- A merger transaction controlled by another statute will continue to be governed by the other statute. For example, Chapter 162 of the Utilities Code will govern the consolidation or merger of telephone cooperatives.
- An existing entity that continues to be governed by prior law needs to comply with the prior law when effecting the merger transaction. For example, article 5.04 of the Texas Business Corporation Act will continue to govern the merger of a Texas for-profit corporation formed before January 1, 2006 when merging with a foreign corporation, unless the Texas corporation has filed an early election to adopt the BOC.
- A general partnership is not included within the definition of a domestic filing entity. Consequently, the merger of a foreign entity with a domestic general partnership governed by the BOC would not require the filing of a certificate of merger with this office. Please note however that the merger of a foreign entity with a general partnership that continues to be governed by the Texas Revised Partnership Act would require the filing of a certificate of merger pursuant to section 9.02 (d) – (f) of the Act.
Until January 1, 2010, fundamental business transactions between BOC entities and non-BOC entities will require drafters to look to multiple statutes.
- A non-code organization, which includes a pre-2006 business corporation, may merge with a Texas corporation formed pursuant to the BOC as both the BOC and the Texas Business Corporation Act authorize this transaction.
- Article 5.01A of Texas Business Corporation Act authorizes the merger of a domestic corporation with other entities. Article 1.02(20) defines “other entity” to mean “any entity, whether organized for profit or not, that is a corporation (other than a domestic corporation or foreign corporation), limited or general partnership, limited liability company, real estate investment trust, joint venture, joint stock company, cooperative, association, bank, trust, insurance company or other legal entity organized pursuant to the laws of this state or any other state or country.”
- Section 10.001 of the BOC authorizes a merger of a domestic entity with a “non-code organization,” which is defined under section 1.002(56) of the BOC as an organization other than a domestic entity.
- In effecting the merger, the pre-2006 business corporation must not only comply with the provisions of chapter 10 of the BOC, but also the applicable law under which it is governed; namely, Part Five of the Business Corporation Act.
- The filing instrument submitted in this type of transaction may be titled “Certificate of Merger” or “Articles of Merger.” The secretary of state will not reject a filing instrument solely on the basis of the name used to identify the instrument.
- A certificate of filing issued by the secretary of state for a merger transaction governed by prior law or by the BOC will bear the title of “Certificate of Merger.”
- Although the merger provisions of the BOC are modeled on the merger provisions of prior law, prior law contains some differences in filing requirements that must be kept in mind when drafting transitional or cross-statutory transactions.
- If the approval of the shareholders of a corporation is required pursuant to Part Five of the Texas Business Corporation Act, the articles of merger must contain the number of shares outstanding, and the number of shares voted for and against the plan of merger.
- If the shares of any class or series is entitled to vote as a class, the articles of merger must also include the designation and number of outstanding shares of each such class or series and the number of shares of each such class or series voted for and against the plan of merger.
- The requirements for a plan of merger are set forth in Article 5.01B of the Texas Business Corporation Act, Sec. 2.11(b) of the Texas Revised Limited Partnership Act, Art. 10.03 of the Texas Limited Liability Company Act, Sec. 9.02 of the Texas Revised Partnership Act, and Sections 10.002 to 10.004 of the BOC.
- The plan of merger must be set forth as part of the articles/certificate of merger unless the articles/certificate of merger include a statement certifying
- the name and jurisdiction of formation of each domestic or foreign entity that is a party to the plan of merger or that will be created as a result of the merger and description of its organizational form;
- that the plan of merger has been approved by each organization;
- any amendments to the articles of incorporation, certificate of limited partnership articles of organization, or certificate of formation or a statement that no amendments are to be effected by the merger;
- that the certificate of formation of each new Texas corporation, limited partnership, or limited liability company to be created as a result of the merger are being filed with the secretary of state as part of the articles/certificate of merger;
- that an executed plan of merger is on file at the principal place of business of each surviving or newly created domestic or foreign corporation, limited partnership or limited liability company; and
- that a copy of the plan will be furnished:
(1) in the case of a corporation governed by the Texas Business Corporation Act, on written request and without cost, to any shareholder of any domestic corporation that is a party to or that is created as a result of the merger, and if there are multiple survivors, to any creditor or obligee of the parties to the merger if such obligation is outstanding at the time of the merger;
(2) in the case of a limited partnership governed by the Texas Revised Limited Partnership Act, to each partner in each domestic limited partnership that is a party to the merger at least twenty days before the merger is effected, unless waived by the partner;
(3) in the case of a limited liability company governed by the Texas Limited Liability Company Act, to any member of each domestic limited liability company that is a party to or created by the merger and, in the case of a merger with multiple surviving domestic or foreign limited liability companies or other entities, to any creditor or obligee of the parties to the merger if such obligation is outstanding; or
(4) in the case of a domestic entity governed by the BOC, on written request furnished without cost by each surviving, acquiring, or new domestic entity or non-code organization to any owner or member of any domestic entity that is a party to the merger and, for a merger with multiple surviving domestic entities or non-code organizations, to any creditor or obligee of the parties to the merger if a liability or obligation is then outstanding.
