BILL REQ. #:  Z-0509.2 

Read first time 01/13/14.   Referred to Committee on Law & Justice.

     AN ACT Relating to corporate entity conversions; amending RCW 25.15.085 and 23B.13.020; adding new sections to chapter 25.15 RCW; and adding new sections to chapter 23B.09 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   A new section is added to chapter 25.15 RCW under "ARTICLE XI. MERGERS" to read as follows:
     DEFINITIONS. The definitions in this section apply throughout this article unless the context clearly requires otherwise.
     (1) "Converted organization" means the organization into which a converting organization converts under sections 2 through 5 of this act.
     (2) "Converting limited liability company" means a converting organization that is a limited liability company.
     (3) "Converting organization" means an organization that converts into another organization pursuant to section 2 of this act.
     (4) "Governing statute" of an organization means the statute that governs the organization's internal affairs.
     (5) "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 person having a governing statute. The term includes domestic and foreign organizations whether or not formed for profit.
     (6) "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 certificate of formation and limited liability company 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 corporation for profit, 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.
     (7) "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 other 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.

NEW SECTION.  Sec. 2   A new section is added to chapter 25.15 RCW under "ARTICLE XI. MERGERS" to read as follows:
     CONVERSION. (1) An organization other than a limited liability company may convert into a limited liability company, and a limited liability company may convert into another organization pursuant to this section and sections 3 through 5 of this act and a plan of conversion, if:
     (a) The other organization's governing statute authorizes the conversion;
     (b) The conversion is not prohibited by the law of the jurisdiction that enacted the other organization's governing statute; and
     (c) The other organization complies with its governing statute in effecting the conversion.
     (2) A plan of conversion must be in a record and must include:
     (a) The name and form of the organization before conversion;
     (b) The name and form of the organization after conversion;
     (c) The terms and conditions of the conversion, including the manner and basis for converting interests in the converting organization into any combination of the interests, shares, obligations, or other securities of the converted organization or any other organization, or into cash or other property in whole or part; and
     (d) The organizational documents of the converted organization.

NEW SECTION.  Sec. 3   A new section is added to chapter 25.15 RCW under "ARTICLE XI. MERGERS" to read as follows:
     ACTION ON PLAN OF CONVERSION BY CONVERTING LIMITED LIABILITY COMPANY. (1) Subject to section 6 of this act, a plan of conversion must be consented to by all the members of a converting limited liability company.
     (2) Subject to section 6 of this act and any contractual rights, after a conversion is approved, and at any time before a filing is made under section 4 of this act, a converting limited liability company may amend the plan or abandon the planned conversion:
     (a) As provided in the plan; and
     (b) Except as prohibited by the plan, by the same approval as was required to approve the plan.

NEW SECTION.  Sec. 4   A new section is added to chapter 25.15 RCW under "ARTICLE XI. MERGERS" to read as follows:
     FILINGS REQUIRED FOR CONVERSION; EFFECTIVE DATE. (1) After a plan of conversion is approved, the converting organization must make one of the following filings to complete the conversion:
     (a) A converting limited liability company must deliver to the secretary of state for filing articles of conversion, which must include:
     (i) A statement that the limited liability company has been converted into another organization;
     (ii) The name and form of the converted organization and the jurisdiction of its governing statute;
     (iii) The date the conversion is effective under the governing statute of the converted organization;
     (iv) A statement that the conversion was approved as required by this chapter;
     (v) A statement that the conversion was approved as required by the governing statute of the converted organization; and
     (vi) If the converted organization is a foreign organization not authorized to transact business in this state, the street and mailing address of an office that the secretary of state may use for the purposes of section 5(3) of this act; or
     (b) A converting organization that is not a limited liability company must deliver to the secretary of state for filing a certificate of formation, together with articles of conversion, which must include:
     (i) A statement that the limited liability company was converted from another organization;
     (ii) The name and form of the converting organization and the jurisdiction of its governing statute; and
     (iii) A statement that the conversion was approved in a manner that complied with the converting organization's governing statute.
     (2) The effective time of a conversion is either:
     (a) If the converted organization is a limited liability company, when the certificate of formation takes effect; or
     (b) If the converted organization is not a limited liability company, as provided by the governing statute of the converted organization.
     (3) If the certificate of formation filed pursuant to this section does not specify a delayed effective date, it becomes effective upon filing. If the certificate of formation specifies a delayed effective time and date, the certificate of formation becomes effective at the time and date specified. If the certificate of formation specifies a delayed effective date but no time is specified, the certificate of formation is effective at the close of business on that date. A delayed effective date for a certificate of formation may not be later than the ninetieth day after the date it is filed.

