of a party to a merger should be construed broadly to include not only express statutory procedures, but also applicable common law principles such as fiduciary duty standards of governors and majority interest holders. Statutory provisions on voting by classes or voting groups in a merger will also be applicable. In addition, any statutory provisions on “short-form” merger will apply in a transaction where a controlled subsidiary is being merged into the parent.

2. Section 513(a)(2) – Subsection (a)(2) is patterned in part after Uniform Limited Partnership Act (2001) § 1110. Subsection (a)(2) will be applicable, for example, to shareholders of a corporation that merges into a general partnership that is not a limited liability partnership if the shareholders become general partners of the surviving general partnership. If such a shareholder were to exercise appraisal rights, however, the shareholder would not become subject to owner liability because one effect of exercising appraisal rights is that the shareholder would not become a general partner in the surviving entity; and, in that case, the consent of that shareholder would not be required under subsection (a)(2).

The consent of an interest holder required by subsection (a)(2)(B) may be given either by

(i) signing or agreeing generally to the terms of organic rules that include the required provision permitting less than unanimous approval of a merger in which interest holders become subject to owner liability, or (ii) voting for or consenting to an amendment to add such a provision.

3. Section 513(b) – Where a foreign entity is a party to a merger under this Article, subsection (b) defers to the laws of the foreign jurisdiction for the requirements for approval of the merger by the foreign entity. Those laws will include the organic law of the foreign entity and other applicable laws, such as this Article if it has been adopted in the foreign jurisdiction. The laws of the foreign jurisdiction will also control the application of any special approval requirements found in the organic rules of the foreign entity.

SECTION 514. AMENDMENT OR ABANDONMENT OF PLAN OF MERGER.

(a) A plan of merger of a domestic merging entity may be amended:

(1) in the same manner as the plan was approved, if the plan does not provide for the manner in which it may be amended; or

(2) by the governors or interest holders of the entity in the manner

provided in the plan, but an interest holder that was entitled to vote on or consent to approval of the merger is entitled to vote on or consent to any amendment of the plan that will change:

(A) the amount or kind of interests, securities, obligations, rights

to acquire interests or securities, cash, or other property, or any combination of the foregoing, to be received by the interest holders of any party to the plan;

(B) the public organic document or private organic rules of the

surviving entity that will be in effect immediately after the merger becomes effective, except for changes that do not require approval of the interest holders of the surviving entity under its organic law or organic rules; or

(C) any other terms or conditions of the plan, if the change would adversely affect the interest holder in any material respect.

(b) After a plan of merger has been approved by a domestic merging entity and before a statement of merger becomes effective, the plan may be abandoned:

(1) as provided in the plan; or

(2) unless prohibited by the plan, in the same manner as the plan was approved.

(c) If a plan of merger is abandoned after a statement of merger has been filed with the [Secretary of State] and before the filing becomes effective, a statement of abandonment, signed on behalf of a merging entity, must be filed with the [Secretary of State] before the time the statement of merger becomes effective. The statement of abandonment takes effect upon filing, and the merger is abandoned and does not become effective. The statement of abandonment must contain:

(1) the name of each merging or surviving entity that is a domestic entity or a qualified foreign entity;

(2) the date on which the statement of merger was filed; and

(3) a statement that the merger has been abandoned in accordance with this section.

Comment

This section is derived from META section 204. It sets out the requirements for amending or abandoning the plan of merger. They are similar to provisions for amending or abandoning mergers found in existing corporation merger statutes. See Model Business Corporation Act §§ 11.02(e) and 11.08.

SECTION 515. STATEMENT OF MERGER; EFFECTIVE DATE.

(a) A statement of merger must be signed on behalf of each merging entity and filed with the [Secretary of State].

(b) A statement of merger must contain:

(1) the name, jurisdiction of organization, and type of each merging entity that is not the surviving entity;

(2) the name, jurisdiction of organization, and type of the surviving entity;

(3) if the statement of merger is not to be effective upon filing, the later date and time on which it will become effective, which may not be more than 90 days after the date of filing;

(4) a statement that the merger was approved by each domestic merging entity, if any, in accordance with this [Chapter] and by each foreign merging entity, if any, in accordance with the law of its jurisdiction of organization;

(5) if the surviving entity exists before the merger and is a domestic filing entity, any amendment to its public organic document approved as part of the plan of merger;

(6) if the surviving entity is created by the merger and is a domestic filing entity, its public organic document, as an attachment; and

(7) if the surviving entity is created by the merger and is a domestic limited liability partnership, its [statement of qualification], as an attachment.

(c) In addition to the requirements of subsection (b), a statement of merger may contain any other provision not prohibited by law.

(d) If the surviving entity is a domestic entity, its public organic document, if any, must satisfy the requirements of the law of this state, except that it does not need to be signed and may omit any provision that is not required to be included in a restatement of the public organic document.

(e) A plan of merger that is signed on behalf of all of the merging entities and meets all of the requirements of subsection (b) may be filed with the [Secretary of State] instead of a statement of merger and upon filing has the same effect. If a plan of merger is filed as provided in this subsection, references in this [Act] to a statement of merger refer to the plan of merger filed under this subsection.

(f) A statement of merger becomes effective upon the date and time of filing or the later date and time specified in the statement of merger.

Comment

This section is derived from META Section 205. The following comments are derived from the comments to META Section 205.

1. The requirements for the statement of merger are similar to articles of merger provisions found in most existing corporate merger statutes. See Model Business Corporation Act § 11.06.

2. Section 515(a) - The filing of a statement of merger makes the transaction a matter of public record. A separate public filing under the merger provisions of the organic law of a domestic merging entity is not required. Provisions dealing with the filing requirements and filing fee for a statement of merger are set forth in Article 2 of this Act.

3. Section 515(b)(1) and (2) – The names of foreign entities set forth in the statement of

merger will generally be their names in their jurisdiction of formation, except that if a foreign entity has been required to adopt a different name in order to qualify to do business in the adopting state, the foreign qualification statute will likely require that the name of the entity as set forth in the statement of merger be the name adopted for purposes of qualifying to do business.

4. Section 515(b)(3) – See Comment 9.

5. Section 515(b)(4) – The statement in subsection (b)(4) that the plan of merger was approved by each entity in accordance with this article necessarily presupposes that the plan was approved in accordance with any valid, special requirements in the organic rules of each merging entity.

6. Section 515(b)(6) – The public organic document of a domestic surviving entity created by the merger that is attached to the statement of merger becomes the original, officially filed text of the public organic document of the surviving entity when the statement of merger takes effect. It is not necessary, or appropriate, to make any other filing to create the surviving entity.

Similarly, a statement of qualification for a domestic limited liability partnership created by the merger that is attached to the statement of merger does not need to be filed separately.

7. Section 515(d) – Organic laws typically require an initial filing that creates an entity to be signed by the person serving as the incorporator or other organizer. Subsection (d), however, provides that the public organic document of the surviving entity does not need to be signed since it is itself attached to a signed document.

Subsection (d) also permits the public organic document of the surviving entity to omit any provision that is not required to be included in a restatement of the public organic document. Pursuant to this provision, for example, the public organic document of a business corporation created as the surviving entity in the merger would not need to state the name and address of each incorporator even though that information would be required by Section 2.02(a)(4) of the Model Business Corporation Act if the corporation were being incorporated outside the context of the merger.

8. Section 515(e) - A plan of merger that contains all the information required in the statement of merger may be filed instead of the statement of merger. The plan must be in a record and signed by each merging party.

9. Section 515(f) - The effective time of the statement is the effective time of its filing, unless otherwise specified. A statement may specify a delayed effective time and date, and if it does so the statement becomes effective at the time and date specified. Section 515(f) is subject to the 90-day delayed effective date filing limitation in subsection 51(b)(3).

SECTION 516. EFFECT OF MERGER.

(a) When a merger becomes effective:

(1) the surviving entity continues or comes into existence;

(2) each merging entity that is not the surviving entity ceases to exist;

(3) all property of each merging entity vests in the surviving entity without assignment, reversion, or impairment;

(4) all liabilities of each merging entity are liabilities of the surviving entity;

(5) except as otherwise provided by law other than this [Act] or the plan of merger, all of the rights, privileges, immunities, powers, and purposes of each merging entity vest in the surviving entity;

(6) if the surviving entity exists before the merger:

(A) all of its property continues to be vested in it without reversion or impairment;

(B) it remains subject to all of its liabilities; and

(7) the name of the surviving entity may be substituted for the name of any merging entity that is a party to any pending action or proceeding;

(8) if the surviving entity exists before the merger:

(A) its public organic document, if any, is amended as provided in the statement of merger and remains binding on its interest holders; and

(B) its private organic rules that are to be in a record, if any, are amended to the extent provided in the plan of merger and remain binding on its interest holders;

(9) if the surviving entity is created by the merger, its public organic document, if any, and its private organic rules are effective and are binding upon the interest holders of the surviving entity; and

(10) the interests in each merging entity that are to be converted in the merger are converted, and the interest holders of those interests are entitled only to the rights provided to them under the plan of merger [and to any appraisal rights they have under Section 507].

(b) Except as otherwise provided in the organic law or organic rules of a merging entity, the merger does not give rise to any rights that an interest holder, governor, or third party would otherwise have upon a dissolution, liquidation, or winding-up of the merging entity.

liability with respect to any of the merging entities and that becomes subject to interest holder liability with respect to a domestic entity as a result of a merger has interest holder liability only to the extent provided by the organic law of the entity and only for those liabilities that arise after the merger becomes effective.

(d) When a merger becomes effective, the interest holder liability of a person that ceases to hold an interest in a domestic merging entity with respect to which the person had interest holder liability is as follows:

(1) the merger does not discharge any interest holder liability under the organic law of the domestic merging entity to the extent the interest holder liability arose before the merger became effective;

(2) the person does not have interest holder liability under the organic law of the domestic merging entity for any liability that arises after the merger becomes effective;

(3) the organic law of the domestic merging entity continues to apply to the release, collection, or discharge of any interest holder liability preserved under paragraph (1) as if the merger had not occurred and the surviving entity were the domestic merging entity; and

(4) the person has whatever rights of contribution from any other person as are provided by the organic law or organic rules of the domestic merging entity with respect to any interest holder liability preserved under paragraph (1) as if the merger had not occurred.

(e) When a merger becomes effective, a foreign entity that is the surviving entity:

(1) may be served with process in this state for the collection and enforcement of any liabilities of a domestic merging entity; and

(2) appoints the [Secretary of State] as its agent for service of process for collecting or enforcing those liabilities.

(f) When a merger becomes effective, the certificate of authority or other foreign qualification of any foreign merging entity that is not the surviving entity is canceled.

Comment

This section is derived from META Section 206. The following comments are derived from those to META Section 206.

1. In General – With the exception of subsections (c) and (d), this section closely tracks existing corporate statutory provisions on the effect of a corporate-to-corporate merger. See Model Business Corporation Act § 11.07.