- The articles/certificate of merger also must contain a statement that the plan of merger was approved as required by the laws of the jurisdiction of formation of each organization that is a party to the merger and by the governing documents of those organizations. Procedures for the approval of fundamental business transactions are found in the spoke applicable to the domestic entity type.
- As a result of the passage of House Bill 1154, effective September 1, 2005, section 9.02 of the Texas Revised Partnership Act provides for the provision of an alternative statement in lieu of a plan of merger.
- The following provisions are applicable to mergers between parent and subsidiary entities under article 5.16 of the Texas Business Corporation Act and article 10.05 of the Texas Limited Liability Company Act:
- A short form merger of:
(1) one or more subsidiary entities into a parent;
(2) the merger of a parent into a subsidiary; or
(3) the merger of one or more subsidiaries and the parent into another subsidiary.
- The parent or at least one of the subsidiaries in a short form merger filed pursuant to article 5.16 of the Texas Business Corporation Act must be a domestic corporation/LLC.
- If the parent entity is a survivor, only articles of merger need be filed. If the parent will not survive the merger, the parent must adopt a plan of merger in the manner provided by law.
- The voting requirements of article 5.03 of the Texas Business Corporation Act are not applicable to subsidiary corporations merging under the provisions of article 5.16; that is, the action of the parent corporation is sufficient to effectuate the merger without action on the part of any subsidiary. Accordingly, as the merger is effected without approval of the shareholders, no amendments can be made to the articles of incorporation of a surviving entity.
- A short form merger of:
- Similar short form merger provisions are included in sections 10.006 and 10.152 of the BOC. The provisions are essentially the same as prior law. The BOC expands the provisions contained in the Texas Business Corporation Act and Texas Limited Liability Company Act and allows other entities to complete a merger with a subsidiary entity without the approval of the subsidiary’s owners or members. Short form merger provisions do not apply however if a subsidiary entity is a partnership.
- Merger of a General Partnership Governed by the BOC:
- A Texas partnership may adopt a plan of merger and merge with one or more partnerships or other entities.
- A certificate of merger on behalf of a general partnership is filed with the secretary of state only when a party to the merger is a domestic filing entity or a domestic filing entity is to be created under the plan of merger. Consequently, a partnership merger is filed with the secretary of state when the general partnership merges with or into a domestic corporation, limited partnership, limited liability company, professional association, or cooperative association or provides for the creation of one of these entities.
- A general partnership merger with or resulting in the creation of a real estate investment trust is not filed with the secretary of state. The merger should be filed with the county clerk in the county in which the domestic real estate investment trust’s principal place of business in Texas is located.
- Merger of a General Partnership Formed Before January 1, 2006:
- A Texas partnership that has not elected to adopt the BOC before its mandatory application date and that continues to be governed by the provisions of the Texas Revised General Partnership Act must file a certificate of merger with the secretary of state in order to effect a merger between the partnership and an “other entity.” Consequently, until January 1, 2010, a partnership merger is filed with the secretary of state when the general partnership merges with or into a corporation, limited partnership, limited liability company, professional association or cooperative association, whether domestic or foreign, or provides for the creation of one of these entities.
- The merger of a Texas partnership with or into a domestic or foreign partnership does not require the filing of a certificate of merger with the secretary of state.
- The most frequent omission in a merger involving a domestic or foreign limited liability company or limited partnership is the authorization statement. Although a merger document drafted to contain the alternative statements certifies that the plan of merger has been approved, the articles or certificate of merger also must include the following statement for each domestic or foreign LLC or LP that is a party to the merger:
“The plan of merger has been approved by the laws of the jurisdiction of formation of each organization that is a party to the merger and by the governing documents of those organizations.”
- Persons using an SOS certificate of formation form for a domestic filing entity created pursuant to a plan of merger often fail to include the additional statement regarding the entity’s formation pursuant to a plan of merger, which is required under section 3.005(a)(7) of the BOC. If using an SOS form the additional required statement may be set forth as additional text in the “Supplemental Provisions/Information” section of the promulgated form.
- Pursuant to section 3.006, the formation and existence of a domestic filing entity created pursuant to a plan of merger takes effect and commences on the effectiveness of the merger. Consequently, the certificate of formation of a domestic filing entity created pursuant to the plan of merger cannot have an effective date that differs from the effective date of the articles/certificate of merger.
