The major
drafting issue outstanding which has not been addressed in the modifications to
the Act is completeness of the Act. The general consensus of the Partnership
Committee was the Act should be a complete junction box statute rather than
merely an inter-species junction box statute.
This
conclusion arises from the difficulty of dealing with a number of entities of
the same sort in the merger area which contemplates the ability to merge a
number of entities into one entity. Under the current Act, the practitioner
would be required to utilize the merger provisions of each of the separate
organic acts as well as the Act in order to determine the steps needed to be
taken to accomplish the merger on a merely form level. In other words, there
may be Articles of Merger and Plan of Merger requirements that differ from
those of the Act and if the practitioner did not carefully cover both acts
requirements, the merger might not comply with both acts, leaving the potential
for great harm to the clients and the practitioner—unintended gaps.
Another
drafting concern is the general definitions of the terms “merger,” “interest
exchange,” “conversion,” and “domestication.” The concern is whether the terms
are specific to this act only, whether the terms are intended to refer to the terms
as used in the various organic acts only, or if the terms are intended to cover
both this act and the organic acts. If
the latter, then it would appear to be appropriate to define as both
transaction under this act and the specific reference in each of the organic
acts intended to be included in the junction box. This is one minor “plumbing”
issue that the Partnership Committee has identified. This issue must have been
of concern to the Corporate Laws Committee since it struggled with the same
language in the definitions and then expanded the commentary in an attempt to
capture the idea. The Partnership Committee believes that this language should
be in the statute and not in the commentary such that the user of the Act will
have a clear road map on these issues.
Another drafting issue is raised in META
206(b)(8)(a)(8)(B) and (a)(9) which speaks of the organic rules that are in a
record are binding on the interest holders but nowhere does the statute
expressly make the former shareholders (in a merger of a corporation into an
LLC) parties to the operating agreement.
7-90-206. Dissenters'
rights, prohibitions, restrictions, and requirements. (3) UNLESS
OTHERWISE PROVIDED IN THE PLAN OF CONVERSION OR PLAN OF MERGER, IF AN ENTITY IS
CONVERTED INTO ANOTHER FORM OF ENTITY OR MERGED INTO ANOTHER FORM OF ENTITY IN
A TRANSACTION IN WHICH DISSENTERS' RIGHTS ARE APPLICABLE, AN OWNER OF THE
CONVERTING OR MERGED ENTITY WHO CONSENTS TO THE CONVERSION OR MERGER OR WHO
DOES NOT CONSENT TO THE CONVERSION OR MERGER AND WHO DOES NOT EXERCISE
DISSENTERS' RIGHTS SHALL BECOME AN OWNER OF THE RESULTING OR SURVIVING ENTITY
AND SHALL BE DEEMED TO BE A PARTY TO, AND TO BE BOUND BY, THE CONSTITUENT
OPERATING DOCUMENT OF THE RESULTING OR SURVIVING ENTITY.
Another drafting issue is assuming
that
In addition to the above, the
Partnership Committee believes that the Act should be “rolled up” into the
Omnibus Business Code project and allowed to proceed in a more efficient
manner, rather than requiring two committees of substantially the same parties
to meet on separate weekends to discuss the same issues.
The drafting
comments provided herein do not take into account the suggestions of the Corporate
Laws Committee in an effort to avoid confusion by providing the Standing
Committee a clean starting point rather than placing additional comments on top
of those already provided by the Corporate Laws Committee, which additional
comments might have caused confusion by inadvertently deleting any of the
comments made by the Corporate Laws Committee. The reconciliation of the
comments from the Partnership Committee and the Corporate Laws Committee
appears to be better handled by the Standing Committee. In addition, while the Partnership Committee
has attempted to provide statutory language to resolve some of its concerns
with the Act, the Partnership Committee realizes that in the reconciliation
process, and in the general drafting process, better statutory language may be
obtained by the Standing Committee and thus the recommendations herein are
intended to raise many of the issues that the Partnership Committee has with
the Act, and allow for a continued dialog regarding such issues.
MODEL
ENTITY TRANSACTIONS ACT
Drafted by the
NATIONAL
CONFERENCE OF COMMISSIONERS
ON
UNIFORM STATE LAWS
AMERICAN
BAR ASSOCIATION
WITH PREFATORY NOTE AND COMMENTS
Copyright
© 2004, 2005
Jointly
By
NATIONAL
CONFERENCE OF COMMISSIONERS
ON
UNIFORM STATE LAWS
and
AMERICAN
BAR ASSOCIATION
ABOUT NCCUSL
The National Conference of Commissioners on Uniform State Laws
(NCCUSL), now in its 114th year, provides states with non-partisan,
well-conceived and well-drafted legislation that brings clarity and stability
to critical areas of state statutory law.
Conference members must be lawyers, qualified to practice law. They are
practicing lawyers, judges, legislators and legislative staff and law
professors, who have been appointed by state governments as well as the
• NCCUSL
strengthens the federal system by providing rules and procedures that are
consistent from state to state but that also reflect the diverse experience of
the states.
• NCCUSL statutes
are representative of state experience, because the organization is made up of
representatives from each state, appointed by state government.
• NCCUSL keeps
state law up-to-date by addressing important and timely legal issues.
• NCCUSL’s efforts
reduce the need for individuals and businesses to deal with different laws as
they move and do business in different states.
• NCCUSL’s work
facilitates economic development and provides a legal platform for foreign
entities to deal with
• NCCUSL
Commissioners donate thousands of hours of their time and legal and drafting
expertise every year as a public service, and receive no salary or compensation
for their work.
• NCCUSL’s
deliberative and uniquely open drafting process draws on the expertise of
commissioners, but also utilizes input from legal experts, and advisors and
observers representing the views of other legal organizations or interests that
will be subject to the proposed laws.
• NCCUSL is a
state-supported organization that represents true value for the states,
providing services that most states could not otherwise afford or duplicate.
DRAFTING COMMITTEE OF NATIONAL
CONFERENCE OF
COMMISSIONERS ON UNIFORM STATE
LAWS
HARRY J.
HAYNSWORTH, IV,
K. KING BURNETT,
RONALD W. DEL
SESTO, Del Sesto-Hall’s Building,
STEVEN G.
FROST,
CULLEN M.
GODFREY,
HENRY M.
KITTLESON,
LEON M.
McCORKLE, JR., P.O. Box 256, 4288 W. Dublin-Granville Rd., Dublin, OH 43017-0387
DAVID S.
WALKER,
ANN E.
CONAWAY,
EX OFFICIO
FRED H. MILLER, University of
Oklahoma, College of Law, 300 Timberdell Rd., Room 3056, Norman, OK 73019, President
JOANNE B. HUELSMAN, 235 W.
Broadway,
EXECUTIVE DIRECTOR
WILLIAM H. HENNING,
WILLIAM J. PIERCE,
DRAFTING COMMITTEE OF AMERICAN BAR
ASSOCIATION
GEORGE W. COLEMAN,
WILLIAM H. CLARK, JR.,
SECTION ON BUSINESS LAW
JON T. HIRSCHOFF, One Landmark
Sq., 14th Floor,
PAUL L. LION, III, 755 Page Mill
Rd., Palo Alto, CA 94304-1018, Committee on Venture Capital and Private
Equity
LIZABETH E. MOODY,
THOMAS E. RUTLEDGE, 1700 PNC
Plaza, 500 W. Jefferson St., Louisville, KY 40202-2874, Committee on
Partnerships and Unincorporated Business Entities
BRYN VAALER,
SECTION ON REAL PROPERTY, PROBATE
AND TRUST LAW
THOMAS EARL GEU,
ROBERT R. KEATINGE,
CAROL G. KROCH, RR
BARRY NEKRITZ, 8000
SECTION ON TAX LAW
ROBERT R. CASEY, 8555 United
Plaza Blvd, Suite 500, Baton Rouge, LA 70809
OBSERVERS
CARTER G. BISHOP,
DANIEL S. KLEINBERGER, William
Mitchell College of Law, 875 Summit Ave., St. Paul, MN 55105
MELISSA WANGEMANN, Kansas
Secretary of State,
Copies of this Act may be obtained
from:
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
312/915-0195
www.nccusl.org
AMERICAN BAR ASSOCIATION
SECTION ON BUSINESS LAW
312/988-6244
www.abanet.org
MODEL ENTITY TRANSACTIONS ACT
TABLE OF CONTENTS
Prefatory Note
[ARTICLE] 1
GENERAL PROVISIONS
SECTION 101. SHORT
TITLE
SECTION 102.
DEFINITIONS
SECTION 103.
RELATIONSHIP OF [ACT] TO OTHER LAWS
SECTION 104. REQUIRED
NOTICE OR APPROVAL
SECTION 105. STATUS OF
FILINGS
SECTION 106.
NONEXCLUSIVITY
SECTION 107. REFERENCE
TO EXTERNAL FACTS
SECTION 108.
ALTERNATIVE MEANS OF APPROVAL OF TRANSACTIONS
[SECTION 109.
APPRAISAL RIGHTS
[SECTION 110. EXCLUDED
ENTITIES AND TRANSACTIONS
[ARTICLE] 2
MERGER
SECTION 201. MERGER
AUTHORIZED
SECTION 202. PLAN OF
MERGER
SECTION 203. APPROVAL
OF MERGER
SECTION 204. AMENDMENT
OR ABANDONMENT OF PLAN OF MERGER
SECTION 205. STATEMENT
OF MERGER; EFFECTIVE DATE
SECTION 206. EFFECT OF
MERGER
[ARTICLE] 3
INTEREST EXCHANGE
SECTION 301. INTEREST
EXCHANGE AUTHORIZED
SECTION 302. PLAN OF
INTEREST EXCHANGE
SECTION 303. APPROVAL
OF INTEREST EXCHANGE
SECTION 304. AMENDMENT
OR ABANDONMENT OF PLAN OF INTEREST EXCHANGE
SECTION 305. STATEMENT
OF INTEREST EXCHANGE; EFFECTIVE DATE
SECTION 306. EFFECT OF
INTEREST EXCHANGE
[ARTICLE] 4
CONVERSION
SECTION 401.
CONVERSION AUTHORIZED
SECTION 402. PLAN OF
CONVERSION
SECTION 403. APPROVAL
OF CONVERSION
SECTION 404. AMENDMENT
OR ABANDONMENT OF PLAN OF CONVERSION
SECTION 405. STATEMENT
OF CONVERSION; EFFECTIVE DATE
SECTION 406. EFFECT OF
CONVERSION
[ARTICLE] 5
DOMESTICATION
SECTION 501.
DOMESTICATION AUTHORIZED
SECTION 502. PLAN OF
DOMESTICATION
SECTION 503. APPROVAL
OF DOMESTICATION
SECTION 504. AMENDMENT
OR ABANDONMENT OF PLAN OF
DOMESTICATION
SECTION 505. STATEMENT
OF DOMESTICATION; EFFECTIVE DATE
SECTION 506. EFFECT OF
DOMESTICATION
[ARTICLE] 6
RESERVED
[ARTICLE] 7
MISCELLANEOUS PROVISIONS
SECTION 701.
CONSISTENCY OF APPLICATION
SECTION 702. RELATION
TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT
SECTION 703.
CONFORMING AMENDMENTS AND REPEALS
SECTION 704. EFFECTIVE
DATE
SECTION 705. SAVINGS
CLAUSE
APPENDIX 1
FILINGS
SECTION A1-1.
REQUIREMENTS FOR DOCUMENTS
SECTION A1-2. FORMS
SECTION A1-3. FILING,
SERVICE, AND COPYING FEES
SECTION A1-4.
EFFECTIVE TIME AND DATE OF DOCUMENT
SECTION A1-5.
CORRECTING FILED DOCUMENT
SECTION A1-6. FILING
DUTY OF [SECRETARY OF STATE]
SECTION A1-7. APPEAL
FROM REFUSAL TO FILE A DOCUMENT
SECTION A1-8.
EVIDENTIARY EFFECT OF COPY OF FILED DOCUMENT
SECTION A1-9. PENALTY
FOR SIGNING FALSE DOCUMENT
SECTION A1-10. POWERS
OF [SECRETARY OF STATE]
APPENDIX 2
CONFORMING AMENDMENTS AND REPEALS
SECTION A2-1. MODEL
BUSINESS CORPORATION ACT
SECTION A2-2. MODEL
NONPROFIT CORPORATION ACT
SECTION A2-3. UNIFORM
PARTNERSHIP ACT
SECTION A2-4. UNIFORM
LIMITED PARTNERSHIP ACT
SECTION A2-5. UNIFORM
LIMITED LIABILITY COMPANY ACT
SECTION A2-6.
PROTOTYPE LIMITED LIABILITY COMPANY ACT
MODEL ENTITY TRANSACTIONS ACT
1. Development of the Act
The
Model Entity Transactions Act (META) is the result of a unique collaborative
effort of the National Conference of Commissioners on Uniform State Laws
(Conference) and the American Bar Association (ABA) to address an issue that
cuts across their traditional areas of expertise.
For
over 90 years, the Conference has prepared and periodically revised uniform
laws governing unincorporated entities, such as general partnerships, limited
partnerships, and limited liability companies. Similarly, for over 50 years
committees of the
During
the past decade, three new types of business entities – limited liability
companies, limited liability partnerships, and limited liability limited
partnerships – have come into wide use; other forms of business entities once
thought to be almost obsolete – most notably business trusts and cooperatives –
have attained new prominence; and a form of entity previously organized only
under the common law – unincorporated nonprofit associations – has been
recognized by statute. Also during the past decade, restructuring transactions
by and among all of the various types of entities began to occur with increased
frequency. Because of a lack of clear statutory authority in most states, these
restructuring transactions have often been completed in two or three indirect
steps rather than directly in a single transaction.
The
Conference included provisions permitting mergers among different forms of
entities and authorizing the conversion of one form of entity to another in the
Uniform Limited Liability Company Act (1996), Uniform Partnership Act (1997),
and Uniform Limited Partnership Act (2001). The
After
beginning their independent drafting projects, both the Conference and the
Prior
to the development of this Act, state business organization statutes (both
incorporated and unincorporated) varied in their approach to same-type and
cross-type mergers, consolidations, conversions, share/interest exchanges, and
domestications by or among domestic and foreign for-profit and nonprofit
entities. The dissimilarities in state statutes included: (1) which
transactions were authorized; (2) whether entities of more than one type could
be parties to the same transaction; (3) inclusion of for-profit and nonprofit
entities; (4) inclusion of incorporated and unincorporated organizations; and
(5) single or dual status for converting, domesticating, or transferring
entities. For example, The Uniform Partnership Act (1997) (“RUPA”) authorized
the conversion or merger of partnerships or limited partnerships. RUPA did not,
however, anticipate the conversion or merger of types of business entities
other than partnerships or limited partnerships nor did it address interest
exchanges or domestications. The Uniform Limited Partnership Act (1976 with
1985 amendments) (“RULPA”) is silent regarding mergers and any form of
cross-type transaction. A RULPA limited partnership could, however, effect a
conversion or merger by “linking back” to the limited RUPA merger or conversion
provisions. The Uniform Limited Partnership Act (2001) (“Re-RULPA”) anticipated
for-profit and nonprofit cross-type conversions and mergers, but not cross or
same-type interest exchanges, or domestications. The Uniform Limited Liability
Company Act (1996) (“ULLCA”) authorized cross-type mergers and conversions but
was silent regarding for-profit and nonprofit cross or same-type interest
exchanges, and domestications.
