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SB-399 Business organizations: conversions.(2001-2002)

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SB399:v91#DOCUMENT

Senate Bill No. 399
CHAPTER 480

An act to amend Sections 407, 601, 603, 1001, 2115, 15677.2, 15677.3, 15677.6, 15677.7, 15677.8, 15677.9, 16902, 16903, 16904, 16905, 16906, 16907, 16908, 16909, 17540.2, 17540.3, 17540.6, 17540.7, 17540.8, and 25005.1 of, to add Sections 161.9 and 1313 to, and to add Chapter 11.5 (commencing with Section 1150) to Division 1 of Title 1 of, the Corporations Code, and to add and repeal Section 12184 of the Government Code, relating to business organizations.

[ Filed with Secretary of State  September 12, 2002. Approved by Governor  September 11, 2002. ]

LEGISLATIVE COUNSEL'S DIGEST


SB 399, Ackerman. Business organizations: conversions.
Existing law provides for the creation of various forms of business organizations, including various forms of partnerships, corporations, and limited liability companies, and provides for conversion of certain of these forms of business organizations, other than corporations, into other forms of business organizations. Under existing law, a business organization is required to file specified documents with the Secretary of State. The Secretary of State is authorized to charge a fee in connection with the filing that is paid into the Secretary of State’s Business Fees Fund.
This bill would establish procedures for the conversion of California corporations into domestic limited liability companies, limited partnerships, or general partnerships. The bill would also establish procedures for the formation of a California corporation upon the conversion of a foreign or domestic limited liability company, limited partnership, or general partnership or upon the conversion of a foreign corporation. The bill would impose a fee of $250 for the conversion of an entity under these provisions, which would be decreased to $150 on January 1, 2005.
This bill would incorporate additional changes to Section 25005.1 of the Corporations Code made by SB 1926 if it is enacted prior to this bill.

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


SECTION 1.

 Section 161.9 is added to the Corporations Code, to read:

161.9.
 “Conversion” means a conversion pursuant to Chapter 11.5 (commencing with Section 1150).

SEC. 2.

 Section 407 of the Corporations Code is amended to read:

407.
 A corporation may, but is not required to, issue fractions of a share originally or upon transfer. If it does not issue fractions of a share, it shall in connection with any original issuance of shares (a) arrange for the disposition of fractional interests by those entitled thereto, (b) pay in cash the fair value of fractions of a share as of the time when those entitled to receive those fractions are determined or (c) issue scrip or warrants in registered form, as certificated securities or uncertificated securities, or bearer form as certificated securities, which shall entitle the holder to receive a certificate for a full share upon the surrender of the scrip or warrants aggregating a full share; provided, however, that if the fraction of a share that any person would otherwise be entitled to receive in a merger, conversion, or reorganization is less than one-half of 1 percent of the total shares that person is entitled to receive, a merger, conversion, or reorganization agreement may provide that fractions of a share will be disregarded or that shares issuable in the merger or conversion will be rounded off to the nearest whole share; and provided, further, that a corporation may not pay cash for fractional shares if that action would result in the cancellation of more than 10 percent of the outstanding shares of any class. A determination by the board of the fair value of fractions of a share shall be conclusive in the absence of fraud. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon and to participate in any of the assets of the corporation in the event of liquidation. The board may cause scrip or warrants to be issued subject to the condition that they shall become void if not exchanged for full shares before a specified date or that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holder of the scrip or warrants or any other condition that the board may impose.

SEC. 3.

 Section 601 of the Corporations Code is amended to read:

601.
 (a) Whenever shareholders are required or permitted to take any action at a meeting a written notice of the meeting shall be given not less than 10 (or, if sent by third-class mail, 30) nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. That notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters that the board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of subdivision (f) any proper matter may be presented at the meeting for that action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.
(b) Notice of a shareholders’ meeting or any report shall be given either personally or by first-class mail, or, in the case of a corporation with outstanding shares held of record by 500 or more persons (determined as provided in Section 605) on the record date for the shareholders’ meeting, notice may be sent third-class mail, or other means of written communication, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any notice or report in accordance with the provisions of this division, executed by the secretary, assistant secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report.
If any notice or report addressed to the shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice or report to all other shareholders.
(c) Upon request in writing to the chairperson of the board, president, vice president or secretary by any person (other than the board) entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the persons entitled to call the meeting may give the notice or the superior court of the proper county shall summarily order the giving of the notice, after notice to the corporation giving it an opportunity to be heard. The procedure provided in subdivision (c) of Section 305 shall apply to that application. The court may issue orders as may be appropriate, including, without limitation, orders designating the time and place of the meeting, the record date for determination of shareholders entitled to vote and the form of notice.
(d) When a shareholders’ meeting is adjourned to another time or place, unless the bylaws otherwise require and except as provided in this subdivision, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.
(e) The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All those waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at the meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by this division to be included in the notice but not so included, if the objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, unless otherwise provided in the articles or bylaws, except as provided in subdivision (f).
(f) Any shareholder approval at a meeting, other than unanimous approval by those entitled to vote, pursuant to Section 310, 902, 1152, 1201, 1900 or 2007 shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice.

SEC. 4.

 Section 603 of the Corporations Code is amended to read:

603.
 (a) Unless otherwise provided in the articles, any action that may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote thereon were present and voted.
(b) Unless the consents of all shareholders entitled to vote have been solicited in writing,
(1) Notice of any shareholder approval pursuant to Section 310, 317, 1152, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least 10 days before the consummation of the action authorized by that approval, and
(2) Prompt notice shall be given of the taking of any other corporate action approved by shareholders without a meeting by less than unanimous written consent,
to those shareholders entitled to vote who have not consented in writing. Subdivision (b) of Section 601 applies to that notice.
(c) Any shareholder giving a written consent, or the shareholder’s proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not do so thereafter. The revocation is effective upon its receipt by the secretary of the corporation.
(d) Notwithstanding subdivision (a), directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors; provided that the shareholders may elect a director to fill a vacancy, other than a vacancy created by removal, by the written consent of a majority of the outstanding shares entitled to vote.

SEC. 5.

