Common Reasons the California Secretary of State Rejects Corporate Filings - Part Three

Common Reasons the California Secretary of State Rejects Corporate Filings - Part Three – Conversions

Issues frequently arise when converting a limited liability company (“LLC”) into a corporation, particularly when filers ignore the new requirements established by the Revised Uniform Limited Liability Company Act (“RULLCA”), which took effect on January 1, 2014. The three most common mistakes are:

Citing to the former LLC Act in the conversion statement: An LLC converting into a corporation must include a statement of conversion within the articles of incorporation of the converted entity (a sample is available here). (RULLCA §17710.06(a)(3)). Many filers continue to mistakenly reference the former LLC statute (the Beverly-Killea Limited Liability Company Act) in the conversion statement, rather than RULLCA.

Managers mistakenly signing the statement or certificate of conversion: A statement or certificate of conversion must be signed or acknowledged by all members—not managers—of the LLC unless a lesser number is provided in the articles of organization or operating agreement. (RULLCA §17710.06(b)).

Failing to include the initial street address of the converted corporation: A certificate of conversion must be filed to convert a California LLC into a foreign LLC. (RULLCA §17710.06(a)(4)). The certification of conversion can be found here and must include:

(1) The name, form, and jurisdiction of organization of the converted entity.

(2) The name, street, and mailing address of the converted entity’s agent for service of process.

(3) The street address of the converted entity’s chief executive office. (RULLCA §17710.06(c)).

(4) The name of the converting limited liability company and the Secretary of State’s file number of the converting limited liability company.

(5) A statement that the principal terms of the plan of conversion were approved by a vote of the members, that equaled or exceeded the vote required under Section 17710.03, specifying each class entitled to vote and the percentage vote required of each class.

Though all of the foregoing items are equally required, the street address of the converted entity’s chief executive office (Section 5 of the certificate of conversion) is most often omitted. Note that Section 5 must be completed even if the address is duplicative of another section.

Daniel H. Alexander, Attorney www.dalexander.com

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