New
Chapter 9 of the Revised Model Business Corporation Act (“MBCA”), approved in
2003, authorized a domestic business corporation to become a different type of
entity and permitted a non-domestic business entity to become a domestic
business corporation. The transactions addressed in Chapter 9 of the MBCA
include: (1) domestication (a procedure in which a corporation may change its
state of incorporation, either domestic to foreign, or foreign to domestic);
(2) nonprofit conversion (a procedure that permits a domestic business
corporation to become either a domestic nonprofit corporation or a foreign
nonprofit corporation); (3) foreign nonprofit domestication and conversion (a
procedure that permits a foreign nonprofit corporation to become a domestic
business corporation); and (4) entity conversion (procedures that authorize a
domestic business corporation to become a domestic or foreign other entity or
that permit a foreign other entity to become a domestic business corporation).
Chapter 9 of the MBCA authorized only those transactions that involve a
domestic business corporation either at the outset or at the termination of the
transaction.
2. Scope of the Act
Article
1 of this Act sets forth general provisions applicable to the other articles.
It defines terms that are used throughout the Act, specifies the general
procedures for the filings required under other articles, and provides specific
rules dealing with all transactions.
Article
2 governs mergers. Article 2 is derived in large part from existing corporation
and unincorporated entity laws. Certain provisions dealing with necessary
approvals, information required in the plan of merger, and some filing
requirements represent an amalgamation of existing law.
Article
3 governs interest exchanges. The interest exchange transaction is derived from
the share exchange in corporate law and reflected in Chapter 11 of the MBCA.
Interest exchanges are not authorized as a separate form of transaction in any
uniform unincorporated entity act.
Article
4 governs conversions. A conversion is a statutory procedure authorizing an
entity to change its form of organization to another type of entity.
Article
5 governs domestications. It authorizes a foreign entity to become a domestic
entity of the same type and authorizes a domestic entity to become a foreign
entity of the same type so long as the laws of the foreign jurisdiction
authorize the domestication.
Article
6 is reserved.
Article
7 sets out certain miscellaneous provisions, including: (1) consistency of
application; (2) e-sign language; (3) effective date; and (4) savings clause.
Appendix
1 is an optional set of provisions relating to the processing of filings under
the Act by the Secretary of State. Enacting these provisions will only be
necessary if a state’s existing filing provisions cannot easily be made applicable
to filings under
Appendix
2 is a series of amendments and repeals to the various model, uniform, and
prototype entity laws that show an adopting state how to integrate this Act and
those entity laws into one coherent statutory system. Because of the
incompleteness and diversity of existing entity statutes with respect to the
five types of restructuring transactions dealt with in
3. Approach of the Act
Mergers
of two or more corporations into a surviving corporation have been an accepted
part of corporation law for a long time and are found in all state corporation
laws. On the other hand, mergers are a more recent development in
unincorporated entity laws. Following the lead of the MBCA, some states have
begun to authorize cross-type mergers in their corporation laws. States that
have adopted RUPA, Re-RULPA, or ULLCA also have provisions on cross-type
mergers and conversions in those laws. This Act is drafted on the assumption
that states will not be comfortable repealing mergers completely out of their
corporation laws or those unincorporated entity laws where merger provisions
have begun to appear. To create a consistent pattern across their various
entity laws, it is recommended that states limit the existing provisions on
mergers in their entity laws to same-type mergers and add provisions on
same-type mergers to those entity laws where they are currently missing. It is
not necessary, however, for a state to add same-type merger provisions to those
entity laws that do not already contain them because this Act has been drafted
to authorize same-type mergers for those entities not currently authorized to
engage in such mergers. See Section 201.
The
same approach taken with respect to mergers is incorporated into the design of
the interest exchange provisions in this Act. It is therefore recommended that
enacting states limit their existing statutory provisions for these types of
transactions to same-type transactions. It will not be necessary, however, for
an enacting state to add same-type provisions to interest exchange statutes
that do not already contain such provisions since this Act contains default
rules that will cover same-type as well as cross-type transactions. See Sections
301.
A
different approach is taken with respect to domestications. A domestication is
a same-type transaction where an existing entity moves its jurisdiction of
organization to another state but retains whatever form it had before the
domestication. See Section 501. Only a limited number of states
currently have domestications statutes. Therefore, in order to avoid having to
enact separate domestication provisions for all of the various entity statutes
in virtually every state,
Conversions
are by definition cross-type transactions. Thus any conversion provisions
outside of
MODEL ENTITY
TRANSACTIONS ACT
GENERAL
PROVISIONS
SECTION 101. SHORT TITLE. This [Act] may be cited as the
[State] Entity Transactions Act.
SECTION 102. 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.
(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.
(3)
“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.
(4)
“Conversion” means a transaction authorized by [Article] 4.
(5)
“Converted entity” means the converting entity as it continues in existence
after a conversion.
(6)
“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.
(7)
Reserved.
(8)
Reserved.
(9)
“Domestic entity” means an entity whose internal affairs are governed by the
law of this state.
(10)
“Domesticated entity” means the domesticating entity as it continues in
existence after a domestication.
(11)
“Domesticating entity” means the domestic entity that approves a plan of
domestication pursuant to Section 503 or the foreign entity that approves a
domestication pursuant to the law of its jurisdiction of organization.
(12)
“Domestication” means a transaction authorized by [Article] 5.
(13)
“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;
(C)
an association or relationship that is not a partnership by reason of [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.
(14)
“Filing entity” means an entity that is created by the filing of a public
organic document.
(15)
“Foreign entity” means an entity other than a domestic entity.
(16)
“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
(C)
receive notice of or vote on any or all issues involving the internal affairs
of the entity.
(17)
“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.
(18)
“Interest” means:
(A)
a governance interest in an unincorporated entity;
(B)
a transferable interest in an unincorporated entity; or
(C)
a share or membership in a corporation.
(19)
“Interest exchange” means a transaction authorized by [Article] 3.
(20)
“Interest holder” means a direct holder of an interest.
(21)
“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.
(22)
“Jurisdiction of organization” of an entity means the jurisdiction whose law
includes the organic law of the entity.
(23)
“Liability” means a debt, obligation, or any other liability arising in any
manner, whether or not it is secured.
(24)
“Merger” means a transaction authorized by [Article] 2.
(25)
“Merging entity” means an entity that is a party to a merger and exists immediately
before the merger becomes effective.
(26)
“Organic law” means the statutes, if any, other than this [Act], governing the
internal affairs of an entity.
(27)
“Organic rules” means the public organic document and private organic rules of
an entity.
(28)
“Person” means an individual, corporation, estate, trust, partnership, limited
liability company, business or similar trust, association, joint venture,
public corporation, government, or governmental subdivision, agency, or
instrumentality, or any other legal or commercial entity.
(29)
“Plan” means a plan of merger, interest exchange, conversion, or domestication.
(30)
“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.
(31)
Reserved.
(32)
“Public organic document” means the public record the filing of which creates
an entity, and any amendment to or restatement of that record.
(33)
“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].
(34)
“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.
(35) Reserved.
(36)
“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.
(37)
“Surviving entity” means the entity that continues in existence after or is
created by a merger.
(38)
“Transferable interest” means the right under an entity’s organic law to
receive distributions from the entity.
(39)
“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.
Comment
General
– This section defines the terms that will be used in other parts of the
Act. Many of the definitions describe attributes that are significant in some
forms of entity and not in others. For example, the concept of separate
“transferable” and “governance” interests are inherent in unincorporated
entities but have no counterpart in corporations. In addition, because some
statutes use different terms to describe the same transaction, the definitions
are intended to be broad enough to encompass those similar transactions,
regardless of how described. See, for example, “domestication” below.
“Acquired
entity” [(1)] – This definition recognizes that an interest exchange may
involve only the acquisition of a particular “class” or “series” of interests
in an entity. Model Business Corporation Act § 6.01 does not expressly define
“classes” or “series.” Because the interests of members in an unincorporated
business organization often tend to be distinctive, it may be that each
member’s interest will comprise a separate class or series.
“Acquiring
entity” [(2)] – An “acquiring entity” is an entity that acquires the
interests of the acquired entity in an interest exchange governed by Article 3.
“Approve”
[(3)] - The term “approve” encompasses all of the steps necessary for an
entity to propose a transaction, adopt and approve the terms and conditions of
the transaction, and obtain the necessary action on the transaction by the
governors and interest holders of the entity. The term includes procedural
requirements such as notice to interest holders, preparation of voting lists,
etc.
“Conversion”
[(4)] - The term “conversion” means a transaction authorized by Article 4
pursuant to which an entity of one type is converted into an entity of another
type. As used in this Act, the term “conversion” does not include a transaction
in which an entity changes the jurisdiction in which it is organized but does
not change to a different form of entity; that type of transaction is referred
to in this Act as a “domestication” and is governed by Article 5.
“Converted
entity” [(5)] - This term is used in Article 4 to describe the entity that
results from a conversion.
“Converting
entity” [(6)] – A converting entity is the entity that becomes the
converted entity under Article 4. This definition is patterned in part after
Model Business Corporation Act § 9.50(f)(1) (“converting entity”).
“Domestic
entity” [(9)] - The term “domestic entity” in this Act means an entity
whose internal affairs are governed by the organic laws of the adopting
jurisdiction. Except in the case of general partnerships, 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.
“Domesticated
entity” [(10)] – This term is used in Article 5 and means the entity that
is domesticated pursuant to Article 5. By its nature, the domesticated entity
will be of the same type as the domesticating entity.
“Domesticating
entity” [(11)] – This term is used in Article 5 and means the entity that
is domesticated pursant to Article 5.
“Domestication”
[(12)] - The term “domestication” means a transaction of the kind
authorized by Article 5 pursuant to which an entity may change its jurisdiction
of formation but not its type so long as the laws of the foreign
jurisdiction permit the domestication. The legal effect of the domestication of
an entity out of an adopting state will be governed by the laws of both the
adopting state and the foreign jurisdiction. Some statutes include what is
described in this Act as “domestication” in their definition of a “conversion.”
See, e.g., Colo. Rev. Stat § 7-90-201(2) and (3). It is intended that the
domestication provisions of this Act will apply to a transaction that may be
characterized under another act as a “conversion” if it meets the definition of
“domestication” under this Act.
“Entity”
[(13)] - This definition determines the overall scope of the Act because
only an “entity” may participate in the transactions authorized by Articles 2,
3, 4, and 5. See Sections 201,
301, 401, and 501.
The
term “entity” includes:
•Business corporation.
•Business 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. §
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”
(and thus are not within the scope of this Act) because of a decision that for
public policy reasons they should not be able to engage in transactions under
this Act. Trusts that carry on a business, however, such as a
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. Thus, for example, the election of a general
partnership to become a limited liability partnership is not a conversion
subject to Article 4.
“Filing
entity” [(14)] - 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 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 Business Corporation Act § 1.40(9A)
(“filing entity”).
“Foreign
Entity” [(15)] - 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 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. 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”).
“Governance
interest” [(16)] - 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 in others 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.
“Governor”
[(17)] - 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 trust.
“Interest”
[(18)] - 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 certain nonprofit corporations or unincorporated nonprofit
associations generally do not have any transferable interest because they may
not receive distributions, but they nonetheless may hold a governance interest
in which case they would have the status of interest holders under this Act. An
interest holder in an unincorporated business entity may transfer all or part
of the interest holder’s transferable interest without the transferee’s
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 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.
“Interest
exchange” [(19)] – The term “interest exchange” means a transaction
authorized by Article 3 pursuant to which an entity may acquire interests in
another entity. The consideration that may be provided to the interest holders
whose interests are being acquired in an exchange may consist in whole or part
of interests in a third party that is not one of the two parties to the
exchange itself. See Section 301(a).
“Interest
holder” [(20)] - 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
The
term “interest holder” includes:
•Beneficiary of a business
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 has been patterned after Model Business Corporation Act § 1.40(13B)
(“interest holder”).
“Interest
holder liability” [(21)] - This term is used to describe the vicarious
liability of an interest holder, by virtue of being an interest holder, for
liabilities of the entity. The term includes only personal liability of an
interest holder for a debt of the entity imposed on the interest holder either
by statute or by the organic rules to the extent authorized pursuant to the
organic law. Liabilities that an interest holder incurs in any other fashion
are not interest holder liabilities for purposes of this Act. Thus, for
example, if a state’s business corporation law makes shareholders personally
liable for unpaid wages because of their status as shareholders, that liability
would be an “interest holder liability.” If, on the other hand, a shareholder
were to guarantee payment of an obligation of a corporation, that liability
would not be an “interest holder liability” because it is a direct liability
and not based on the status of being a shareholder. Similarly, the liability to
make contributions to the entity or to return an improper distribution is not
an interest holder liability because it is a direct liability of the interest
holder even though creditors of the entity might be able to recover from the
interest holder.
This
definition is patterned after Model Business Corporation Act § 1.40(15C)
(“owner liability”). See also Uniform Limited Partnership Act (2001), §
1101(11) (“personal liability”).
“Jurisdiction
of organization” [(22)] - The term “jurisdiction of organization”
refers to the jurisdiction whose laws include the organic law of the entity.
The scope of this Act is not limited to
“Liability”
[(23)] - The term “liability” is intended to be all-inclusive and includes
all obligations of whatever description or kind.
“Merger”
[(24)] - The term means a transaction authorized by Article 2 pursuant to
which two or more entities are combined into a single entity. The term “merger”
in this Act includes the transaction known as a consolidation in which a new
entity results from the combination of two or more pre-existing entities.
Because
the term “merger” is defined with reference only to transactions authorized by
Article 2, it has a more limited meaning than the usual usage of the term.
Thus, references in this Act to a “merger” refer only to a transaction under
Article 2. But a reference in the organic rules of an entity to a “merger” will
include not only transactions under Article 2, but also similar transactions
under the organic law of the entity, for example a merger under Chapter 11 of
the Model Business Corporation Act (“MBCA”). Chapter 11 of the MBCA provides
rules for approval of a merger transaction, using the term “merger” within its
meaning under the MBCA, but not within its meaning under this Act.
“Merging
entity” [(25)] - The term “merging entity” refers to each entity that is in
existence immediately before a merger and is a party to the merger. It will
include the surviving entity if the surviving entity exists before the merger
becomes effective. It does not include an entity that provides consideration to
be received by interest holders if that entity is not a party to the merger.
“Organic
law” [(26)] – Organic law includes statutes other than this Act that govern
the internal affairs of an entity. To the extent these other statutes should be
applicable to a transaction under this Act, their effect is preserved by
Section 103.
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 this Act.
“Organic
rules” [(27)] - The term “organic rules” means an entity’s public organic
document and the private organic rules. The organic rules, together with this
Act, the organic law, and the common law provide the rules governing the
internal affairs of the entity.
“Person”
[(28)] – The term “person” has the standard meaning of that term in uniform
acts.
“Plan”
[(29)] - The term “plan” refers to the plan of merger, interest exchange,
conversion, or domestication, as the case may be, depending on which form of
transaction is taking place. See Sections 202, 302, 402, and 502.
“Private
organic rules” [(30)] - 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 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.
“Public
organic document” [(32)] - 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.
“Qualified
foreign entity” [(33)] - The term “qualified foreign entity” refers to an
entity that is authorized to transact business in this state pursuant to a
public filing.
“Record”
[(34)] – The term “record” is taken from the Uniform Electronic
Transactions Act. It is intended to apply broadly and include all information
so long as the information is retrievable in a “perceivable” form.
“Resulting
Entity” [(35)] – See the Comment to Section 102(7).
“Sign”
[(36)] – The term “sign” and its derivations is taken from the Uniform
Electronic Transactions Act. In the case of filed documents, 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 Act should be modified to delete
the references to filings being “signed” and merely refer to being filed (or
accepted for filing).