 Section 1001 of the Corporations Code is amended to read:

1001.
 (a) A corporation may sell, lease, convey, exchange, transfer, or otherwise dispose of all or substantially all of its assets when the principal terms are approved by the board, and, unless the transaction is in the usual and regular course of its business, approved by the outstanding shares (Section 152), either before or after approval by the board and before or after the transaction. A transaction constituting a reorganization (Section 181) is subject to the provisions of Chapter 12 (commencing with Section 1200) and not this section (other than subdivision (d)). A transaction constituting a conversion (Section 161.9) is subject to the provisions of Chapter 11.5 (commencing with Section 1150) and not this section.
(b) Notwithstanding approval of the outstanding shares (Section 152), the board may abandon the proposed transaction without further action by the shareholders, subject to the contractual rights, if any, of third parties.
(c) The sale, lease, conveyance, exchange, transfer or other disposition may be made upon those terms and conditions and for that consideration as the board may deem in the best interests of the corporation. The consideration may be money, securities, or other property.
(d) If the acquiring party in a transaction pursuant to subdivision (a) of this section or subdivision (g) of Section 2001 is in control of or under common control with the disposing corporation, the principal terms of the sale must be approved by at least 90 percent of the voting power of the disposing corporation unless the disposition is to a domestic or foreign corporation or other business entity in consideration of the nonredeemable common shares or nonredeemable equity securities of the acquiring party or its parent.
(e) Subdivision (d) does not apply to any transaction if the Commissioner of Corporations, the Commissioner of Financial Institutions, the Insurance Commissioner or the Public Utilities Commission has approved the terms and conditions of the transaction and the fairness of those terms and conditions pursuant to Section 25142, Section 696.5 of the Financial Code, Section 838.5 of the Insurance Code, or Section 822 of the Public Utilities Code.

SEC. 6.

 Chapter 11.5 (commencing with Section 1150) is added to Division 1 of Title 1 of the Corporations Code, to read:
CHAPTER  11.5. Conversions

1150.
 For purposes of this chapter, the following definitions shall apply:
(a) “Converted corporation” means a corporation that results from a conversion of an other business entity or a foreign other business entity or a foreign corporation pursuant to Section 1157.
(b) “Converted entity” means a domestic other business entity 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 pursuant to this chapter.
(d) “Converting entity” means an other business entity or a foreign other business 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 other business entity” has the meaning provided in Section 171.07.
(g) “Other business entity” has the meaning provided in Section 174.5.

1151.
 (a) A corporation may be converted into a domestic other business entity 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 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.

1152.
 (a) A corporation that desires to convert to a domestic other business entity 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 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 articles of organization and operating agreement, 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 of outstanding shares 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 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 (2) at the office at which records are to be kept under Section 15614 if the converted entity is a domestic limited partnership or at the office at which records are to be kept under Section 17057 if the converted entity is a domestic limited liability company. 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.

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, the converting corporation shall cause the filing of all documents required by law 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.
(b) A copy of the statement of partnership authority, certificate of limited partnership, or articles of organization 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.

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.
(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 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.
(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) No statement or certificate of conversion shall be filed with the Secretary of State until there has been filed by or on behalf of the converting corporation the certificate of satisfaction of the Franchise Tax Board that all taxes imposed by the Bank and Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) have been paid or secured. Notwithstanding the foregoing, if the converted entity is a domestic partnership, domestic limited partnership or domestic limited liability company, the Secretary of State shall file the statement or certificate of conversion without the certificate of satisfaction of the Franchise Tax Board and shall notify the Franchise Tax Board of the conversion. 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 Bank and 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.

1156.
 (a) Whenever a corporation or other business entity having any real property in this state converts into a corporation or an other business entity pursuant to the laws of this state or of the state or place in which the corporation or other business entity was organized, and the laws of the state or place of organization, including this state, of the converting corporation or other converting entity provide substantially that the conversion vests in the converted corporation or other converted entity all the real property of the converting corporation or other converting entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the converting corporation or other converting entity is located of either (1) a certificate of conversion or a statement of partnership authority, certificate of limited partnership or articles of organization containing a statement of conversion complying with Section 1155 and certified on or after the effective date of the conversion by the Secretary of State or (2) a copy of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other comparable organizing document evidencing the creation of a foreign other business entity or foreign corporation, containing a statement of conversion, meeting the requirements of subdivision (b) and certified on or after the effective date of the conversion by the Secretary of State or any other authorized public official of the state or place pursuant to the laws of which the converted entity is organized, shall evidence record ownership in the converted corporation or other converted entity of all interest of the converting corporation or other converting entity in and to the real property located in that county.
(b) A filed and, if appropriate, recorded certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other comparable organizing document evidencing the formation of a foreign other business entity or a foreign corporation referred to in clause (2) of subdivision (a) above which contains a statement of conversion, stating the name of the converting corporation or other converting entity in whose name property was held before the conversion and the name of the converted entity or converted corporation, but not containing all of the other information required by Section 1155, operates with respect to the converted entity named to the extent provided in subdivision (a).
(c) Recording of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles of incorporation, or other comparable organizing document evidencing the creation of an other business entity or a corporation, containing a statement of conversion, in accordance with subdivision (a), shall create, in favor of bona fide purchasers or encumbrances for value, a conclusive presumption that the conversion was validly completed.

1157.
 (a) An other business entity or a foreign other business entity or a 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 other business entity or a foreign other business entity or a 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 other business entity or a foreign other business entity or a 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 other business entity or a foreign other business entity or a 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 15696 or 17455 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.

1158.
 (a) An entity that converts into another entity pursuant to this chapter is for all purposes other than for the purposes of Part 10 (commencing with Section 17001) of, Part 10.20 (commencing with Section 18401) of, and Part 11 (commencing with Section 23001) of, Division 2 of the Revenue and Taxation Code, the same entity that existed before the conversion.
(b) Upon a conversion taking effect, all of the following apply:
(1) All the rights and property, whether real, personal, or mixed, of the converting entity or converting corporation are vested in the converted entity or converted corporation.
(2) All debts, liabilities, and obligations of the converting entity or converting corporation continue as debts, liabilities, and obligations of the converted entity or converted corporation.
(3) All rights of creditors and liens upon the property of the converting entity or converting corporation shall be preserved unimpaired and remain enforceable against the converted entity or converted corporation to the same extent as against the converting entity or converting corporation as if the conversion had not occurred.
(4) Any action or proceeding pending by or against the converting entity or converting corporation may be continued against the converted entity or converted corporation as if the conversion had not occurred.
(c) A shareholder of a converting corporation is liable for:
(1) All obligations of the converting corporation for which the shareholder was personally liable before the conversion, but only to the extent that the shareholder was personally liable for the obligations of the converting corporation before the conversion.
(2) All obligations of the converted entity incurred after the conversion takes effect if (A) the shareholder becomes a general partner of a converted entity that is a general or limited partnership and, as a general partner, has liability under the laws under which the converted entity is organized or under the converted entity’s governing documents or (B) the shareholder becomes a holder of other interests in the converted entity and, as a holder, has liability under the laws under which the converted entity is organized or under the converted entity’s governing documents.
(d) A shareholder of a converted corporation remains liable for any and all obligations of the converting entity for which the shareholder was personally liable before the conversion, but only to the extent that the shareholder was personally liable for the obligations of the converting entity prior to the conversion.
(e) If a party to a transaction with a converted corporation that converted from a partnership reasonably believes when entering into the transaction that a shareholder of the converted corporation continues to be a general partner of the converting entity after the conversion is effective, and the shareholder was a general partner of the partnership that converted into the converted corporation, the shareholder is liable for an obligation incurred by the converted corporation within 90 days after the conversion takes effect. The shareholder’s liability for all other obligations of the converted corporation incurred after the conversion takes effect is that of a shareholder of a corporation.
(f) The converted entity shall cause written notice of the conversion to be given by mail within 90 days after the effective date of the conversion to all known creditors and claimants whose addresses appear on the records of the converting entity. Failure to comply with this subdivision shall not affect the validity of the conversion, extend the 90-day period set forth in subdivision (e), or otherwise affect the rights of a creditor or claimant under this section.

