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.
Another drafting issue is assuming that
NATIONAL CONFERENCE OF COMMISSIONERS
WITH PREFATORY NOTE AND COMMENTS
NATIONAL CONFERENCE OF COMMISSIONERS
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,
FRED H. MILLER, University of
Oklahoma, College of Law, 300 Timberdell Rd., Room 3056, Norman, OK 73019, President
JOANNE B. HUELSMAN, 235 W.
Broadway,
WILLIAM H. HENNING,
WILLIAM J. PIERCE,
DRAFTING COMMITTEE OF AMERICAN BAR ASSOCIATION
GEORGE W. COLEMAN,
WILLIAM H. CLARK, JR.,
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
ROBERT R. CASEY, 8555 United
Plaza Blvd, Suite 500, Baton Rouge, LA 70809
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
[ARTICLE]
1
GENERAL
PROVISIONS
SECTION 103. RELATIONSHIP OF [ACT] TO OTHER LAWS
SECTION 104. REQUIRED NOTICE OR APPROVAL
SECTION 105. STATUS OF FILINGS
SECTION 107. REFERENCE TO EXTERNAL FACTS
SECTION 108. ALTERNATIVE MEANS OF APPROVAL OF TRANSACTIONS
[SECTION 109. APPRAISAL RIGHTS
[SECTION 110. EXCLUDED ENTITIES AND TRANSACTIONS
SECTION 201. MERGER AUTHORIZED
SECTION 203. APPROVAL OF MERGER
SECTION 204. AMENDMENT OR ABANDONMENT OF PLAN OF MERGER
SECTION 205. STATEMENT OF MERGER; EFFECTIVE DATE
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
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
SECTION 501. DOMESTICATION AUTHORIZED
SECTION 502. PLAN OF DOMESTICATION
SECTION 503. APPROVAL OF DOMESTICATION
SECTION 504. AMENDMENT OR ABANDONMENT OF PLAN OF
SECTION 505. STATEMENT OF DOMESTICATION; EFFECTIVE DATE
SECTION 506. EFFECT OF DOMESTICATION
[ARTICLE]
6
DIVISIONRESERVED
SECTION 601.
DIVISION AUTHORIZED
SECTION 603.
APPROVAL OF DIVISION
SECTION 604.
AMENDMENT OR ABANDONMENT OF PLAN OF DIVISION
SECTION 605.
STATEMENT OF DIVISION; EFFECTIVE DATE
SECTION 606.
EFFECT OF DIVISION
SECTION 607.
ALLOCATION OF LIABILITIES IN DIVISION
[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 A1-1. REQUIREMENTS FOR DOCUMENTS
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
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, divisions, 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 divisions, 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, divisions, 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, divisions, 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.
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 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
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 and division
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 and division 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 and 601.301.
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,
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.
(8) “Division” means a transaction
authorized by [Article] 6.
(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:
(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;
(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.
(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, or division.
(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) “Protected agreement” means:
(B) an
agreement that is binding on an entity on the effective date of this [Act];
(C) the
organic rules of an entity in effect on the effective date of this [Act]; or
(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.
(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.
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”).
“Division” [(8)] – See
the Comment to Section 102(7).
“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, 5, and
6.5. See Sections 201, 301, 401, 501, and 601.501.
•General partnership, whether or
not a limited liability partnership.
•Limited partnership, whether or
not a limited liability limited partnership.
•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.
“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.
•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”). The limited
scope of the term “merger” in this Act explains why the rules on approval of
transactions in Sections 203, 303, 403, 503, and 603 refer to the rules for
approval “of a transaction that has the effect of a merger” as found in the
organic law or organic rules of an entity, rather than just to the rules for
approval of a “merger.” 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. The rules in Chapter 11 of the MBCA, however,
will apply under Section 203, 303, 403, 503, and 603 because a transaction
under that Chapter has the effect of a transaction under Article 2.
“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, or division, as
the case may be, depending on which form of transaction is taking place. See Sections 202, 302, 402, 502, and 602.502.
“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 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.
“Protected agreement” [(31)] - The
term “protected agreement” refers to agreements binding on the entity or any of
its governors or interest holders that are unpaid or executory in whole or in
part on the effective date of the Act. Thus a revolving line of credit from a
bank to a corporation would constitute a protected agreement even if advances
were not made until after the effective date of the Act. If a protected
agreement has provisions that apply if an entity merges, those provisions will
apply if the entity enters into an interest exchange, conversion,
domestication, or division transaction even though the agreement does not
mention those other types of transactions. See
Sections 301(d), 401(c), 501(d) and 601(d).