“Surviving
entity” [(37)] - The term “surviving entity” refers to either a merging
entity that survives the merger or the new entity created by the merger.
“Transferable
interest” [(38)] - The term “transferable interest” is taken from Section
102(22) of the Uniform Limited Partnership Act (2001).
“Type”
[(39)] - 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.
SECTION 103. RELATIONSHIP OF [ACT] TO OTHER LAWS.
(a)
Unless displaced by particular provisions of this [Act], the principles of law
and equity supplement this [Act].
(b)
This [Act] does not authorize an act prohibited by, and does not affect the
application or requirements of, law other than this [Act].
(c)
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 [Act] relating to a change in control, takeover, business
combination, control-share acquisition, or similar transaction involving a
domestic merging, acquired, converting, or domesticating corporation unless:
(1)
if the corporation does not survive the transaction, the transaction satisfies
any requirements of the provision; or
(2)
if the corporation survives the transaction, the approval of the plan is
sufficient to create or impair the right or obligation directly under the
provision.
Comment
1. Section
103(a) – Section 103(a) is a standard provision in uniform and model acts
and has been included to make clear that unless a particular provision of this
Act displaces “other law,” the principles of law and equity continue to apply,
including with respect to the rights of creditors, transferees, assignees, or
other similar parties. Thus subsection (a) preserves case law regarding common
law fraud; the rights of creditors following leveraged buyouts, spinoffs, asset
purchases, or other similar transactions; the liability of corporate directors
for distributions to executives or shareholders while the corporation is
insolvent; creditor claims under GAAP; and creditor rights arising under the various
organic laws of unincorporated entities, including when the right to partner
contribution arises and the liability of an unincorporated entity for unlawful
distributions during or resulting in insolvency of the entity.
2. Section
103(b) – Subsection (b) 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 104.
Laws
other than this Act that will apply to transactions under the Act 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
103(c) – 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 (c) on
varying the application of an antitakeover statute is to protect against a
hostile acquirer or group of shareholders seeking to use the Act to avoid the
application of the antitakeover statute.
Subsection
(c) protects the application of antitakeover statutes from being affected by a
transaction under this Act 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 Act. If the application of an
antitakeover statute cannot be varied by action of an entity subject to it,
then a transaction under this Act 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 104. 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 plan of merger, interest exchange, conversion or
domestication, 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
[Act].
(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 [Act]
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
1. Section
104(a) – Because at least some of the provisions of this Act 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 Act. The purpose of subsection (a) is to
ensure that transactions under this Act will be subject to the same regulatory
approval as mergers. This section is based on whether a transaction by a
regulated entity requires prior approval because the transactions authorized by
this Act may be effectuated indirectly in many cases under existing law. The
consequence of violating subsection (a) should be the same as in the case of a transaction
consummated without the required approval.
2. Section
104(b) – This Act 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 Act. To prevent the procedures in this Act 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 Act 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 206, 306, 406, and 506.
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 105. STATUS OF FILINGS. A filing under this [Act]
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 106. NONEXCLUSIVITY. The fact that a transaction
under this [Act] 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
[How does this square with the comments
under Section 105 that indicate that the entity must receive governmental
approval under Section 105 and should not be able to use current law to effect
a transaction in violation of Section 105?]This section allows a
transaction that has the same end result as one of the transactions governed by
this Act, but that is accomplished in a manner not within the scope of this
Act, to be exempt from this Act. 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 Act, even though the
end result of the transaction is essentially the same as if the two entities
had merged into a third entity.
SECTION 107. 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 108. 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 [Act] by the unanimous vote or
consent of its interest holders satisfies the requirements of this [Act] 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 Act. That
is consistent with the default rules on approval in Sections 203 (approval of a
merger), 303 (approval of an interest exchange), 403 (approval of a
conversion), and 503 (approval of a domestication).
[SECTION 109. APPRAISAL RIGHTS. Except as otherwise
provided in the entity’s organic law or organic rules, an interest holder of a
domestic merging, acquired, converting, or domesticating entity is entitled to
appraisal rights in connection with the transaction if the interest holder
would have been entitled to appraisal rights under its organic law. Except as
otherwise provided in the entity’s organic law or organic rules, a plan of
merger, interest exchange, conversion or domestication may provide contractual
appraisal rights for any class or group of interest holders in connection with
a merger, interest exchange, conversion or domestication of such entity, to the
extent such contractual appraisal rights, unless consented to by all interest
holders, do not reduce the appraisal rights of the interest holders below that
provided to the interest holders pursuant to the organic law or the organic
rules.]
Legislative Note: Section 109 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 Appendix 2. If that alternative approach is adopted,
the references to Section 109 in other sections of this Act should be replaced
with references to the appropriate provisions of the organic laws granting
appraisal rights.
Comment
This
Act 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. The Act also allows for contractual appraisal
rights to be granted to interest holders so long as such contractual rights do
not reduce or diminish the appraisal rights of the interest holders as
otherwise provided to such interest holders under organic law or under the
organic rules of the entity. Cf. 6 Del. Code §§ 15-120 (general
partnerships), 17-212 (limited partnerships), and 18-210 (limited liability
companies) which validate contractual appraisal rights.
[SECTION 110. EXCLUDED ENTITIES AND TRANSACTIONS.
(a)
The following entities may not participate in a transaction under this [Act]:
(1)
(2)
(b)
This [Act] 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 Act with for-profit
entities, subject to compliance with Section 104(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 201(d) (mergers),
301(e) (interest exchanges), 401(d) (conversions) and 501(e) (domestications).
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.
MERGER
SECTION 201. MERGER AUTHORIZED.
(a)
Except as otherwise provided in this section, by complying with this [Article]:
(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 [Article] applicable to foreign entities a foreign entity may be a
party to a merger under this [Article] 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.
(c)
This [Article] does not apply to a transaction under:
(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 [Article]:
(1)
(2)]
Comment
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 201(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 201(b) is met.
3. Section
201(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
201(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 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.
5. Section
201(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 110.
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.
(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
1.
Section 202(a) - The requirements for the plan of merger are set forth
in Section 202(a). They are similar to plan of merger provisions in corporation
statutes. See Model Business Corporation Act § 11.02(c).
2.
Section 202(a)(1) - Section 202(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 205.
3.
Section 202(a)(3) - Section 202(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 202(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 law of fiduciary
duties, assuming, of course, that such duties have not been contractually
modified or eliminated, (ii) the duty of good faith and fair dealings or (iii)
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
202(b) - Section 202(b) provides the statutory authority for a merging
party to include information in a plan of merger that is not specifically
listed in Section 202(a). One such possibility is contractual appraisal rights.
SECTION 203. 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 merger; or
(B)
if neither its organic law nor organic rules provide for approval 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, at a time which is after the plan of merger has been proposed to
the interest holders, by each interest holder of a domestic merging entity that
will have interest holder liability for liabilities that arise after the merger
becomes effective.
(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
1.
Section 203(a) – Approval under Section 203 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.
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 article 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 203(a)(2) – Subsection (a)(2) is patterned in part after Uniform
Limited Partnership Act (2001) § 1110, with the exception that the interest holders
cannot provide advance approval of becoming personally liable without current
knowledge of the extent of liability. This change is intended to protect
interest holders from unintended consequences in the event of a change in
circumstances. This protection is not currently afforded to owners of limited
partnership interests under the Uniform Limited Partnership Act (2001). 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).
3.
Section 203(b) – Where a foreign entity is a party to a merger under
this Act, 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 Act 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 204. 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 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 205. 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 [Article] 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;
(7) if the surviving entity is created by the merger and is a domestic limited liability partnership, its [statement of qualification], as an attachment; and
(8) an address for service of process and a
consent to such service at such address.
(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
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 205(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. Optional provisions dealing with the filing requirements and filing
fee for a statement of merger are set forth in Appendix 1.
3.
Section 205(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 205(b)(3) – See Comment 9.
5.
Section 205(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 205(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
205(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 205(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 205(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 205(f) is subject to the
90-day delayed effective date filing limitation in subsection 205(b)(3).
SECTION 206. 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
(C)
all of its rights, privileges, immunities, powers, and purposes continue to be
vested in it;
(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 109].
(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.
(c)
When a merger becomes effective, a person that did not have interest holder
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)
consents to the service of process by registered mail addressed to the
surviving entity at the office required to be maintained in the jurisdiction of
its organization or, if different, the address in this state set forth in the
statement of merger.
.
(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
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 203(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 206(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 103(b) and 104(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 206(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
206(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 206(a)(10) – The bracketed language in this subsection should
only be included if the enacting state adopts Section 109.
6. Section
206(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 206(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
206(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.
INTEREST
EXCHANGE
SECTION 301. INTEREST EXCHANGE AUTHORIZED.
(a)
Except as otherwise provided in this section, by complying with this [Article]:
(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 [Article] applicable to foreign entities a foreign entity may be the
acquiring or acquired entity in an interest exchange under this [Article] if
the interest exchange is authorized by the law of the foreign entity’s
jurisdiction of organization.
(c) Reserved.
[(d)
This [Article] 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
[Article]:
(1)
(2)]
Legislative Note: As pointed out in the Legislative Note to
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 3 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, Article 3 will govern and will cover
both same-type and cross-type interest exchanges. See Section 2 of the
Prefatory Note and Appendix 2.
Comment
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. Article 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 301(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 since these
concepts are generally handled in the organic rules of unincorporated entities.
But see 6 Del.C. §§ 15-407 (general partnerships), 17-208
(limited partnerships), and 18-215 (limited liability companies).
2.
Section 301(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 301(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. Reserved.
5.
Section 301(d) – The statutes that should be listed in Section 301(c) are
interest exchange statutes that already exist or are added to the state’s
various entity statutes when
6. Section
301(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 110.
SECTION 302. PLAN OF INTEREST EXCHANGE.
(a)
A domestic entity may be the acquired entity in an interest exchange under this
[Article] 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
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 303. The content of the plan of interest exchange is similar to
the content of a plan of merger. See Section 202. 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 302(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.
Any perceived “unfairness” in the “shuffle” will need to be addressed either
(i) under the law of fiduciary duties, assuming, of course, that such duties
have not been contractually modified or eliminated, (ii) the duty of good faith
and fair dealings or (iii) 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.
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 305) 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 305(d).
SECTION 303. 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; or
(B)
if neither its organic law nor organic rules provide for approval of an
interest exchange, by all of the interest holders of the entity entitled to
vote on or consent to any matter; and
(2)
in a record, at a time which is after the plan of interest exchange has been
proposed to the interest holders, 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.
(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.
Comment
1.
In General – This section sets forth the required approval (see
Section 102(3)) of an interest exchange. An interest exchange transaction
governed by this article 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 two possibilities will be
applicable:
(1)
if the organic law (see Section 102(26)) 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(27)) 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;
and
(2)
if (1) is not applicable, then unanimous
consent of the acquired entity’s interest holders will be required.
A two-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 301.
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 203.
2. Section
303(a)(2) – See Comment 2 to Section 203 for an explanation of this
interest holder liability provision.
SECTION 304. 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 parallels analogous provisions in Articles 2 (mergers), 4
(conversions), and 5 (domestications).
SECTION 305. 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
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 205.
2. Section
305(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
305(b)(3).
3. Section
305(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 306. 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
109];
(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
1.
Section 306(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 206(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 306(c) - Subsection (c) provides the rule for future interest
holder liability and parallels analogous provisions in Articles 2 (mergers), 4
(conversions), and 5 (domestications). See
Comment 6 to Section 206.
3.
Section 306(d) - Subsection (d) provides the rule for past interest holder
liability and parallels analogous provisions in Articles 2 (mergers), 4
(conversions), and 5 (domestications). See Comment 7 to Section 206.
CONVERSION
SECTION 401. CONVERSION AUTHORIZED.
(a)
Except as otherwise provided in this section, by complying with this [Article],
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 [Article] 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.
(c)
Reserved.
[(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 Appendix 2. The net effect will be that this Act
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 Article
4 of this Act, but in other situations only Article 4 of this Act will apply.
Comment
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 Article 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(22) for the definition of “jurisdiction
of organization.” When a foreign entity becomes a domestic entity pursuant to
this article, the effect of the conversion will be as provided in Section 406.
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 a similar 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 Article 2;
however, it should be noted that the entity is not the same entity in a merger
and thus a number of significant differences occur regarding contractual rights
of third parties, consents and the like.
4.
Section 401(c) – See Comment 4 to Section 301.
5.
Section 401(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 110.
SECTION 402. 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
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 403. 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 402(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. Any perceived “unfairness” in the “shuffle” will need to be
addressed either (i) under the law of fiduciary duties, assuming, of course,
that such duties have not been contractually modified or eliminated, (ii) the
duty of good faith and fair dealings or (iii) 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.
3.
Filing the Plan of Conversion – The plan of conversion may, but need not,
be filed instead of the statement of conversion (Section 405), 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 405(e).
SECTION 403. 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; or
(B)
if neither its organic law nor organic rules provide for approval of a
conversion, by all of the interest holders of the entity entitled to vote on or
consent to any matter; and
(2) in a record, at a time which is after the plan of conversion has been proposed to the interest holders, by each interest holder of a domestic converting entity that will have interest holder liability for liabilities that arise after the conversion becomes effective.
(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 two 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
403(a)(1)(A). If there are no provisions in the organic rules for approval of a
conversion, then unanimous consent of all the entity’s interests holders is
required. Section 403(a)(1)(B).
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 403(b).
2.
Section 403(a)(2) – See Comment 2 to Section 203 for an explanation
of this interest holder liability provision.
SECTION 404. 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 Articles 2 (mergers), 3 (interest
exchanges), and 5 (domestications).
SECTION 405. 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;
(6) if the converted entity is a domestic limited liability partnership, the text of its [statement of qualification], as an attachment; and
(7) an address for
service of process and a consent to such service at such address.
(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 205.
2.
Section 405(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 405(b)(3).
3.
Section 405(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 406. EFFECT OF CONVERSION.
(a)
When a conversion becomes effective for all purposes of the laws of this state:
(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 and the
conversion shall constitute a continuation of the existence of the converting
entity in the form of the converted 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 converted
entity;
(4)
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)
the conversion shall not require the converting entity to wind up it affairs or
pay its liabilities and distribute its assets and shall not be deemed to
constitute or 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
109].
(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)
consents to the service of process by registered mail addressed to the
converted entity at the office required to be maintained in the jurisdiction of
its organization or, if different, the address in this state set forth in the
statement of conversion.
(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 remains the owner of all real
and personal property and remains subject to all the liabilities, actual or
contingent, of the converting 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 406(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 406(c) - Subsection (c) provides the rule for future interest
holder liability and parallels analogous provisions in Articles 2 (mergers), 3
(interest exchanges), and 5 (domestications).
4.
Section 406(d) - Subsection (d) provides the rule for past interest holder
liability and parallels analogous provisions in Articles 2 (mergers), 3
(interest exchanges), and 5 (domestications).
5.
Section 406(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 Articles 2
(mergers), and 5 (domestications),
authorizes service of process for all such claims in this state, and provides
that the converted entity consents to the service of process to it at its
office in its jurisdiction or the address in this state set forth in the plan.
DOMESTICATION
SECTION 501. DOMESTICATION AUTHORIZED.
(a)
Except as otherwise provided in this section, by complying with this [Article],
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 [Article] 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 [Article] with reference to a
foreign jurisdiction, it means an entity whose internal affairs are governed by
the law of the foreign jurisdiction.
(d)
Reserved.
[(e)
The following entities may not engage in a domestication:
(1)
(2)]
Legislative Note: As is pointed out in the Legislative Note
to 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
Article 5 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 Article 5.
Comment
1.