1159.
 The shareholders of a converting corporation shall have all of the rights under Chapter 13 (commencing with Section 1300) of the shareholders of a corporation involved in a reorganization requiring the approval of its outstanding shares (Section 152), and the converting corporation shall have all of the obligations under Chapter 13 (commencing with Section 1300) of a corporation involved in the reorganization. Solely for purposes of applying the provisions of Chapter 13 (and not for purposes of Chapter 12), a conversion pursuant to Section 1151 or 1157 shall be deemed to constitute a reorganization.

1160.
 (a) Notwithstanding any other provision of law, the Secretary of State shall charge an entity a fee not to exceed two hundred fifty dollars ($250) for its conversion made under this chapter.
(b) This section shall remain in effect only until January 1, 2005, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2005, deletes or extends that date.

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.

SEC. 7.

 Section 1313 is added to the Corporations Code, to read:

1313.
 A conversion pursuant to Chapter 11.5 (commencing with Section 1150) shall be deemed to constitute a reorganization for purposes of applying the provisions of this chapter, in accordance with and to the extent provided in Section 1159.

SEC. 8.

 Section 2115 of the Corporations Code is amended to read:

2115.
 (a) A foreign corporation (other than a foreign association or foreign nonprofit corporation but including a foreign parent corporation even though it does not itself transact intrastate business) is subject to the requirements of subdivision (b) commencing on the date specified in subdivision (d) and continuing until the date specified in subdivision (e) if:
(1) the average of the property factor, the payroll factor, and the sales factor (as defined in Sections 25129, 25132, and 25134 of the Revenue and Taxation Code) with respect to it is more than 50 percent during its latest full income year and
(2) more than one-half of its outstanding voting securities are held of record by persons having addresses in this state appearing on the books of the corporation on the record date for the latest meeting of shareholders held during its latest full income year or, if no meeting was held during that year, on the last day of the latest full income year. The property factor, payroll factor, and sales factor shall be those used in computing the portion of its income allocable to this state in its franchise tax return or, with respect to corporations the allocation of whose income is governed by special formulas or that are not required to file separate or any tax returns, which would have been so used if they were governed by this three-factor formula. The determination of these factors with respect to any parent corporation shall be made on a consolidated basis, including in a unitary computation (after elimination of intercompany transactions) the property, payroll, and sales of the parent and all of its subsidiaries in which it owns directly or indirectly more than 50 percent of the outstanding shares entitled to vote for the election of directors, but deducting a percentage of the property, payroll, and sales of any subsidiary equal to the percentage minority ownership, if any, in the subsidiary. For the purpose of this subdivision, any securities held to the knowledge of the issuer in the names of broker-dealers, nominees for broker-dealers (including clearing corporations), or banks, associations, or other entities holding securities in a nominee name or otherwise on behalf of a beneficial owner (collectively “nominee holders”), shall not be considered outstanding. However, if the foreign corporation requests all nominee holders to certify, with respect to all beneficial owners for whom securities are held, the number of shares held for those beneficial owners having addresses (as shown on the records of the nominee holder) in this state and outside of this state, then all shares so certified shall be considered outstanding and held of record by persons having addresses either in this state or outside of this state as so certified, provided that the certification so provided shall be retained with the record of shareholders and made available for inspection and copying in the same manner as is provided in Section 1600 with respect to that record. A current list of beneficial owners of a foreign corporation’s securities provided to the corporation by one or more nominee holders or their agent pursuant to the requirements of Rule 14b-1(b)(3) or 14b-2(b)(3) as adopted on January 6, 1992, promulgated under the Securities Exchange Act of 1934, shall constitute an acceptable certification with respect to beneficial owners for the purposes of this subdivision.
(b) Except as provided in subdivision (c), the following chapters and sections of this division shall apply to a foreign corporation as defined in subdivision (a) (to the exclusion of the law of the jurisdiction in which it is incorporated):
Chapter 1 (general provisions and definitions), to the extent applicable to the following provisions;
Section 301 (annual election of directors);
Section 303 (removal of directors without cause);
Section 304 (removal of directors by court proceedings);
Section 305, subdivision (c) (filling of director vacancies where less than a majority in office elected by shareholders);
Section 309 (directors’ standard of care);
Section 316 (excluding paragraph (3) of subdivision (a) and paragraph (3) of subdivision (f)) (liability of directors for unlawful distributions);
Section 317 (indemnification of directors, officers, and others);
Sections 500 to 505, inclusive (limitations on corporate distributions in cash or property);
Section 506 (liability of shareholder who receives unlawful distribution);
Section 600, subdivisions (b) and (c) (requirement for annual shareholders’ meeting and remedy if same not timely held);
Section 708, subdivisions (a), (b), and (c) (shareholder’s right to cumulate votes at any election of directors);
Section 710 (supermajority vote requirement);
Section 1001, subdivision (d) (limitations on sale of assets);
Section 1101 (provisions following subdivision (e)) (limitations on mergers);
Section 1151 (first sentence only) (limitations on conversions);
Section 1152 (requirements of conversions);
Chapter 12 (commencing with Section 1200) (reorganizations);
Chapter 13 (commencing with Section 1300) (dissenters’ rights);
Sections 1500 and 1501 (records and reports);
Section 1508 (action by Attorney General);
Chapter 16 (commencing with Section 1600) (rights of inspection).
(c) This section does not apply to any corporation (1) with outstanding securities listed on the New York Stock Exchange or the American Stock Exchange, or (2) with outstanding securities designated as qualified for trading on the Nasdaq National Market (or any successor thereto) of the Nasdaq Stock Market operated by the Nasdaq Stock Market Inc., or (3) if all of its voting shares (other than directors’ qualifying shares) are owned directly or indirectly by a corporation or corporations not subject to this section.
(d) For purposes of subdivision (a), the requirements of subdivision (b) shall become applicable to a foreign corporation only upon the first day of the first income year of the corporation (1) commencing on or after the 135th day of the income year immediately following the latest income year with respect to which the tests referred to in subdivision (a) have been met or (2) commencing on or after the entry of a final order by a court of competent jurisdiction declaring that those tests have been met.
(e) For purposes of subdivision (a), the requirements of subdivision (b) shall cease to be applicable to a foreign corporation (1) at the end of the first income year of the corporation immediately following the latest income year with respect to which at least one of the tests referred to in subdivision (a) is not met or (2) at the end of the income year of the corporation during which a final order has been entered by a court of competent jurisdiction declaring that one of those tests is not met, provided that a contrary order has not been entered before the end of the income year.
(f) Any foreign corporation that is subject to the requirements of subdivision (b) shall advise any shareholder of record, any officer, director, employee, or other agent (within the meaning of Section 317) and any creditor of the corporation in writing, within 30 days of receipt of written request for that information, whether or not it is subject to subdivision (b) at the time the request is received. Any party who obtains a final determination by a court of competent jurisdiction that the corporation failed to provide to the party information required to be provided by this subdivision or provided the party information of the kind required to be provided by this subdivision that was incorrect, then the court, in its discretion, shall have the power to include in its judgment recovery by the party from the corporation of all court costs and reasonable attorneys’ fees incurred in that legal proceeding to the extent they relate to obtaining that final determination.