Subsections (c) and (d) set forth rules for two circumstances that typically do not exist in a merger where all the entities involved are corporations. Subsection (c) deals with the situation where an interest holder that does not have vicarious liability for the obligations of a merging entity before the merger has interest holder liability after the merger. An example would be a corporate shareholder who agrees to be the general partner in a general partnership that is the surviving entity in a merger between a corporation and a general partnership that is not a limited liability partnership. Subsection (d) deals with the situation where an interest holder has vicarious liability for the obligations of one of the merging parties before the merger but ceases to have any interest holder liability for the obligations of the surviving entity after the merger is effective. An example would be a general partner in a general partnership that merges into a corporation.

The effects of subsections (c) and (d) will depend to a certain extent on how a contractual liability is worded. For example, a lease that provides that the entire rent is due when the lease is signed, but provides that rent may be paid in future installments, will be treated differently from a lease that does not provide that the entire rent is earned upon signing.

Under Section 513(a)(2), a merger cannot have the effect of making an interest holder of

a domestic merging entity subject to interest holder liability for the obligations or liabilities of any other person or entity unless the interest holder has executed a separate written consent to become subject to such liability or previously agreed to the effectuation of a transaction having that effect without the interest holder’s consent.

See also Comments 6 and 7.

2. Section 516(a) - Subsection (a) states the general understanding that in a merger the assets and liabilities of the merging entities automatically vest in the surviving entity. The surviving entity becomes the owner of all real and personal property of the merged entities and is subject to all debts, obligations, and liabilities of the merging entities. A merger does not constitute a transfer, assignment, or conveyance of any property held by the merging entities prior to the merger. A merger also does not give rise to a claim that a contract with a merging entity is no longer in effect on the ground of nonassignability, unless the contract specifically provides that it does not survive a merger. The contract rights that are vested in the surviving entity include the right to enforce subscription agreements for interests and obligations to make capital contributions entered into or incurred before the merger.

After a merger becomes effective, the law of the surviving entity’s jurisdiction of organization governs the surviving entity. See Sections 101(b) and 102(b) which modify the provisions of this section with respect to the effects of a merger to the extent a regulatory law provides otherwise or any of the parties holds property committed to charitable purposes.

3. Section 516(a)(7) – All pending proceedings involving either the survivor or a party whose separate existence ceased as a result of the merger are continued. Under subsection (a)(7), the name of the survivor may be, but need not be, substituted in any pending proceeding for the name of a party to the merger whose separate existence ceased as a result of the merger. The substitution may be made whether the survivor is a complainant or a respondent, and may be made at the instance of either the survivor or an opposing party. Such a substitution has no substantive effect, because whether or not the survivor’s name is substituted, the survivor succeeds to the claims, and is subject to the liabilities, of any party to the merger whose separate existence ceased as a result of the merger.

4. Section 516(a)(8) – The private organic rules of an unincorporated entity typically may be either oral or written. The plan of merger is not required to set forth amendments to oral provisions of the private organic rules of the surviving entity, and thus subsection (a)(8)(B) is limited in scope just to amendments to the private organic rules that are to be in a record, if any.

5. Section 516(a)(10) – The bracketed language in this subsection should only be included if the enacting state adopts Section 507.

6. Section 516(c) - Subsection (c) sets forth the general rule that an interest holder that was not liable for the liabilities of a merging entity before the merger but will have personal liability for the obligations of the surviving entity after the merger will be personally liable only for the liabilities of a domestic surviving entity that arise after the effective date of a merger. When a liability arises will be determined by other applicable law. The concept of “liabilities” is defined very expansively in Section 102.

7. Section 516(d) - Subsection (d) provides four rules with respect to a person who ceases to have interest holder liability after the effective date of the merger:

(1) the interest holder remains personally liable for any obligations that were incurred before the effective date of the merger;

(2) the interest holder does not have any personal liability for obligations of the surviving entity;

(3) the pre-existing personal liability of the interest holder is enforced against the interest holder on the same basis as if the merger had not taken place; and

(4) the interest holder has the same rights of contribution from other interest holders of the merging entity as the interest holder would have had if the merger had not occurred.

8. Section 516(e) – When a merger becomes effective, a foreign entity that is the surviving entity is deemed to appoint the secretary of state as its agent for service of process. The proceedings covered by subsection (e) include a proceeding to enforce the rights of any interest holders of each domestic merging entity who are entitled to and exercise appraisal rights. One of the liabilities that a foreign surviving entity succeeds to is the obligation of a merging entity to pay the amount, if any, to which its interest holders who assert appraisal rights are entitled.

[CHAPTER] C

INTEREST EXCHANGE

SECTION 521. INTEREST EXCHANGE AUTHORIZED.

(a) Except as otherwise provided in this section, by complying with this [Chapter]:

(1) a domestic entity may acquire all of one or more classes or series of

interests of another domestic or foreign entity in exchange for interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing; or

(2) all of one or more classes or series of interests of a domestic entity may be acquired by another domestic or foreign entity in exchange for interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing.

(b) Except as otherwise provided in this section, by complying with the provisions of this [Chapter] applicable to foreign entities a foreign entity may be the acquiring or acquired entity in an interest exchange under this [Chapter] if the interest exchange is authorized by the law of the foreign entity’s jurisdiction of organization.

(c) If a protected agreement contains a provision that applies to a merger of a domestic entity but does not refer to an interest exchange, the provision applies to an interest exchange in which the domestic entity is the acquired entity as if the interest exchange were a merger until the provision is amended after the effective date of this [Act].

[(d) This [Chapter] does not apply to a transaction under:

(1) [Chapter 11 of the Model Business Corporation Act]; or

(2)]

[(e) The following entities may not participate in an interest exchange under this

[Chapter]:

(1)

(2)]

Legislative Note: As pointed out in the Legislative Note to META Appendix 2, it is recommended that states limit any existing interest exchange provisions to same-type transactions, for example interest exchanges where all of the entities are corporations. Any interest exchange provisions added to entity statutes should similarly be limited to same-type transactions. The net effect will be that the interest exchange provisions in the various entity statutes will govern same-type interest exchanges and Chapter C will govern cross-type interest exchanges. In the event a state does not have any existing interest exchange legislation and chooses not to add interest exchange provisions to any of its entity statutes, Chapter C will govern and will cover both same-type and cross-type interest exchanges. See Section 2 of the META Prefatory Note and META Appendix 2.

Comment

This section is derived from META Section 301. The following comments are derived from the Comments to META Section 301.

1. In General – An interest exchange is the same type of transaction as the share exchange provided for in Section 11.03 of the Model Business Corporation Act (“MBCA”). The effect of an interest exchange is that: (1) the separate existence of the acquired entity is not affected; and (2) the acquiring entity acquires all of the interests of one or more classes of the acquired entity. An interest exchange also allows an indirect acquisition through the use of consideration in the exchange that is not provided by the acquiring entity (e.g., consideration from another or related entity).

Neither share exchanges nor interest exchanges are universally recognized in either corporation or unincorporated entity laws. Where there is no existing interest exchange statutory authority, a triangular merger in which the acquiring entity forms a new subsidiary and the acquired entity is then merged into the new subsidiary produces the same result. Chapter 3 allows the interest exchange to be accomplished directly in a single step, rather than indirectly through the triangular merger route.

The “classes or series” referenced in Section 521(a) are commonly found in corporation law. See, e.g., MBCA § 6.02. Specific provisions authorizing classes and series are less common in unincorporated entity law. But see 6 Del.C. §§ 15-407 (general partnerships), 17-208 (limited partnerships), and 18-215 (limited liability companies).

2. Section 521(a) – The acquiring entity is not required to acquire all of the interests in the exchanging entity. For example, assume that an LLC with three classes of membership interests enters into an interest exchange with another entity. The acquiring entity need only acquire all of the ownership interests of one or more classes of the LLC membership interests.

3. Section 521(b) - Subsection (b) allows a foreign entity to effectuate an interest exchange with a domestic entity if the interest exchange is authorized by the organic law of the foreign entity.

4. Section 521(c) – This subsection deals with rights of parties to protected agreements (defined in Section 102) when an interest exchange takes place. Because the concept of an interest exchange is relatively new, a person contracting with an entity or loaning it money who drafted and negotiated special rights relating to the transaction before the enactment of this Chapter should not be charged with the consequences of not having dealt with the concept of an interest exchange in the context of those special rights. Subsection (c) accordingly provides a transitional rule that is intended to protect such special rights as to third parties. If, for example, an entity is a party to a contract that provides that the entity cannot participate in a merger without the consent of the other party to the contract, the requirement to obtain the consent of the other party will also apply to an interest exchange in which the entity is the exchanging entity. If the entity fails to obtain the consent, the result will be that the other party will have the same rights it would have had if the entity were to participate in a merger without the required consent.

The transitional rule in subsection (c) ceases to make sense at such time as the provisions of the agreement giving rise to the special rights is first amended after the effective date of this Chapter because at that time the provision may be amended to address expressly an interest exchange. The transitional rule will continue to apply, however, if a provision other than the specific provisions giving rise to the special rights is amended.

5. Section 521(d) – The statutes that should be listed in Section 521(c) are interest exchange statutes that already exist or are added to the state’s various entity statutes when this Act or META is adopted. See also, the Legislative Note above.

6. Section 521(e) – Subsection (e) is an optional provision that may be used to exclude certain types of entities from the scope of this chapter. A provision that excludes certain types of entities from the Act generally is set forth in Section 508.

SECTION 522. PLAN OF INTEREST EXCHANGE.

(a) A domestic entity may be the acquired entity in an interest exchange under this [Chapter] by approving a plan of interest exchange. The plan must be in a record and contain:

(1) the name and type of the acquired entity;

(2) the name, jurisdiction of organization, and type of the acquiring entity;

(3) the manner of converting the interests in the acquired entity into interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing;

(4) any proposed amendments to the public organic document or private organic rules that are, or are proposed to be, in a record of the acquired entity;

(5) the other terms and conditions of the interest exchange; and

(6) any other provision required by the law of this state or the organic rules of the acquired entity.

(b) A plan of interest exchange may contain any other provision not prohibited by law.

Comment

This section is derived from META Section 302. The following comments are derived from the Comments to META Section 302.

1. General – This section sets forth the requirements for the plan of interest exchange, which must be approved by the acquired entity in accordance with Section 523. The content of the plan of interest exchange is similar to the content of a plan of merger. See Section 512. Subsection (a) lists the mandatory provisions that must be in the plan. Subsection (b) authorizes the plan to contain any other provision the parties wish to include, unless the provision is prohibited by law.

2. Section 512(a)(3) – Under this subsection, interest holders in the acquired entity may receive interests or securities of the acquiring entity or of a party other than the acquiring entity, obligations, rights to acquire interests or securities, cash, or other property. The capitalization of the acquired entity may be restructured in the exchange, and its organic documents and organic rules may be amended in the exchange in any way deemed appropriate. See also Section 512(a)(3).

3. Filing the Plan of Interest Exchange – The plan of interest exchange may, but need not, be filed instead of the statement of interest exchange (Section 525) so long as it contains all the information required to be in the statement and is delivered to the Secretary of State for filing after the plan has been adopted and approved. See Section 525(d).

SECTION 523. APPROVAL OF INTEREST EXCHANGE.