NEW SECTION.  Sec. 5   A new section is added to chapter 25.15 RCW under "ARTICLE XI. MERGERS" to read as follows:
     EFFECT OF CONVERSION. (1) An organization that has been converted pursuant to this article is for all purposes the same entity that existed before the conversion.
     (2) When a conversion takes effect:
     (a) The title to all real estate and other property owned by the converting organization remains vested in the converted organization without reversion or impairment;
     (b) All debts, liabilities, and other obligations of the converting organization continue as obligations of the converted organization;
     (c) An action or proceeding pending by or against the converting organization may be continued as if the conversion had not occurred;
     (d) Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting organization remain vested in the converted organization;
     (e) Except as otherwise provided in the plan of conversion, the terms and conditions of the plan of conversion take effect; and
     (f) Except as otherwise agreed, the conversion does not dissolve a converting limited liability company for the purposes of Article VIII of this chapter.
     (3) A converted organization that is a foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by the converting limited liability company if before the conversion the converting limited liability company was subject to suit in this state on the obligation. A converted organization that is a foreign organization and not authorized to transact business in this state appoints the secretary of state as its agent for service of process for 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 RCW 25.15.025(3).

NEW SECTION.  Sec. 6   A new section is added to chapter 25.15 RCW under "ARTICLE XI. MERGERS" to read as follows:
     RESTRICTIONS ON APPROVAL OF CONVERSIONS. If a member of a converting limited liability company will have personal liability with respect to a converted organization, then, in addition to the approval requirements in section 3(1) of this act, approval of a plan of conversion must also require the signing, by each such member, of a separate written consent to become subject to such personal liability.

Sec. 7   RCW 25.15.085 and 2010 c 196 s 3 are each amended to read as follows:
     (1) Each document required by this chapter to be filed in the office of the secretary of state shall be executed in the following manner, or in compliance with the rules established to facilitate electronic filing under RCW 25.15.007, except as set forth in RCW 25.15.105(4)(b):
     (a) Each original certificate of formation must be signed by the person or persons forming the limited liability company;
     (b) A reservation of name may be signed by any person;
     (c) A transfer of reservation of name must be signed by, or on behalf of, the applicant for the reserved name;
     (d) A registration of name must be signed by any member or manager of the foreign limited liability company;
     (e) A certificate of amendment or restatement must be signed by at least one manager, or by a member if management of the limited liability company is reserved to the members;
     (f) A certificate of dissolution must be signed by the person or persons authorized to wind up the limited liability company's affairs pursuant to RCW 25.15.295(3);
     (g) If a surviving domestic limited liability company is filing articles of merger, the articles of merger must be signed by at least one manager, or by a member if management of the limited liability company is reserved to the members, or if the articles of merger are being filed by a surviving foreign limited liability company, limited partnership, or corporation, the articles of merger must be signed by a person authorized by such foreign limited liability company, limited partnership, or corporation; ((and))
     (h) A foreign limited liability company's application for registration as a foreign limited liability company doing business within the state must be signed by any member or manager of the foreign limited liability company; and
     (i) If a converting limited liability company is filing articles of conversion, the articles of conversion must be signed by at least one manager, or by a member if management of the limited liability company is reserved to the members.
     (2) Any person may sign a certificate, articles of merger, articles of conversion, limited liability company agreement, or other document by an attorney-in-fact or other person acting in a valid representative capacity, so long as each document signed in such manner identifies the capacity in which the signator signed.
     (3) The person executing the document shall sign it and state beneath or opposite the signature the name of the person and capacity in which the person signs. The document must be typewritten or printed, and must meet such legibility or other standards as may be prescribed by the secretary of state.
     (4) The execution of a certificate ((or)), articles of merger, or articles of conversion by any person constitutes an affirmation under the penalties of perjury that the facts stated therein are true.