SEC. 9.

 Section 15677.2 of the Corporations Code is amended to read:

15677.2.
 (a) A limited partnership may be converted into another business entity or a foreign other business entity or a foreign limited partnership pursuant to this article if, (1) pursuant to a conversion into a domestic or foreign partnership or limited liability company or into a foreign limited partnership, each of the partners of the converting limited partnership receives a percentage interest in the profits and capital of the converted entity equal to that partner’s percentage interest in profits and capital of the converting limited partnership as of the effective time of the conversion, and (2) pursuant to a conversion into an other business entity or foreign other business entity not specified in clause (1) above, both of the following occur: (A) each limited partnership interest of the same class is treated equally with respect to any distribution of cash, property, rights, interests, or securities of the converted entity, unless all limited partners of the class consent, and (B) the nonredeemable limited partnership interests of the converting limited partnership are converted only into nonredeemable interests or securities of the converted entity, unless all holders of the nonredeemable interests consent.
(b) The conversion of a limited partnership to an other business entity or a foreign other business entity or a foreign limited partnership may be effected only if both of the following conditions are satisfied:
(1) The law under which the converted entity will exist expressly permits the formation of that entity pursuant to a conversion.
(2) The limited partnership complies with all other requirements of any other law that applies to conversion to the converted entity.

SEC. 10.

 Section 15677.3 of the Corporations Code is amended to read:

15677.3.
 (a) A limited partnership that desires to convert to an other business entity or a foreign other business entity or a foreign limited partnership 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 place of the organization of the converted entity and of the converting limited partnership and the name of the converted entity after conversion.
(3) The manner of converting the limited and general partnership interests of each of the partners into shares of, securities of, or interests in, the converted entity.
(4) The provisions of the governing documents for the converted entity, including the partnership agreement, limited liability company articles of organization and operating agreement, or 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 parties.
(b) The plan of conversion shall be approved by all general partners of the converting limited partnership and by a majority in interest of each class of limited partners of the converting limited partnership, unless a greater or lesser approval is required by the partnership agreement of the converting limited partnership. However, if the limited partners of the limited partnership would become personally liable for any obligations of the converted entity as a result of the conversion, the plan of conversion shall be approved by all of the limited partners of the converting limited partnership, unless the plan of conversion provides that all limited partners will have dissenters’ rights as provided in Article 7.6 (commencing with Section 15679.1).
(c) Upon the effectiveness of the conversion, all partners of the converting limited partnership, except those that exercise dissenters’ rights as provided in Article 7.6 (commencing with Section 15679.1), shall be deemed parties to any governing documents for the converted entity adopted as part of the plan of conversion, irrespective of whether or not the partner has executed the plan of conversion or the 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.
(d) Notwithstanding its prior approval, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by all general partners of the converting limited partnership and, if the amendment changes any of the principal terms of the plan of conversion, the amendment is approved by the limited partners of the converting limited partnership in the same manner and to the same extent as required for the approval of the original plan of conversion.
(e) The general partners of a converting limited partnership may, by unanimous approval at any time before the conversion is effective, in their discretion, abandon a conversion, without further approval by the limited partners, subject to the contractual rights of third parties other than limited partners.
(f) The converted entity shall keep the plan of conversion at the principal place of business of the converted entity if the converted entity is a domestic partnership or foreign other business entity, at the principal executive office of, or registrar or transfer agent of, the converted entity, if the converted entity is a domestic corporation, or at the office at which records are to be kept under Section 17057 if the converted entity is a domestic limited liability company. Upon the request of a partner of a converting limited partnership, the authorized person on behalf of the converted entity shall promptly deliver to the partner or the holder of shares, interests, or other securities, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a partner of the rights provided in this subdivision shall be unenforceable.

SEC. 11.

 Section 15677.6 of the Corporations Code is amended to read:

15677.6.
 (a) Upon conversion of a limited partnership one of the following applies:
(1) If the limited partnership is converting into a domestic limited liability company, a statement of conversion shall be completed on the articles of organization for the converted entity.
(2) If the limited partnership 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 limited partnership is converting into a domestic corporation, a statement of conversion shall be completed on the articles of incorporation for the converted entity.
(4) If the limited partnership is converting to a foreign limited partnership or foreign other business entity, a certificate of conversion shall be filed with the Secretary of State.
(b) Any certificate or statement of conversion shall be executed and acknowledged by all general partners, unless a lesser number is provided in the certificate of limited partnership, and shall set forth all of the following:
(1) The name and the Secretary of State’s file number of the converting limited partnership.
(2) A statement that the principal terms of the plan of conversion were approved by a vote of the partners, which equaled or exceeded the vote required under Section 15677.3, specifying each class entitled to vote and the percentage vote required of each class.
(3) The form of organization of the converted entity.
(4) The mailing address of the converted entity’s agent for service of process and the chief executive office of the converted entity.
(c) The filing with the Secretary of State of a certificate of conversion or a statement of partnership authority, articles of organization, or articles or certificate of incorporation containing a statement of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting limited partnership and no converting limited partnership that has made the filing is required to file a certificate of dissolution or a certificate of cancellation under Section 15623 as a result of that conversion.

SEC. 12.

 Section 15677.7 of the Corporations Code is amended to read:

15677.7.
 (a) Whenever a limited partnership or other business entity having any real property in this state converts into a limited partnership or an other business entity pursuant to the laws of this state or of the state or place in which the limited partnership or other business entity was organized, and the laws of the state or place of organization, including this state, of the converting limited partnership or other converting entity provide substantially that the conversion vests in the converted limited partnership or other converted entity all the real property of the converting limited partnership or other converting entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the converting limited partnership or other converting entity is located of either (1) a certificate of conversion or statement of partnership authority, a certificate of limited partnership, articles of incorporation, or articles of organization complying with Section 15677.6, in the form prescribed and certified by the Secretary of State, or (2) a copy of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate or document evidencing the creation of a foreign other business entity or foreign limited partnership by conversion, containing a statement of conversion, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the conversion is effected, shall evidence record ownership in the converted limited partnership or other converted entity of all interest of the converting limited partnership or other converting entity in and to the real property located in that county.
(b) A filed and, if appropriate, recorded certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of a foreign other business entity or foreign limited partnership by conversion, containing a statement of conversion, filed pursuant to subdivision (a) of Section 15677.6, stating the name of the converting limited partnership or other converting entity in whose name property was held before the conversion and the name of the converted entity or converted limited partnership, but not containing all of the other information required by Section 15677.6, operates with respect to the entities named to the extent provided in subdivision (a).
(c) Recording of a certificate of conversion, or a statement of partnership authority, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of an other business entity or a limited partnership by conversion, containing a statement of conversion, in accordance with subdivision (a), shall create, in favor of bona fide purchasers or encumbrances for value, a conclusive presumption that the conversion was validly completed.