In General – A domestication authorized by Article 5 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.
Article
5 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 Article 5, will govern the legal effect of a
domestication of a domestic entity in another jurisdiction. In the latter
scenario, Article 5 authorizes the domestication of the domestic entity in the
foreign jurisdiction, but Article 5 does not create a right in the domestic
entity to be received in the foreign jurisdiction. Similarly, Section 501 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 501(d) – See Comment 4 to Section 301(d).
3.
Section 501(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 110.
SECTION 502. 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 503. 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 502(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. Any perceived “unfairness” in the
“shuffle” will need to be addressed either (i) under the law of fiduciary
duties, assuming, of course, that such duties have not been contractually
modified or eliminated, (ii) the duty of good faith and fair dealings or (iii)
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.
3.
Filing the Plan of Domestication – The plan of domestication, may, but need
not, be filed instead of the statement of domestication (Section 505) 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 505(e).
SECTION
503. 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; or
(B) if
neither its organic law nor organic rules provide for approval of a
domestication, by all of the interest holders of the entity entitled to vote on
or consent to any matter; and
(2)
in a record, at a time which is after the plan of domestication has been
proposed to the interest holders, by each interest holder of a domestic domesticating
entity that will have interest holder liability for liabilities that arise
after the domestication becomes effective.
(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 503(a) – As is the case with the other types of transactions
authorized by this Act, there are two possible ways to obtain approval (see
Section 102(3)) of a domestication by a domestic entity. The first is to
determine if the organic rules (defined in Section 102(27)) 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 503(a)(1)(A). If there are no domestication approval
provisions, then unanimous consent of all the entity’s interest holders is
required. Section 503(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 503(b).
2.
Section 503(a)(2) – See Comment 2 to Section 203 for an
explanation of this interest holder liability provision.
SECTION 504. 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.
(c)
If a plan of domestication is abandoned after a statement of domestication 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
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 Articles 2 (mergers), 3 (interest
exchanges), and 4 (conversions).
SECTION 505. 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 [Article] 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;
(6) if the domesticated entity is a domestic limited liability partnership, its [statement of qualification], as an attachment; and
(7)
an address for service of process and a consent to such service at such
address.
(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).
2.
Section 505(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 505(b)(3).
3.
Section 505(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 506. 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 [Act] 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
109].
(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)
consents to the service of process by registered mail addressed to the
domesticated entity at the office required to be maintained in the jurisdiction
of its organization or, if different, the address in this state set forth in
the statement of domestication.
(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 506(a)(1) – The domesticated entity is the same entity as the
domesticating entity; it has merely changed its jurisdiction of organization.
2.
Section 506(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 506(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 506(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 506(c) - Subsection (c) provides the rule for future interest
holder liability and parallels analogous provisions in Articles 2 (mergers), 3
(interest exchanges), and 4
(conversions).
6.
Section 506(d) - Subsection (d) provides the rule for past interest holder
liability and parallels analogous provisions in Articles 2 (mergers), 3
(interest exchanges), and 4 (conversions).
7.
Section 506(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 506(d), which parallels analogous provisions in
Articles 2 (mergers), and 4
(conversions), authorizes service of process for all such claims in this state,
and consents to service of process at its address required to be maintained or
at the address in this state set forth in the statement of domestication.
RESERVED
MISCELLANEOUS
PROVISIONS
SECTION 701. CONSISTENCY OF APPLICATION. In applying and
construing this [Act], consideration must be given to the need to promote
consistency of the law with respect to its subject matter among states that
enact it.
SECTION 702. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND
NATIONAL COMMERCE ACT. This [Act] modifies, limits, and supersedes the
federal Electronic Signatures in Global and National Commerce Act (15 U.S.C.
Section 7001, et seq.), but does not modify, limit, or supersede Section 101(c)
of that act (15 U.S.C. Section 7001(c)) or authorize electronic delivery of any
of the notices described in Section 103(b) of that act (15 U.S.C. Section
7003(b)).
SECTION 703. CONFORMING AMENDMENTS AND REPEALS. [See
Appendix 2.]
SECTION 704. EFFECTIVE DATE. This [Act] takes effect
[January 1, 20__.]
SECTION 705. SAVINGS CLAUSE. This [Act] does not affect
an action or proceeding commenced or right accrued before the effective date of
this [Act].
FILINGS
Introductory
Comment to Appendix 1
This
appendix provides a set of optional provisions dealing with the manner in which
filings under this Act are to be processed by the Secretary of State. The
provisions in this appendix will not be needed in those enacting states where
this Act is integrated into a code of organic laws that already contains
provisions similar to this appendix. If this Act is not integrated into such a
code of organic laws, however, there may not be provisions similar to this
appendix that will apply to filings under this Act.
The
provisions in this appendix are patterned after the filing provisions in the
Model Business Corporation Act. States enacting this appendix should conform
its provisions to their particular filing requirements and any existing
provisions on filings in their organic laws.
SECTION A1-1. 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
(C)
if the entity is in the hands of a receiver, trustee, or other court-appointed
fiduciary, by that fiduciary.
(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
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 A1-2) and as a result may not reject documents on
the basis of form (see Section A1-6) 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(36) 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 A1-6(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 A1-6 and A1-8.
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 A1-2. 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 A1-1, 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 A1-3. 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.
(c)
The [Secretary of State] shall collect the following fees when the documents
described are delivered for filing:
(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)
Reserved.
(10)
Reserved.
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 A1-4. EFFECTIVE TIME AND DATE OF DOCUMENT.
Except as provided in Section A1-5, 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 A1-5. 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 A1-6. 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 A1-1 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 A1-1.” 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 A1-1 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 A1-3(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 A1-7.
SECTION A1-7. 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.
(c)
The court’s final decision may be appealed as in other civil proceedings.
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 A1-8. 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 A1-3(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 A1-9. 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(36),
“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 A1-10. 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.
CONFORMING
AMENDMENTS AND REPEALS
Legislative Note: This appendix provides a guide for
amendments, repeals, and additions that must be made to existing statutes when
the Act is enacted in a particular state. This is a complex task because of the
wide variation in current state statutes with respect to the types of entities
that can engage in one or more of the transactions authorized by the Act.
1. Step One: Identify Existing Laws
The
first step that must be taken is to identify all of the existing statutory
provisions that allow for same-type (all of the entities involved are the same,
e.g., a merger between two corporations) and cross-type (more than one type of
entity is involved in the transaction, e.g., a merger between a corporation and
a partnership), mergers, interest exchanges, conversions, and domestications
for any kind of entity. An entity is defined in Section 102 to include all
types of partnerships (general partnerships, limited liability partnerships,
limited partnerships, and limited liability limited partnerships), limited
liability companies, all types of corporations (including non-profit
corporations, close corporations in those states that have separate statutes
for close corporations, and professional corporations), business trusts,
cooperatives, and unincorporated nonprofit associations (at least in states
that have the Uniform Unincorporated Nonprofit Associations Act or have
statutes that allow an unincorporated nonprofit organization to hold property
in its own name). Many states have statutes governing other types of business
organizations. Texas, for example, has special statutory provisions for real
estate investment trusts (in most other states, REITs would be considered a
type of business trust). These special types of entities should also be
included in the review process.
2. Step Two: Analyze Existing Laws
The
next step is to analyze the overall existing statutory framework for same-type
and cross-type transactions. This analysis will reveal that there are gaps in
coverage for many of the types of transactions covered by the Act, either
directly or by default, even in those states that have adopted Chapter 9 and 11
of the Model Business Corporation Act and the uniform unincorporated
organization acts.
Every
state will have provisions for mergers of corporations into other corporations
but not all states authorize interest exchanges between corporations (the
corporate statutes generally refer to these as share exchanges) and only a few
states specifically authorize corporations to enter into merger or interest
exchange transactions with other types of organizations. Moreover, very few
existing corporate statutes have provisions for conversions of corporations
into other types of entities or authorize corporations to domesticate in
another state.
The
same-type and cross-type landscape with respect to unincorporated entities is
even less complete. The Uniform Partnership Act (1997) (RUPA), which has been
adopted in approximately 2/3 of the states (and in the District of Columbia,
Puerto Rico and the Virgin Islands) only authorizes mergers and conversions of
general partnerships and limited partnerships. It does not allow conversions
into any other type of entity or mergers with any other type of entity; nor
does it authorize interest exchange, domestication transactions. Several states
that have adopted RUPA have provisions allowing same-type and cross-type
conversions and mergers of general partnerships with not only limited
partnerships but also with corporations and limited liability companies; and a
few RUPA states have expanded the list to include any business entity (it is
unclear in many of these states, however, whether these statutes apply to
non-profit entities). With the exception of Ohio, which authorizes mergers and
consolidations of general partnerships with other partnerships and “other
domestic or foreign entities,” there are apparently no same-type or cross-type
provisions in the general partnership statutes of the approximately one-third
of the states that still have the 1914 Uniform Partnership Act.
The
statutory framework for limited partnership same-type and cross-type
transactions is also quite varied. Most states have the Uniform Limited
Partnership Act (1976 with 1985 Amendments). That Act has no provisions dealing
with merger, interest exchange, conversion, or domestication transactions.
According to Volume 6A of Uniform Laws Annotated (Supp. 2004), 19 states
have adopted provisions authorizing limited partnerships to merge with or
convert into some other types of entities.
As
of August 2005, the Uniform Limited Partnership Act (2001) has been adopted in
Most
limited liability company statutes have provisions authorizing mergers and
conversions, although the scope of coverage is quite varied. The Uniform
Limited Liability Company Act (1997) (ULLCA), which has been adopted in eight
states and the Virgin Islands, authorizes the conversion of a limited liability
company into a general or limited partnership (but not into a corporation or
any other type of entity) and a merger of a limited liability company with
other limited liability companies or any “other domestic or foreign entities.”
ULLCA does not, however, have any provisions authorizing limited liability
companies to enter into interest exchange, or domestication transactions. In
the other 42 states there are substantial differences from the ULLCA scheme
with respect to same-type and cross-type transactions.
There
are no same-type or cross-type provisions in the Uniform Unincorporated
Nonprofit Associations Act. Moreover, there are very few same-type or
cross-type provisions in statutes governing all the other types of entities that
exist under state law. There are some exceptions, however, such as the Delaware
Statutory Trust Act which allows mergers and conversions of business trusts
into other entities, and the Minnesota cooperative statute which allows farm
cooperatives to convert into limited liability companies.
3. Step Three: Prepare Amendments and Repeals
Once
the analysis of the existing same-type and cross-type statutes has been made,
decisions need to be made as to which ones should be amended or repealed and
whether to add additional provisions to these statutes. Under
1.avoiding any potential inconsistency between
2.making the interplay between
There
are two ways a statute could achieve these goals.
(a)
Limit the Act to Cross-Type Transactions
One
method to achieve these goals would be to delete from any existing entity
statutes provisions that deal with cross-type transactions and add same-type
merger, interest exchange, and domestication provisions to every type of entity
statute that does not currently have these provisions. Thus all same-type
entity transactions would be governed by the state’s entity statutes and all
cross-type transactions would be governed by
(b)
Limit Existing Laws to Same-Type Mergers
A
second method, which reduces somewhat the number of state entity laws that have
to be amended is, as follows:
1. With respect to
the state’s corporation statutes:
a.Repeal any cross-type provisions from the state’s
corporation merger statutes. The amendments necessary for this purpose in a
state that has adopted the Model Business Corporation Act and the Model
Nonprofit Corporation Act are found in Sections A2-1 and A2-2, respectively, In
states whose corporate codes do not have any cross-type merger provisions no
amendments to the state’s corporate merger provisions will be necessary. Most
state also may not have interest exchange provisions in their corporate codes.
If that is the case, same-type provisions for interest exchanges do not need to
be added to the corporate codes because under
b.Repeal any conversion provisions in the state’s
corporation statutes. Article 3 of
c.Repeal any domestications provisions in the corporate
statutes, unless the state has domestication provisions in all of its entity
statutes, which is very unlikely to be the case, except possibly in
2.With respect to the state’s other entity statutes:
Amend all the merger, interest exchange, conversion, and domestication provisions in the state’s
other entity statutes by stripping out all of the cross-type provisions in the
merger provisions, and by repealing any interest exchange, conversion, and domestication provisions. The appropriate
amendments for states that have adopted the Uniform Partnership Act (1997), the
Uniform Limited Partnership Act (2001), the Uniform Limited Liability Company
Act (1996) or the ABA Prototype Limited Liability Company Act are found in
Sections A2-3, A2-4, A2-5, and A2-6, respectively.
Finally,
this appendix suggests that a reference to
Introductory Comment
Sections
A2-1 through A2-6 set forth the conforming amendments and repeals to the
existing model, prototype, and uniform organic laws described above. Deletions
are enclosed in [brackets] and additions are underlined.
SECTION A2-1. MODEL BUSINESS CORPORATION ACT.
(a)
Section 1.40(6A) (“domestic unincorporated entity”), (7B) (“eligible entity”),
(7C) (“eligible interests”), (9B) (“filing entity”), (10A) (“foreign nonprofit
corporation”), (10B) (“foreign unincorporated entity”), (13A) (“interest”),
(13B) (“interest holder”), (14A) (“membership”), (14B) (“nonfiling entity”),
(14C) (“nonprofit corporation”), (15A) (“organic document”), (15B) (“organic
law”), (15C) (“owner liability”), (17A) (“private organic document”), (17B)
(“public organic document”), and (24A) (“unincorporated entity”) of the [Model
Business Corporation Act] are repealed.
(b)
Chapter 9 of the [Model Business Corporation Act] is repealed.
(c)
Sections 11.01, 11.02, 11.03, 11.04, 11.06, 11.07, 11.08 and 13.02 of the
[Model Business Corporation Act] are amended as follows:
§ 11.01. Definitions.
As
used in this chapter:
(a.1)
“Acquired corporation” means the domestic or foreign corporation whose shares
will be acquired in a share exchange.
(a.2)
“Acquiring corporation” means the domestic or foreign corporation that acquires
shares in a share exchange.
(a)
“Merger” means a business combination pursuant to section 11.02.
(b)
“Party to a merger” or “party to a share exchange” means any domestic or
foreign corporation [or eligible entity] that will:
(1) merge under a plan of merger;
(2) acquire shares [or eligible interests] of
another corporation [or an eligible entity] in a share exchange; or
(3) have all of its shares [or eligible
interests] or all of one or more classes or series of its shares [or
eligible interests] acquired in a share exchange.
(c)
“Share exchange” means a business combination pursuant to section 11.03.
(d)
“Survivor” in a merger means the corporation [or eligible entity] into
which one or more other corporations [or eligible entities] are merged.
A survivor of a merger may preexist the merger or be created by the merger.
§ 11.02. Merger.
(a) [One]
By complying with this chapter:
(1) one or more domestic corporations may
merge with one or more domestic or foreign corporations [or other entities
pursuant to a plan of merger] into a domestic or foreign corporation;
and
(2) two or more foreign corporations may be
parties to a merger in which the survivor is a domestic corporation.
(b)
A foreign corporation[, or a foreign other entity,] may be a party to a
merger [with a domestic corporation] under this chapter, or may be
[created by the terms of the plan of merger, only] the survivor in such a
merger, if the merger is permitted by the laws under which the corporation [or
other entity] is organized [or by which it is governed].
[(b.1)
If the organic law of a domestic other entity does not provide procedures for
the approval of a merger, a plan of merger may be adopted and approved, the
merger effectuated, and appraisal rights exercised in accordance with the
procedures in this chapter and chapter 13. For the purposes of applying this
chapter and chapter 13:
(1) the other entity, its interest holders,
interests and organic documents taken together shall be deemed to be a domestic
business corporation, shareholders, shares and articles of incorporation,
respectively and vice versa as the context may require; and
(2) if the business and affairs of the other
entity are managed by a group of persons that is not identical to the interest
holders, that group shall be deemed to be the board of directors.] (Repealed.)