(a) A plan of interest exchange is not effective unless it has been approved:

(1) by a domestic acquired entity:

(A) in accordance with the requirements, if any, in its organic law and organic rules for approval of an interest exchange;

(B) except as otherwise provided in subsection (d), if neither its organic law nor organic rules provide for approval of an interest exchange, in accordance with the requirements, if any, in its organic law and organic rules for approval of a transaction that has the effect of a merger, as if the interest exchange were that type of transaction; or

(C) if neither its organic law nor organic rules provide for approval of an interest exchange or a transaction that has the effect of a merger, by all of the interest holders of the entity entitled to vote on or consent to any matter; and

(2) in a record, by each interest holder of a domestic acquired entity that will have interest holder liability for liabilities that arise after the interest exchange becomes effective, unless:

(A) the organic rules of the entity provide in a record for the

approval of an interest exchange or a transaction that has the effect of a merger in which some or all of its interest holders become subject to interest holder liability by the vote or consent of fewer than all of the interest holders; and

(B) the interest holder voted for or consented in a record to that provision of the organic rules or became an interest holder after the adoption of that provision.

(b) An interest exchange involving a foreign acquired entity is not effective unless it is approved by the foreign entity in accordance with the law of the foreign entity’s jurisdiction of organization.

(c) Except as otherwise provided in its organic law or organic rules, the interest holders of the acquiring entity are not required to approve the interest exchange.

(d) A provision of the organic law of a domestic acquired entity that would permit a merger between the acquired entity and the acquiring entity to be approved without the vote or consent of the interest holders of the acquired entity because of the percentage of interests in the acquired entity held by the acquiring entity does not apply to approval of an interest exchange under subsection (a)(1)(B).

Comment

This Section is derived from META Section 303. The following comments are derived from the Comments to META Section 303.

1. In General – This section sets forth the required approval (see Section 102)) of an interest exchange. An interest exchange transaction governed by this chapter only requires approval by the acquired entity, unless the applicable organic law or the organic rules of the acquiring entity otherwise provide (see subsection (c)), a condition that rarely exists.

If the acquired entity is a domestic entity, one of three possibilities will be applicable:

(1) if the organic law (see Section 102) governing the acquired domestic entity has specific provisions for approval of an interest exchange, or even if there are no such provisions, the organic rules (see Section 102) of the acquired entity have specific provisions for approval of an interest exchange, then the approval provisions in the organic law or organic rules apply;

(2) if there are no specific provisions for approval of an interest exchange in the acquired entity’s organic law or organic rules but either the organic law governing the acquired entity or the acquired entity’s organic rules contain provisions for approval of mergers, then those merger provisions (except for any short form merger provisions that allow approval of a merger by the acquired entity without a vote of its interest holders – see subsection (d)) apply; and

(3) if neither (1) or (2) are applicable, then unanimous consent of the acquired entity’s interest holders will be required.

A three-tiered approval scheme is necessary because specific provisions for interest exchanges do not exist in many state corporate and unincorporated entity statutes or in the various types of entity organic rules. See Comment 4 to Section 521.

The phrase “transaction that has the effect of a merger” used in subsection (a)(1)(B) and

If the acquired entity is a foreign entity, then approval is in accordance with the laws of the acquired entity’s jurisdiction of organization. See subsection (b). See also Comment 3 to Section 513.

2. Section 523(a)(2) – See Comment 2 to Section 513 for an explanation of this interest holder liability provision.

SECTION 524. AMENDMENT OR ABANDONMENT OF PLAN OF INTEREST EXCHANGE.

(a) A plan of interest exchange of a domestic acquired entity may be amended:

(1) in the same manner as the plan was approved, if the plan does not provide for the manner in which it may be amended; or

(2) by the governors or interest holders of the entity in the manner provided in the plan, but an interest holder that was entitled to vote on or consent to approval of the interest exchange is entitled to vote on or consent to any amendment of the plan that will change:

(A) the amount or kind of interests, securities, obligations, rights

to acquire interests or securities, cash, or other property, or any combination of the foregoing, to be received by any of the interest holders of the acquired entity under the plan;

(B) the public organic document or private organic rules of the acquired entity that will be in effect immediately after the interest exchange becomes effective, except for changes that do not require approval of the interest holders of the acquired entity under its organic law or organic rules; or

(C) any other terms or conditions of the plan, if the change would adversely affect the interest holder in any material respect.

(b) After a plan of interest exchange has been approved by a domestic acquired entity and before a statement of interest exchange becomes effective, the plan may be abandoned:

(1) as provided in the plan; or

(2) unless prohibited by the plan, in the same manner as the plan was approved.

(c) If a plan of interest exchange is abandoned after a statement of interest exchange has been filed with the [Secretary of State] and before the filing becomes effective, a statement of abandonment, signed on behalf of the acquired entity, must be filed with the [Secretary of State] before the time the statement of interest exchange becomes effective. The statement of abandonment takes effect upon filing, and the interest exchange is abandoned and does not become effective. The statement of abandonment must contain:

(1) the name of the acquired entity;

(2) the date on which the statement of interest exchange was filed; and

(3) a statement that the interest exchange has been abandoned in accordance with this section.

Comment

This section, which is derived from META Section 304, parallels analogous provisions in Chapters B (mergers), D (conversions), E (domestications), and F (divisions).

SECTION 525. STATEMENT OF INTEREST EXCHANGE; EFFECTIVE DATE.

(a) A statement of interest exchange must be signed on behalf of a domestic acquired entity and filed with the [Secretary of State].

(b) A statement of interest exchange must contain:

(1) the name and type of the acquired entity;

(2) the name, jurisdiction of organization, and type of the acquiring entity;

(3) if the statement of interest exchange is not to be effective upon filing, the later date and time on which it will become effective, which may not be more than 90 days after the date of filing;

(4) a statement that the plan of interest exchange was approved by the acquired entity in accordance with this [Article]; and

(5) any amendments to the acquired entity’s public organic document approved as part of the plan of interest exchange.

(c) In addition to the requirements of subsection (b), a statement of interest exchange may contain any other provision not prohibited by law.

(d) A plan of interest exchange that is signed on behalf of a domestic acquired entity and meets all of the requirements of subsection (b) may be filed with the [Secretary of State] instead of a statement of interest exchange and upon filing has the same effect. If a plan of interest exchange is filed as provided in this subsection, references in this [Act] to a statement of interest exchange refer to the plan of interest exchange filed under this subsection.

(e) A statement of interest exchange becomes effective upon the date and time of filing or the later date and time specified in the statement of interest exchange.

Comment

This section is derived from META Section 305. The following comments are derived from the Comments to META Section. 305.

1. In General – The filing of a statement of interest exchange makes the transaction a matter of public record. A separate public filing under the organic law of the exchanging entity is not required. The mandatory requirements for a statement of interest exchange are set forth in subsection (b). They are essentially the same as the requirements for a statement of merger in Section 515.

2. Section 525(b)(3) and (e) – The effective date and time of a statement of interest exchange are the date and time of its filing, unless otherwise specified. If a delayed effective date is specified, the statement is effective on that date and time, subject to the 90 day maximum delayed effective date in Section 525(b)(3).

3. Section 525(d) – A plan of interest exchange can be used as a substitute for the statement of interest exchange so long as the plan satisfies the requirements in subsection (d).

SECTION 526. EFFECT OF INTEREST EXCHANGE.

(a) When an interest exchange becomes effective:

(1) the interests in the acquired entity that are the subject of the interest exchange cease to exist or are converted or exchanged, and the interest holders of those interests are entitled only to the rights provided to them under the plan of interest exchange [and to any appraisal rights they have under Section 507];

(2) the acquiring entity becomes the interest holder of the interests in the acquired entity stated in the plan of interest exchange to be acquired by the acquiring entity;

(3) the public organic document, if any, of the acquired entity is amended as provided in the statement of interest exchange and remains binding on its interest holders; and

(4) the private organic rules of the acquired entity that are to be in a record, if any, are amended to the extent provided in the plan of interest exchange and remain binding on its interest holders.

(b) Except as otherwise provided in the organic law or organic rules of the acquired entity, the interest exchange does not give rise to any rights that an interest holder, governor, or third party would otherwise have upon a dissolution, liquidation, or winding-up of the acquired entity.

(c) When an interest exchange becomes effective, a person that did not have interest holder liability with respect to the acquired entity and that becomes subject to interest holder liability with respect to a domestic entity as a result of the interest exchange has interest holder liability only to the extent provided by the organic law of the entity and only for those liabilities that arise after the interest exchange becomes effective.

(d) When an interest exchange becomes effective, the interest holder liability of a person that ceases to hold an interest in a domestic acquired entity with respect to which the person had interest holder liability is as follows:

(1) the interest exchange does not discharge any interest holder liability under the organic law of the domestic acquired entity to the extent the interest holder liability arose before the interest exchange became effective;

(2) the person does not have interest holder liability under the organic law of the domestic acquired entity for any liability that arises after the interest exchange becomes effective;

(3) the organic law of the domestic acquired entity continues to apply to the release, collection, or discharge of any interest holder liability preserved under paragraph (1) as if the interest exchange had not occurred; and

(4) the person has whatever rights of contribution from any other person as are provided by the organic law or organic rules of the domestic acquired entity with respect to any interest holder liability preserved under paragraph (1) as if the interest exchange had not occurred.

Comment

This section is derived from Section 306 of META. The following comments are derived from the Comments to META Section 306.

1. Section 526(a) - In contrast to a merger, an interest exchange does not in and of itself affect the separate existence of the parties, vest in the acquiring entity the assets of the acquired entity, or render the acquiring entity liable for the liabilities of the acquired entity. Thus, subsection (a) is significantly simpler than Section 516(a) with respect to the effects of a merger.

When an interest exchange becomes effective: (1) the interests of the acquired entity are

exchanged, converted or canceled as provided in the plan; (2) the only rights of the former interest holders of the acquired entity whose interests are affected by the interest exchange are those rights related to the exchange, conversion or cancellation; (3) the acquiring entity becomes the owner of the acquired entity’s interests as provided in the plan; and (4) the organic rules of the acquired entity are amended as provided in the statement of interest exchange, thus obviating the need for repetitive filings (i.e., a filing as to the entity interest exchange and another filing to reflect amendments to public organic documents as required by the laws governing the acquired entity).

2. Section 526(c) - Subsection (c) provides the rule for future interest holder liability and parallels analogous provisions in Chapters B (mergers), D (conversions), E (domestications), and F (divisions). See Comment 6 to Section 516.

3. Section 526(d) - Subsection (d) provides the rule for past interest holder liability and parallels analogous provisions in Chapters B (mergers), D (conversions), E (domestications), and F (divisions). See Comment 7 to Section 516.

[CHAPTER] D

CONVERSION

SECTION 531. CONVERSION AUTHORIZED.

(a) Except as otherwise provided in this section, by complying with this [Chapter], a domestic entity may become:

(1) a domestic entity of a different type; or

(2) a foreign entity of a different type, if the conversion is authorized by the law of the foreign jurisdiction.

(b) Except as otherwise provided in this section, by complying with the provisions of this [Chapter] applicable to foreign entities a foreign entity may become a domestic entity of a different type if the conversion is authorized by the law of the foreign entity’s jurisdiction of organization.

domestic entity but does not refer to a conversion, the provision applies to a conversion of the entity as if the conversion were a merger until the provision is amended after the effective date of this [Act].

