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SB-913 Corporations: conversions: foreign corporation or foreign other business entity.(2019-2020)

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Date Published: 02/03/2020 09:00 PM
SB913:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 913


Introduced by Senator Jones

February 03, 2020


An act to amend Sections 1150, 1151, 1152, 1153, 1155, and 1157 of, to add Section 1154 to, and to repeal Section 1160 of, the Corporations Code, relating to corporations.


LEGISLATIVE COUNSEL'S DIGEST


SB 913, as introduced, Jones. Corporations: conversions: foreign corporation or foreign other business entity.
Existing law establishes procedures for the conversion of corporations into a domestic other business entity, including, but not limited to, a limited liability company or a partnership. Under existing law, a converting corporation is required to file specified documents with the Secretary of State. Existing law authorizes the Secretary of State to charge an entity a $150 fee for its conversion that is paid into the Secretary of State’s Business Fees Fund.
This bill would additionally allow for the conversion of a corporation into a foreign corporation or a foreign other business entity, as specified, and would require the converting corporation to file a certificate of conversion with the Secretary of State. The bill would make the Secretary of State the agent for service of process in an action or proceeding against a corporation that has converted to a foreign corporation or foreign other business entity in specified instances. The bill would make other conforming and nonsubstantive changes.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 1150 of the Corporations Code is amended to read:

1150.
 For purposes of this chapter, the following definitions shall apply:
(a) “Converted corporation” means a corporation that results from a conversion of an a domestic other business entity or a entity, foreign other business entity or a entity, or foreign corporation pursuant to Section 1157.
(b) “Converted entity” means a domestic other business entity entity, foreign other business entity, or foreign corporation that results from a conversion of a corporation under this chapter.
(c) “Converting corporation” means a corporation that converts into a domestic other business entity entity, foreign other business entity, or foreign corporation pursuant to this chapter.
(d) “Converting entity” means an a domestic other business entity or a entity, foreign other business entity entity, or foreign corporation that converts into a corporation pursuant to Section 1157.
(e) “Domestic other business entity” has the meaning provided in Section 167.7.
(f) “Foreign corporation” has the meaning provided in Section 171.

(f)

(g) “Foreign other business entity” has the meaning provided in Section 171.07.

(g)

(h) “Other business entity” has the meaning provided in Section 174.5.

SEC. 2.

 Section 1151 of the Corporations Code is amended to read:

1151.
 (a) A corporation may be converted into a domestic other business entity, including, but not limited to, a limited liability company or a partnership, foreign other business entity, or foreign corporation pursuant to this chapter if, pursuant to the proposed conversion, (1) each share of the same class or series of the converting corporation shall, unless all the shareholders of the class or series consent, be treated equally with respect to any cash, rights, securities, or other property to be received by, or any obligations or restrictions to be imposed on, the holder of that share, and (2) nonredeemable common shares of the converting corporation shall be converted only into nonredeemable equity securities of the converted entity unless all of the shareholders of the class consent; provided, however, that clause (1) shall not restrict the ability of the shareholders of a converting corporation to appoint one or more managers, if the converted entity is a limited liability company, or one or more general partners, if the converted entity is a limited partnership, in the plan of conversion or in the converted entity’s governing documents.
(b) Notwithstanding this section, the conversion of a corporation into a domestic other business entity, including, but not limited to, a limited liability company or a partnership, foreign other business entity, or foreign corporation may be effected only if both of the following conditions are complied with:
(1) The law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion.
(2) The corporation complies with any and all other requirements of any other law that applies to conversion to the converted entity.

SEC. 3.

 Section 1152 of the Corporations Code is amended to read:

1152.
 (a) A corporation that desires to convert to a domestic other business entity entity, foreign other business entity, or foreign corporation shall approve a plan of conversion. The plan of conversion shall state all of the following:
(1) The terms and conditions of the conversion.
(2) The name, form, and jurisdiction of the organization of the converted entity and of the converting corporation and the name of the converted entity after conversion.
(3) The manner of converting the shares of each of the shareholders of the converting corporation into securities of, or interests in, the converted entity.
(4) The provisions of the governing documents for the converted entity, including the partnership agreement or limited liability company if the converted entity is a partnership, the articles of organization or certificate of formation and operating agreement, agreement if the converted entity is a limited liability company, or the articles or certificate of incorporation if the converted entity is a corporation, to which the holders of interests in the converted entity are to be bound.
(5) Any other details or provisions that are required by the laws under which the converted entity is organized, or that are desired by the converting corporation.
(b) The plan of conversion shall be approved by the board of the converting corporation (Section 151), and the principal terms of the plan of the conversion shall be approved by the outstanding shares (Section 152) of each class of the converting corporation. The approval of the outstanding shares may be given before or after approval by the board. Notwithstanding the foregoing, if a converting corporation is a close corporation, the conversion shall be approved by the affirmative vote of at least two-thirds of each class, or a greater vote if required in the articles, of outstanding shares (Section 152) of that converting corporation; provided, however, that the articles may provide for a lesser vote, but not less than a majority of the outstanding shares of each class.
(c) If the corporation is converting into a general or limited partnership or into a foreign general or limited partnership or into a limited liability company or a foreign limited liability company, then in addition to the approval of the shareholders set forth in subdivision (b), the plan of conversion shall be approved by each shareholder who will become a general partner or manager, as applicable, of the converted entity pursuant to the plan of conversion unless the shareholders have dissenters’ rights pursuant to Section 1159 and Chapter 13 (commencing with Section 1300).
(d) Upon the effectiveness of the conversion, all shareholders of the converting corporation, except those that exercise dissenters’ rights as provided in Section 1159 and Chapter 13 (commencing with Section 1300), shall be deemed parties to any agreement or agreements constituting the governing documents for the converted entity adopted as part of the plan of conversion, irrespective of whether or not a shareholder has executed the plan of conversion or those governing documents for the converted entity. Any adoption of governing documents made pursuant thereto shall be effective at the effective time or date of the conversion.
(e) Notwithstanding its prior approval by the board and the outstanding shares or either of them, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the board and, if it changes any of the principal terms of the plan of conversion, by the shareholders of the converting corporation in the same manner and to the same extent as was required for approval of the original plan of conversion.
(f) A plan of conversion may be abandoned by the board of a converting corporation, or by the shareholders of a converting corporation if the abandonment is approved by the outstanding shares, in each case in the same manner as required for approval of the plan of conversion, subject to the contractual rights of third parties, at any time before the conversion is effective.
(g) The converted entity shall keep the plan of conversion at (1) the principal place of business of the converted entity if the converted entity is a domestic partnership or partnership, (2) at the office at which records are to be kept under Section 15901.11 if the converted entity is a domestic limited partnership or at partnership, (3) the office at which records are to be kept under Section 17701.13 if the converted entity is a domestic limited liability company. company, or (4) the office at which records are to be kept under the laws of the jurisdiction applicable to the converted entity if the converted entity is a foreign other business entity or foreign corporation. Upon the request of a shareholder of a converting corporation, the authorized person on behalf of the converted entity shall promptly deliver to the shareholder, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a shareholder of the rights provided in this subdivision shall be unenforceable.

SEC. 4.

 Section 1153 of the Corporations Code is amended to read:

1153.
 (a) After the approval, as provided in Section 1152, of a plan of conversion by the board and the outstanding shares of a corporation converting into a domestic other business entity, corporation, the converting corporation shall cause the filing of all documents required by law law, including, in the case of a corporation converting into a foreign corporation or foreign other business entity, the laws of the state or place of organization of the foreign corporation or foreign other business entity, to effect the conversion and create the converted entity, which documents shall include a certificate of conversion or a statement of conversion as required by Section 1155, and the conversion shall thereupon be effective. In the case of a corporation converting into a foreign corporation or foreign other business entity, the conversion shall be effective in accordance with the laws of the state or place of organization of the foreign corporation or foreign other business entity.
(b) A copy of the statement of partnership authority, certificate of limited partnership, or articles of organization organization, or certificate of conversion complying with Section 1155, duly certified by the Secretary of State on or after the effective date, is conclusive evidence of the conversion of the corporation.

SEC. 5.

 Section 1154 is added to the Corporations Code, to read:

1154.
 (a) To enforce an obligation of a corporation that has converted to a foreign corporation or foreign other business entity, the Secretary of State shall only be the agent for service of process in an action or proceeding against that converted foreign entity, if the agent designated for the service of process for that entity is a natural person and cannot be found with due diligence or if the agent is a corporation and no person, to whom delivery may be made, may be located with due diligence, or if no agent has been designated and if none of the officers, members, managers, or agents of that entity may be located after diligent search, and it is shown by affidavit to the satisfaction of the court. The court then may make an order that service be made by personal delivery to the Secretary of State or to an assistant or Deputy Secretary of State of two copies of the process together with two copies of the order, and the order shall set forth an address to which the process shall be sent by the Secretary of State. Service in this manner is deemed complete on the 10th day after delivery of the process to the Secretary of State.
(b) Upon receipt of the process and order and the fee set forth in Section 12197 of the Government Code, the Secretary of State shall provide notice to that entity of the service of the process by forwarding by certified mail, return receipt requested, a copy of the process and order to the address specified in the order.
(c) The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record the time of service and the Secretary of State’s action with respect to the process served. The certificate of the Secretary of State, under the Secretary of State’s official seal, certifying to the receipt of process, the providing of notice of process to that entity, and the forwarding of the process shall be competent and prima facie evidence of the matters stated therein.