“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.
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, or operating
in the vicinity of “insolvency”; 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.
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 mergertransaction by a regulated entity requires
prior approval because the transactions authorized by this Act may be effectuated
indirectly in many cases under existing law by
establishing a wholly-owned subsidiary of the desired type and then merging
into it. The
consequence of violating subsection (a) should be the same as in the case of a mergertransaction 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, 506, and
606.506.
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.
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].
[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. Another example would be a division
transaction where a corporation creates a subsidiary and then distributes the
equity interests in the subsidiary to its shareholders on a pro rata basis.
While this is a classic I.R.C. § 355 spinoff that is in effect a division of
the corporation, it is not a division transaction within the scope of Chapter 6
of this Act. See Section 601.
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.
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.
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), and 603
(approval of a division).
[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, or dividing entity
is entitled to appraisal rights in connection with the transaction if the
interest holder would have been entitled to appraisal rights if the entity were a party to a merger under its organic law. 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.
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. It was not considered necessary to confirm
the possibility of so-called “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]:
(b) This [Act] may not be used to effect a transaction that:
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), and 601(e) divisions..
Subsection (b) may be used to
exclude certain types of transactions governed by more specific statutes. A
common example is the conversion of an insurance company from mutual to stock
form. There may be other types of transactions that vary greatly among the
states.
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
[(d) The following entities may not participate in a merger under this
[Article]:
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.
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 guiselaw of fiduciary duties, assuming,
of course, that such duties have not been contractually modified or eliminated,
or (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
transaction that has the effect of a merger; or
(B) if neither its organic law nor organic rules provide for approval of
a transaction that has the effect of a merger, by all of the interest
holders of the entity entitled to vote on or consent to any matter; and
(2) in a
record, 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, unless:
(A) the organic rules of the entity provide in a record for the approval
of a transaction that has the effect of a merger in which some or all of its
interest holders become subject to interest holder liability by the vote or
consent of fewer than all of the interest holders; and
(B) the interest holder voted for or consented in a record to that
provision of the organic rules or became an interest holder after the adoption
of that provision.
(b) A merger involving a foreign merging entity is not effective unless
it is approved by the foreign entity in accordance with the law of the foreign
entity’s jurisdiction of organization.
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. The phrase “transaction that has the effect
of a merger” used in subsection (a)(1)(B) is explained in the Comment to the
definition of “merger” in Section 102(24).
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) § 1110.1110, 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.
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; and
(7) if the
surviving entity is created by the merger and is a domestic limited liability
partnership, its [statement of qualification], as an attachment.; 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.
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
(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.
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.
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.
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.
[(d) This [Article] does not apply to a transaction under:
(1)
[Chapter 11 of the Model Business Corporation Act]; or
[(e) The following entities may not participate in an interest exchange
under this [Article]:
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.
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.
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.
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. See also Section 202(a)(3)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) except as otherwise provided in subsection
(d), if
neither its organic law nor organic rules provide for approval of an interest
exchange, in accordance with the requirements, if
any, in its organic law and organic rules for approval of a transaction that
has the effect of a merger, as if the interest exchange were that type of
transaction; or
(C) if neither its organic law nor organic rules provide for approval of
an interest exchange or a transaction that has the effect of a merger, by all of the interest holders
of the entity entitled to vote on or consent to any matter; and
(2) in a
record, 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, unless:
(A) the organic rules of the entity provide in a record for the approval
of an interest exchange or a transaction that has the effect of a merger in
which some or all of its interest holders become subject to interest holder
liability by the vote or consent of fewer than all of the interest holders; and
(B) the interest holder voted for or consented in a record to that
provision of the organic rules or became an interest holder after the adoption
of that provision.
(b) An interest exchange involving a foreign acquired entity is not
effective unless it is approved by the foreign entity in accordance with the
law of the foreign entity’s jurisdiction of organization.
(c) Except as otherwise provided in its organic law or organic rules,
the interest holders of the acquiring entity are not required to approve the
interest exchange.
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 threetwo 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; (2) if there are no
specific provisions for approval of an interest exchange in the acquired
entity’s organic law or organic rules but either the organic law governing the
acquired entity or the acquired entity’s organic rules contain provisions for
approval of mergers, then those merger provisions (except for any short form
merger provisions that allow approval of a merger by the acquired entity
without a vote of its interest holders – see
subsection (d)) apply; and
(32) if neither (1) or (2) are is
not
applicable, then unanimous consent of the acquired entity’s interest holders
will be required.
A
threetwo-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.
This section parallels analogous provisions in Articles 2
(mergers), 4 (conversions), and 5 (domestications), and 6 (divisions).