[(d) The following entities may not engage in a conversion:

(1)

(2)]

Legislative Note: Many states have provisions in their corporate and unincorporated entity statutes that allow conversions. These statutes, however, vary greatly. A few allow conversion of one type of entity into any other type of entity. Most, however, allow only limited types of conversions, e.g., general partnerships to limited partnerships (and limited partnerships to general partnerships) but not to all other types of entities. If a state has conversion provisions, the recommended course of action is to repeal all those statutes. See META Appendix 2. The net effect will be that this Article will apply to all conversions. Leaving the existing conversion provisions in place will create confusion for practitioners because in some cases there will be two applicable conversion statutes, the existing conversion statute and Chapter D of this Article, but in other situations only Chapter D of this Article will apply.

Comment

This section is derived from META 401. The following comments are derived from the Comments to META section 401.

1. In General – The procedure in this article permits an entity to change to a different type of entity. A transaction in which an entity changes its jurisdiction of organization but does not change its type is a domestication transaction and is the subject of Chapter 5.

2. Conversion of a Foreign Entity into a Domestic Entity – Subsection (b) allows a foreign entity to effectuate a conversion into a domestic entity only if the conversion is permitted by the laws of the foreign entity’s jurisdiction of organization. See Section 102 for the definition of “jurisdiction of organization.” When a foreign entity becomes a domestic entity pursuant to this chapter, the effect of the conversion will be as provided in Section 536. The procedures by which the conversion is approved, however, will be determined by the laws of the foreign entity’s jurisdiction of organization.

3. Conversion of a Domestic Entity into a Foreign Entity – Under subsection (a)(2) this type of conversion must be authorized by the law of the foreign jurisdiction. If this is not the case, it may be possible to achieve the same result by forming an entity of the type desired in the foreign jurisdiction and then merging the domestic entity into the new foreign entity under Chapter 2.

4. Section 531(c) – See Comment 4 to Section 521.

5. Section 531(d) – Subsection (d) is an optional provision that may be used to exclude certain types of entities from the scope of this article. A provision that excludes certain types of entities from the Act generally is set forth in Section 508.

SECTION 532. PLAN OF CONVERSION.

(a) A domestic entity may convert to a different type of entity under this [Article] by approving a plan of conversion. The plan must be in a record and contain:

(1) the name and type of the converting entity;

(2) the name, jurisdiction of organization, and type of the converted entity;

(3) the manner of converting the interests in the converting entity into interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing;

(4) the proposed public organic document of the converted entity if it will be a filing entity;

(5) the full text of the private organic rules of the converted entity that are proposed to be in a record;

(6) the other terms and conditions of the conversion; and

(7) any other provision required by the law of this state or the organic rules of the converting entity.

(b) A plan of conversion may contain any other provision not prohibited by law.

Comment

This section is derived from META Section 402. The following comments are derived from the comments to META Section 402.

1. In General – This section sets forth the requirements for the plan of conversion, which must be approved by the converting entity in accordance with Section 533. The content of a plan of conversion is similar to the content of a plan of merger. See Section 512. Subsection (a) lists the mandatory provisions that must be in the plan. Subsection (b) authorizes the plan to contain any other provision the parties wish to include, unless the provision is prohibited by law.

2. Section 532(a)(3) – Interest holders in the converting entity may receive interests or other securities of the converted entity or of any other person, obligations, rights to acquire interests or other securities, cash, or other property. The capitalization of the converted entity may be restructured in the conversion, and its organic rules may be amended in the conversion, in any way deemed appropriate. See also Sections 512(a)(3), 522(a)(3) (interest exchange),

542(a)(3) (domestication) and 552(a)(3) (division).

3. Filing the Plan of Conversion – The plan of conversion may, but need not, be filed instead of the statement of conversion (Section 535), so long as it contains all of the information required to be in the statement of conversion and is delivered to the Secretary of State for filing after the plan has been adopted and approved. See Section 535(e).

SECTION 533. APPROVAL OF CONVERSION.

(a) A plan of conversion is not effective unless it has been approved:

(1) by a domestic converting entity:

(A) in accordance with the requirements, if any, in its organic rules for approval of a conversion;

(B) if its organic rules do not provide for approval of a conversion, in accordance with the requirements, if any, in its organic law and organic rules for approval of a transaction that has the effect of a merger, as if the conversion were that type of transaction; or

(C) if neither its organic law nor organic rules provide for approval of a conversion or a transaction that has the effect of a merger, by all of the interest holders of the entity entitled to vote on or consent to any matter; and

(2) in a record, by each interest holder of a domestic converting entity that will have interest holder liability for liabilities that arise after the conversion becomes effective, unless:

(A) the organic rules of the entity provide in a record for the approval of a conversion or a transaction that has the effect of a merger in which some or all of its interest holders become subject to interest holder liability by the vote or consent of fewer than all of the interest holders; and

(B) the interest holder voted for or consented in a record to that provision of the organic rules or became an interest holder after the adoption of that provision.

(b) A conversion of a foreign converting entity is not effective unless it is approved by the foreign entity in accordance with the law of the foreign entity’s jurisdiction of organization.

Comment

1. In General – As is the case with the other types of transactions authorized by this Act, there are three possible ways to obtain approval (see Section 102(3)) of a conversion by a domestic entity. The first is to determine if the organic rules (defined in Section 102(27)) of the converting entity contain specific approval provisions for conversions. If they exist, then those provisions apply to approval of the plan of conversion. See Section 533(a)(1)(A). If there are no provisions in the organic rules for approval of a conversion, then the provisions for approval of a merger in either the organic law (defined in Section 102(24)) or organic rules of the entity will apply. Section 533(a)(1)(B). If there are no approval provisions for conversions in the entity’s organic rules and no approval provisions for mergers in the entity’s organic law or organic rules, then unanimous consent of all the entity’s interests holders is required. Section 533(a)(1)(C).

The phrase “transaction that has the effect of a merger” used in subsection (a)(1)(B) and

In the case of a foreign entity that is converting into another type of entity in this jurisdiction, the required approval is determined by the laws of the foreign entity’s jurisdiction of organization. Section 533(b).

If approval of a conversion occurs under subsection (a)(1)(B), the approval provisions for mergers that will apply will not include provisions on “short-form” mergers. A short-form merger involves a merger between a subsidiary and a parent that controls a large majority of the interests in the subsidiary (typically at least 80 or 90%). In those cases, the parent is permitted to merge with the subsidiary without the need for the governors or interest holders of the subsidiary to approve the merger. Because a conversion is a single-party transaction, short-form merger procedures are inapposite and it was not considered necessary to confirm that expressly in the statutory text (unlike in the case of interest exchanges, which are two-party transactions – see Section 523(d)).

2. Section 533(a)(2) – See Comment 2 to Section 513 for an explanation of this interest holder liability provision.

SECTION 534. AMENDMENT OR ABANDONMENT OF PLAN OF CONVERSION.

(a) A plan of conversion of a domestic converting entity may be amended:

(1) in the same manner as the plan was approved, if the plan does not provide for the manner in which it may be amended; or

(2) by the governors or interest holders of the entity in the manner

provided in the plan, but an interest holder that was entitled to vote on or consent to approval of the conversion is entitled to vote on or consent to any amendment of the plan that will change:

(A) the amount or kind of interests, securities, obligations, rights

to acquire interests or securities, cash, or other property, or any combination of the foregoing, to be received by any of the interest holders of the converting entity under the plan;

(B) the public organic document or private organic rules of the

converted entity that will be in effect immediately after the conversion becomes effective, except for changes that do not require approval of the interest holders of the converted entity under its organic law or organic rules; or

(C) any other terms or conditions of the plan, if the change would adversely affect the interest holder in any material respect.

(b) After a plan of conversion has been approved by a domestic converting entity and before a statement of conversion becomes effective, the plan may be abandoned:

(1) as provided in the plan; or

(2) unless prohibited by the plan, in the same manner as the plan was approved.

(c) If a plan of conversion is abandoned after a statement of conversion has been filed with the [Secretary of State] and before the filing becomes effective, a statement of abandonment, signed on behalf of the entity, must be filed with the [Secretary of State] before the time the statement of conversion becomes effective. The statement of abandonment takes effect upon filing, and the conversion is abandoned and does not become effective. The statement of abandonment must contain:

(1) the name of the converting entity;

(2) the date on which the statement of conversion was filed; and

(3) a statement that the conversion has been abandoned in accordance with this section.

Comment

This section parallels analogous provisions in Chapters B (mergers), C (interest exchanges), E (domestications), and F (divisions).

SECTION 535. STATEMENT OF CONVERSION; EFFECTIVE DATE.

(a) A statement of conversion must be signed on behalf of the converting entity and filed with the [Secretary of State].

(b) A statement of conversion must contain:

(1) the name, jurisdiction of organization, and type of the converting entity;

(2) the name, jurisdiction of organization, and type of the converted entity;

(3) if the statement of conversion is not to be effective upon filing, the later date and time on which it will become effective, which may not be more than 90 days after the date of filing;

(4) if the converting entity is a domestic entity, a statement that the plan of conversion was approved in accordance with this [Article] or, if the converting entity is a foreign entity, a statement that the conversion was approved by the foreign converting entity in accordance with the law of its jurisdiction of organization;

(5) if the converted entity is a domestic filing entity, the text of its public organic document, as an attachment; and

(6) if the converted entity is a domestic limited liability partnership, the text of its [statement of qualification], as an attachment.

(c) In addition to the requirements of subsection (b), a statement of conversion may contain any other provision not prohibited by law.

(d) If the converted entity is a domestic entity, its public organic document, if any, must satisfy the requirements of the law of this state, except that it does not need to be signed and may omit any provision that is not required to be included in a restatement of the public organic document.

(e) A plan of conversion that is signed on behalf of a domestic converting entity and meets all of the requirements of subsection (b) may be filed with the [Secretary of State] instead of a statement of conversion and upon filing has the same effect. If a plan of conversion is filed as provided in this subsection, references in this [Act] to a statement of conversion refer to the plan of conversion filed under this subsection.

(f) A statement of conversion becomes effective upon the date and time of filing or the later date and time specified in the statement of conversion.

Comment

1. In General – The filing of a statement of conversion makes the transaction a matter of public record. The mandatory requirements for a statement of conversion are set forth in subsection (b). They are essentially the same as the requirements for a statement of merger in Section 515.

2. Section 535(b)(3) and (f) – The effective date and time of a statement of conversion are the date and time of its filing, unless otherwise specified. If a delayed effective date is

specified, the statement of conversion is effective on that date and time, subject to the 90 day maximum delayed effective date in Section 535(b)(3).

3. Section 535(e) – A plan of conversion can be used as a substitute for the statement of conversion so long as the plan satisfies the requirements in subsection (e).

SECTION 536. EFFECT OF CONVERSION.