SEC. 6.

 Section 1155 of the Corporations Code is amended to read:

1155.
 (a) To convert a corporation:
(1) If the corporation is converting into a domestic limited partnership, a statement of conversion shall be completed on the certificate of limited partnership for the converted entity.
(2) If the corporation is converting into a domestic partnership, a statement of conversion shall be completed on the statement of partnership authority for the converted entity, or if no statement of partnership authority is filed then a certificate of conversion shall be filed separately.
(3) If the corporation is converting into a domestic limited liability company, a statement of conversion shall be completed on the articles of organization for the converted entity.
(4) If the corporation is converting into a foreign other business entity or a foreign corporation, a certificate of conversion shall be filed with the Secretary of State.
(b) Any statement or certificate of conversion of a converting corporation shall be executed and acknowledged by those officers of the converting corporation as would be required to sign an officers’ certificate (Section 173), and shall set forth all of the following:
(1) The name of the converting corporation and the Secretary of State’s file number of the converting corporation.
(2) A statement of the total number of outstanding shares of each class entitled to vote on the conversion, that the principal terms of the plan of conversion were approved by a vote of the number of shares of each class which equaled or exceeded the vote required under Section 1152, specifying each class entitled to vote and the percentage vote required of each class.
(3) The name, form, and jurisdiction of organization of the converted entity.
(4) The name, mailing address, and street address of the converted entity’s agent for service of process. If a corporation qualified under Section 1505 is designated as the agent, no address for it shall be set forth.
(c) For the purposes of this chapter, the certificate of conversion shall be on a form prescribed by the Secretary of State.
(d) The filing with the Secretary of State of a statement of conversion on an organizational document or a certificate of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of dissolution by the converting corporation and no converting corporation that has made the filing is required to file a certificate of election under Section 1901 or a certificate of dissolution under Section 1905 as a result of that conversion.
(e) Upon the effectiveness of a conversion pursuant to this chapter, a converted entity that is a domestic partnership, domestic limited partnership, or domestic limited liability company shall be deemed to have assumed the liability of the converting corporation (1) to prepare and file or cause to be prepared and filed all tax and information returns otherwise required of the converting corporation under the Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) and (2) to pay any tax liability determined to be due pursuant to that law.

SEC. 7.

 Section 1157 of the Corporations Code is amended to read:

1157.
 (a) An A domestic other business entity or a entity, foreign other business entity or a entity, or foreign corporation may be converted into a corporation pursuant to this chapter only if the converting entity is authorized by the laws under which it is organized to effect the conversion.
(b) An A domestic other business entity or a entity, foreign other business entity or a entity, or foreign corporation that desires to convert into a corporation shall approve a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which that entity is organized.
(c) The conversion of an a domestic other business entity or a entity, foreign other business entity or a entity, or foreign corporation shall be approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws.
(d) The conversion by an a domestic other business entity or a entity, foreign other business entity or a entity, or foreign corporation shall be effective under this chapter upon the filing with the Secretary of State of the articles of incorporation of the converted corporation, containing a statement of conversion that complies with subdivision (e).
(e) A statement of conversion of an entity converting into a corporation pursuant to this chapter shall set forth all of the following:
(1) The name, form, and jurisdiction of organization of the converting entity.
(2) The Secretary of State’s file number, if any, of the converting entity.
(3) If the converting entity is a foreign other business entity or a foreign corporation, the statement of conversion shall contain the following:
(A) A statement that the converting entity is authorized to effect the conversion by the laws under which it is organized.
(B) A statement that the converting entity has approved a plan of conversion or other instrument as is required to be approved to effect the conversion pursuant to the laws under which the converting entity is organized.
(C) A statement that the conversion has been approved by the number or percentage of the partners, members, shareholders, or other holders of interest of the converting entity that is required by the laws under which that entity is organized, or a greater or lesser percentage as may be set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles of incorporation, or other governing document in accordance with applicable laws.
(f) The filing with the Secretary of State of articles of incorporation containing a statement pursuant to subdivision (e) shall have the effect of the filing of a certificate of cancellation by a converting foreign limited liability company or foreign limited partnership, and no converting foreign limited liability company or foreign limited partnership that has made the filing is required to file a certificate of cancellation under Section 15909.07 or 17708.06 as a result of that conversion. If a converting entity is a foreign corporation qualified to transact business in this state, the foreign corporation shall, by virtue of the filing, automatically surrender its right to transact intrastate business.

SEC. 8.

 Section 1160 of the Corporations Code is repealed.
1160.

(a)Notwithstanding any other provision of law, the Secretary of State shall charge an entity a fee not to exceed one hundred fifty dollars ($150) for its conversion made under this chapter.

(b)This section shall become operative on January 1, 2005.