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.
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.
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), and 6 (divisions). 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), and 6 (divisions). See Comment 7 to Section 206.
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.
[(d) The following entities may not engage in a conversion:
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.
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 the samea 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 2.2; 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.
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. The content of a plan of conversion 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 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. See also Sections 202(a)(3), 302(a)(3) (interest
exchange), 503(a)(3) (domestication) and 603(a)(3) (division)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 its organic rules do not provide for approval
of a conversion, in accordance with the requirements, if any, in its organic
law and organic rules for approval of a transaction that has the effect of a
merger, as if the conversion were that type of transaction; or (C) if neither its organic law nor
organic rules provide for approval of a conversion or a
transaction that has the effect of a merger, by all of the interest holders
of the entity entitled to vote on or consent to any matter; and
(2) in a
record, 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, unless:
(A) the organic rules of the entity provide in a record for the approval
of a conversion or a transaction that has the effect of a merger in which some
or all of its interest holders become subject to interest holder liability by
the vote or consent of fewer than all of the interest holders; and
(B) the interest holder voted for or consented in a record to that
provision of the organic rules or became an interest holder after the adoption
of that provision.
(b) A conversion of a foreign converting entity is not effective unless
it is approved by the foreign entity in accordance with the law of the foreign
entity’s jurisdiction of organization.
1. In General – As is the case with the other types of transactions
authorized by this Act, there are threetwo 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 the provisions
for approval of a merger in either the organic law (defined in Section 102(24))
or organic rules of the entity will apply. Section 403(a)(1)(B). If there are
no approval provisions for conversions in the entity’s organic rules and no
approval provisions for mergers in the entity’s organic law or organic rules,
then unanimous
consent of all the entity’s interests holders is required. Section 403(a)(1)(C). The phrase “transaction that has
the effect of a merger” used in subsection (a)(1)(B) and (C) is explained in
the Comment to the definition of “merger” in Section 102(24B).
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.
This section parallels analogous
provisions in Articles 2 (mergers), 3 (interest exchanges), and 5
(domestications), and 6 (divisions).
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; and
(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.
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:
(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) except as provided by law other than this [Act] or the plan of
conversion, all of
the rights, privileges, immunities, powers, and purposes of the converting
entity remain in the converted entity;
(5) the
name of the converted entity may be substituted for the name of the converting
entity in any pending action or proceeding;
(6) unless
otherwise provided by the organic law ofthe conversion shall not require the converting entity, the conversion does not 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
(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.
1. In General –
A converted entity is the same entity as it was before the conversion; it just
has a different legal form. The legal effects of this are set forth in
subsection (a). The converted entity automatically
becomesremains the owner of all real and
personal property and becomesremains subject to all the liabilities,
actual or contingent, of the convertedconverting 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), and 6 (divisions). See
Comment 6 to Section 206..
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), and 6 (divisions). See
Comment 7 to Section 206..
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), and 6 (divisions), authorizes
service of process for all such claims in this state, and designates the Secretary of State of this state as the agent for
service of process in the event the converted entity cannot be otherwise served
in this state.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.
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.
[(e) The following entities may not engage in a domestication:
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.
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.
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. The content of a plan of domestication 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 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. See also Sections 202(a)(3) (mergers), 302(a)(3)
(interest exchanges), 402(a)(3) (conversions), and 602(a)(4) (divisions)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 its organic
rules do not provide for approval of a domestication, in accordance with the
requirements, if any, in its organic law and organic rules for approval of a
transaction that has the effect of a merger as if the domestication were that
type of transaction; or
(C) if neither its organic law nor organic rules
provide for approval of a domestication or a
transaction that has the effect of a merger, by all of the interest holders
of the entity entitled to vote on or consent to any matter; and
(2) in a
record, 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, unless:
(A) the organic rules of the entity in a record provide for the approval
of a domestication or a transaction that has the effect of a merger in which
some or all of its interest holders become subject to interest holder liability
by the vote or consent of fewer than all of the interest holders; and (B) the interest holder voted for
or consented in a record to that provision of the organic rules or became an
interest holder after the adoption of that provision.
(b) A domestication of a foreign domesticating entity is not effective
unless it is approved in accordance with the law of the foreign entity’s
jurisdiction of organization.
1. Section 503(a) –
As is the case with the other types of transactions authorized by this Act,
there are threetwo 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 the approval
process for a merger in either the entity’s organic law (defined in Section 102(26))
or organic rules will apply. Section 503(a)(1)(B). If there are no specific
domestication approval provisions in the entity’s organic rules and no merger
approval provisions in the entity’s organic law or organic rules, then unanimous consent of all the
entity’s interest holders is required. Section 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.