- Pre-BOC entities must comply with the conversion provisions in the Texas Business Corporation Act, the Texas Limited Liability Company Act, the Texas Revised Limited Partnership Act, and the Texas Revised Partnership Act.
- The filing scheme for conversion is similar for all of the different types of entities and involves filing of articles of conversion with the secretary of state under both the statute applicable to the converting entity as well as the statute applicable to the converted entity. The Acts speak of the converting entity as the entity before conversion with the converted entity being the entity after conversion. The organizational documents for the converted entity will appear in the plan of conversion. Note that the BOC will apply to the converted domestic entity and its certificate of formation for all conversions filed with this office on or after January 1, 2006.
- Like a plan of merger, the plan of conversion can be, but is not required to be filed with the articles of conversion. In lieu of filing the plan, the converted entity may include a statement in the articles/certificate of conversion certifying:
(1) that the plan has been approved;
(2) that the plan is on file at the principal place of business of the converting entity and the address thereof, and that the plan will be on file from and after conversion at the principal place of business of the converted entity and the address thereof; and
(3) that a copy of the plan will be furnished by the converted entity on written request and without cost to any shareholder or comparable interest holder of the converting or converted entity
- The articles/certificate of conversion also must contain a statement that the approval of the plan of conversion was duly authorized by all action required by the laws under which the converting entity was incorporated, formed, or organized and by its constituent/governing documents.
- While the organizational documents of the converted entity are included as part of the plan of conversion and are not required to be filed independently, the statutes anticipate that separate organizational documents for any domestic entity formed by conversion (other than general partnerships) will be submitted with the articles of conversion. This will allow the converted domestic entity to request and obtain copies of the organizational documents without the necessity of obtaining copies of the articles and plan of conversion.
- If a converting entity is a taxpayer under the franchise tax statutes, all franchise taxes have to be paid. In the alternative, a statement may be included in the articles of conversion that the converted entity will be liable for the payment of all franchise taxes.
- The conversion provisions apply to domestic as well as foreign entities. The foreign entities, of course, must have the ability to convert under the laws of their home jurisdiction.
- A foreign entity that has a certificate of authority that converts to a domestic filing entity must file a termination of its certificate of authority. (See for example, article 8.14C of the Texas Business Corporation Act and sec. 9.011(d) BOC.)
- If a domestic entity converts to a foreign filing entity and the foreign entity will be transacting business in Texas, the converted entity will be required to file an application for registration under the statutes applicable to the converted entity.
- Under the BOC, a foreign filing entity that converts to another foreign entity may file an amendment to its application for registration in order to succeed to the registration of the original foreign filing entity.
- Unlike the multiple provisions in prior law, the conversion provisions in chapter 10 of the BOC are applicable to all entities. Section 4.151 provides for one filing fee for the certificate of conversion, plus the fee for filing the certificate of formation for the converted domestic entity.
- The conversion provisions are not applicable when a limited liability company is changing its purpose to come under the provisions relating to professional limited liability companies and vice versa. Articles/certificate of amendment are sufficient to effectuate this change as there is not a change to the type of entity since the Texas Limited Liability Company Act is applicable to both. This principle holds true for BOC-entities as well.b
- Failure to ensure tax clearance for the converting entity by either including the appropriate tax certificate or by including a statement relating to the payment of such taxes by the converted entity.
- Failure to include additional statements relating to the conversion in the formation document of the converted entity is a very frequent error. The formation document of a converted entity must include: (1) a statement that the entity is being formed pursuant to a plan of conversion; and (2) the name, address, date of formation, and prior form of organization and jurisdiction of organization of the converting entity.
- Both the BOC and prior law require the secretary of state to determine that a merging or converting entity subject to franchise tax has paid all taxes due before the merger or conversion can be accepted and filed.
- The secretary of state suggests two alternatives to avoid last minute refusal to file the merger or conversion for tax reasons:
- Submit the merger or conversion with a certificate of account status from the comptroller of public accounts for each merging or converting taxable entity (currently corporation and LLC). The certificate of account status must specifically indicate that it is for the purpose of merger or conversion and will require the filing of a final tax return for any merging or converting entity; or
- Include in the plan of merger or conversion, or in the alternative statement provided in lieu of a plan of merger or conversion, a statement that one or more of the surviving, new or acquiring entities will be responsible for the payment of all fees and franchise taxes and that all of such surviving, new or acquiring domestic or foreign entities will be obligated to pay any fees and franchise taxes if not timely filed.
- There are several SOS forms that relate to merger transactions of BOC entities. SOS form 621 may be used to effect a divisional merger of a Texas BOC filing entity. SOS form 622 may be used to effect a merger of one or more Texas BOC filing entities with one or more organizations. SOS form 623 may be used to effect a merger of a subsidiary entity into a parent organization. SOS form 624 may be used to effect a merger when each party to the merger is a BOC nonprofit corporation. Please take care in selecting the correct form for submission.