NEW SECTION.  Sec. 8   A new section is added to chapter 23B.09 RCW to read as follows:
     DEFINITIONS. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Converting entity" means the domestic corporation that adopts a plan of entity conversion or the other entity converting to a domestic corporation.
     (2) "Domestic other entity" means an other entity organized under the laws of this state.
     (3) "Foreign other entity" means an other entity organized under a law other than the laws of this state.
     (4) "Interest holder" means a person who holds of record:
     (a) A right to receive distributions from an other entity either in the ordinary course of business or upon liquidation, other than as an assignee; or
     (b) A right to vote on issues involving an other entity's internal affairs, other than as an agent, assignee, proxy, or person responsible for managing its business and affairs.
     (5) "Interests" means the interests in an other entity held by its interest holders.
     (6) "Organic document" means a public organic document or a private organic document.
     (7) "Organic law" means the statute governing the internal affairs of a domestic corporation or other entity.
     (8) "Other entity" means any association or entity other than a domestic corporation, a domestic or foreign nonprofit corporation, a domestic or foreign mutual corporation or miscellaneous corporation, or a governmental or quasi-governmental organization. The term includes, but is not limited to, foreign corporations, limited partnerships, general partnerships, limited liability partnerships, limited liability companies, joint ventures, joint stock companies, business trusts, and profit unincorporated associations.
     (9) "Owner liability" means personal liability for a debt, obligation, or liability of an entity that is imposed on a person:
     (a) Solely by reason of the person's status as a shareholder or interest holder; or
     (b) By the articles of incorporation, bylaws, or an organic document under a provision of the organic law of an entity authorizing the articles of incorporation, bylaws, or an organic document to make one or more specified shareholders, members, or interest holders liable in their capacity as shareholders, members, or interest holders for all or specified debts, obligations, or liabilities of the entity.
     (10) "Private organic document" means any document, other than the public organic document, if any, that determines the internal governance of an other entity.
     (11) "Public organic document" means the document, if any, that is filed of public record to create an other entity, including amendments and restatements thereof.
     (12) "Surviving entity" means the domestic corporation or other entity that is in existence immediately after consummation of an entity conversion pursuant to this chapter.

NEW SECTION.  Sec. 9   A new section is added to chapter 23B.09 RCW to read as follows:
     ENTITY CONVERSION. (1) A domestic corporation may become an other entity pursuant to a plan of entity conversion if the entity conversion is permitted by the organic law of the other entity by:
     (a) Complying with section 11 of this act; and
     (b) Filing articles of entity conversion with the secretary of state.
     (2) An other entity may become a domestic corporation if the entity conversion is permitted by the organic law of the other entity by:
     (a) Complying with the procedures for the approval of an entity conversion provided in the organic law of the other entity; and
     (b) Filing articles of entity conversion with the secretary of state.

NEW SECTION.  Sec. 10   A new section is added to chapter 23B.09 RCW to read as follows:
     PLAN OF ENTITY CONVERSION. A plan of entity conversion must be in a record and must include:
     (1) The name of the domestic corporation before conversion;
     (2) The name and form of the surviving entity after conversion;
     (3) The terms and conditions of the conversion, including the manner and basis for converting interests in the domestic corporation into any combination of the interests, shares, obligations, or other securities of the surviving entity or any other entity or into cash or other property in whole or part; and
     (4) The organic documents of the surviving entity as they will be in effect immediately after consummation of the conversion.