This section parallels analogous
provisions in Articles 2 (mergers), 3 (interest exchanges), and 4
(conversions), and 6 (divisions).
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; and
(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.
1. In General – The filing of a statement of domestication makes the
transaction a matter of public record. The mandatory requirements for a
statement of domestication are set forth in subsection (b). They are essentially the same as the requirements for a statement of
merger in Section 205.
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.
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), and 6 (divisions). See
Comment 6 to Section 206..
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), and 6 (divisions). See
Comment 7 to Section 206..
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), and 6 (divisions), authorizes
service of process for all such claims in this state, and designates the Secretary of State of this state as the agent forconsents to service of process in the event the domesticated entity cannot be otherwise
servedat its
address required to be maintained or at the address in this state set forth in the statement of domestication.
SECTION 601. DIVISION AUTHORIZED.
(1) the
dividing entity, and one or more new entities whether domestic or foreign; or
(2) two or
more new entities whether domestic or foreign.
[(e) The following
entities may not divide or be created in a division:
Legislative Note:
Very few state entity laws currently
authorize divisions. As pointed out in the Legislative Note to Appendix 2, in
those few states that do have division provisions, it is recommended that they
be amended to apply only to divisions where the dividing entity and the
resulting entities are all of the same type, for example a transaction where a
corporation is divided into two or more corporations. In addition, a new
subsection should be added to this section analogous to Sections 201(c) and
301(c) stating:
(d) This [Article] does not apply to a transaction under:
The statutes listed in that
added subsection would be the existing division provisions as amended.
1. In
General – The division transaction authorized by this article is the
reverse of a merger. Instead of two or more entities being merged into one
entity, in a division one existing entity is divided into two or more resulting
entities. The dividing entity may or may not survive the division, and one or
more of the resulting entities may be foreign entities if the laws of each
resulting foreign entity’s jurisdiction of organization permit the division. As
part of the division, the assets and liabilities of the dividing entity are
allocated to the resulting entities as provided in the plan of division to the
extent permitted by this article.
2. Nonstatutory
Divisions – This article does not apply to a division in which an existing
subsidiary is distributed to the dividing entity’s equity holders, unless the
assets and liabilities of the existing subsidiary need to be changed in
preparation for the division transaction, in which case this article may be
useful. See Sections 602(a)(4)(B) and 606(a)(4).
3. Tax
Considerations – This article authorizes a division for state law purposes.
Federal and state tax laws will independently determine how a division
transaction will be taxed.
4.
Protection of Creditors and Other Persons – Because the assets and
liabilities of a dividing entity are allocated among the resulting entities in
a division transaction governed by this article, there is a legitimate concern
that the rights of creditors and equity owners of the dividing entity are not
illegally curtailed by the division. Since this Act only deals with the types
of transactions within its scope and the procedures for approval and the effect
of these transactions, law other than this Act will govern any potential
illegal allocation in a division. See
Section 103. This other law includes: fraudulent conveyance and bankruptcy law,
fiduciary duty principles, illegal distribution statutes, oppression law,
securities laws and other federal and state regulatory law (e.g., regulation of transactions by
charitable organizations). See
Richard M. Cieri, Lyle G. Ganke and Heather Lennox, “Breaking Up Is Hard To Do:
Avoiding the Solvency-Related Pitfalls in Spinoff Transactions,” 54 Bus. Law
533 (1999); Edward S. Adams and Arijit Mukherji, “Spin-offs, Fiduciary Duty and
the Law,” 68 Ford. L. Rev. 15 (1999); F. Hodge O’Neal and Robert B. Thompson,
O’Neal and Thompson’s Oppression of Minority Shareholders and LLC Members,
Sections
5.
Section 601(d) – See Comment 4 to
Section 301.
6.
Section 601(e) – Section 601(e) is an optional provision that may be used
to exclude certain types of entities from the scope of this article. A
provision that excludes certain types of entities from the Act generally is set
forth in Section 110.
SECTION 602. PLAN OF DIVISION.
(1) the
name and type of the dividing entity;
(2) a
statement whether the dividing entity will survive the division;
(3) the
name, jurisdiction of organization, and type of each new resulting entity;
(C) distributing the interests of the resulting entities created in the
division;
(7) the
other terms and conditions of the division; and
(b) A plan of division
may contain any other provision not prohibited by law.
SECTION 603. APPROVAL OF DIVISION.