(a) When a conversion becomes effective:

(1) the converted entity is:

(A) organized under and subject to the organic law of the converted entity; and

(B) the same entity without interruption as the converting entity;

(2) all property of the converting entity continues to be vested in the entity without assignment, reversion, or impairment;

(3) all liabilities of the converting entity continue as liabilities of the entity;

(4) except as provided by law other than this [Article] or the plan of conversion, all of the rights, privileges, immunities, powers, and purposes of the converting entity remain in the converted entity;

(5) the name of the converted entity may be substituted for the name of the converting entity in any pending action or proceeding;

(6) unless otherwise provided by the organic law of the converting entity, the conversion does not cause the dissolution of the converting entity;

(7) if a converted entity is a filing entity, its public organic document is effective and is binding on its interest holders;

(8) if the converted entity is a limited liability partnership, its [statement of qualification] is effective simultaneously;

(9) the private organic rules of the converted entity that are to be in a record, if any, approved as part of the plan of conversion are effective and are binding on its interest holders; and

(10) the interests in the converting entity are converted, and the interest holders of the converting entity are entitled only to the rights provided to them under the plan of conversion [and to any appraisal rights they have under Section 107].

(b) Except as otherwise provided in the organic law or organic rules of the converting entity, the conversion does not give rise to any rights that an interest holder, governor, or third party would otherwise have upon a dissolution, liquidation, or winding-up of the converting entity.

(c) When a conversion becomes effective, a person that did not have interest holder liability with respect to the converting entity and that becomes subject to interest holder liability with respect to a domestic entity as a result of a conversion has interest holder liability only to the extent provided by the organic law of the entity and only for those liabilities that arise after the conversion becomes effective.

(d) When a conversion becomes effective:

(1) the conversion does not discharge any interest holder liability under the organic law of a domestic converting entity to the extent the interest holder liability arose before the conversion became effective;

(2) a person does not have interest holder liability under the organic law of a domestic converting entity for any liability that arises after the conversion becomes effective;

(3) the organic law of a domestic converting entity continues to apply to the release, collection, or discharge of any interest holder liability preserved under paragraph (1) as if the conversion had not occurred; and

(4) a person has whatever rights of contribution from any other person as are provided by the organic law or organic rules of the domestic converting entity with respect to any interest holder liability preserved under paragraph (1) as if the conversion had not occurred.

(e) When a conversion becomes effective, a foreign entity that is the converted entity:

(1) may be served with process in this state for the collection and enforcement of any of its liabilities; and

(2) appoints the [Secretary of State] as its agent for service of process for collecting or enforcing those liabilities.

(f) If the converting entity is a qualified foreign entity, the certificate of authority or other foreign qualification of the converting entity is canceled when the conversion becomes effective.

Comment

1. In General – A converted entity is the same entity as it was before the conversion; it just has a different legal form. The legal effects of this are set forth in subsection (a). The converted entity automatically becomes the owner of all real and personal property and becomes subject to all the liabilities, actual or contingent, of the converted entity. A conversion is not a conveyance, transfer, or assignment. It does not give rise to claims of reverter or impairment of title based on a prohibited conveyance or transfer. It does not give rise to a claim that a contract with the converting entity is no longer in effect on the ground of nonassignability, unless the contract specifically provides that it does not survive a conversion. The contract rights that remain in the converted entity include, without limitation, the right to enforce subscription agreements for interests and obligations to make capital contributions entered into or incurred before the conversion.

When a conversion becomes effective, the internal affairs of the converting entity are no longer governed by its former organic law but instead by the organic law of the converted entity. As a result, filings that may have been made under the organic law of the converting entity, such as the following, will no longer be effective: a statement of qualification as a limited liability partnership under Section 1001 of the Uniform Partnership Act (1997), a statement of partnership authority under Section 303 of the Uniform Partnership Act (1997) or a statement of authority under Section 5 of the Uniform Unincorporated Nonprofit Association Act.

2. Section 536(a)(5) – All pending proceedings involving the converting entity are continued. The name of the converted entity may be, but need not be, substituted in any pending proceeding for the name of the converting entity.

3. Section 536(c) - Subsection (c) provides the rule for future interest holder liability and parallels analogous provisions in Chapters B (mergers), C (interest exchanges), E (domestications), and F (divisions). See Comment 6 to Section 516.

4. Section 536(d) - Subsection (d) provides the rule for past interest holder liability and parallels analogous provisions in Chapters 2 (mergers), 3 (interest exchanges), 5 (domestications), and 6 (divisions). See Comment 7 to Section 516.

5. Section 536(e) –When a domestic converting entity becomes a foreign entity as a result of a conversion, some mechanism is needed to facilitate the enforcement of claims by the creditors and interest holders of the converting entity. Section 406(d), which parallels analogous provisions in Chapters B (mergers), E (domestications), and F (divisions), authorizes service of process for all such claims in this state, and designates the Secretary of State of this state as the agent for service of process in the event the converted entity cannot be otherwise served in this state.

[CHAPTER] E

DOMESTICATION

SECTION 541. DOMESTICATION AUTHORIZED.

(a) Except as otherwise provided in this section, by complying with this [Chapter], a domestic entity may become a domestic entity of the same type in a foreign jurisdiction if the domestication is authorized by the law of the foreign jurisdiction.

(b) Except as otherwise provided in this section, by complying with the provisions of this [Chapter] applicable to foreign entities a foreign entity may become a domestic entity of the same type in this state if the domestication is authorized by the law of the foreign entity’s jurisdiction of organization.

(c) When the term domestic entity is used in this [Chapter] with reference to a foreign jurisdiction, it means an entity whose internal affairs are governed by the law of the foreign jurisdiction.

(d) If a protected agreement contains a provision that applies to a merger of a domestic entity but does not refer to a domestication, the provision applies to a domestication of the entity as if the domestication were a merger until the provision is amended after the effective date of this [Act].

[(e) The following entities may not engage in a domestication:

(1)

(2)]

Legislative Note: As is pointed out in the Legislative Note to META Appendix 2, it is recommended that a state enacting this Act repeal any existing domestication provision from its entity laws. If that is done, then Chapter E becomes the exclusive means for an entity to engage in a domestication transaction. To the extent existing domestication provisions are retained, there may well be two different procedures for accomplishing a domestication, which will cause unnecessary confusion, particularly if there are differences between those provisions and ChapterE5.

Comment

1. In General – A domestication authorized by Chapter E differs from a conversion in that a domestication requires that the domesticating entity be the same type of entity as the domesticated entity. In a conversion, by contrast, the converting entity changes its type. As with a conversion, all rights and privileges, debts and liabilities, and actions or proceedings of a domesticating entity vest unimpaired in the domesticated entity. A domestication is not a sale, transfer, assignment, or conveyance and does not give rise to a claim of reverter or impairment of title.

Chapter E governs the legal effect of a foreign entity domesticating in a jurisdiction adopting this Act. On the other hand, the organic laws of the foreign jurisdiction, and not Chapter E, will govern the legal effect of a domestication of a domestic entity in another jurisdiction. In the latter scenario, Chapter E authorizes the domestication of the domestic entity in the foreign jurisdiction, but Chapter E does not create a right in the domestic entity to be received in the foreign jurisdiction. Similarly, Section 541 does not provide a right on the part of a foreign entity to become a domestic entity if the domestication is not authorized by the laws of the foreign jurisdiction. If the foreign jurisdiction does not authorize a domestication transaction, a domestication can still be accomplished by forming a new entity of the same type in the new state and merging the existing entity into the new entity.

2. Section 541(d) – See Comment 4 to Section 521(d).

3. Section 541(e) – Subsection (e) is an optional provision that may be used to exclude certain types of entities from engaging in domestication transactions. A provision that excludes certain types of entities from the Act generally is set forth in Section 508.

SECTION 542. PLAN OF DOMESTICATION.

(a) A domestic entity may become a foreign entity in a domestication by approving a plan of domestication. The plan must be in a record and contain:

(1) the name and type of the domesticating entity;

(2) the name and jurisdiction of organization of the domesticated entity;

(3) the manner of converting the interests in the domesticating entity into interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing;

(4) the proposed public organic document of the domesticated entity if it is a filing entity;

(5) the full text of the private organic rules of the domesticated entity that are proposed to be in a record;

(6) the other terms and conditions of the domestication; and

(7) any other provision required by the law of this state or the organic rules of the domesticating entity.

(b) A plan of domestication may contain any other provision not prohibited by law.

Comment

1. In General – This section sets forth the requirements for the plan of domestication, which must be approved by the domesticating entity in accordance with Section 543. The content of a plan of domestication is similar to the content of a plan of merger. See Section 512. Subsection (a) lists the mandatory provisions that must be in the plan. Subsection (b) authorizes the plan to contain any other provision the parties wish to include, unless the provision is prohibited by law.

2. Section 542(a)(3) – Interest holders in the domesticating entity may receive interests

or other securities of the domesticated entity or any other person, obligations, rights to acquire interests or other securities, cash, or other property. The capitalization of the domesticated entity may be restructured in the domestication, and its organic rules may be amended in the domestication in any way deemed appropriate. See also Sections 512(a)(3) (mergers), 522(a)(3) (interest exchanges), 532(a)(3) (conversions), and 552(a)(4) (divisions).

3. Filing the Plan of Domestication – The plan of domestication, may, but need not, be filed instead of the statement of domestication (Section 545) so long as it contains all of the information required to be in the statement and is delivered to the Secretary of State for filing after the plan has been adopted and approved. See Section 545(e).

SECTION 543. APPROVAL OF DOMESTICATION.

(a) A plan of domestication is not effective unless it has been approved:

(1) by a domestic domesticating entity:

(A) in accordance with the requirements, if any, in its organic rules for approval of a domestication;

(B) if its organic rules do not provide for approval of a domestication, in accordance with the requirements, if any, in its organic law and organic rules for approval of a transaction that has the effect of a merger as if the domestication were that type of transaction; or

(C) if neither its organic law nor organic rules provide for approval of a domestication or a transaction that has the effect of a merger, by all of the interest holders of the entity entitled to vote on or consent to any matter; and

(2) in a record, by each interest holder of a domestic domesticating entity that will have interest holder liability for liabilities that arise after the domestication becomes effective, unless:

(A) the organic rules of the entity in a record provide for the approval of a domestication or a transaction that has the effect of a merger in which some or all of its interest holders become subject to interest holder liability by the vote or consent of fewer than all of the interest holders; and

(B) the interest holder voted for or consented in a record to that provision of the organic rules or became an interest holder after the adoption of that provision.

(b) A domestication of a foreign domesticating entity is not effective unless it is approved in accordance with the law of the foreign entity’s jurisdiction of organization.

Comment

1. Section 543(a) – As is the case with the other types of transactions authorized by this Act, there are three possible ways to obtain approval (see Section 102(6)) of a domestication by a domestic entity. The first is to determine if the organic rules (defined in Section 102(69)) of the domesticating entity contain specific approval provisions for a domestication. If they exist, then those provisions apply to approval of the plan of domestication. Section 543(a)(1)(A). If there are no domestication approval provisions, then the approval process for a merger in either the entity’s organic law (defined in Section 102(68)) or organic rules will apply. Section 543(a)(1)(B). If there are no specific domestication approval provisions in the entity’s organic rules and no merger approval provisions in the entity’s organic law or organic rules, then unanimous consent of all the entity’s interest holders is required. Section 543(a)(1)(C).