- Although the merger provisions of the BOC are modeled on prior law, use of the merger forms promulgated by the secretary of state is not recommended for use by non-BOC entities or for cross-statutory transactions. For example, the combination and divisive merger forms do not include a field for provision of information required under article 5.04A(3) and (4) of the Texas Business Corporation Act.
- SOS merger forms do not include a plan of merger form. The plan of merger may be attached to the certificate of merger form or the alternative statements contained within the form may be checked and completed.
- SOS merger forms also do not include a form for the creation of any domestic filing entity to be created pursuant to a plan of merger. If the plan of merger results in the creation of a domestic filing entity, please remember that the certificate of formation of the domestic filing entity created pursuant to the plan of merger must contain a statement that the entity is being formed under a plan of merger.
- SOS conversion forms are compliant with the provisions of the BOC and are not designed for cross-statutory transactions. The forms are entity specific: SOS forms 631 to 634 are used when the converting entity is a for-profit or professional corporation; SOS forms 635 to 638 are used when the converting entity is a limited liability company, and SOS forms 641 to 644 are used when the converting entity is a limited partnership. Please note that the secretary of state has not promulgated forms for the specific purpose of converting or “re-domesticating” a foreign entity to a Texas entity of the same entity type or for converting a domestic general partnership to a domestic filing entity.
- SOS conversion forms do not include a plan of conversion or a certificate of formation for a converted entity that is to be a domestic filing entity. When drafting the certificate of formation of a converted entity that is a domestic filing entity, remember to include the additional statements required under section 3.005(a)(7) of the BOC.
- The computation of filing fees for merger and conversion transactions between multiple entity types under prior law was complicated by the need to impose the fee assessed under the various statutes governing the transaction. The BOC simplifies the filing fees for merger and conversion transactions by imposing a standard common fee.
- The fee for filing a merger transaction is a common fee of $300 for all entities, other than nonprofit corporations or cooperative associations. For example, the merger of a Nevada for-profit corporation with and into a Texas limited partnership is $300.
- In addition, a certificate of merger that creates a new domestic filing entity also must include the filing fee for the formation of the newly created domestic filing entity. Consequently, the filing fee for a certificate of merger merging a domestic limited liability company and a foreign for-profit corporation that creates a domestic limited partnership is $1050 ($300 for the certificate of merger and $750 for the certificate of formation of the domestic limited partnership).
- The fee for filing a conversion is a common fee of $300, plus the fee imposed for the certificate of formation of the converted entity when the converted entity is a domestic filing entity. For example, the total fee for filing the conversion of a foreign LLC to a Texas for-profit corporation is $600 ($300 for the conversion and $300 for the formation fee).
- Under current law, a nonprofit corporation may merge only with other domestic or foreign nonprofit corporations. Although the BOC has more permissive merger provisions for nonprofit corporations, certain restrictions and limitations still apply.
- A nonprofit corporation may not merge into another entity if, the nonprofit corporation would, because of the merger, lose or impair its charitable status
- One or more domestic or foreign for-profit entities or non-code organizations may merge into one or more domestic nonprofit corporations if the nonprofit corporations continue as the surviving entity or entities.
- A nonprofit corporation may merge with a foreign for-profit entity, but only if the domestic nonprofit corporation continues as the surviving entity.
- One or more nonprofit corporations and non-code organizations may merge into one or more foreign nonprofit entities that continue as the surviving entity or entities.
- The fee for filing a merger transaction where the only parties to the merger are nonprofit corporations or cooperative associations is $50. The fee for filing a merger transaction of a nonprofit corporation and a for-profit entity is $300.
- The Texas Non-Profit Corporation Act was not amended to permit conversion of a non-profit corporation; consequently prior to the BOC a domestic non-profit corporation could not convert to a foreign non-profit corporation or other entity. A domestic for-profit corporation, limited liability company or limited partnership could convert to a Texas non-profit corporation by filing articles of conversion pursuant to the applicable conversion provisions and separately filing the articles of incorporation creating the domestic non-profit corporation under the provisions of the Texas Non-Profit Corporation Act. The BOC specifically provides for the creation of a Texas nonprofit corporation by conversion. However, please note that although the BOC permits the creation of a domestic nonprofit corporation by conversion, section 10.108 of the BOC prohibits the conversion of a domestic nonprofit corporation into a for-profit entity.
- Under the Texas Limited Liability Company Act and the Texas Revised Limited Partnership Act, there is no filing required with the secretary of state to evidence an interest exchange in a limited liability company or a limited partnership. However, under the provisions of the BOC, a certificate of exchange is required to be filed with the secretary of state if an ownership interest or membership interest in any filing entity is to be acquired in the interest exchange. The filing fee for an interest exchange is $300.