SEC. 13.

 Section 15677.8 of the Corporations Code is amended to read:

15677.8.
 (a) An other business entity or a foreign other business entity or a foreign limited partnership may be converted to a domestic limited partnership pursuant to this article only if the converting entity is authorized by the laws under which it is organized to effect the conversion.
(b) An other business entity or a foreign other business entity or a foreign limited partnership that desires to convert into a domestic limited partnership shall approve a plan of conversion or an 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 other business entity or a foreign other business entity or a foreign limited partnership into a domestic limited partnership shall be approved by the number or percentage of the partners, members, shareholders, or holders of interest of the converting entity as is required by the laws under which that entity is organized, or a greater or lesser percentage, subject to applicable laws, as set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles or certificate of incorporation, or other governing document.
(d) The conversion by an other business entity or a foreign other business entity or a foreign limited partnership into a domestic limited partnership shall be effective under this article at the time the conversion is effective under the laws under which the converting entity is organized as long as a certificate of limited partnership containing a statement of conversion has been filed with the Secretary of State. If the converting entity’s governing law is silent as to the effectiveness of the conversion, the conversion shall be effective upon the completion of all acts required under this title to form a limited partnership.
(e) The filing with the Secretary of State of a certificate of conversion or a certificate of limited partnership containing a statement of conversion pursuant to subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting foreign limited partnership or foreign limited liability company and no converting foreign limited partnership or foreign limited liability company that has made the filing is required to file a certificate of cancellation under Section 15696 or 17455 as a result of that conversion. If a converting other business 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. 14.

 Section 15677.9 of the Corporations Code is amended to read:

15677.9.
 (a) An entity that converts into another entity pursuant to this article is for all purposes the same entity that existed before the conversion.
(b) Upon a conversion taking effect, all of the following apply:
(1) All the rights and property, whether real, personal, or mixed, of the converting entity or converting limited partnership are vested in the converted entity or converted limited partnership.
(2) All debts, liabilities, and obligations of the converting entity or converting limited partnership continue as debts, liabilities, and obligations of the converted entity or converted limited partnership.
(3) All rights of creditors and liens upon the property of the converting entity or converting limited partnership shall be preserved unimpaired and remain enforceable against the converted entity or converted limited partnership to the same extent as against the converting entity or converting limited partnership as if the conversion had not occurred.
(4) Any action or proceeding pending by or against the converting entity or converting limited partnership may be continued against the converted entity or converted limited partnership as if the conversion had not occurred.
(c) A partner of a converting limited partnership is liable for:
(1) All obligations of the converting limited partnership for which the partner was personally liable before the conversion.
(2) All obligations of the converted entity incurred after the conversion takes effect, but those obligations may be satisfied only out of property of the entity if that partner is a limited partner, or a shareholder in a corporation, or unless expressly provided otherwise in the articles of organization or other governing documents, a member of a limited liability company, or a holder of equity securities in an other converted entity if the holders of equity securities in that entity are not personally liable for the obligations of that entity under the law under which the entity is organized or its governing documents.
(d) A partner of a converted limited partnership remains liable for any and all obligations of the converting entity for which the partner was personally liable before the conversion, but only to the extent that the partner was liable for the obligations of the converting entity prior to the conversion.
(e) If the other party to a transaction with the limited partnership reasonably believes when entering the transaction that the limited partner is a general partner, the limited partner is liable for an obligation incurred by the limited partnership within 90 days after the conversion takes effect. The limited partner’s liability for all other obligations of the limited partnership incurred after the conversion takes effect is that of a limited partner.

SEC. 15.

 Section 16902 of the Corporations Code is amended to read:

16902.
 (a) A partnership, other than a registered limited liability partnership, may be converted into a domestic other business entity or a foreign other business entity pursuant to this article if, (1) pursuant to a conversion into a domestic or foreign limited partnership or limited liability company, each of the partners of the converting partnership would receive a percentage interest in the profits and capital of the converted other business entity equal to the partner’s percentage interest in profits and capital of the converting partnership as of the effective time of the conversion, and (2) pursuant to a conversion into an other business entity or foreign other business entity not specified in clause (1) above, each of the partnership interests of the same class is treated equally with respect to any distribution of cash, property, rights, interests, or securities of the converted other business entity unless all partners of the same class consent.
(b) Notwithstanding this section, the conversion of a partnership to a domestic or foreign other business entity may be effected only if: (1) the law under which that domestic or foreign other business entity will exist expressly permits the formation of that other entity pursuant to a conversion; and (2) the partnership complies with any and all other requirements of that other law that applies to conversion of the other business entity.

SEC. 16.

 Section 16903 of the Corporations Code is amended to read:

16903.
 (a) A partnership that desires to convert to a domestic or foreign other business entity shall approve a plan of conversion. The plan of conversion shall state the following:
(1) The terms and conditions of the conversion.
(2) The place of the organization of the converted entity and of the converting partnership and the name of the converted entity after conversion, if different from that of the converting partnership.
(3) The manner of converting the partnership interests of each of the partners into shares of, securities of, or interests in the converted entity.
(4) The provisions of the governing documents for the converted entity, including the limited partnership agreement, limited liability company articles of organization and operating agreement, or articles or certificate of incorporation if the converted entity is a corporation, to which the holders of interest in the converted entity are to be bound.
(5) Any other details or provisions as are required by laws under which the converted entity is organized.
(6) Any other details or provisions that are desired.
(b) The plan of conversion shall be approved by that number or percentage of partners required by the partnership agreement to approve a conversion of the partnership as set forth in the partnership agreement. If the partnership agreement fails to specify the required partner approval for a conversion of the partnership, the plan of conversion shall be approved by that number or percentage of partners required by the partnership agreement to approve an amendment to the partnership agreement unless the conversion effects a change for which the partnership agreement requires a greater number or percentage of partners than that required to amend the partnership agreement, in which case the plan of conversion shall be approved by that greater number or percentage. If the partnership agreement fails to specify the vote required to amend the partnership agreement, the plan of conversion shall be approved by all partners.
(c) If the partnership is converting into a limited partnership, in addition to the approval of the partners as set forth in subdivision (b), the plan of conversion shall be approved by all partners who will become general partners of the converted limited partnership pursuant to the plan of conversion.
(d) All partners of the converting partnership except those that dissociate upon effectiveness of the conversion pursuant to subdivision (e) of Section 16909 shall be deemed parties to any partnership or operating agreement, articles or certificate of incorporation, or organic document for the converted entity adopted as part of the plan of conversion, regardless of whether that partner has executed the plan of conversion or the operating agreement, articles or certificate of incorporation, partnership agreement, or other organic document for the converted entity. Any adoption of a new partnership or operating agreement, articles or certificate of incorporation, or other organic document made pursuant to the foregoing sentence shall be effective at the effective time or date of the conversion.
(e) Notwithstanding its prior approval, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the partnership in the same manner, and by the same number or percentage of partners, as was required for approval of the original plan of conversion.
(f) The partners of a converting partnership may, at any time before the conversion is effective, in their discretion, abandon a conversion, without further approval by the partners, in the same manner, and by the same number or percentage of partners, as was required for approval of the original plan of conversion at any time before the conversion is effective, subject to the contractual rights of third parties.
(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 foreign other business entity or a corporation; or (2) the office at which records are to be kept under Section 15614 if the converted entity is a domestic limited partnership, or at the office at which records are to be kept under Section 17057 if the converted entity is a domestic limited liability company. Upon the request of a partner of a converting partnership, the authorized person on behalf of the converted entity shall promptly deliver to the partner or the holder of interests or other securities, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a partner of the rights provided in this subdivision shall be unenforceable.