(c)
The plan of merger must include:
(1) the name of each corporation [or other
entity] that will merge and the name of the corporation [or other
entity] that will be the survivor of the merger;
(2) the terms and conditions of the merger;
(3) the manner and basis of converting the shares
of each merging corporation [and interests of each merging other entity]
into shares or other securities, [interests,] obligations, rights to
acquire shares[,] or other securities [or interests],
cash, other property, or any combination of the foregoing;
(4) the articles of incorporation of any
corporation[, or the organic documents of any other entity,] to be
created by the merger, or if a new corporation [or other entity] is not
to be created by the merger, any amendments to the survivor’s articles of
incorporation [or organic documents].
(d)
Terms of a plan of merger may be made dependent on facts objectively
ascertainable outside the plan in accordance with section 1.20(k).
(e)
The plan of merger may also include a provision that the plan may be amended [prior
to filing articles of merger, but if the shareholders of a domestic corporation
that is a party to the merger are required or permitted to vote on the plan,
the plan must provide that subsequent to approval of the plan by such
shareholders the plan may not be amended to change:] by the directors or
shareholders of a domestic corporation, except that the shareholders who were
entitled to vote on the plan shall be entitled to vote on any amendment of the
plan that will change:
(1) the amount or kind of shares or other
securities, [interests,] obligations, rights to acquire shares[,]
or other securities [or interests], cash, or other property to be
received under the plan by the shareholders of [or owners of interests in]
any party to the merger;
(2) the articles of incorporation of any
corporation[, or the organic documents of any other entity,] that will
survive or be created as a result of the merger, except for changes permitted
by section 10.05 [or by comparable provisions of the organic laws of any
such foreign corporation or domestic or foreign other entity]; or
(3) any of the other terms or conditions of the
plan if the change would adversely affect such shareholders in any material
respect.
(f)
A merger in which a business corporation and another form of entity are parties
is governed by [the Model Entity Transactions Act].
§ 11.03. Share exchange.
(a)
Through a share exchange:
(1) a domestic corporation may acquire all of the
shares of one or more classes or series of shares of another domestic or
foreign corporation[, or all of the interests of one or more classes or
series of interests of a domestic or foreign other entity,] in exchange for
shares or other securities, [interests,] obligations, rights to acquire
shares or other securities, cash, other property, or any combination of the
foregoing, pursuant to a plan of share exchange, or
(2) all of the shares of one or more classes or
series of shares of a domestic corporation may be acquired by another domestic
or foreign corporation [or other entity,] in exchange for shares or
other securities, [interests,] obligations, rights to acquire shares or
other securities, cash, other property, or any combination of the foregoing,
pursuant to a plan of share exchange.
(b)
A foreign corporation[, or a foreign other entity,] may be a party to a
share exchange only if the share exchange is permitted by the laws under which
the corporation [or other entity] is organized [or by which it is
governed].
[(b.1)
If the organic law of a domestic other entity does not provide procedures for
the approval of a share exchange, a plan of share exchange may be adopted and
approved, and the share exchange effectuated, in accordance with the
procedures, if any, for a merger. If the organic law of a domestic other entity
does not provide procedures for the approval of either a share exchange or a
merger, a plan of share exchange may be adopted and approved, the share
exchange effectuated, and appraisal rights exercised, in accordance with the
procedures in this chapter and chapter 13. For the purposes of applying this
chapter and chapter 13:
(1) the other entity, its interest holders,
interests and public organic document, if any, shall be deemed to be a domestic
business corporation, shareholders, shares and articles of incorporation,
respectively and vice versa as the context may require; and
(2) if the affairs of the other entity are
managed by a group of persons that is not identical to the interest holders,
that group shall be deemed to be the board of directors.] (Repealed.)
(c)
The plan of share exchange must include:
(1) the name of [each] the acquired
corporation [or other entity whose shares or interests will be acquired]
and the name of the acquiring corporation [or other entity that will
acquire those shares or interests];
(2) the terms and conditions of the share exchange;
(3) the manner and basis of exchanging shares of [a]
the acquired corporation [or interests in an other entity whose
shares or interests will be acquired] under the share exchange into shares
or other securities, [interests,] obligations, rights to acquire shares[,]
or other securities, [or interests,] cash, other property, or any
combination of the foregoing.
(d)
Terms of a plan of share exchange may be made dependent on facts objectively
ascertainable outside the plan in accordance with section 1.20(k).
(e)
The plan of share exchange may also include a provision that the plan may be
amended [prior to filing articles of share exchange, but if the shareholders
of a domestic corporation that is a party to the share exchange are required or
permitted to vote on the plan, the plan must provide that subsequent to
approval of the plan by such shareholders the plan may not be amended to
change:] by the directors or shareholders of a domestic acquired
corporation, except that the shareholders who were entitled to vote on the plan
shall be entitled to vote on any amendment of the plan that will change:
(1) the amount or kind of shares or other
securities, [interests,] obligations, rights to acquire shares[,]
or other securities [or interests], cash, or other property to be
issued by the corporation or to be received under the plan by the shareholders
of [or owners of interests in any party to the share exchange] the
acquired corporation; or
(2) any of the other terms or conditions of the
plan if the change would adversely affect such shareholders in any material
respect.
(f)
Section 11.03 does not limit the power of a domestic corporation to acquire
shares of another corporation [or interests in another entity] in a
transaction other than a share exchange.
(g)
A share exchange or interest exchange in which a business corporation and
another form of entity are parties is governed by [the Model Entity
Transactions Act].
§ 11.04. Action on a plan of merger or share exchange.
In the case of a domestic corporation that is a party to a merger or share
exchange:
(a)
The plan of merger or share exchange must be adopted by the board of directors.
(b)
Except as provided in subsection (g) and in section 11.05, after adopting the
plan of merger or share exchange the board of directors must submit the plan to
the shareholders for their approval. The board of directors must also transmit
to the shareholders a recommendation that the shareholders approve the plan,
unless the board of directors makes a determination that because of conflicts
of interest or other special circumstances it should not make such a
recommendation, in which case the board of directors must transmit to the
shareholders the basis for that determination.
(c)
The board of directors may condition its submission of the plan of merger or
share exchange to the shareholders on any basis.
(d)
If the plan of merger or share exchange is required to be approved by the
shareholders, and if the approval is to be given at a meeting, the corporation
must notify each shareholder, whether or not entitled to vote, of the meeting
of shareholders at which the plan is to be submitted for approval. The notice
must state that the purpose, or one of the purposes, of the meeting is to
consider the plan and must contain or be accompanied by a copy or summary of
the plan. [If the corporation is to be merged into an existing corporation
or other entity, the] The notice shall also include or be
accompanied by a copy or summary of the articles of incorporation [or
organizational documents of that corporation or other entity. If the
corporation is to be merged into a corporation or other entity that is to be
created pursuant to the merger, the notice shall include or be accompanied by a
copy or a summary of the articles of incorporation or organizational documents
of the new corporation or other entity.] of the survivor.
(e)
Unless the articles of incorporation, or the board of directors acting pursuant
to subsection (c), requires a greater vote or a greater number of votes to be
present, approval of the plan of merger or share exchange requires the approval
of the shareholders at a meeting at which a quorum consisting of at least a
majority of the votes entitled to be cast on the plan exists, and, if any class
or series of shares is entitled to vote as a separate group on the plan of
merger or share exchange, the approval of each such separate voting group at a
meeting at which a quorum of the voting group consisting of at least a majority
of the votes entitled to be cast on the merger or share exchange by that voting
group is present.
(f)
Separate voting by voting groups is required:
(1) on a plan of merger, by each class or series of
shares that:
(i) are to be converted under the plan of merger
into other securities, [interests,] obligations, rights to acquire
shares[,] or other securities [or interests], cash, other
property, or any combination of the foregoing; or
(ii) would be entitled to vote as a separate group
on a provision in the plan that, if contained in a proposed amendment to
articles of incorporation, would require action by separate voting groups under
section 10.04;
(2) on a plan of share exchange, by each class or
series of shares included in the exchange, with each class or series
constituting a separate voting group; and
(3) on a plan of merger or share exchange, if the
voting group is entitled under the articles of incorporation to vote as a
voting group to approve a plan of merger or share exchange.
(g)
Unless the articles of incorporation otherwise provide, approval by the
corporation’s shareholders of a plan of merger or share exchange is not
required if:
(1) the corporation will survive the merger or is
the acquiring corporation in a share exchange;
(2) except for amendments permitted by section
10.05, its articles of incorporation will not be changed;
(3) each shareholder of the corporation whose
shares were outstanding immediately before the effective date of the merger or
share exchange will hold the same number of shares, with identical preferences,
limitations, and relative rights, immediately after the effective date of [change]
the merger or share exchange; and
(4) the issuance in the merger or share exchange of
shares or other securities convertible into or rights exercisable for shares
does not require a vote under section 6.21(f).
[(h)
If as a result of a merger or share exchange one or more shareholders of a
domestic corporation would become subject to owner liability for the debts,
obligations or liabilities of any other person or entity, approval of the plan
of merger or share exchange shall require the execution, by each such
shareholder, of a separate written consent to become subject to such owner
liability.] (Repealed.)
§ 11.06. Articles of merger or share exchange.
(a)
After a plan of merger or a plan of share exchange involving a
domestic acquired corporation has been adopted and approved as required by
this Act, articles of merger or share exchange shall be executed on behalf of
each party to the merger or the acquired corporation in the share
exchange by any officer or other duly authorized representative. The articles
shall set forth:
(1) the names of the parties to the merger or share
exchange;
(2) if the articles of incorporation of the
survivor of a merger are amended, or if a new corporation is created as a
result of a merger, the amendments to the survivor’s articles of incorporation
or the articles of incorporation of the new corporation;
(3) if the plan of merger or share exchange
required approval by the shareholders of a domestic corporation that was a
party to the merger or share exchange, a statement that the plan was duly
approved by the shareholders and, if voting by any separate voting group was
required, by each such separate voting group, in the manner required by this
Act and the articles of incorporation;
(4) if the plan of merger or share exchange did not
require approval by the shareholders of a domestic corporation that was a party
to the merger or share exchange, a statement to that effect; and
(5) as to each foreign corporation [and each
other entity] that was a party to the merger or share exchange, a statement
that the participation of the foreign corporation [or other entity] was
duly authorized as required by the [organic law of the corporation or other
entity] laws of the foreign jurisdiction.
(b)
Articles of merger or share exchange shall be delivered to the secretary of
state for filing by the survivor of the merger or the [acquiring] acquiring
corporation in a share exchange, and shall take effect at the effective time
provided in section 1.23. [Articles of merger or share exchange filed under
this section may be combined with any filing required under the organic law of
any domestic eligible entity involved in the transaction if the combined filing
satisfies the requirements of both this section and the other organic law.]
§ 11.07. Effect of merger or share exchange.
(a)
When a merger becomes effective:
(1) the corporation [or eligible entity]
that is designated in the plan of merger as the survivor continues or comes
into existence, as the case may be;
(2) the separate existence of every corporation [or
eligible entity] that is merged into the survivor ceases;
(3) all property owned by, and every contract right
possessed by, each corporation [or eligible entity] that merges into the
survivor is vested in the survivor without reversion or impairment;
(4) all liabilities of each corporation [or
eligible entity] that is merged into the survivor are vested in the
survivor;
(5) the name of the survivor may, but need not be,
substituted in any pending proceeding for the name of any party to the merger
whose separate existence ceased in the merger;
(6) the articles of incorporation [or organic
documents] of the survivor are amended to the extent provided in the plan
of merger;
(7) the articles of incorporation [or organic
documents] of a survivor that is created by the merger become effective;
and
(8) the shares of each corporation that is a party
to the merger[, and the interests in an eligible entity that is a party to a
merger,] that are to be converted under the plan of merger into shares or
other securities, [eligible interests,] obligations, rights to
acquire [securities,] shares or other securities, [or eligible
interests,] cash, other property, or any combination of the foregoing, are
converted, and the former holders of such shares [or eligible interests]
are entitled only to the rights provided to them in the plan of merger or to
any rights they may have under chapter 13 [or the organic law of the
eligible entity].
(b)
When a share exchange becomes effective, the shares of each domestic
corporation that are to be exchanged for shares or other securities, [interests,]
obligations, rights to acquire shares or other securities, cash, other
property, or any combination of the foregoing, are entitled only to the rights
provided to them in the plan or share exchange or to any rights they may have
under chapter 13.
[(c)
A person who becomes subject to owner liability for some or all of the debts,
obligations or liabilities of any entity as a result of a merger or share
exchange shall have owner liability only to the extent provided in the organic
law of the entity and only for those debts, obligations and liabilities that
arise after the effective time of the articles of merger or share exchange.]
(Repealed.)
(d)
Upon a merger becoming effective, a foreign corporation[, or a foreign
eligible entity,] that is the survivor of the merger is deemed to:
(1) appoint the secretary of state as its agent for
service of process in a proceeding to enforce the rights of shareholders of
each domestic corporation that is a party to the merger who exercise appraisal
rights, and
(2) agree that it will promptly pay the amount, if
any, to which such shareholders are entitled under chapter 13.
[(e)
The effect of a merger or share exchange on the owner liability of a person who
had owner liability for some or all of the debts, obligations or liabilities of
a party to the merger or share exchange shall be as follows:
(1) The merger or share exchange does not
discharge any owner liability under the organic law of the entity in which the
person was a shareholder or interest holder to the extent any such owner
liability arose before the effective time of the articles of merger or share
exchange.
(2) The person shall not have owner liability
under the organic law of the entity in which the person was a shareholder or
interest holder prior to the merger or share exchange for any debt, obligation
or liability that arises after the effective time of the articles of merger or
share exchange.
(3) The provisions of the organic law of any
entity for which the person had owner liability before the merger or share
exchange shall continue to apply to the collection or discharge of any owner
liability preserved by paragraph (1), as if the merger or share exchange had
not occurred.
(4) The person shall have whatever rights of
contribution from other persons are provided by the organic law of the entity
for which the person had owner liability with respect to any owner liability
preserved by paragraph (1), as if the merger or share exchange had not
occurred.] (Repealed.)
§ 11.08. Abandonment of a merger or share exchange.
(a)
Unless otherwise provided in a plan of merger or share exchange or in the laws
under which a foreign corporation [or a domestic or foreign other entity]
that is a party to a merger or a share exchange is organized [or by which it
is governed], after the plan has been adopted and approved as required by
this chapter, and at any time before the merger or share exchange has become
effective, it may be abandoned by any party thereto without action by the
party’s shareholders [or owners of interests], in accordance with any
procedures set forth in the plan of merger or share exchange or, if no such
procedures are set forth in the plan, in the manner determined by the board of
directors [of a corporation, or the managers of an other entity],
subject to any contractual rights of other parties to the merger or share
exchange.
(b)
If a merger or share exchange is abandoned under subsection (a) after articles
of merger or share exchange have been filed with the secretary of state but
before the merger or share exchange has become effective, a statement that the
merger or share exchange has been abandoned in accordance with this section,
executed on behalf of a party to the merger or share exchange by an officer or
other duly authorized representative, shall be delivered to the secretary of
state for filing prior to the effective date of the merger or share exchange.
Upon filing, the statement shall take effect and the merger or share exchange
shall be deemed abandoned and shall not become effective.
§ 13.02. Right to appraisal.