In the case of a foreign entity that is domesticating in this state, the required approval is determined by the laws of the foreign entity’s jurisdiction of organization. Section 543(b). The phrase “transaction that has the effect of a merger” used in subsection (a)(1)(B) and (C) is explained in the Comment to the definition of “merger” in Section 102. If approval of a domestication occurs under subsection (a)(1)(B), the approval provisions for mergers that will apply will not include provisions on “short-form” mergers. A short-form merger involves a merger between a subsidiary and a parent that controls a large majority of the interests in the subsidiary (typically at least 80 or 90%). In those cases, the parent is permitted to merge with the subsidiary without the need for the governors or interest holders of the subsidiary to approve the merger. Because a domestication is a single-party transaction, short-form merger procedures are inapposite and it was not considered necessary to confirm that in the statutory text (unlike in the case of interest exchanges, which are two-party transactions – see Section 303(d)).

2. Section 543(a)(2) – See Comment 2 to Section 203 for an explanation of this interest holder liability provision.

SECTION 544. AMENDMENT OR ABANDONMENT OF PLAN OF DOMESTICATION.

(a) A plan of domestication of a domestic domesticating entity may be amended:

(1) in the same manner as the plan was approved, if the plan does not provide for the manner in which it may be amended; or

(2) by the governors or interest holders of the entity in the manner provided in the plan, but an interest holder that was entitled to vote on or consent to approval of the domestication is entitled to vote on or consent to any amendment of the plan that will change:

(A) the amount or kind of interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing, to be received by any of the interest holders of the domesticating entity under the plan;

(B) the public organic document or private organic rules of the domesticated entity that will be in effect immediately after the domestication becomes effective, except for changes that do not require approval of the interest holders of the domesticated entity under its organic law or organic rules; or

(C) any other terms or conditions of the plan, if the change would adversely affect the interest holder in any material respect.

(b) After a plan of domestication has been approved by a domestic domesticating entity and before a statement of domestication becomes effective, the plan may be abandoned:

(1) as provided in the plan; or

(2) unless prohibited by the plan, in the same manner as the plan was approved.

been filed with the [Secretary of State] and before the filing becomes effective, a statement of abandonment, signed on behalf of the entity, must be filed with the [Secretary of State] before the time the statement of domestication becomes effective. The statement of abandonment takes effect upon filing, and the domestication is abandoned and does not become effective. The statement of abandonment must contain:

(1) the name of the domesticating entity;

(2) the date on which the statement of domestication was filed; and

(3) a statement that the domestication has been abandoned in accordance with this section.

Comment

This section parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and F (divisions).

SECTION 545. STATEMENT OF DOMESTICATION; EFFECTIVE DATE.

(a) A statement of domestication must be signed on behalf of the domesticating entity and filed with the [Secretary of State].

(b) A statement of domestication must contain:

(1) the name, jurisdiction of organization, and type of the domesticating entity;

(2) the name and jurisdiction of organization of the domesticated entity;

(3) if the statement of domestication is not to be effective upon filing, the later date and time on which it will become effective, which may not be more than 90 days after the date of filing;

(4) if the domesticating entity is a domestic entity, a statement that the plan of domestication was approved in accordance with this [Chapter] or, if the domesticating entity is a foreign entity, a statement that the domestication was approved in accordance with the law of its jurisdiction of organization;

(5) if the domesticated entity is a domestic filing entity, its public organic document, as an attachment; and

(6) if the domesticated entity is a domestic limited liability partnership, its [statement of qualification], as an attachment.

(c) In addition to the requirements of subsection (b), a statement of domestication may contain any other provision not prohibited by law.

(d) If the domesticated entity is a domestic entity, its public organic document, if any, must satisfy the requirements of the law of this state, except that it does not need to be signed and may omit any provision that is not required to be included in a restatement of the public organic document.

(e) A plan of domestication that is signed on behalf of a domesticating domestic entity and meets all of the requirements of subsection (b) may be filed with the [Secretary of State] instead of a statement of domestication and upon filing has the same effect. If a plan of domestication is filed as provided in this subsection, references in this [Act] to a statement of domestication refer to the plan of domestication filed under this subsection.

(f) A statement of domestication becomes effective upon the date and time of filing or the later date and time specified in the statement of domestication.

Comment

1. In General – The filing of a statement of domestication makes the transaction a matter of public record. The mandatory requirements for a statement of domestication are set forth in subsection (b). They are essentially the same as the requirements for a statement of merger in Section 515.

2. Section 545(b)(3) and (e) – The effective date and time of a statement of domestication are the date and time of its filing, unless otherwise specified. If a delayed

effective date is specified, the statement of domestication is effective on that date and time, subject to the 90 day maximum delayed effective date in Section 545(b)(3).

3. Section 545(e) – A plan of domestication can be used as a substitute for the statement of domestication so long as the plan satisfies the requirements in subsection (e).

SECTION 546. EFFECT OF DOMESTICATION.

(a) When a domestication becomes effective:

(1) the domesticated entity is:

(A) organized under and subject to the organic law of the domesticated entity; and

(B) the same entity without interruption as the domesticating entity;

(2) all property of the domesticating entity continues to be vested in the entity without assignment, reversion, or impairment;

(3) all liabilities of the domesticating entity continue as liabilities of the entity;

(4) except as provided by law other than this [Article] or the plan of domestication, all of the rights, privileges, immunities, powers, and purposes of the domesticating entity remain in the domesticated entity;

(5) the name of the domesticated entity may be substituted for the name of the domesticating entity in any pending action or proceeding;

(6) unless otherwise provided by the organic law of the domesticating entity, the domestication does not cause the dissolution of the domesticating entity;

(7) if the domesticated entity is a filing entity, its public organic document is effective and is binding on its interest holders;

(8) if the domesticated entity is a limited liability partnership, its [statement of qualification] is effective simultaneously;

(9) the private organic rules of the domesticated entity that are to be in a record, if any, approved as part of the plan of domestication are effective and are binding on its interest holders; and

(10) the interests in the domesticating entity are converted to the extent and as approved in connection with the domestication, and the interest holders of the domesticating entity are entitled only to the rights provided to them under the plan of domestication [and to any appraisal rights they have under Section 507].

(b) Except as otherwise provided in the organic law or organic rules of the domesticating entity, the domestication does not give rise to any rights that an interest holder, governor, or third party would otherwise have upon a dissolution, liquidation, or winding-up of the domesticating entity.

(c) When a domestication becomes effective, a person that did not have interest holder liability with respect to the domesticating entity and that becomes subject to interest holder liability with respect to a domestic entity as a result of the domestication has interest holder liability only to the extent provided by the organic law of the entity and only for those liabilities that arise after the domestication becomes effective.

(d) When a domestication becomes effective:

(1) the domestication does not discharge any interest holder liability under the organic law of a domesticating domestic entity to the extent the interest holder liability arose before the domestication became effective;

(2) a person does not have interest holder liability under the organic law of a domestic domesticating entity for any liability that arises after the domestication becomes effective;

(3) the organic law of a domestic domesticating entity continues to apply to the release, collection, or discharge of any interest holder liability preserved under paragraph (1) as if the domestication had not occurred; and

(4) a person has whatever rights of contribution from any other person as are provided by the organic law or organic rules of a domestic domesticating entity with respect to any interest holder liability preserved under paragraph (1) as if the domestication had not occurred.

(e) When a domestication becomes effective, a foreign entity that is the domesticated entity:

(1) may be served with process in this state for the collection and enforcement of any of its liabilities; and

(2) appoints the [Secretary of State] as its agent for service of process for collecting or enforcing those liabilities.

(f) If the domesticating entity is a qualified foreign entity, the certificate of authority or other foreign qualification of the domesticating entity is canceled when the domestication becomes effective.

Comment

1. Section 546(a)(1) – The domesticated entity is the same entity as the domesticating entity; it has merely changed its jurisdiction of organization.

2. Section 546(a)(2) – A domestication is not a sale, conveyance, transfer, or assignment and does not give rise to claims of reverter or impairment of title that may be based on a prohibition on transfer, assignment, or conveyance.

3. Section 546(a)(4) – All pending proceedings involving the domesticating entity are continued. The name of the domesticated entity may be, but need not be, substituted in any pending proceeding for the name of the domesticating entity.

4. Section 546(a)(10) – The interests of the domesticating entity are reclassified into whatever rights were negotiated in the domestication and the interest holders of the domesticating entity are only entitled to those rights. Section 506(a)(10), on its face, allows certain owners in the domesticating entity to be entitled to a continuing equity interest in the domesticated entity whereas other owners in the domesticating entity may be cashed out as a result of the transaction.

5. Section 546(c) - Subsection (c) provides the rule for future interest holder liability and parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and F (divisions). See Comment 6 to Section 516.

6. Section 546(d) - Subsection (d) provides the rule for past interest holder liability and parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and F (divisions). See Comment 7 to Section 516.

7. Section 546(e) –When a domestic domesticating entity becomes a foreign entity as a result of a domestication, some mechanism is needed to facilitate the enforcement of claims by the creditors and interest holders of the domesticating entity. Section 546(d), which parallels analogous provisions in Chapters B (mergers), D (conversions), and F (divisions), authorizes service of process for all such claims in this state, and designates the Secretary of State of this state as the agent for service of process in the event the domesticated entity cannot be otherwise served in this state.

[CHAPTER] F

DIVISION

SECTION 551. DIVISION AUTHORIZED.

(a) Except as otherwise provided in this section, by complying with this [Article], a domestic entity may divide into:

(1) the dividing entity, and one or more new entities whether domestic or foreign; or

(2) two or more new entities whether domestic or foreign.

(b) A foreign entity may be created by the division of a domestic entity only if the division is authorized by the law of the foreign entity’s jurisdiction of organization.

(c) Except as otherwise provided in this section, if the division is authorized by the law of the foreign entity’s jurisdiction of organization, one or more of the resulting entities created in a division of a foreign entity may be a domestic entity.

(d) If a protected agreement contains a provision that applies to a merger of a domestic entity but does not refer to a division, the provision applies to a division of the entity as if the division were a merger until the provision is amended after the effective date of this [Article].

[(e) The following entities may not divide or be created in a division:

(1)

(2)]

Legislative Note: Very few state entity laws currently authorize divisions. As pointed out in the Legislative Note to META Appendix 2, in those few states that do have division provisions, it is recommended that they be amended to apply only to divisions where the dividing entity and th e resulting entities are all of the same type, for example a transaction where a corporation is divided into two or more corporations. In addition, a new subsection should be added to this section analogous to Sections 511(c) and 521(c) stating:

(d) This [Article] does not apply to a transaction under:

(1)

(2)

The statutes listed in that added subsection would be the existing division provisions as amended.

Alternatively, the existing division provisions could be repealed and then Chapter F would apply to all same-type and cross-type divisions. A third alternative is to add same-type division provisions to all of a state’s existing entity statutes so that Chapter F would only apply to divisions where one or more of the resulting entities is of a different type from the dividing entity or the other resulting entities; but this alternative would be quite cumbersome to implement given the absence of division provisions in most existing entity statutes.

