State Legislative Updates

Illinois Authorizes Conversions and Domestications

Illinois Authorizes Conversions and Domestications

On July 1, 2018, the Illinois Entity Omnibus Act goes into effect. This Act allows Illinois corporations and unincorporated entities to convert into other entity forms and to domesticate to another state in a simple one-step transaction. It also allows entities from other states to convert to Illinois entities and domesticate to Illinois.

For a long time Illinois was in the minority of states that did not authorize statutory conversions. That meant, for example, if the members of an Illinois LLC decided to seek funding from venture capitalists, and discovered that this would be easier to do if they had a corporation instead of an LLC, they would need to form a new Illinois corporation and then merge the LLC into it. Domestications weren’t authorized in Illinois either. So if the shareholders of an Illinois corporation decided to reincorporate in another state, they too would have to engage in the two-step formation-merger transaction.  But as of July 1, 2018, that is no longer necessary. 

Below is a brief look at the Entity Omnibus Act.  The Act is codified at 805 ILCS 180/37-5 et seq.

I. Covered Entities

The entities covered by the Entity Omnibus Act are:

  1. Business corporations
  2. Medical corporations
  3. Nonprofit corporations
  4. Professional service corporations
  5. General partnerships, including limited liability partnerships
  6. Limited partnerships, including limited liability, limited partnerships, and
  7. Limited liability companies

II. Conversion

Conversions authorized – Sec. 201 of the Act authorizes three kinds of conversions:

(1) An Illinois entity can become an Illinois entity of a different type (e.g., an Illinois corporation becoming an Illinois LLC)

(2) An Illinois entity can become a foreign entity of a different type if the conversion is authorized by the foreign jurisdiction (e.g., an Illinois corporation becoming a Delaware LLC, if such a transaction is authorized by Delaware)

(3) A foreign entity can become an Illinois entity of a different type if the conversion is authorized by the foreign jurisdiction (e.g., a Delaware corporation becoming an Illinois LLC if such a transaction is authorized by Delaware)

Plan of conversion – Sec. 202 requires the Illinois entity to approve a plan of conversion.  Any foreign entity involved must follow the requirements of its state of formation in approving the conversion.

Statement of conversion – Sec. 203 requires that a statement of conversion, signed on behalf of the converting entity must be filed with the secretary of state.  The statement must include, as an attachment, the text of the converted entity’s formation document (e.g., articles of incorporation for a corporation or articles of organization for an LLC). (Note that the converting entity is the one before the change is made.  The converted, the one after the change.)

Effect of conversion - Among other things, when a conversion becomes effective:

(1) The converted entity is the same entity without interruption as the converting entity

(2) All property of the converting entity continues to be vested in the converted entity without assignment, reversion, or impairment

(3) A liability of the converting entity continues as a liability of the converted entity

(4) Except as provided by law or the plan of conversion, all of the converting entity’s rights, privileges, immunities, powers, and purposes remain in the converted entity

III. Domestication

Domestication authorized – Sec. 301 of the Act provides:

(1) An Illinois entity can become an entity of the same type in a foreign jurisdiction if the domestication is authorized by the foreign jurisdiction. (e.g., an Illinois corporation becoming a Delaware corporation if such a transaction is authorized by Delaware)

(2) A foreign entity can become an Illinois entity of the same type if the domestication is authorized by the foreign jurisdiction (e.g., a Delaware corporation becoming an Illinois corporation if such a transaction is authorized by Delaware)

Plan of domestication – Sec. 302 requires the Illinois entity to approve a plan of domestication.   The foreign entity involved must follow the requirements of its state of formation in approving the domestication.

Statement of domestication – Sec. 305 requires that a statement of domestication, signed on behalf of the domesticating entity, must be filed with the secretary of state.  The statement must include, as an attachment, the formation document. (Note that the domesticating entity is the one before the change is made.  The domesticated, the one after the change.)

Effect of domestication - Among other things, when a domestication becomes effective:

(1) The domesticated entity is the same entity without interruption as the domesticating entity

(2) All property of the domesticating entity continues to be vested in the domesticated entity without assignment reversion or impairment

(3) A liability of the domesticating entity continues as a liability of the domesticated entity

(4) Except as provided by law or the plan of domestication, all of the domesticating entity’s rights, privileges, immunities, powers, and purposes remain in the domesticated entity.

Owners, managers, legal and other trusted advisers of Illinois entities may wish to familiarize themselves with the Illinois Entity Omnibus Act in case they wish to change entity types or formation states.  So too, should those outside of Illinois who might have an interest in converting into or domesticating to an Illinois entity.

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