(a)
A shareholder is entitled to appraisal rights, and to obtain payment of the
fair value of that shareholder’s shares, in the event of any of the following
corporate actions:
* * *
(2) consummation of a share exchange [to] in
which the corporation is [a party as the corporation whose shares will be]
the acquired corporation if the shareholder is entitled to vote
on the exchange, except that appraisal rights shall not be available to any
shareholder of the corporation with respect to any class or series of shares of
the corporation that is not exchanged;
* * *
(5) any other amendment to the articles of
incorporation, merger, share exchange or disposition of assets to the extent
provided by the articles of incorporation, bylaws or a resolution of the board
of directors; or
(6) consummation of a domestication if the
shareholder does not receive shares in the foreign corporation resulting from
the domestication that have terms as favorable to the shareholder in all
material respects, and represent at least the same percentage interest of the
total voting rights of the outstanding shares of the corporation, as the shares
held by the shareholder before the domestication;
(7) consummation of a conversion of the corporation
to [nonprofit status pursuant to subchapter 9C; or
(8) consummation of a conversion of the
corporation to a form of other entity pursuant to subchapter 9E] a
different form of entity under [the Model Entity Transactions Act].
(b)
Notwithstanding subsection (a), the availability of appraisal rights under
subsection (a)(1), (2), (3), (4)[, (6) and (8)] and (6)
shall be limited in accordance with the following provisions:
* * *
(d)
Sections 15.21 (automatic withdrawal upon certain conversions), 15.22
(withdrawal upon conversion to a nonfiling entity) and 15.23 (relating to
transfer of authority) of the [Model Business Corporation Act] are repealed.
SECTION
A2-2. MODEL NONPROFIT CORPORATION ACT.
Sections
11.01, 11.02, and 11.06 of the [Model Nonprofit Corporation Act], are amended
as follows:
§ 11.01. Approval of plan of merger.
(a)
Subject to the limitations set forth in section 11.02, one or more nonprofit
corporations may merger [into a business or] with one or more
nonprofit [corporation] corporations, if the plan of merger is
approved or provided in section 11.03.
* *
*
(d)
A merger in which a nonprofit corporation and another form of entity are
parties is governed by [the Model Entity Transactions Act].
§ 11.02. Limitations on mergers by public benefit or religious corporations.
(a)
Without the prior approval of [insert name of appropriate court] in a
proceeding in which the attorney general has been given written notice,
a public benefit or religious corporation may merge only with:
* *
*
(3) a wholly-owned foreign or domestic [business
or] mutual benefit corporation, provided the public benefit or religious
corporation is the surviving corporation and continues to be a public benefit
or religious corporation after the merger; or
(4) a [business or] mutual benefit
corporation, provided that:
(i) on or prior to the effective date of the
merger, assets with a value equal to the greater of the fair market value of
the net tangible and intangible assets (including goodwill) of the public
benefit corporation or the fair market value of the public benefit corporation
if it were to be operated as a business concern are transferred or conveyed to
one or more persons who would have received its assets under section
14.06(a)(5) and (6) had it dissolved;
(ii) it shall return, transfer or convey any
assets held by it upon condition requiring return, transfer or conveyance,
which condition occurs by reason of the merger, in accordance with such
condition; and
(iii) the merger is approved by a majority of
directors of the public benefit or religious corporation who are not and will
not become members [or shareholders] in or officers, employees, agents
or consultants of the surviving corporation.
* * *
§ 11.06. Merger with foreign corporation.
(a)
Except as provided in section 11.02, one or more foreign [business or]
nonprofit corporations may merge with one or more domestic nonprofit
corporations if:
* *
*
(b)
Upon the merger taking effect, the surviving foreign [business or]
nonprofit corporation is deemed to have irrevocably appointed the secretary of
state as its agent for service or process in any proceeding brought against it.
SECTION
A2-3. UNIFORM PARTNERSHIP ACT.
(a)
Sections 101, 401, and 502 of the [Uniform Partnership Act (1997)] are amended
as follows:
§ 101. Definitions.
In
this [Act]:
* *
*
(3.1)
“Domestic partnership” means a partnership whose internal relations are
governed by the laws of this State.
* *
*
(4.1)
“Foreign partnership” means a partnership other than a domestic partnership.
(5)
“Limited liability partnership” or “domestic limited liability partnership”
means a partnership that has filed a statement of qualification under Section
1001 and does not have a similar statement in effect in any other jurisdiction.
* *
*
(13)
“Surviving partnership” means a domestic or foreign partnership into which one
or more domestic or foreign partnerships are merged. A surviving partnership
may preexist the merger or be created by the merger.
* *
*
§ 401. Partner’s rights and duties.
* *
*
(i) [A]
Except as provided in [Article] 9 or [the Model Entity Transactions Act], a
person may become a partner only with the consent of all of the partners.
* *
*
§ 502. Partner’s transferable interest in partnership.
[The]
Except as provided in [Article] 9 or [the Model Entity Transactions Act],
only transferable interest of a partner in the partnership is the partner’s
share of the profits and losses of the partnership and the partner’s right to
receive distributions. The interest of a partner, whether or not
transferable, is personal property.
(b)
Sections 901 (definitions), 902 (conversion of partnership to limited
partnership), 903 (conversion of limited partnership to partnership), and 904
(effect of conversion; entity unchanged) of the [Uniform Partnership Act
(1997)] are repealed.
(c)
Sections 905, 906, 907, and 908 of the [Uniform Partnership Act (1997)] are
amended as follows:
§ 905. Merger of partnerships.
(a)
Pursuant to a plan of merger approved as provided in subsection (c), a
partnership may be merged with one or more partnerships [or limited
partnerships].
(b)
The plan of merger must set forth:
(1) the name of each partnership [or limited
partnership] that is a party to the merger;
(2) the name of the surviving [entity] partnership
into which the other partnerships [or limited partnerships] will merge;
(3) [whether the surviving entity is a
partnership or a limited partnership and the status of each partner;
(4)] the terms and conditions of the merger;
[(5)] (4) the manner and basis of
converting the interests of each party to the merger into interests or
obligations of the surviving [entity] partnership, or into money
or other property in whole or part; and
[(6)] (5) the street address of the
surviving [entity’s] partnership’s chief executive office.
(c)
The plan of merger must be approved[:
(1) in the case of a partnership that is a party
to the merger,] by all of the partners, or a number or percentage specified
for merger in the partnership agreement[; and
(2) in the case of a limited partnership that is
a party to the merger, by the vote required for approval of a merger by the law
of the State or foreign jurisdiction in which the limited partnership is
organized and, in the absence of such a specifically applicable law, by all of
the partners, notwithstanding a provision to the contrary in the partnership
agreement].
(d)
After a plan of merger is approved and before the merger takes effect, the plan
may be amended or abandoned as provided in the plan.
(e)
The merger takes effect on the later of:
(1) [the approval of the plan of merger by all
parties to the merger, as provided in subsection (c);] (Repealed.)
(2) the filing of all documents required by law to
be filed as a condition to the effectiveness of the merger; or
(3) any effective date specified in the plan of
merger.
(f)
A merger in which a partnership and another form of entity are parties is
governed by [the Model Entity Transactions Act].
§ 906. Effect of merger.
(a)
When a merger takes effect:
(1) the separate existence of every partnership [or
limited partnership] that is a party to the merger, other than the
surviving [entity] partnership, ceases;
(2) all property owned by each of the merged
partnerships [or limited partnerships] vests in the surviving [entity]
partnership;
(3) all obligations of every partnership [or
limited partnership] that is a party to the merger [become] are
the obligations of the surviving [entity] partnership; [and]
(4) an action or proceeding pending against a
partnership [or limited partnership] that is a party to the merger may
be continued as if the merger had not occurred, or the surviving [entity]
partnership may be substituted as a party to the action or proceeding[.];
and
(5) if the plan of merger provides for a person
to become a partner in a surviving domestic partnership, the person becomes a
partner without the need for the consent that would otherwise be required by
Section 401(i).
(b)
The [Secretary of State] of this State is the agent for service of process in
an action or proceeding against a surviving foreign partnership [or limited
partnership] to enforce an obligation of a domestic partnership [or
limited partnership] that is a party to a merger. The surviving [entity]
partnership shall promptly notify the [Secretary of State] of the
mailing address of its chief executive office and of any change of address.
Upon receipt of process, the [Secretary of State] shall mail a copy of the
process to the surviving foreign partnership [or limited partnership].
(c)
A partner of the surviving partnership [or limited partnership] is
liable for:
(1) all obligations of a party to the merger for
which the partner was personally liable before the merger;
(2) all other obligations of the surviving [entity]
partnership incurred before the merger by a party to the merger, but
those obligations may be satisfied only out of property of the [entity] partnership;
and
(3) except as otherwise provided in Section 306,
all obligations of the surviving [entity] partnership incurred
after the merger takes effect[, but those obligations may be
satisfied only out of property of the entity if the partner is a limited
partner].
(d) [If]
Except as provided in Section 306, if the obligations incurred before
the merger by a party to the merger are not satisfied out of the property of
the surviving partnership [or limited partnership], the general partners
of that party immediately before the effective date of the merger shall
contribute the amount necessary to satisfy that party’s obligations to the
surviving [entity] partnership, in the manner provided in Section
807 [or in the [Limited Partnership Act] of the jurisdiction in which the
party was formed, as the case may be,] as if the merged party were
dissolved.
(e)
A partner of a party to a merger who [does not become] is not a
partner of the surviving partnership [or limited partnership] is
dissociated from the [entity,] partnership of which that partner
was a partner[,] as of the date the merger takes effect. [The
surviving entity shall cause the partner’s interest in the entity to be
purchased under Section 701 or another statute specifically applicable to that
partner’s interest with respect to a merger]. [The surviving entity]
A surviving domestic partnership is bound under Section 702 by an act of
a general partner dissociated under this subsection, and the partner is liable
under Section 703 for transactions entered into by the surviving [entity]
partnership after the merger takes effect.
§ 907. Statement of merger.
(a)
After a merger, the surviving partnership [or limited partnership] may
file a statement that [one or more partnerships or limited partnerships]
the parties to the merger have merged into the surviving [entity]
partnership.
(b)
A statement of merger must contain:
(1) the name of each partnership [or limited
partnership] that is a party to the merger;
(2) the name of the surviving [entity] partnership
into which the other partnerships [or limited partnership] were merged; and
(3) the street address of the surviving [entity’s]
partnership’s chief executive office and of an office in this State, if
any[; and
(4) whether the surviving entity is a
partnership or a limited partnership].
(c)
Except as otherwise provided in subsection (d), for the purposes of Section
302, property of the surviving partnership [or limited partnership which]
that before the merger was held in the name of another party to the
merger is property held in the name of the surviving [entity] partnership
upon filing a statement of merger.
(d)
For the purposes of Section 302, real property of the surviving partnership [or
limited partnership which] that before the merger was held in the
name of another party to the merger is property held in the name of the
surviving [entity] partnership upon recording a certified copy of
the statement of merger in the office for recording transfers of that real
property.
(e)
A filed and, if appropriate, recorded statement of merger, executed and
declared to be accurate pursuant to Section 105(c), stating the name of a
partnership [or limited partnership] that is a party to the merger in
whose name property was held before the merger and the name of the surviving [entity]
partnership, but not containing all of the other information required by
subsection (b), operates with respect to the partnerships [or limited
partnerships] named to the extent provided in subsections (c) and (d).
§ 908. Nonexclusive.
This
[article] is not exclusive. Partnerships [or limited partnerships] may
be converted or merged in any other manner provided or permitted by law.
SECTION
A2-4. UNIFORM LIMITED PARTNERSHIP ACT.
(a)
Sections 102, 103, 110, 111, 201, 202, 204, 601, 603, 606 and 701 of the
[Uniform Limited Partnership Act (2001)] are amended as follows:
§ 102. Definitions.
In
this [Act]:
* *
*
(11) “Limited partnership[,]” (except
in the phrases “foreign limited partnership” and “foreign limited liability
limited partnership[,]”) or “domestic limited partnership” means
an entity, having one or more general partners and one or more limited
partners, which is formed under this [Act] by two or more persons or becomes
subject to this [Act] under [Article] 11 or Section 1206(a) or (b). The [term
includes] terms include a limited liability limited partnership.
* * *
§ 103. Knowledge and notice.
* *
*
(d)
A person has notice of:
* *
*
(4) a limited partnership’s conversion or
domestication under [[Article] 11] [the Model Entity Transactions
Act], 90 days after the effective date of the [articles] statement
of conversion or domestication; [or]
(5) a merger under [Article] 11, 90 days after the
effective date of the articles of merger[.]; and
(6) a merger or interest exchange under [the
Model Entity Transactions Act], 90 days after the effective date of the
statement of merger or interest exchange.
* * *
§ 110. Effect of partnership agreement; nonwaivable provisions.
* *
*
(b)
The partnership agreement may not:
* *
*
(12) restrict the right of a partner:
(A) under Section 1110(a) to approve a
merger [or conversion or]; or
(B) under [the Model Entity Transactions Act]
to approve a merger, interest exchange, conversion, or domestication;
(13) restrict the right of a general partner
under Section 1110(b) to consent to an amendment to the certificate of limited
partnership which deletes a statement that the limited partnership is a limited
liability limited partnership; or
[(13)] (14) restrict rights under
this [Act] of a person other than a partner or a transferee.
§ 111. Required information.
A
limited partnership shall maintain at its designated office the following
information:
* *
*
(3) a copy of any [filed] articles of [conversion
or] merger filed under [Article] 11 and of any statement of merger,
interest exchange, conversion or domestication filed under [the Model Entity
Transactions Act];
* * *
§ 201. Formation of limited partnership; certificate of limited partnership.
* *
*
(d)
Subject to subsection (b), if any provision of a partnership agreement is
inconsistent with the filed certificate of limited partnership, or with
a filed statement of dissociation, termination, or change, or with filed
articles of [conversion or] merger, or with a statement of merger,
interest exchange, conversion, or domestication filed under [the Model Entity
Transactions Act]:
(1) the partnership agreement prevails as to
partners and transferees; and
(2) the filed [certificate of limited partnership,
statement of dissociation, termination, or change, or articles of conversion or
merger prevail] document prevails as to persons, other than partners
and transferees, that reasonably rely on the filed record to their detriment.
§ 202. Amendment or restatement of certificate.
(a)
In order to amend its certificate of limited partnership, a limited partnership
shall deliver to the [Secretary of State] for filing an amendment [or,
pursuant to [Article] 11, articles of merger] stating:
* *
*
(g)
A certificate of limited partnership may also be amended by filing articles of
merger under [Article] 11 or a statement of merger, interest exchange,
conversion, or domestication under [the Model Entity Transactions Act].
§ 204. Signing of records.
(a)
Each record delivered to the [Secretary of State] for filing pursuant to this
[Act] must be signed in the following manner:
* *
*
[(8) Articles of conversion must be signed by
each general partner listed in the certificate of limited partnership.] (Repealed.)
(9) Articles of merger must be signed as provided
in Section 1108(a).
* * *
(c)
Each record delivered to the [Secretary of State] for filing pursuant to [the
Model Entity Transactions Act] must be signed by each general partner listed in
the certificate of limited partnership.
§ 601. Dissociation as limited partner.
* *
*
(b)
A person is dissociated from a limited partnership as a limited partner upon
the occurrence of any of the following events:
* *
*
(10) the limited partnership’s participation in a
merger [or conversion] under [Article] 11, if the limited partnership;
(A) is not the [converted or] surviving
entity; or
(B) is the [converted or] surviving entity
but, as a result of the [conversion or] merger, the person ceases to be
a limited partner[.];
(11) the limited partnership’s participation in
a transaction under the [Model Entity Transactions Act], if the limited
partnership:
(A) does not survive the transaction; or
(B) does survive the transaction, but as a
result of the transaction, the person ceases to be a limited partner.