Comment

1. In General – The division transaction authorized by this chapter is the reverse of a merger. Instead of two or more entities being merged into one entity, in a division one existing entity is divided into two or more resulting entities. The dividing entity may or may not survive the division, and one or more of the resulting entities may be foreign entities if the laws of each resulting foreign entity’s jurisdiction of organization permit the division. As part of the division, the assets and liabilities of the dividing entity are allocated to the resulting entities as provided in the plan of division to the extent permitted by this chapter.

Restructurings that divide a business into more than one entity have become increasingly popular in recent years. One prominent example is the transaction in which, as part of a settlement of antitrust litigation, the telephone assets of AT&T were divided among the seven so-called “Baby Bells” and the stock of the Baby Bells was distributed to the AT&T shareholders in what is known as a spin-off division. Another example is the split-off by General Motors of one of its major subsidiaries, Electronic Data Systems, where GM distributed EDS stock to the holders of its Class E stock. A third type of division, known as a split-up, is sometimes used in closely held businesses to resolve protracted dissension among the equity owners. For example, if the entity operates two distinct businesses, it may be possible to resolve dissension between two groups of owners by distributing the equity interests in one to one faction and the equity interests in the second to the other faction. As a result, unlike spin-off and split-off divisions where the distributing entity continues in existence, there will be two new entities and the distributing entity ceases to exist.

In addition to being a non-judicial remedy for resolving dissension, there are many other

business reasons for using divisions, including: separating conflicting businesses or businesses having different capital requirements or operating characteristics, freeing a parent company of underperforming businesses, unlocking value in a portion of the business operations that is expected to have greater market value operating as a separate business, and disposing of an unwanted business to facilitate a buy-out of the rest of the business enterprise.

This chapter does not authorize a domestic dividing entity that survives the division to change its jurisdiction of organization as part of the division. That result may be accomplished, however, by subsequently domesticating the dividing entity in a new jurisdiction of organization under the procedure in Chapter E.

If the organic law of a foreign entity authorizes a division of that entity into one or more resulting entities incorporated or organized under the laws of another state, subsection (c) permits those resulting entities to be incorporated or organized in this state.

2. Nonstatutory Divisions – This article does not apply to a division in which an existing subsidiary is distributed to the dividing entity’s equity holders, unless the assets and liabilities of the existing subsidiary need to be changed in preparation for the division transaction, in which case this article may be useful. See Sections 552(a)(4)(B) and 556(a)(4).

3. Tax Considerations – This article authorizes a division for state law purposes.

Federal and state tax laws will independently determine how a division transaction will be taxed.

4. Protection of Creditors and Other Persons – Because the assets and liabilities of a dividing entity are allocated among the resulting entities in a division transaction governed by this chapter, there is a legitimate concern that the rights of creditors and equity owners of the dividing entity are not illegally curtailed by the division. Since this Article only deals with the types of transactions within its scope and the procedures for approval and the effect of these transactions, law other than this Article will govern any potential illegal allocation in a division. See Section 103. This other law includes: fraudulent conveyance and bankruptcy law, fiduciary duty principles, illegal distribution statutes, oppression law, securities laws and other federal and state regulatory law (e.g., regulation of transactions by charitable organizations). See Richard M. Cieri, Lyle G. Ganke and Heather Lennox, “Breaking Up Is Hard To Do: Avoiding the

Solvency-Related Pitfalls in Spinoff Transactions,” 54 Bus. Law 533 (1999); Edward S. Adams and Arijit Mukherji, “Spin-offs, Fiduciary Duty and the Law,” 68 Ford. L. Rev. 15 (1999); F. Hodge O’Neal and Robert B. Thompson, O’Neal and Thompson’s Oppression of Minority Shareholders and LLC Members, Sections 5:28-5:32 and 7:1-7:43 (2nd Rev. Ed. 2004). Section 355 of the Internal Code also serves as a deterrent to abusive corporate divisions because a division can only qualify as a nontaxable dividend distribution if the division has an “independent business purpose,” which requires that there must be a real and substantial nonfederal tax purpose germane to the business of the entities. See Adams and Mukherji, supra at 20-26. See also Section 607 and the Comments thereto.

5. Section 551(d) – See Comment 4 to Section 521.

6. Section 551(e) – Section 551(e) is an optional provision that may be used to exclude certain types of entities from the scope of this article. A provision that excludes certain types of entities from the Article generally is set forth in Section 508.

SECTION 552. PLAN OF DIVISION.

(a) A domestic entity may divide under this [Chapter] by approving a plan of division. The plan of division must be in a record and contain:

(1) the name and type of the dividing entity;

(2) a statement whether the dividing entity will survive the division;

(3) the name, jurisdiction of organization, and type of each new resulting entity;

(4) the manner of:

(A) converting the interests of the dividing entity into interests, securities, obligations, rights to acquire interests or securities, cash, or other property, or any combination of the foregoing;

(B) allocating between or among the resulting entities those assets

of the dividing entity that will not be owned by all of the resulting entities as tenants in common pursuant to Section 606(a)(4) and those liabilities of the dividing entity as to which not all of the resulting entities will be liable jointly and severally pursuant to Section 557(a)(3); and

(5) the proposed public organic document, if any, of each new resulting entity and the full text of its private organic rules that will be in a record;

(6) if the dividing entity will survive the division, any proposed amendments to its public organic document or to its private organic rules that are, or will be, in a record;

(7) the other terms and conditions of the division; and

(8) any other provision required by law of this state other than this [Article] or the organic rules of the dividing entity.

(b) A plan of division may contain any other provision not prohibited by law.

Comment

This section parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and E (domestications). Section 552(a)(4)(B) is different from the other analogous provisions, however, because in a division some or all of the assets and liabilities are allocated between the dividing entity and the resulting entities, which does not occur in the other types of transactions authorized by this Act.

SECTION 553. APPROVAL OF DIVISION.

(a) A plan of division is not effective unless it has been approved:

(1) by a domestic dividing entity:

(A) in accordance with the requirements, if any, in its organic rules for approval of a division;

(B) if its organic rules do not provide for approval of a division, in

accordance with the requirements, if any, in its organic law and organic rules for approval of a transaction that has the effect of a merger as if the division were that type of transaction; or

(C) if neither its organic law nor organic rules provide for approval of a division or a transaction that has the effect of a merger, by all of the interest holders of the entity entitled to vote on or consent to any matter; and

(2) in a record, by each interest holder of a domestic dividing entity that will have interest holder liability for liabilities that arise after the division becomes effective, unless:

(A) the organic rules of the entity provide in a record for the approval of a division or a transaction that has the effect of a merger in which some or all of its interest holders become subject to interest holder liability by the vote or consent of fewer than all of the interest holders; and

(B) the interest holder voted for or consented in a record to that provision of the organic rules or became an interest holder after the adoption of that provision.

(b) A division of a foreign entity in which one or more of the resulting entities is a domestic entity is not effective unless it is approved by the foreign entity in accordance with the law of the foreign entity’s jurisdiction of organization.

Comment

1. In general. – As is the case with the other types of transactions authorized by this

Article, there are three possible ways to obtain approval (defined in Section 102) of a division of a domestic entity. The first is to determine if the organic rules (defined in Section 102) of the dividing entity contain specific approval provisions for divisions. If they exist, then those provisions apply to approval of the plan of division. See Section 553(a)(1)(A). If there are no provisions in the organic rules for approval of a division, then the provisions for approval of a merger in either the organic law (defined in Section 102) or organic rules of the entity will apply. Section 553(a)(1)(B). If there are no approval provisions for divisions in the entity’s organic rules and no approval provisions for divisions in the entity’s organic law or organic rules, then unanimous consent of all the entity’s interests holders is required. Section 553(a)(1)(C).

The phrase “transaction that has the effect of a merger” used in subsection (a)(1)(B) and

(C) is explained in the Comment to the definition of “merger” in Section 102. If approval of a division occurs under subsection (a)(1)(B), the approval provisions for mergers that will apply will not include provisions on “short-form” mergers. A short-form merger involves a merger between a subsidiary and a parent that controls a large majority of the interests in the subsidiary (typically at least 80 or 90%). In those cases, the parent is permitted to merge with the subsidiary without the need for the governors or interest holders of the subsidiary to approve the merger. Because there is only one party to a division transaction at the time it is approved, short-form merger procedures are inapposite and it was not considered necessary to confirm that expressly in the statutory text (unlike in the case of interest exchanges, which are two-party transactions – see Section 523(d)).

2. Section 553(a)(2) – See Comment 2 to Section 513 for an explanation of this interest holder liability provision.

3. Section 553(b) – Where a foreign entity is the dividing entity, subsection (b) defers to the laws of the foreign entity’s jurisdiction of organization for the requirements for approval of the division by the foreign entity. Those laws will include the organic law of the foreign entity and other applicable laws, such as this Act (or any applicable regulatory law) if it has been adopted in the foreign jurisdiction. The laws of the foreign jurisdiction will also control the application of any special approval requirements found in the organic rules of the foreign entity.

SECTION 554. AMENDMENT OR ABANDONMENT OF PLAN OF DIVISION.

(a) A plan of division of a domestic dividing entity may be amended:

(1) in the same manner as the plan was approved, if the plan does not provide for the manner in which it may be amended; or

(2) by the governors or interest holders of the entity in the manner provided in the plan, but an interest holder that was entitled to vote on or consent to approval of the division is entitled to vote on or consent to any amendment of the plan that will change:

(B) the public organic document or private organic rules of any of

the resulting entities that will be in effect immediately after the division becomes effective, except for changes that do not require approval of the interest holders of the resulting entity under its organic law or organic rules; or

(C) any other terms or conditions of the plan, if the change would adversely affect the interest holder in any material respect.

(b) After a plan of division has been approved by a domestic dividing entity and before a statement of division becomes effective, the plan may be abandoned:

(1) as provided in the plan; or

(2) unless prohibited by the plan, in the same manner as the plan was approved.

(c) If a plan of division is abandoned after a statement of division has been filed with the [Secretary of State] and before the filing becomes effective, a statement of abandonment, signed on behalf of the dividing entity, must be filed with the [Secretary of State] before the time the statement of division becomes effective. The statement of abandonment takes effect upon filing, and the division is abandoned and does not become effective. The statement of abandonment must contain:

(1) the name of the dividing entity;

(2) the date on which the statement of division was filed; and

(3) a statement that the division has been abandoned in accordance with this section.

Comment

This section parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and E (domestications).

SECTION 555. STATEMENT OF DIVISION; EFFECTIVE DATE.

(a) A statement of division must be signed on behalf of the dividing entity and filed with the [Secretary of State].

(b) A statement of division must contain:

(1) the name, jurisdiction of organization, and type of the dividing entity;

(2) a statement as to whether the dividing entity will survive the division;

(3) the name, jurisdiction of organization, and type of each resulting entity created by the division;

(4) if the statement of division is not to be effective upon filing, the later date and time on which it will become effective, which may not be more than 90 days after the date of filing;

(5) if the dividing entity is a domestic entity, a statement that the plan of division was approved in accordance with this [Article] or, if the dividing entity is a foreign entity, a statement that the division was approved by the foreign dividing entity in accordance with the law of its jurisdiction of organization;

(6) if the dividing entity is a domestic filing entity and survives the division, any amendment to its public organic document approved as part of the plan of division;

(7) for each domestic resulting entity created by the division, its public organic document, if any, as an attachment; and

(8) for each resulting entity created by the division that is a domestic limited liability partnership, its [statement of qualification], as an attachment.

