[This is the third of a five-part series discussing the Business Entity Harmonization Bill passed by the Indiana General Assembly in 2017. The first two parts are here and here.]
Senate Enrolled Act 443 creates, effective as of January 1, 2018, a new Article 0.6, the Uniform Business Organization Transactions Code, in Title 23 of the Indiana Code. In previous versions of the statute, provisions dealing with mergers, conversions, and domestications of business corporations, limited liability companies (LLCs), limited partnerships (LPs), limited liability partnerships (LLPs), and nonprofit corporations were scattered across several articles of Title 23. The Uniform Business Organization Transactions Code gathers most of them into one article that, in general, applies at least as broadly as each corresponding provision of the former statute, and in some cases more broadly. In addition, the new article provides for the acquisition of ownership interest (i.e., stock in a corporation or interest in a partnership or LLC) by another entity.
Conversions, mergers, and domestications effect changes in organization that could be accomplished by other means, but with different tax or legal consequences. For example, instead of converting to a limited liability company, a corporation could form a new LLC, transfer all its assets to the LLC, and dissolve, distributing the interest in the LLC to its shareholders. However, that process will have tax consequences that can often be avoided by conversion. In addition, all the corporation’s contracts will need to be assigned to the LLC, and those assignments may require the consent of the other parties to the contracts. In most cases, consent of the other party to a contract is not required for a conversion because a conversion preserves continuity of identity. Even though the converted entity has a different name and will be governed by different laws, it is treated as if it is the same entity that existed prior to conversion. The same is true for domestication and mergers, at least with respect to the entity surviving a merger.