NEW SECTION.  Sec. 11   A new section is added to chapter 23B.09 RCW to read as follows:
     APPROVAL OF A PLAN OF ENTITY CONVERSION. In the case of an entity conversion of a domestic corporation to an other entity:
     (1) The plan of entity conversion must be adopted by the board of directors of the converting entity and the shareholders entitled to vote must approve the plan.
     (2) After adopting a plan of entity conversion, the board of directors of the converting entity must submit the plan of entity conversion for approval by its shareholders.
     (3) The board of directors must recommend the plan of entity conversion to the shareholders, unless (a) the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation; or (b) RCW 23B.08.245 applies, and in either case the board of directors communicates the basis for so proceeding to the shareholders.
     (4) The board of directors may condition its submission of the plan of entity conversion on any basis, including the affirmative vote of holders of a specified percentage of shares held by any group of shareholders not otherwise entitled to vote as a separate voting group on the plan of entity conversion.
     (5) In the case of an entity conversion of a domestic corporation to a foreign corporation, in addition to any other voting conditions imposed by the board of directors acting pursuant to subsection (4) of this section, approval of the plan of entity conversion requires the affirmative vote of shareholders that would be required to approve a plan of merger under RCW 23B.11.030, and of each other voting group entitled under RCW 23B.11.035 or the articles of incorporation to vote separately on a plan of merger. Separate voting by additional voting groups is required on a plan of entity conversion if such voting group or groups would be entitled to vote on a plan of merger under the circumstances described in RCW 23B.11.035. The articles of incorporation may require a greater or lesser vote to approve a plan of entity conversion than that provided in this subsection, or a greater or lesser vote by separate voting groups, so long as the required vote is not less than a majority of all the votes entitled to be cast on the plan of entity conversion and of each other voting group entitled to vote separately on the plan.
     (6) In the case of an entity conversion of a domestic corporation to an other entity that is not a foreign corporation, approval of the plan of entity conversion requires the approval of all shareholders of the domestic corporation, whether or not entitled to vote under this title or the articles of incorporation.
     (7) If as a result of the conversion one or more shareholders of the domestic corporation would become subject to owner liability for the debts, obligations, or liabilities of any other person or entity, in addition to the approval requirements under subsections (5) and (6) of this section, approval of the plan of entity conversion must also require each such shareholder to execute a separate record consenting to become subject to such owner liability.
     (8) If the approval of the shareholders is to be given at a meeting, the domestic corporation must notify each shareholder, whether or not entitled to vote, of the proposed meeting of shareholders at which the plan of entity conversion is to be submitted for approval in accordance with RCW 23B.07.050. The notice must state that the purpose, or one of the purposes, of the meeting is to consider the plan of entity conversion and must contain or be accompanied by a copy or summary of the plan of entity conversion. The notice must include or be accompanied by a copy of the organic documents of the surviving entity as they will be in effect immediately after the conversion.
     (9) If any provision of the articles of incorporation, bylaws, or an agreement to which any of the directors or shareholders of the domestic corporation are parties, adopted, or entered into before the effective date of this section applies to a merger of the domestic corporation, other than a provision that limits or eliminates voting or dissenters' rights, and the document does not refer to an entity conversion of the domestic corporation, the provision is deemed to apply to an entity conversion of the domestic corporation until the provision is subsequently amended.

NEW SECTION.  Sec. 12   A new section is added to chapter 23B.09 RCW to read as follows:
     ARTICLES OF ENTITY CONVERSION. (1) After a plan of entity conversion by a domestic corporation converting into an other entity has been adopted and approved as required by this chapter, articles of entity conversion must be signed on behalf of the domestic corporation by any officer or other duly authorized representative and must be delivered to the secretary of state for filing.
     (2) After the conversion of an other entity into a domestic corporation has been adopted and approved as required by the organic law of the converting entity, articles of entity conversion must be signed on behalf of the converting entity by any officer or other duly authorized representative and must be delivered to the secretary of state for filing.
     (3) The articles of entity conversion must set forth:
     (a) A statement that the converting entity has been converted into the surviving entity;
     (b) The name and form of the converting entity before conversion;
     (c) The name and form of the surviving entity after conversion, which must be a name that satisfies the requirements of RCW 23B.04.010 if the surviving entity after conversion is a domestic corporation;
     (d) Articles of incorporation that comply with RCW 23B.02.020 if the surviving entity after conversion is a domestic corporation;
     (e) The date the conversion is effective under the organic law of the surviving entity;
     (f) If the converting entity is a domestic corporation, a statement that the conversion was duly approved by the shareholders of the domestic corporation pursuant to section 11 of this act;
     (g) If the converting entity is an other entity, a statement that the conversion was duly approved as required by the organic law of the converting entity; and
     (h) If the surviving entity is a foreign other entity not authorized to transact business in this state: (i) A statement that the surviving entity appoints the secretary of state as its agent for service of process in a proceeding to enforce any obligation or the rights of dissenting shareholders of the domestic corporation; and (ii) the street and mailing address of an office which the secretary of state may use for the purposes of RCW 23B.15.100.
     (4) The articles of entity conversion take effect at the effective time provided in RCW 23B.01.230. Articles of entity conversion under subsection (1) or (2) of this section may be combined with any required conversion filing under the organic law of the other entity if the combined filing satisfies the requirements of both this section and the organic law of the other entity.