SEC. 17.

 Section 16904 of the Corporations Code is amended to read:

16904.
 (a) A conversion into a domestic other business entity shall become effective upon the earliest date that all of the following shall have occurred:
(1) The approval of the plan of conversion by the partners of the converting partnership as provided in Section 16903.
(2) The filing of all documents required by law to create the converted other business entity, which documents shall also contain a statement of conversion, if required under Section 16906.
(3) The effective date, if set forth in the plan of conversion, shall have occurred.
(b) A copy of the certificate of limited partnership, articles of organization, or articles of incorporation, complying with Section 16906, if applicable, duly certified by the Secretary of State, is conclusive evidence of the conversion of the partnership.

SEC. 18.

 Section 16905 of the Corporations Code is amended to read:

16905.
 (a) The conversion of a partnership into a foreign other business entity shall comply with Section 16902.
(b) If the partnership is converting into a foreign other business entity, then the conversion proceedings shall be in accordance with the laws of the state or place of organization of the foreign other business entity and the conversion shall become effective in accordance with that law.
(c) (1) Unless a statement of conversion has been filed to effect the conversion, the converted foreign other business entity shall promptly notify the Secretary of State of the mailing address of its agent for service of process, its chief executive office, and of any change of address. To enforce an obligation of a partnership that has converted to a foreign other business entity, the Secretary of State shall only be the agent for service of process in an action or proceeding against the converted foreign other business 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 no one of the officers, partners, managers, members, or agents of that entity may be located after diligent search, and it is so 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.
(2) 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 the 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.
(3) The Secretary of State shall keep a record of all process served upon the Secretary of State and shall record therein the time of service and the Secretary of State’s action with respect thereto. 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 thereof to the entity, and the forwarding of the process, shall be competent and prima facie evidence of the matters stated therein.

SEC. 19.

 Section 16906 of the Corporations Code is amended to read:

16906.
 (a) If the converting partnership has filed a statement of partnership authority under Section 16303 that is effective at the time of the conversion, then upon conversion to a domestic limited partnership, limited liability company, or corporation, the certificate of limited partnership, articles of organization, or articles of incorporation filed by the converted entity, as applicable, shall contain a statement of conversion, in that form as may be prescribed by the Secretary of State. If the converting partnership has not filed a statement of partnership authority under Section 16303 that is effective at the time of the conversion, upon conversion to a domestic limited partnership, limited liability company, or corporation, the converted entity may, but is not required to file, on its certificate of limited partnership, articles of organization, or articles of incorporation, a statement of conversion. A statement of conversion shall set forth all of the following:
(1) The name and the Secretary of State’s file number, if any, of the converting partnership.
(2) A statement that the principal terms of the plan of conversion were approved by a vote of the partners, which equaled or exceeded the vote required under Section 16903.
(b) A partnership converting to a foreign other business entity that has filed a statement of partnership authority under Section 16303 that is effective at the time of conversion may file a certificate of conversion with the Secretary of State. The certificate of conversion shall contain the following:
(1) The names of the converting partnership and the converted entity.
(2) The street address of the converted entity’s chief executive office and of an office in this state, if any.
(3) The form of organization of the converted entity.
(c) The filing with the Secretary of State of a certificate of limited partnership, articles of organization, or articles of incorporation containing a statement of conversion as set forth in subdivision (a) or a certificate of conversion filed pursuant to subdivision (b) shall have the effect of the filing of a cancellation by the converting partnership of any statement of partnership authority filed by it.

SEC. 20.

 Section 16907 of the Corporations Code is amended to read:

16907.
 (a) Whenever a partnership or other business entity having any real property in this state converts into a partnership or an other business entity pursuant to the laws of this state or of the state or place in which the other business entity was organized, and the laws of the state or place of organization (including this state) of the converting partnership or other business entity provide substantially that the conversion of a converting entity vests in the converted partnership or other business entity all the real property of the converting partnership or converting other business entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the converting partnership or converting other business entity is located of either (1) a certificate of conversion or a certificate of limited partnership, articles of organization, or articles of incorporation, complying with Section 16906, in the form prescribed by the Secretary of State, certified by the Secretary of State, or (2) a copy of a certificate of conversion or a certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of a foreign other business entity by conversion, containing a statement of conversion, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the conversion is effected, shall evidence record ownership in the converted partnership or converted other business entity of all interest of the converting partnership or converting other business entity in and to the real property located in that county.
(b) A filed and, if appropriate, recorded certificate of conversion, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of an other business entity by conversion, containing a statement of conversion, executed and declared to be accurate pursuant to subdivision (c) of Section 16105, stating the name of the converting partnership or converting other business entity in whose name property was held before the conversion and the name of the converted entity, but not containing all of the other information required by Section 16906, operates with respect to the entities named to the extent provided in subdivision (a).
(c) Recording of a certificate of conversion, a certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the creation of another business entity by conversion, containing a statement of conversion, in accordance with Section 16902 shall create, in favor of bona fide purchasers or encumbrancers for value, a conclusive presumption that the conversion was validly completed.

SEC. 21.

