The Connecticut Secretary of the State has issued guidance on
filings under the Model Entity Transactions Act (META), which takes
effect on January 1, 2014. META will allow cross-entity mergers,
consolidations and equity-interest exchanges as well as
redomestication in Connecticut.
What is META?
META was adopted by the Connecticut General Assembly in 2011, to
become effective in 2014. It is part of the recent efforts by the
state government and the Connecticut Bar Association to create a
more flexible and welcoming environment for Connecticut businesses.
Cross-entity transactions such as mergers between partnerships or
LLCs and corporations, which have not been permitted in
Connecticut, will now be permitted. META is expected to provide an
efficient cross-entity transaction process. That in turn should
encourage more businesses to organize under Connecticut law and to
remain in Connecticut.
META Implementation Update
Secretary of the State Denise Merrill issued guidance last week on
filing procedures and fees. Seth Klaskin, director of the
Commercial Recording Division, announced the new policies.
The secretary of the state will not be issuing forms at this time
for META filings. However, the office encourages those engaging in
META transactions to pre-clear documents prior to formal filings,
to ensure that the documents meet filing requirements.
Pre-clearance is offered without charge by the secretary of the
state through its staff attorneys.
Because of the complexity of META transactions, only basic
information as to the transactions will be available through
CONCORD, the state's online filing system (http://www.concord-sots.ct.gov/CONCORD/index.jsp).
Certificates of legal existence for companies resulting from META
transactions will be processed manually, for the near future, in
light of the relationship of META transactions with jurisdictions
other than Connecticut. This could result in potential delays in
obtaining certificates for closings.
Fees
Fees for META transactions will be the sum of the fees chargeable
for each component of a META filing. The secretary of the state
offered the example of a conversion of a Connecticut limited
liability company to a Connecticut corporation. The new conversion
fee will be $60. The fee for filing the certificate of
incorporation for the new corporation would continue to be $100,
and the minimum franchise tax would continue to be $150.
Accordingly, total filing fees for the conversion of a Connecticut
LLC to a Connecticut corporation would be $310.
Filing fees for a redomestication out of Connecticut will be $100.
The fees for a redomestication into Connecticut will be the same as
the fees for forming a new Connecticut entity.
Background
META is based on a model act adopted by the American Bar
Association and the National Conference of Commissioners on Uniform
State Laws. The following will be permitted:
- Mergers, consolidations and interest exchange transactions
among different forms of entities (i.e., corporations, general
partnerships, limited liability companies, limited liability
partnerships, associations and other forms of unincorporated
for-profit entities). Many of these cross-entity transactions
cannot be accomplished under current Connecticut law. Professionals
have devised multistep processes to achieve companies' goals,
including interim mergers with entities formed in other
jurisdictions, including Delaware, but these are cumbersome, costly
and time-consuming. Frequently, after such transactions, the
companies remain organized under the laws of the other jurisdiction
rather than Connecticut.
- Conversion from one form of entity to another. META
will permit the conversion of a corporation to a limited liability
company and vice versa. A corporation may convert to an LLC simply
by filing a certificate with the secretary of the state and paying
a filing fee.
- Redomestication of entities to or from Connecticut. META will permit a corporation organized in another state to "redomesticate" as a Connecticut corporation merely by filing a certificate with the Connecticut secretary of the state and making an appropriate filing in the other state. Connecticut law does not currently allow redomestication.
Comprehensive legislation governing these areas has become
particularly important as new forms of entities like limited
liability companies, limited liability partnerships and limited
liability limited partnerships have become more prevalent across
the last three decades. While META will not impact the tax
consequences of a transaction, it will enhance the efficiency and
flexibility of dissimilar entity transactions under Connecticut
law.
Day Pitney Involvement
Mark Sklarz, a partner in the Day Pitney LLP New Haven office and
vice chair of the Connecticut Bar Association Business Law Section,
served as the chair of a Joint Committee of the Business Law and
Tax Sections of the Connecticut Bar Association, which drafted the
legislation. He provided testimony to advance the act through the
legislative process. Mark will chair a Connecticut Bar Association
Legal Education Seminar in March to discuss META.
Conclusion
Connecticut businesses will benefit from the clarity, efficiency
and comprehensive structure of META. The current "patchwork
authority" of the Connecticut statutes, which permit some
cross-entity mergers but not others, and which allow some entity
conversions but not others, has been confusing for business owners.
META has been specifically designed to remedy these issues and will
provide Connecticut with a best-practices statute to assist
businesses of all sizes to compete in a favorable
environment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