NEW SECTION.  Sec. 13   A new section is added to chapter 23B.09 RCW to read as follows:
     EFFECT OF ENTITY CONVERSION. (1) An entity that has been converted pursuant to this chapter is, for all purposes of the laws of the state of Washington, deemed to be the same entity that existed before the conversion and, unless otherwise agreed or as required under applicable non-Washington law, the converting entity is not required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion is not deemed to constitute a dissolution of the converting entity.
     (2) When any conversion becomes effective under this chapter:
     (a) The title to all real estate and other property, both tangible and intangible, owned by the converting entity remains vested in the surviving entity without reversion or impairment;
     (b) All rights of creditors and all liens upon any property of the converting entity must be preserved unimpaired, and all debts, liabilities, and other obligations of the converting entity continue as obligations of the surviving entity, remain attached to the surviving entity, and may be enforced against it to the same extent as if the debts, liabilities, and other obligations had originally been incurred or contracted by it in its capacity as the surviving entity;
     (c) An action or proceeding pending by or against the converting entity may be continued by or against the surviving entity as if the conversion had not occurred;
     (d) Except as prohibited by other law, all of the rights, privileges, immunities, powers, and purposes of the converting entity remain vested in the surviving entity; and
     (e) Except as otherwise provided in the plan of entity conversion, the terms and conditions of the plan of entity conversion take effect.
     (3) When a conversion of a domestic corporation to a foreign other entity becomes effective, the surviving entity is deemed:
     (a) To consent to the jurisdiction of the courts of this state to enforce any obligation owed by the converting entity, if before the conversion the converting entity was subject to suit in this state on the obligation;
     (b) To appoint the secretary of state as its agent for service of process in a proceeding to enforce any obligation or the rights of dissenting shareholders of the domestic corporation in connection with the conversion; and
     (c) To agree that it will promptly pay to the dissenting shareholders of the domestic corporation the amount, if any, to which they are entitled under chapter 23B.13 RCW.
     (4) Service of process on the secretary of state under this section is made in the same manner and with the same consequences as in RCW 23B.15.100.

NEW SECTION.  Sec. 14   A new section is added to chapter 23B.09 RCW to read as follows:
     ABANDONMENT OF ENTITY CONVERSION. (1) Unless otherwise provided in a plan of entity conversion of a domestic corporation, after the plan of entity conversion has been adopted and approved as required by this chapter, and at any time before the articles of entity conversion have become effective, the planned conversion may be abandoned by the board of directors without action by the shareholders.
     (2) If any entity conversion is abandoned after articles of entity conversion have been filed with the secretary of state but before the entity conversion has become effective, a statement that the entity conversion has been abandoned in accordance with this section, signed by an officer or other duly authorized representative, must be delivered to the secretary of state for filing prior to the effective date of the entity conversion. Upon filing, the statement takes effect and the entity conversion is deemed abandoned and may not become effective.

Sec. 15   RCW 23B.13.020 and 2013 c 97 s 1 are each amended to read as follows:
     (1) A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions:
     (a) A plan of merger, which has become effective, to which the corporation is a party (i) if shareholder approval was required for the merger by RCW 23B.11.030, 23B.11.080, or the articles of incorporation, and the shareholder was entitled to vote on the merger, or (ii) if the corporation was a subsidiary and the plan of merger provided for the merger of the subsidiary with its parent under RCW 23B.11.040;
     (b) A plan of share exchange, which has become effective, to which the corporation is a party as the corporation whose shares have been acquired, if the shareholder was entitled to vote on the plan;
     (c) A sale or exchange, which has become effective, of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder was entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale;
     (d) An amendment of the articles of incorporation, whether or not the shareholder was entitled to vote on the amendment, if the amendment effects a redemption or cancellation of all of the shareholder's shares in exchange for cash or other consideration other than shares of the corporation;
     (e) Any action described in RCW 23B.25.120; ((or))
     (f) Any corporate action approved pursuant to a shareholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares; or
     (g) A plan of entity conversion in the case of a conversion of a domestic corporation to a foreign corporation, which has become effective, to which the domestic corporation is a party as the converting entity, if: (i) The shareholder was entitled to vote on the plan; and (ii) the shareholder does not receive shares in the surviving entity that have terms as favorable to the shareholder in all material respects and that represent at least the same percentage interest of the total voting rights of the outstanding shares of the surviving entity as the shares held by the shareholder before the conversion.
     (2) A shareholder entitled to dissent and obtain payment for the shareholder's shares under this chapter may not challenge the corporate action creating the shareholder's entitlement unless the action fails to comply with the procedural requirements imposed by this title, RCW 25.10.831 through 25.10.886, the articles of incorporation, or the bylaws, or is fraudulent with respect to the shareholder or the corporation.
     (3) The right of a dissenting shareholder to obtain payment of the fair value of the shareholder's shares shall terminate upon the occurrence of any one of the following events:
     (a) The proposed corporate action is abandoned or rescinded;
     (b) A court having jurisdiction permanently enjoins or sets aside the corporate action; or
     (c) The shareholder's demand for payment is withdrawn with the written consent of the corporation.