 Section 16908 of the Corporations Code is amended to read:

16908.
 (a) A domestic limited partnership, limited liability company, or corporation, or a foreign other business entity may be converted to a domestic partnership pursuant to this article, but only if the converting entity is authorized by the laws under which it is organized to effect the conversion.
(b) An entity that desires to convert into a domestic partnership shall approve a plan of conversion or the instrument that is required to be approved to effect the conversion pursuant to the laws under which the entity is organized.
(c) The conversion of a domestic limited partnership, limited liability company, or corporation, or foreign other business entity shall be approved by the number or percentage of the partners, members, shareholders, or holders of interest of the converting entity as is required by the law under which the entity is organized, or a greater or lesser percentage (subject to applicable laws) as set forth in the limited partnership agreement, articles of organization, operating agreement, or articles or certificate of organization, or other governing document for the converting entity.
(d) The conversion by a domestic limited partnership, limited liability company, or corporation, or a foreign other business entity into a partnership shall be effective under this article at the time that the conversion is effective under the laws under which the converting entity is organized.
(e) The filing with the Secretary of State of a certificate of conversion or a statement of partnership authority containing a statement of conversion pursuant to subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting foreign limited partnership or foreign limited liability company, and no converting foreign limited partnership or foreign limited liability company that has made the filing is required to file a certificate of cancellation under Section 15696 or 17455 as a result of that conversion. If a converting other business 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. 22.

 Section 16909 of the Corporations Code is amended to read:

16909.
 (a) An entity that converts into another entity pursuant to this article is for all purposes the same entity that existed before the conversion.
(b) When a conversion takes effect, all of the following apply:
(1) All the rights and property, whether real, personal, or mixed, of the converting entity remains vested in the converted entity.
(2) All debts, liabilities, and obligations of the converting entity continue as debts, liabilities, and obligations of the converted entity.
(3) All rights of creditors and liens upon the property of the converting entity shall be preserved unimpaired and remain enforceable against the converted entity to the same extent as against the converting entity as if the conversion had not occurred.
(4) Any action or proceeding pending by or against the converting entity may be continued against the converted entity as if the conversion had not occurred.
(c) A partner of a converting partnership is liable for:
(1) All obligations of the converting partnership for which the partner was personally liable before the conversion.
(2) All obligations of the converted entity incurred after the conversion takes effect, but those obligations may be satisfied only out of property of the entity if (A) the converted other business entity is a limited partnership and the partner becomes a limited partner, (B) the converted other business entity is a limited liability company and the partner becomes a member, unless the articles of organization or the operating agreement of the limited liability company provide otherwise, or (C) the converted other business entity is a corporation and the partner becomes a shareholder.
(d) A partner of a partnership that converted from an other business entity is liable for any and all obligations of the converting other business entity for which the partner was personally liable before the conversion, but only to the extent the partner was liable for the obligation of the converting entity prior to the conversion.
(e) A partner of a converting partnership, who does not vote in favor of the conversion and does not agree to become a partner, member, shareholder, or holder of interest of the converted other business entity shall have the right to dissociate from the partnership, as of the date the conversion takes effect. Within 10 days after the approval of the conversion by the partners as required under this article, the converting partnership shall send notice of the approval of the conversion to each partner that has not approved the conversion, accompanied by copies of Section 16701 and a brief description of the procedure to be followed under that section if the partner wishes to dissociate from the partnership. A partner that desires to dissociate from the converting partnership shall send written notice of that dissociation within 30 days after the date of the notice of the approval of the conversion. The converting partnership shall cause the partner’s interest in the entity to be purchased under Section 16701. The converting partnership is bound under Section 16702 by an act of a general partner dissociated under this subdivision, and the partner is liable under Section 16703 for transactions entered into by the converted entity after the conversion takes effect. The dissociation of a partner in connection with a conversion pursuant to the terms of this subdivision shall not be deemed to be a wrongful dissociation under Section 16602.

SEC. 23.

 Section 17540.2 of the Corporations Code is amended to read:

17540.2.
 (a) A limited liability company may be converted into an other business entity or a foreign other business entity or a foreign limited liability company pursuant to this chapter if, (1) pursuant to a conversion into a domestic or foreign general partnership or limited partnership or into a foreign limited liability company, each of the members of the converting limited liability company would receive a percentage interest in profits and capital of the converted entity equal to that member’s percentage interest in profits and capital of the converting limited liability company as of the effective time of the conversion, and (2) pursuant to a conversion into an other business entity or foreign other business entity not specified in clause (1) above, both of the following occur: (A) each of the membership interests of the same class is treated equally with respect to any distribution of cash, property, rights, interests, or securities of the converted entity, unless all members of the class consent, and (B) the nonredeemable membership interests of the converting limited liability company are converted only into nonredeemable interests or securities of the converted entity, unless all holders of the nonredeemable interests consent.
(b) Notwithstanding this section, the conversion of a limited liability company to an other business entity or a foreign other business entity or a foreign limited liability company 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 limited liability company complies with any and all other requirements of any other law that applies to conversion to the converted entity.

SEC. 24.

 Section 17540.3 of the Corporations Code is amended to read:

17540.3.
 (a) A limited liability company that desires to convert to an other business entity or a foreign other business entity or a foreign limited liability company 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 place of the organization of the converted entity and of the converting limited liability company and the name of the converted entity after conversion.
(3) The manner of converting the membership interests of each of the members into securities of, shares of, or interests in, the converted entity.
(4) The provisions of the governing documents for the converted entity, including the articles or certificate of incorporation if the converted entity is a domestic or foreign corporation, the partnership agreement, or the limited liability company articles of organization and operating agreement, 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 parties.
(b) The plan of conversion shall be approved by a vote of a majority in interest of the members of the converting limited liability company, or a greater percentage of the voting interests of members as may be specified in the articles of organization or written operating agreement of the converting limited liability company. However, if the members of the limited liability company would become personally liable for any obligations of the converted entity as a result of the conversion, the plan of conversion shall be approved by all of the members of the converting limited liability company, unless the plan of conversion provides that all members will have dissenters’ rights as provided in Chapter 13 (commencing with Section 17600).
(c) If the limited liability company is converting into a limited partnership, then in addition to the approval of the members set forth in subdivision (b), the plan of conversion shall be approved by those members who will become general partners of the converted limited partnership pursuant to the plan of conversion.
(d) Upon the effectiveness of the conversion, all members of the converting limited liability company, except those that exercise dissenters’ rights as provided in Chapter 13 (commencing with Section 17600), shall be deemed parties to any governing documents for the converted entity adopted as part of the plan of conversion, irrespective of whether or not a member has executed the plan of conversion or the 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, a plan of conversion may be amended before the conversion takes effect if the amendment is approved by the members of the converting limited liability company in the same manner as was required for approval of the original plan of conversion.
(f) A plan of conversion may be abandoned by the members of a converting limited liability company in the 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 the principal place of business of the converted entity if the converted entity is a domestic partnership or foreign other business entity, at the principal executive office of or registrar or transfer agent of the converted entity if the converted entity is a domestic corporation, or at the office at which records are to be kept under Section 15614 if the converted entity is a domestic limited partnership. Upon the request of a member of a converting limited liability company, the authorized person on behalf of the converted entity shall promptly deliver to the member or the holder of interests, shares, or other securities, at the expense of the converted entity, a copy of the plan of conversion. A waiver by a member of the rights provided in this subdivision shall be unenforceable.

SEC. 25.