(c) In addition to the requirements of subsection (b), a statement of division may contain any other provision not prohibited by law.

(d) If a resulting entity created in the division is a domestic entity, its public organic document, if any, must satisfy the requirements of the law of this state, except that it does not need to be signed and may omit any provision that is not required to be included in a restatement of the public organic document.

(e) A plan of division that is signed on behalf of a domestic dividing entity and meets all of the requirements of subsection (b) may be filed with the [Secretary of State] instead of a statement of division and upon filing has the same effect. If a plan of division is filed as provided in this subsection, references in this [Act] to a statement of division refer to the plan of division filed under this subsection.

(f) A statement of division becomes effective upon the date and time of filing or the later date and time specified in the statement of division.

Comment

1. In General – The filing of a statement of division makes the transaction a matter of public record. The mandatory requirements for a statement of division are set forth in subsection (b). They are essentially the same as the requirements for a statement of merger in Section 205.

2. Section 555(b)(4) and (f) – The effective date and time of a statement of division are the date and time of its filing, unless otherwise specified. If a delayed effective date is specified, the statement of division is effective on that date and time, subject to the 90 day maximum delayed effective date in Section 555(b)(4).

3. Section 555(e) – A plan of division can be used as a substitute for the statement of division so long as the plan satisfies the requirements in subsection (e).

SECTION 556. EFFECT OF DIVISION.

(a) When a division becomes effective:

(1) if the dividing entity is to survive the division, the dividing entity continues to exist;

(2) if the dividing entity is not to survive the division, the dividing entity ceases to exist;

(3) the resulting entities created in the division come into existence;

(4) property of the dividing entity:

(A) is allocated to and vests in the resulting entities created in the division, or remains vested in the dividing entity, in each case without assignment, reversion, or impairment, to the extent specified in the plan of division;

(B) not allocated by the plan of division remains vested in the dividing entity if the dividing entity survives the division; and

(C) not allocated by the plan of division is allocated to and vests equally in the resulting entities as tenants in common without assignment, reversion, or impairment if the dividing entity does not survive the division;

(5) a resulting entity to which a cause of action is allocated as provided in paragraph (4) may be substituted or added in any pending action or proceeding to which the dividing entity is a party at the effective time of the division;

(6) the liabilities of the dividing entity are allocated between or among the resulting entities as provided in Section 607;

(7) each resulting entity created in the division holds any property allocated to it as the successor to the dividing entity, and not by assignment, whether directly or indirectly, or by operation of law;

(8) if the dividing entity survives the division:

(A) its public organic document, if any, is amended as provided in the statement of division and remains binding on its interest holders; and

(B) its private organic rules that are to be in a record, if any, are amended to the extent provided in the plan of division and remain binding on its interest holders;

(9) the public organic document, if any, and the organic rules of each resulting entity created by the division become effective and are binding upon the interest holders of the resulting entity; and

(10) the interests in the dividing entity that are to be converted in the division are converted, and the interest holders of those interests are entitled only to the rights provided to them under the plan of division [and to any appraisal rights they may have under Section 507].

(b) Except as otherwise provided in the organic law or organic rules of the dividing entity, the division does not give rise to any rights that an interest holder, governor, or third party would otherwise have upon a dissolution, liquidation, or winding-up of the dividing entity.

(c) When a division becomes effective, a person that did not have interest holder liability with respect to the dividing entity and that becomes subject to interest holder liability with respect to a domestic resulting entity as a result of the division has interest holder liability only to the extent provided by the organic law of the resulting entity and only for those liabilities that arise after the division becomes effective.

(d) When a division becomes effective, the interest holder liability of a person that ceases to hold an interest in a domestic dividing entity with respect to which the person had interest holder liability is as follows:

(1) the division does not discharge any interest holder liability under the organic law of the domestic dividing entity to the extent the interest holder liability arose before the division became effective;

(2) the person does not have interest holder liability under the organic law of the domestic dividing entity for any liability that arises after the division becomes effective;

(3) the organic law of the domestic dividing entity continues to apply to the eelease, collection, or discharge of any interest holder liability preserved under paragraph (1) as if the division had not occurred; and

(4) the person has whatever rights of contribution from any other person as are provided by the organic law or organic rules of the domestic dividing entity with respect to any interest holder liability preserved by paragraph (1) as if the division had not occurred.

(e) When a division becomes effective, the certificate of authority or other foreign qualification of a foreign dividing entity that does not survive the division is canceled.

(f) A person does not have constructive notice of an allocation of an interest in real estate in a division until the allocation is recorded in compliance with the requirements for recording of interests in real estate in the state where the real property is located.

Comment

1. In General – With the exception of subsections (a)(4) and (a)(6), which are necessary because only in a division are assets and liabilities allocated among various entities, and subsection (f), which is discussed in Comment 2, this section parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and E (domestications).

2. Effect of Division on Record Title to Real Estate. – If interests in real property are allocated to a resulting entity as part of a division governed by Chapter F, title to these real estate interests automatically passes to the resulting entity, as between the dividing entity and the resulting entity. See Section 556(a)(7). Record title to the transferred real estate, however, is governed by the real estate recording acts of the states in which the real estate is located. The resulting entity will, therefore, have to file a deed (or whatever other document may be necessary under the recording acts of the state where the real estate is located) in order to prevail against third parties who obtain the real property from the dividing entity without knowledge of the transfer. Subsection (f) reflects this concept and also makes it clear that the filing of the statement of division in the Secretary of State’s office is not constructive notice of the change of record title (as opposed to legal title) to the resulting entity. Failure to file confirmatory deeds containing appropriate legal descriptions of the property, however, has no impact on the validity and enforceability of the division as between the dividing and the resulting entities.

In most cases, the resulting entity will want to file confirmatory deeds at the time the division is effective in order to protect itself from being trumped by a bona fide purchaser who obtains the real property from the dividing entity. There may be situations, however, where the dividing entity does not have legal descriptions available for all of its real property at the time of the division and the plan of division will simply state that the dividing entity is transferring to the dividing entity all of its real estate, e.g., “in the State of Arkansas” or “west of the Mississippi River.”

Whether real estate deed transfer taxes will be payable at the time a confirmatory deed is filed is a question to be determined by the laws of the state and county where the real estate is located. In some states, a division will be treated the same as a merger. In other states the division will be treated as a partial or complete liquidation transaction. The question of who will pay the cost of any deed taxes or recording fees that may be imposed should be dealt with in the plan of division. In the absence of an applicable provision, this cost will be the responsibility of the resulting entity that receives the real estate in the division.

3. Section 556(c) - Subsection (c) provides the rule for future interest holder liability and parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and E (domestications). See Comment 6 to Section 516.

4. Section 556(d) - Subsection (d) provides the rule for past interest holder liability and parallels analogous provisions in Chapters B (mergers), C (interest exchanges), D (conversions), and E (domestications). See Comment 7 to Section 516.

SECTION 557. ALLOCATION OF LIABILITIES IN DIVISION.

(a) Subject to subsections (b) and (c), when a division becomes effective, each resulting entity is responsible:

(1) individually for the liabilities the entity undertakes or incurs in its own name after the division;

(2) individually for the liabilities of the dividing entity that are allocated to or remain the liability of the resulting entity to the extent specified in the plan of division; and

(3) jointly and severally with the other resulting entities for the liabilities of the dividing entity that are not allocated by the plan of division.

(b) Allocation of a liability in a plan of division is ineffective, and the liability becomes a liability of all of the resulting entities, jointly and severally, if:

(1) the division materially increases the risk of nonpayment to a creditor on the liability or the risk of nonperformance to a person owed performance of the liability; or

(2) the allocation of assets and liabilities in the division is ineffective or voidable under law other than this [Article].

(c) If the division breaches a contractual obligation or other liability of the dividing entity, the dividing entity, if it survives the division, and each of the resulting entities allocated the contractual obligation or other liability or any assets associated with performance of the contractual obligation or other liability, is liable, jointly and severally, for the breach.

(d) In applying the law governing fraudulent transfers to the division:

(1) the dividing entity:

(A) if it does not survive the division, is not subject to that law; or

(B) if it survives the division, is subject to that law only in its capacity as a resulting entity;

(2) with regard to each resulting entity:

(A) the entity is treated as a debtor;

(B) the liabilities allocated to that entity are treated as an obligation incurred by the debtor;

(C) the entity is treated as not having received a reasonably equivalent value in exchange for incurring the obligation; and

(D) the assets allocated to the entity are treated as remaining assets.

(e) In applying the provisions of the organic law of the dividing entity on dividends or other distributions to the division:

(1) distributions of interests are disregarded;

(2) if the division was approved by the governors of the dividing entity, the solvency of the resulting entities is considered only as it appeared to the governors in their good faith judgment as of:

(A) if the statement of division takes effect on or before 120 days after the date the governors approved the division, the date of that approval; or

(B) if the statement of division takes effect more than 120 days after the date the governors approved the division, the date the statement of division takes effect; and

(3) if the division was approved by the interest holders of the dividing entity without approval by its governors, the solvency of the resulting entities is considered only as of the date the statement of division takes effect.

(f) Liens, security interests, and other charges upon the property of the dividing entity are not impaired by the division, notwithstanding any otherwise enforceable allocation of liabilities of the dividing entity.

(g) If the dividing entity is bound by a security agreement governed by Article 9 of the Uniform Commercial Code as enacted in any jurisdiction and the security agreement provides that the security interest attaches to after-acquired collateral, each resulting entity is bound by the security agreement.

Comment

1. In general – The purpose of Section 557 is to set out in detail how liabilities are allocated in a division between the dividing and resulting entities and which of the entities are responsible for those liabilities. The basic rule is that those liabilities are the responsibility of the entity to which they have been allocated, but the resulting entities are jointly and severally liable for any liabilities that are not specifically allocated. The resulting entities will also be jointly and severally liable for a liability, even if allocated in the plan, where:

(1) the division materially increases the risk of nonpayment to a creditor or the risk of nonperformance to a person owed performance, or

(2) the allocation or assets and liabilities is ineffective or voidable under fraudulent transfer statutes or other law.

The intent of Section 557 is to keep existing creditors of the dividing entity at the time of the division in no worse a position than they would have had if the division had not taken place.

With respect to a liability incurred after the division is effective, the entity that undertakes or incurs the liability is liable for that liability, absent an agreement to the contrary.

2. Section 557(d) – Subsection (d) provides a set of rules that explain how fraudulent transfer law applies to a division.

3. Section 557(e) – Since a division may have the effect of a distribution by the dividing entity, subsection (e) provides rules on how the limitations on distributions in the organic law of the dividing entity apply to the division.

4. Section 557(g) – Where a dividing entity has granted a security interest in after acquired property, the effect of subsection (g) is that the resulting entities will have the status of “new debtors” under UCC Article 9.