§ 603. Dissociation as general partner.
A
person is dissociated from a limited partnership as a general partner upon the
occurrence of any of the following events:
* *
*
(11) the limited partnership’s participation in a
merger [or conversion] under [Article] 11, if the limited partnership;
(A) is not the [converted or] surviving
entity; or
(B) is the [converted or] surviving entity
but, as a result of the [conversion or] merger, the person ceases to be
a general partner[.];
(12) the limited partnership’s participation in
a transaction under the [Model Entity Transactions Act], if the limited
partnership:
(A) does not survive the transaction; or
(B) does survive the transaction, but as a
result of the transaction, the person ceases to be a general partner.
§ 606. Power to bind and
liability to limited partnership before dissolution of partnership of person
dissociated as general partner.
(a)
After a person is dissociated as a general partner and before the limited
partnership is dissolved, [converted under [Article] 11, or] merged out
of existence under [Article 11] or [the Model Entity Transactions Act], or
otherwise ceases to exist in the form of a limited partnership as a result of a
transaction under [the Model Entity Transactions Act], the limited
partnership is bound by an act of the person only if:
* *
*
§ 701. Partner’s transferable interest.
[The]
Except as provided in [Article] 11 or [the Model Entity Transactions Act],
the only interest of a partner which is transferable is the partner’s
transferable interest. [A transferable] The interest of a
partner, whether or not transferable, is personal property.
(b)
The title of Article 11 of the [Uniform Limited Partnership Act (2001)] is
amended as follows:
[Article]
11. [Conversion and] Merger
(c)
Section 1101 of the [Uniform Limited Partnership Act (2001)] is amended as
follows:
§ 1101. Definitions.
In
this [article]:
(1) “Constituent limited partnership” means a [constituent
organization that is a] domestic or foreign limited partnership that
is a party to a merger.
[(2) “Constituent organization” means an
organization that is party to a merger.
(3) “Converted organization” means the
organization into which a converting organization converts pursuant to Sections
1102 through 1105.
(4) “Converting limited partnership” means a
converting organization that is a limited partnership.
(5) “Converting organization” means an
organization that converts into another organization pursuant to Section 1102.
(6) “General partner” means a general partner of
a limited partnership.]
[(7)] (2) “Governing statute” of [an
organization] a domestic or foreign limited partnership means the
statute that governs the [organization’s] partnership’s internal
affairs.
[(8)] (3) “Organization” means a
general partnership, including a limited liability partnership; limited
partnership, including a limited liability limited partnership; limited
liability company; business trust; corporation; or any other entity having a
governing statute. The term includes domestic and foreign entities regardless
of whether organized for profit.
[(9)] (4) “Organizational documents”
means:
(A) for a domestic or foreign general partnership,
its partnership agreement;
(B) for a limited partnership or foreign limited
partnership, its certificate of limited partnership and partnership agreement;
(C) for a domestic or foreign limited liability
company, its articles of organization and operating agreement, or comparable
records as provided in its governing statute;
(D) for a business trust, its agreement of trust
and declaration of trust;
(E) for a domestic or foreign for profit
corporation, its articles of incorporation, bylaws, and other agreements among
its shareholders which are authorized by its governing statute, or comparable
records as provided in its governing statute; and
(F) for any other organization, the basic records
that create the organization and determine its internal governance and the
relations among the persons that own it, have an interest in it, or are members
of it.
[(10) “Person dissociated as a general partner”
means a person dissociated as a general partner of a limited partnership.]
[(11)] (5) “Personal liability” means
personal liability for a debt, liability, or other obligation of an
organization which is imposed on a person that co-owns, has an interest in, or
is a member of the organization:
(A) by the organization’s governing statute solely
by reason of the person co-owning, having an interest in, or being a member of
the organization; or
(B) by the organization’s organizational documents
under a provision of the organization’s governing statute authorizing those
documents to make one or more specified persons liable for all or specified
debts, liabilities, and obligations of the organization solely by reason of the
person or persons co-owning, having an interest in, or being a member of the
organization.
[(12)] (6) “Surviving [organization]
limited partnership” means [an organization] a domestic or
foreign limited partnership into which one or more other [organizations]
domestic or foreign limited partnerships are merged. A surviving [organization]
limited partnership may preexist the merger or be created by the merger.
(d)
Sections 1102 (conversion), 1103 (action on plan of conversion by converting
limited partnership), 1104 (filings required for conversion; effective date),
and 1105 (effect of conversion) of the [Uniform Limited Partnership Act (2001)]
are repealed.
(e)
Sections 1106, 1108, 1109, 1110, 1111 and 1112 of the [Uniform Limited
Partnership Act (2001)] are amended as follows:
§ 1106. Merger.
(a)
A limited partnership may merge with one or more other [constituent
organizations] domestic or foreign limited partnerships and two or more
foreign limited partnerships may merge into a domestic limited partnership
pursuant to this section and Sections 1107 through 1109 and a plan of merger,
if:
(1) the governing statute of each of the other [organizations]
constituent limited partnerships authorizes the merger; and
[(2) the merger is not prohibited by the law of
a jurisdiction that enacted any of those governing statutes; and
(3)] (2) each of the other [organizations]
constituent limited partnerships complies with its governing statute in
effecting the merger.
(b)
A plan of merger must be in a record and must include:
(1) the name [and form] of each constituent [organization]
limited partnership;
(2) the name [and form] of the surviving [organization]
limited partnership and, if the surviving [organization] limited
partnership is to be created by the merger, a statement to that effect;
(3) the terms and conditions of the merger,
including the manner and basis for converting the interests in each constituent
[organization] limited partnership into any combination of money,
interests in the surviving [organization] limited partnership,
interests in any other organization, and other consideration;
(4) if the surviving [organization] limited
partnership is to be created by the merger, the [surviving
organization’s organizational documents] certificate of limited
partnership and partnership agreement of the surviving limited partnership;
and
(5) if the surviving [organization] limited
partnership is not to be created by the merger, any amendments to be made
by the merger to the [surviving organization’s organizational documents]
certificate of limited partnership and partnership agreement of the
surviving limited partnership.
(c)
A merger in which a limited partnership and another form of entity are parties
is governed by [the Model Entity Transactions Act].
§ 1108. Filings required for merger; effective date.
(a)
After each constituent [organization] limited partnership has
approved a merger, articles of merger must be signed on behalf of:
(1) each preexisting [constituent] domestic
limited partnership, by each general partner listed in the certificate of
limited partnership; and
(2) each [other] preexisting [constituent
organization] foreign limited partnership, by an authorized
representative.
(b)
The articles of merger must include:
(1) the name [and form] of each constituent [organization]
limited partnership and the jurisdiction of its governing statute;
(2) the name [and form] of the surviving [organization]
limited partnership, the jurisdiction of its governing statute, and, if
the surviving [organization] limited partnership is created by
the merger, a statement to that effect;
(3) the date the merger is effective under the
governing statute of the surviving [organization] limited partnership;
(4) if the surviving [organization] limited
partnership is to be created by the merger[: (A) if it will be a limited
partnership, the limited partnership’s] its certificate of limited
partnership[; or (B) if it will be an organization other than a limited
partnership, the organizational document that creates the organization];
(5) if the surviving [organization] limited
partnership preexists the merger, any amendments provided for in the plan
of merger [for the organizational document that created the organization]
to its certificate of limited partnership;
(6) a statement as to each constituent [organization]
limited partnership that the merger was approved as required by the [organization’s]
limited partnership’s governing statute;
(7) if the surviving [organization] limited
partnership is a foreign [entity] limited partnership not
authorized to transact business in this State, the street and mailing address
of an office which the [Secretary of State] may use for the purposes of Section
1109(b); and
(8) any additional information required by the
governing statute of any constituent [organization] limited
partnership.
(c)
Each constituent limited partnership shall deliver the articles of merger for
filing in the [office of the Secretary of State].
(d)
A merger becomes effective under this [article][: (1) if the surviving
organization is a limited partnership,] upon the later of:
[(i)] (1) compliance with subsection
(c); or
[(ii)] (2) subject to Section 206(c),
as specified in the articles of merger[; or (2) if the surviving
organization is not a limited partnership, as provided by the governing statute
of the surviving organization].
§ 1109. Effect of merger.
(a)
When a merger becomes effective:
(1) the surviving [organization] limited
partnership continues or comes into existence;
(2) each constituent [organization] limited
partnership that merges into the surviving [organization] limited
partnership ceases to exist as a separate entity;
(3) all property owned by each constituent [organization]
limited partnership that ceases to exist vests in the surviving [organization]
limited partnership;
(4) all debts, liabilities, and other obligations
of each constituent [organization] limited partnership that
ceases to exist [continue as] are the obligations of the
surviving [organization] limited partnership;
(5) an action or proceeding pending by or against
any constituent [organization] limited partnership that ceases to
exist may be continued as if the merger had not occurred;
(6) except as prohibited by other law, all of the
rights, privileges, immunities, powers, and purposes of each constituent [organization]
limited partnership that ceases to exist vest in the surviving [organization]
limited partnership;
(7) except as otherwise provided in the plan of
merger, the terms and conditions of the plan of merger take effect; [and]
(8) except as otherwise agreed, if a constituent
limited partnership ceases to exist, the merger does not dissolve the limited
partnership for the purposes of [Article] 8;
(9) if the surviving [organization] limited
partnership is created by the merger[: (A) if it is a limited
partnership, the], its certificate of limited partnership becomes
effective; [or (B) if it is an organization other than a limited
partnership, the organizational document that creates the organization becomes
effective;] and
(10) if the surviving [organization] limited
partnership preexists the merger, any amendments provided for in the
articles of merger [for the organizational document that created the
organization] to its certificate of limited partnership and partnership
agreement become effective.
(b)
A surviving [organization] limited partnership that is a foreign [entity]
limited partnership consents to the jurisdiction of the courts of this
State to enforce any obligation owed by a constituent [organization] limited
partnership, if before the conversion the constituent [organization]
limited partnership was subject to suit in this State on that
obligation. A surviving [organization] limited partnership that
is a foreign [entity] limited partnership and not authorized to
transact business in this State appoints the [Secretary of State] as its agent
for service of process for the purposes of enforcing an obligation under this
subsection. Service on the [Secretary of State] under this subsection is made
in the same manner and with the same consequences as in Section 117(c) and (d).
§ 1110. Restrictions on
approval of [conversions and] mergers and on relinquishing LLLP status.
(a)
If a partner of a [converting or] constituent limited partnership will
have personal liability with respect to [a converted or surviving
organization] any organization as a result of a merger, approval and
amendment of a plan of [conversion or] merger are ineffective without
the consent of that partner, unless:
(1) the limited partnership’s partnership agreement
provides for the approval of the [conversion or] merger with the consent
of less than all the partners; and
(2) that partner has consented to that provision of
the partnership agreement.
* *
*
§ 1111. Liability of general partner after [conversion or] merger.
(a)
A [conversion or] merger under this article does not discharge any
liability under Sections 404 and 607 of a person that was a general partner in
or dissociated as a general partner from a [converting or] constituent
limited partnership, but:
(1) the provisions of this [Act] pertaining to the
collection or discharge of that liability continue to apply to that liability;
(2) for the purposes of applying those provisions,
the [converted or] surviving [organization] limited
partnership is deemed to be the [converting or] constituent limited
partnership; and
(3) if a person is required to pay any amount under
this subsection:
(A) the person has a right of contribution from
each other person that was liable as a general partner under Section 404 when
the obligation was incurred and has not been released from the obligation under
Section 607; and
(B) the contribution due from each of those
persons is in proportion to the right to receive distributions in the capacity
of general partner in effect for each of those persons when the obligation was
incurred.
(b)
In addition to any other liability provided by law:
(1) a person that immediately before a [conversion
or] merger became effective was a general partner in a [converting or]
constituent limited partnership that was not a limited liability limited
partnership is personally liable for each obligation of the [converted or]
surviving [organization] limited partnership arising from a
transaction with a third party after the [conversion or] merger becomes
effective, if at the time the third party enters into the transaction, the
third party:
(A) does not have notice of the [conversion or]
merger; and
(B) reasonably believes that:
(i) the [converted or] surviving business
is the [converting or] constituent limited partnership;
(ii) the [converting or] constituent
limited partnership is not a limited liability limited partnership; and
(iii) the person is a general partner in the [converting
or] constituent limited partnership; and
(2) a person that was dissociated as a general
partner from a [converting or] constituent limited partnership before
the [conversion or] merger became effective is personally liable for
each obligation of the [converted or] surviving [organization] limited
partnership arising from a transaction with a third party after the [conversion
or] merger becomes effective, if:
(A) immediately before the [conversion or]
merger became effective the [converting or] surviving limited
partnership was [a] not a limited liability limited partnership; and
(B) at the time the third party enters into the
transaction less than two years have passed since the person dissociated as a
general partner and the third party:
(i) does not have notice of the dissociation;
(ii) does not have notice of the [conversion
or] merger; and
(iii) reasonably believes that the [converted
or] surviving [organization] limited partnership is the [converting
or] constituent limited partnership, the [converting or] constituent
limited partnership is not a limited liability limited partnership, and the
person is a general partner in the [converting or] constituent limited
partnership.
§ 1112. Power of general
partners and persons dissociated as general partners to bind [organization]
limited partnership after [conversion or] merger.
(a)
An act of a person that immediately before a [conversion or] merger
became effective was a general partner in a [converting or] constituent
limited partnership binds the [converted or] surviving [organization]
limited partnership after the [conversion or] merger becomes
effective, if:
(1) before the [conversion or] merger became
effective, the act would have bound the [converting or] constituent
limited partnership under Section 402; and
(2) at the time the third party enters into the
transaction, the third party:
(A) does not have notice of the [conversion or]
merger; and
(B) reasonably believes that the [converted or]
surviving business is the [converting or] constituent limited
partnership and that the person is a general partner in the [converting or]
constituent limited partnership.
(b)
An act of a person that before a [conversion or] merger became effective
was dissociated as a general partner from a [converting or] constituent
limited partnership binds the [converted or] surviving [organization]
limited partnership after the [conversion or] merger becomes
effective, if:
(1) before the [conversion or] merger became
effective, the act would have bound the [converting or] constituent
limited partnership under Section 402 if the person had been a general partner;
and
(2) at the time the third party enters into the
transaction, less than two years have passed since the person dissociated as a
general partner and the third party:
(A) does not have notice of the dissociation;
(B) does not have notice of the [conversion or]
merger; and
(C) reasonably believes that the [converted or]
surviving [organization] limited partnership is the [converting
or] constituent limited partnership and that the person is a general
partner in the [converting or] constituent limited partnership.
(c)
If a person having knowledge of the [conversion or] merger causes a [converted
or] surviving [organization] limited partnership to incur an
obligation under subsection (a) or (b), the person is liable:
(1) to the [converted or] surviving [organization]
limited partnership for any damage caused to the [organization] surviving
limited partnership arising from the obligation; and
(2) if another person is liable for the obligation,
to that other person for any damage caused to that other person arising from
that liability.
(f)
Section 1113 ([article] not exclusive) of the [Uniform Limited Partnership Act
(2001)] is repealed.
Comment
In
addition to making the amendments described in the Introductory Comment to
Appendix 2, the foregoing amendments to the Uniform Limited Partnership Act
(2001) also make clear that limited partnerships may be parties to triangular
mergers in which an entity that is not a limited partnership and is not a party
to the merger provides the merger consideration.