 Section 17540.6 of the Corporations Code is amended to read:

17540.6.
 (a) Upon conversion of a limited liability company:
(1) If the limited liability company 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 limited liability company 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 limited liability company is converting to a domestic corporation, a statement of conversion shall be completed on the articles of incorporation for the converted entity.
(4) If the limited liability company is converting into a foreign limited liability company or foreign other business entity, a certificate of conversion shall be filed with the Secretary of State.
(b) Any certificate or statement of conversion shall be executed and acknowledged by all of the managers, unless a lesser number is provided in the articles of organization or the operating agreement of the converting limited liability company, and shall set forth all of the following:
(1) The name and the Secretary of State’s file number of the converting limited liability company.
(2) A statement that the principal terms of the plan of conversion were approved by a vote of the members, which equaled or exceeded the vote required under Section 17540.3, specifying each class entitled to vote and the percentage vote required of each class.
(3) The form of organization of the converted entity.
(c) The filing with the Secretary of State of a certificate of conversion or an organizational document containing a statement of conversion as set forth in subdivision (a) shall have the effect of the filing of a certificate of cancellation by the converting limited liability company and no converting limited liability company that has made the filing is required to file a certificate of dissolution or a certificate of cancellation under Section 17356 as a result of that conversion.

SEC. 26.

 Section 17540.7 of the Corporations Code is amended to read:

17540.7.
 (a) Whenever a limited liability company or other business entity having any real property in this state converts into a limited liability company or an other business entity pursuant to the laws of this state or of the state or place in which the limited liability company or other business entity was organized, and the laws of the state or place of organization, including this state, of the converting limited liability company or other converting entity provide substantially that the conversion vests in the converted limited liability company or other converted entity all the real property of the converting limited liability company or other converting entity, the filing for record in the office of the county recorder of any county in this state in which any of the real property of the converting limited liability company or other converting entity is located of either (1) a certificate of conversion, statement of partnership authority, certificate of limited partnership, or articles of organization complying with Section 17540.6, in the form prescribed and certified by the Secretary of State, or (2) a copy of a certificate of conversion, or a statement of partnership authority, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate or document evidencing the creation of a foreign other business entity or foreign limited liability company by conversion, containing a statement of conversion, certified by the Secretary of State or an authorized public official of the state or place pursuant to the laws of which the conversion is effected, shall evidence record ownership in the converted limited liability company or other converted entity of all interest of the converting limited liability company or other converting entity in and to the real property located in that county.
(b) A filed and, if appropriate, recorded certificate of conversion, or a statement of partnership authority, certificate of limited partnership, articles of organization, articles or certificate of incorporation, or other certificate evidencing the formation of a foreign other business entity or a foreign limited liability company filed pursuant to Section 17540.6 containing a statement of conversion, stating the name of the converting limited liability company or other converting entity in whose name property was held before the conversion and the name of the converted entity or converted limited liability company, but not containing all of the other information required by Section 17540.6, operates with respect to the converted entities named to the extent provided in subdivision (a).
(c) Recording of a certificate of conversion or a statement of partnership authority, certificate of limited partnership, articles of organization, or articles or certificate of incorporation, or other certificate evidencing the creation of an other business entity or a limited liability company by conversion, containing a statement of conversion, in accordance with subdivision (a), shall create, in favor of bona fide purchasers or encumbrances for value, a conclusive presumption that the conversion was validly completed.

SEC. 27.

 Section 17540.8 of the Corporations Code is amended to read:

17540.8.
 (a) An other business entity or a foreign other business entity or a foreign limited liability company may be converted to a domestic limited liability company 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 other business entity or a foreign other business entity or a foreign limited liability company that desires to convert into a domestic limited liability company shall approve a plan of conversion or an 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 other business entity or a foreign other business entity or a foreign limited liability company into a domestic limited liability company shall be approved by that number or percentage of the partners, members, shareholders, or holders of interest of the converting entity as is required by the laws under which that entity is organized, or a greater or lesser percentage, subject to applicable laws, as set forth in the converting entity’s partnership agreement, articles of organization, operating agreement, articles or certificate of incorporation, or other governing document.
(d) The conversion by an other business entity or a foreign other business entity or a foreign limited liability company into a domestic limited liability company shall be effective under this chapter at the time the conversion is effective under the laws under which the converting entity is organized as long as the articles of organization containing a statement of conversion have been filed with the Secretary of State. If the converting entity’s governing law is silent as to the effectiveness of the conversion, the conversion shall be effective upon the completion of all acts required under this title to form a limited liability company.
(e) The filing with the Secretary of State of a certificate of conversion or articles of organization containing a statement of conversion pursuant to subdivision (a) shall have the effect of the filing of a certificate of cancellation by the 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 15696 or 17455 as a result of that conversion. If a converting other business 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. 28.

 Section 25005.1 of the Corporations Code is amended to read:

25005.1.
 “Entity conversion transaction” means a conversion pursuant to Section 1151, 1157, 15677.2, 15677.8, 16902, 16908, 17540.2, or 17540.8 unless the interests in the entity resulting from the conversion to be held by the equity holders of the entity being converted as a result of the conversion are not securities. For purposes of Sections 25103 and 25120 an entity conversion transaction is not a change in the rights, preferences, privileges, or restrictions of or on outstanding securities or an exchange of securities by the issuer with its existing security holders exclusively.

SEC. 28.5.

 Section 25005.1 of the Corporations Code is amended to read:

25005.1.
 “Entity conversion transaction” means a conversion pursuant to Section 1151, 1157, 15677.2, 15677.8, 16902, 16908, 17540.2,, 17540.8, or a conversion that occurs entirely out of state, unless the interests in the entity resulting from the conversion to be held by the equity holders of the entity being converted as a result of the conversion are not securities. For purposes of Sections 25103 and 25120 an entity conversion transaction is not a change in the rights, preferences, privileges, or restrictions of or on outstanding securities or an exchange of securities by the issuer with its existing security holders exclusively.

SEC. 29.

 Section 12184 is added to the Government Code, to read:

12184.
 (a) The Secretary of State shall charge and collect a fee of two hundred fifty dollars ($250) from an entity for its conversion made pursuant to Chapter 11.5 (commencing with Section 1150) of Division 1 of Title 1 of the Corporations Code.
(b) This section shall remain in effect only until January 1, 2005, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2005, deletes or extends that date.

SEC. 30.

 Section 12184 is added to the Government Code, to read:

12184.
 (a) The Secretary of State shall charge and collect a fee of one hundred fifty dollars ($150) from an entity for its conversion made pursuant to Chapter 11.5 (commencing with Section 1150) of Division 1 of Title 1 of the Corporations Code.
(b) This section shall become operative on January 1, 2005.

SEC. 31.

 Section 28.5 of this bill incorporates amendments to Section 25005.1 of the Corporations Code proposed by both this bill and SB 1926. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2003, (2) each bill amends Section 25005.1 of the Corporations Code, and (3) this bill is enacted after SB 1926, in which case Section 28 of this bill shall not become operative.