(a) A plan of division
is not effective unless it has been approved:
(1) by a
domestic dividing entity:
(A) in accordance with the requirements, if any, in its organic rules
for approval of a division;
SECTION 604. AMENDMENT OR ABANDONMENT OF PLAN
OF DIVISION.
(a) A plan of division
of a domestic dividing entity may be amended:
(1) as
provided in the plan; or
(2) unless
prohibited by the plan, in the same manner as the plan was approved.
(1) the name
of the dividing entity;
(2) the
date on which the statement of division was filed; and
(3) a
statement that the division has been abandoned in accordance with this section.
SECTION 605. STATEMENT OF DIVISION; EFFECTIVE
DATE.
(b) A statement of
division must contain:
(1) the
name, jurisdiction of organization, and type of the dividing entity;
(2) a
statement as to whether the dividing entity will survive the division;
1. In
General – The filing of a statement of division makes the transaction a
matter of public record. The mandatory requirements for a statement of division
are set forth in subsection (b). They are essentially the same as the
requirements for a statement of merger in Section 205.
SECTION 606. EFFECT OF DIVISION.
(a) When a division
becomes effective:
(1) if the
dividing entity is to survive the division, the dividing entity continues to
exist;
(2) if the
dividing entity is not to survive the division, the dividing entity ceases to
exist;
(3) the
resulting entities created in the division come into existence;
(4) property of the
dividing entity:
(8) if the
dividing entity survives the division:
1. In
General – With the exception of subsections (a)(4) and (a)(6), which are
necessary because only in a division are assets and liabilities allocated among
various entities, and subsection (f), which is discussed in Comment 2, this
section parallels analogous provisions in Articles 2 (mergers), 3 (interest
exchanges), 4 (conversions), and 5 (domestications).
2. Effect
of Division on Record Title to Real Estate. – If interests in real property
are allocated to a resulting entity as part of a division governed by Article
6, title to these real estate interests automatically passes to the resulting
entity, as between the dividing entity and the resulting entity. See Section 606(a)(7). Record title to
the transferred real estate, however, is governed by the real estate recording
acts of the states in which the real estate is located. The resulting entity
will, therefore, have to file a deed (or whatever other document may be
necessary under the recording acts of the state where the real estate is
located) in order to prevail against third parties who obtain the real property
from the dividing entity without knowledge of the transfer. Subsection (f)
reflects this concept and also makes it clear that the filing of the statement
of division in the Secretary of State’s office is not constructive notice of
the change of record title (as opposed to legal title) to the resulting entity.
Failure to file confirmatory deeds containing appropriate legal descriptions of
the property, however, has no impact on the validity and enforceability of the
division as between the dividing and the resulting entities.
3.
Section 606(c) - Subsection (c) provides the rule for future interest
holder liability and parallels analogous provisions in Articles 2 (mergers), 3
(interest exchanges), 4 (conversions), and 6 (divisions). See Comment 6 to Section 206.
4. Section
606(d) - Subsection (d) provides the rule for past interest holder
liability and parallels analogous provisions in Articles 2 (mergers), 3
(interest exchanges), 4 (conversions), and 6 (divisions). See Comment 7 to Section 206.
SECTION 607. ALLOCATION OF LIABILITIES IN
DIVISION.
(d) In applying the law
governing fraudulent transfers to the division:
(A) if it does not survive the division, is not subject to that law; or
(B) if it survives the division, is subject to that law only in its
capacity as a resulting entity;
(2) with
regard to each resulting entity:
(A) the entity is treated as a debtor;
(B) the liabilities allocated to that entity are treated as an
obligation incurred by the debtor;
(D) the assets allocated to the entity are treated as remaining assets.
(1)
distributions of interests are disregarded;
1. In
general – The purpose of Section 607 is to set out in detail how
liabilities are allocated in a division between the dividing and resulting
entities and which of the entities are responsible for those liabilities. The
basic rule is that those liabilities are the responsibility of the entity to
which they have been allocated, but the resulting entities are jointly and
severally liable for any liabilities that are not specifically allocated. The
resulting entities will also be jointly and severally liable for a liability,
even if allocated in the plan, where:
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].
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.
(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].
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.
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.
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.
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.
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)
Statement of
division.............................................................. $____
(10) Statement of
abandonment of division.................................. $____
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.
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.
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.
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.
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.
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.
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].
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.
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].
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 divisions or 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 or division 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 or division 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 or division 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, and division 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, and division 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, and division 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
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:
(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.
(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].
(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.
(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:
(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].
(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.
(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).
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:
(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.
(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.
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].
(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:
(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:
(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].
(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
(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.
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:
(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].
(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.
(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.
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.
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