SECTION
A2-5. UNIFORM LIMITED LIABILITY COMPANY ACT.
(a)
Sections 101, 404, and 601 of the [Uniform Limited Liability Company Act] are
amended as follows:
§ 101. Definitions.
In
this [Act]:
* * *
(9) “Limited liability company” or “domestic
limited liability company” means a limited liability company organized
under this [Act].
* * *
§ 404. Management of limited liability company.
* *
*
(c)
The only matters of a member or manager-managed company’s business requiring
the consent of all of the members are:
* * *
(11) [the consent of members to merge] a
merger with another [entity] domestic or foreign limited
liability company under Section 904(c)(1) or with any other form of
entity under [the Model Entity Transactions Act]; [and]
(12) an interest exchange in which the company
is the acquired entity or a conversion or domestication of the company under
[the Model Entity Transactions Act]; and
* *
*
§ 601. Events causing member’s dissociation.
A
member is dissociated from a limited liability company upon the occurrence of
any of the following events:
* *
*
(10) in the case of a member that is an estate or
is acting as a member by virtue of being a personal representative of an
estate, distribution of the estate’s entire rights to receive distributions
from the company, but not merely the substitution of a successor personal
representative; [or]
(11) termination of the existence of a member if
the member is not an individual, estate, or trust other than a business trust;
or
(12) the participation of the limited liability
company in a transaction under [the Model Entity Transaction Act], if the
company:
(A) does not survive the transaction; or
(B) does survive the transaction, but as a
result of the transaction, the person ceases to be a member.
(b)
Sections 901 (definitions), 902 (conversion of partnership or limited
partnership to limited liability company), and 903 (effect of conversion;
entity unchanged) of the [Uniform Limited Liability Company Act] are repealed.
(c)
Sections 904, 905 and 906 of the [Uniform Limited Liability Company Act] are
amended as follows:
§ 904. Merger of [entities] limited liability companies.
(a)
Pursuant to a plan of merger approved under subsection (c), a domestic
limited liability company may be merged with or into one or more domestic
limited liability companies[,] or foreign limited liability
companies[, corporations, foreign corporations, partnerships, foreign
partnerships, limited partnerships, foreign limited partnerships, or other
domestic or foreign entities], and two or more foreign limited liability
companies may be merged into a domestic limited liability company that is
created in the merger.
(b)
A plan of merger must set forth:
(1) the name of each [entity] domestic or
foreign limited liability company that is a party to the merger;
(2) the name of the surviving [entity] domestic
or foreign limited liability company into which the other [entities]
parties will merge, which may be created in the merger;
(3) [the type of organization of the surviving
entity;] (Repealed.)
(4) the terms and conditions of the merger;
(5) the manner and basis for converting the
interests of each limited liability company that is a party to the
merger into interests or obligations of the surviving [entity] limited
liability company, interests or obligations of any other entity, or
into money or other property in whole or in part[; and].
[(6) the street address of the surviving
entity’s principal place of business.]
(c)
A plan of merger must be approved:
(1) in the case of a domestic limited
liability company that is a party to the merger, by all of the members or by a
number or percentage of members specified in the operating agreement; and
(2) in the case of a foreign limited liability
company that is a party to the merger, by the vote required for approval of a
merger by the law of the State or foreign jurisdiction in which the foreign
limited liability company is organized[;
(3) in the case of a partnership or domestic limited
partnership that is a party to the merger, by the vote required for approval of
a conversion under Section 902(b); and
(4) in the case of any other entities that are
parties to the merger, by the vote required for approval of a merger by the law
of this State or of the State or foreign jurisdiction in which the entity is
organized and, in the absence of such a requirement, by all the owners of
interests in the entity].
(d)
After a plan of merger is approved and before the merger takes effect, the plan
may be amended or abandoned as provided in the plan.
(e)
The merger is effective upon the filing of the articles of merger with the
[Secretary of State], or at such later date as the articles may provide.
(f)
A merger in which a limited liability company and another form of entity are
parties is governed by [the Model Entity Transactions Act].
§ 905. Articles of merger.
(a)
After approval of the plan of merger under Section 904(c), unless the merger is
abandoned under Section 904(d), articles of merger must be signed on behalf of
each domestic or foreign limited liability company [and other entity]
that is a party to the merger and delivered to the [Secretary of State] for
filing. The articles must set forth:
(1) the name and jurisdiction of [formation or]
organization of each of the domestic or foreign limited liability
companies [and other entities that are parties] that is a party
to the merger;
(2) for each domestic limited liability
company that is to merge, the date its articles of organization were filed with
the [Secretary of State];
(3) that a plan of merger has been approved [and
signed] by each domestic or foreign limited liability company [and
other entity] that is to merge;
(4) the name and address of the surviving domestic
or foreign limited liability company [or other surviving entity];
(5) the effective date of the merger;
(6) if a domestic limited liability company
is the surviving [entity] limited liability company, such changes
in its articles of organization as are necessary by reason of the merger;
(7) if a party to [a] the merger is a
foreign limited liability company, the jurisdiction and date of filing of its
initial articles of organization and the date when its application for
authority was filed by the [Secretary of State] or, if an application has not
been filed, a statement to that effect; and
(8) if the surviving entity is not a domestic
limited liability company, an agreement that the surviving [entity] limited
liability company may be served with process in this State and is subject
to liability in any action or proceeding for the enforcement of any liability
or obligation of any limited liability company previously subject to suit in
this State which is to merge, and for the enforcement, as provided in this
[Act], of the right of members of any limited liability company to receive
payment for their interest against the surviving entity.
(b)
If a foreign limited liability company is the surviving [entity of a merger]
limited liability company, it may not do business in this State until an
application for that authority is filed with the [Secretary of State].
(c)
The surviving limited liability company [or other entity] shall furnish
a copy of the plan of merger, on request and without cost, to any member of any
domestic limited liability company [or any person holding an interest
in any other entity] that is to merge.
(d)
Articles of merger operate as an amendment to [the] a surviving
domestic limited liability company’s articles of organization.
§ 906. Effect of merger.
(a)
When a merger takes effect:
(1) the separate existence of each [limited
liability company and other entity that is a] party to the merger, other
than the surviving [entity] domestic or foreign limited liability
company, terminates;
(2) all property owned by each [of the limited
liability companies and other entities that are] party to the merger vests
in the surviving [entity] domestic or foreign limited liability company;
(3) all debts, liabilities, and other obligations
of each [limited liability company and other entity that is] party to
the merger [become] are the obligations of the surviving [entity]
domestic or foreign limited liability company;
(4) an action or proceeding pending by or against a
[limited liability company or other] party to [a] the
merger may be continued as if the merger had not occurred or the surviving [entity]
domestic or foreign limited liability company may be substituted as a
party to the action or proceeding; and
(5) except as prohibited by other law, all the
rights, privileges, immunities, powers, and purposes of every limited liability
company [and other entity] that is a party to [a] the
merger vest in the surviving [entity] domestic or foreign limited
liability company.
(b)
The [Secretary of State] is an agent for service of process in an action or
proceeding against [the] a surviving foreign [entity] limited
liability company to enforce an obligation of any party to a merger if the
surviving foreign [entity] limited liability company fails to
appoint or maintain an agent designated for service of process in this State or
the agent for service of process cannot with reasonable diligence be found at
the designated office. Upon receipt of process, the [Secretary of State] shall
send a copy of the process by registered or certified mail, return receipt
requested, to the surviving [entity] foreign limited liability
company at the address set forth in the articles of merger. Service is
effected under this subsection at the earliest of:
(1) the date the company receives the process,
notice, or demand;
(2) the date shown on the return receipt, if signed
on behalf of the company; or
(3) five days after its deposit in the mail, if
mailed postpaid [and correctly addressed].
(c) [A
member of the surviving limited liability company is liable for all obligations
of a party to the merger for which the member was personally liable before the
merger.] (Repealed.)
(d)
Unless otherwise agreed, a merger of a limited liability company that is not
the surviving [entity] limited liability company in the merger
does not require the limited liability company to wind up its business under
this [Act] or pay its liabilities and distribute its assets pursuant to this
[Act].
(e)
Articles of merger serve as articles of dissolution for a limited liability
company that is not the surviving [entity] limited liability company
in the merger.
(d)
Section 907 ([article] not exclusive) of the [Uniform Limited Liability Company
Act] is repealed.
Comment
In
addition to making the amendments described in the Introductory Comment to
Appendix 2, the foregoing amendments to the Uniform Limited Liability Company
Act also make clear that (i) limited liability companies may be parties to
triangular mergers in which an entity that is not a limited liability company
and is not a party to the merger provides the merger consideration, (ii)
limited liability companies may be parties to consolidations in which the
surviving limited liability company is created in the transaction, and (iii)
the survivor of a merger of limited liability companies may be either a
domestic or foreign limited liability company (see § 101(9) which limits the
term “limited liability company” to domestic limited liability companies).
SECTION
A2-6. PROTOTYPE LIMITED LIABILITY COMPANY ACT.
Sections
1201, 1202, 1203 and 1204 of the [Prototype Limited Liability Company Act] are
amended as follows:
§ 1201. Merger or consolidation.
(A)
Unless otherwise provided in writing in an operating agreement, [and subject
to any law applicable to business entities other than limited liability
companies,] one or more limited liability companies may merge or
consolidate with or into one or more other [business entities] limited
liability companies, with the limited liability company [or other
business entity] as the merger or consolidation agreement shall provide
being the surviving or resulting limited liability company [or other
business entity].
(B)
Rights or securities of or interests in a [business entity] limited
liability company that is a party to the merger or consolidation may be
exchanged for or converted into cash, property, obligations, rights or
securities of or interests in the surviving or resulting [business entity]
limited liability company or of any other [business entity] person.
(C) [As
used in this article 12, “business entity” OR “business entities” shall mean
domestic and foreign limited liability companies and corporations.] A
merger in which a limited liability company and another form of entity are
parties is governed by [the Model Entity Transactions Act].
§ 1202. Approval of merger or consolidation.
(A)
Unless otherwise provided in writing in an operating agreement, a limited
liability company that is a party to a proposed merger or consolidation shall
approve the merger or consolidation agreement by the consent of more than one
half by number of the members.
(B)
Each [corporation and] foreign limited liability company that is a party
to a proposed merger or consolidation shall approve the merger or consolidation
in the manner and by the vote required by the laws applicable to [such
business entity] it.
(C)
Each [business entity] domestic limited liability company that is
a party to the merger or consolidation shall have such rights to abandon the
merger or consolidation as are provided for in the merger or consolidation
agreement [or in the laws applicable to the business entity].
§ 1203. Articles of merger or consolidation.
(A)
The [business entity] limited liability company surviving or
resulting from the merger or consolidation shall deliver to the Secretary of
State articles of merger or consolidation executed by each constituent [entity]
limited liability company setting forth:
(1) The name and jurisdiction of [formation or]
organization of each [business entity which] limited liability
company that is to [merger] merge or consolidate;
(2) That an agreement of merger or consolidation
has been approved and executed by each [business entity which] limited
liability company that is a party to the merger or consolidation;
(3) The name of the surviving or resulting [business
entity] limited liability company;
(4) The future effective date of the merger or
consolidation (which shall be a date or time certain) if it is not to be
effective upon the filing of the articles of merger or consolidation;
(5) That the agreement of merger or consolidation
is on file at a place of business of the surviving or resulting [business
entity] limited liability company, and the address of that place of
business;
(6) That a copy of the agreement of merger or
consolidation will be furnished by the surviving or resulting [business
entity] limited liability company, on request and without cost, to
any person holding an interest in any [business entity which] limited
liability company that is to merge or consolidate; and
(7) If the surviving or resulting [entity] limited
liability company is not a [business entity organized under the laws of
this state] domestic limited liability company, a statement that
such surviving or resulting [business entity] limited liability
company:
(i) Agrees that it may be served with process in
this state in any proceeding for enforcement of any obligation of any [business
entity] domestic limited liability company party to the merger or
consolidation [that was organized under the laws of this state, as well as
for enforcement of any obligation of the surviving business entity or the new
business entity arising from the merger or consolidation]; and
(ii) Appoints the Secretary of State as its agent
for service of process in any such proceeding, and the surviving [business
entity or the new business entity] or resulting limited liability
company shall specify the address to which a copy of the process shall be
mailed to it by the Secretary of State.
* * *
(D) [Articles
of merger or consolidation shall constitute articles of dissolution for a
limited liability company which is not the surviving or resulting business
entity in the merger or consolidation.] (Repealed.)
(E)
An agreement of merger or consolidation approved in accordance with § 1202 may
effect any amendment to an operating agreement or effect the adoption of a new
operating agreement for a limited liability company if it is the surviving or
resulting limited liability company in the merger or consolidation. An approved
agreement of merger or consolidation may also provide that the operating
agreement of any constituent limited liability company to the merger or
consolidation (including a limited liability company formed for the purpose of
consummating a merger or consolidation) shall be the operating agreement of the
surviving or resulting limited liability company. Any amendment to an operating
agreement or adoption of a new operating agreement made pursuant to this
subsection (E) shall be effective at the effective time or date of the merger
of consolidation. [The provisions of this subsection shall not be construed
to limit the accomplishment of a merger or of any of the matters referred to
herein by any other means provided for in an operating agreement or other
agreement or as otherwise permitted by law.]
§ 1204. Effects of merger or consolidation.
A merger or consolidation has the following effects:
(A)
The [business entities] limited liability companies that are
parties to the merger or consolidation agreement shall be a single [entity]
limited liability company, which, in the case of a merger shall be the [entity]
limited liability company designated in the plan of merger as the
surviving [entity] limited liability company, and, in the case of
a consolidation, shall be the [new entity] resulting limited
liability company provided for in the plan of consolidation;
(B)
Each party to the merger or consolidation agreement, except the surviving [entity
or the new entity] or resulting limited liability company, shall
cease to exist;
(C)
The surviving [entity or the new entity] or resulting limited
liability company shall thereupon and thereafter possess all the rights,
privileges, immunities, and powers of each constituent [entity] limited
liability company and shall be subject to all the restrictions,
disabilities, and duties of each of such constituent [entities to the extent
such rights, privileges, immunities, powers, franchises, restrictions,
disabilities, and duties are applicable to the type of business entity that is
the surviving entity or the new entity] limited liability companies;
(D)
All property, real, personal and mixed, and all debts due on whatever account,
including promises to make capital contributions and subscriptions for [shares]
interests, and all other choses in action, and all and every other
interest of or belonging to or due to each of the constituent [entities]
limited liability companies shall be vested in the surviving [entity
or the new entity] or resulting limited liability company without
further act or deed;
(E)
The title to all real estate and any interest therein, vested in any [such
constituent entity] constituent limited liability company shall not
revert or be in any way impaired by reason of such merger or consolidation;
(F)
The surviving [entity or the new entity] or resulting limited
liability company shall thenceforth be liable for all liabilities and
obligations of each of the constituent [entities] limited liability
companies so merged or consolidated, and any claim existing or action or
proceeding pending by or against any such constituent [entity] limited
liability company may be prosecuted as if such merger or consolidation had
not taken place, or the surviving [entity or the new entity] or
resulting limited liability company may be substituted in the action;
(G)
Neither the rights of creditors nor any liens on the property of any
constituent [entity] limited liability company shall be impaired
by the merger or consolidation;
(H)
The interests in a limited liability company [or shares or other interests
in a corporation] that are to be converted or exchanged into interests, [shares
or] other securities, cash, obligations or other property under the terms
of the merger or consolidation agreement are so converted, and the former
holders thereof are entitled only to the rights provided in the merger or
consolidation agreement or the rights otherwise provided by law.