Amendment SSA1-SB619

LRBs0581/1

CTS&JK:lmk:rs

2005 - 2006 LEGISLATURE

SENATE SUBSTITUTE AMENDMENT 1, TO 2005 SENATE BILL 619

February 27, 2006 - Offered by Senator Kanavas.

SB619-SSA1,2,6 An Act to repeal 180.0825 (2) (a), 180.0825 (5) (a) to (h) and 180.1105 (1) (a) and (b); to renumber 180.1105 (1) (c) and (d); to renumber and amend 180.0602 (3); to consolidate, renumber and amend 180.0825 (2) (intro.) and (b); to amend 179.02 (1), 179.76 (4) (c), 179.77 (6) (c), 180.0121 (1) (a) 4., 180.0121 (2), 180.0502 (3), 180.0706 (title), 180.0824 (3), 180.0825 (1), 180.1103 (1), 180.1104 (1), 180.1106 (1) (b), 180.1130 (3) (a) (intro.), 180.1140 (11), 180.1150 (2), 180.1161 (4) (c), 180.1201 (title), 180.1201 (2), 180.1302 (4), 181.0121 (1) (a) 4., 181.0121 (2), 181.1106 (2), 181.1161 (4) (c), 182.01 (title), 183.0109 (1) (a) 5., 183.0109 (2), 183.1202 (1), 183.1205 (2) and 183.1207 (4) (c); to repeal and recreate 180.1130 (14); and to create 73.14, 179.76 (5) (bm), 179.76 (5m), 179.77 (5) (bm), 179.77 (5r), 180.0602 (3) (b), 180.0706 (3), 180.0708, 180.0825 (5) (am) and (bm), 180.11045, 180.1105 (1) (bm), (cm), (dm) and (e) to (h), 180.1161 (5) (bm), 180.1201 (1) (d), 180.1302 (1) (a) 3., 181.1105 (1m), 181.1161 (5) (bm), 182.01 (7), 183.1204 (1) (cm) and 183.1207 (5) (bm) of the statutes; relating to: mergers, conversions, and other business combinations; merger and conversion reports; the authority of the boards of directors of business corporations and corporate committees; corporate shareholder notices and meetings; the transfer of corporate property to certain affiliates; naming limited partnerships; and providing penalties.

Analysis by the Legislative Reference Bureau

This substitute amendment makes numerous changes to the laws governing business corporations. It also makes changes to the laws governing limited partnerships, nonstock corporations, and limited liability companies.

Business corporations

Mergers with certain wholly owned subsidiaries

Current law generally permits a business corporation organized under the laws of this state to reorganize as a holding company that owns the stock of one or more separately incorporated business operations. Under current law, such a reorganization may be accomplished through a transaction involving the original corporation (parent corporation), an entity created and owned by the original corporation (wholly owned subsidiary), and a third entity created and owned by the wholly owned subsidiary (indirect wholly owned subsidiary). Generally, the transaction culminates in the merger of the parent corporation with the indirect wholly owned subsidiary. The parent corporation survives the merger, and its shareholders trade their shares for shares in the wholly owned subsidiary. The wholly owned subsidiary, which owns all of the interests in the parent corporation, becomes the holding company.

With certain exceptions, current law permits a corporation to merge with or into another business entity only if, among other requirements, the corporation's shareholders approve a plan of merger adopted by the corporation's board of directors (board). With certain exceptions, this substitute amendment permits a parent corporation to merge with an indirect wholly owned subsidiary, including a corporation or limited liability company, without shareholder approval, if the following conditions are satisfied:

1. Every share in the parent corporation is converted into a share in the holding company, subject to the same rights and limitations that applied to the share prior to conversion.

2. The entity surviving the merger becomes a wholly owned subsidiary of the holding company.

3. The directors of the parent corporation become the directors of the holding company.

4. The provisions of the holding company's articles of incorporation and bylaws (or, if the holding company is a limited liability company, its operating agreement) are generally identical to those of the parent corporation's.

5. The provisions of the surviving entity's articles of incorporation and bylaws or operating agreement are generally identical to those of the parent corporation's.

6. If the surviving entity is a limited liability company, its operating agreement contains provisions that grant members certain rights enjoyed by shareholders of the parent corporation under current law or under the parent company's articles of incorporation or bylaws.

7. The parent corporation's board determines that the merger will not result in any gain or loss for federal income tax purposes.

Other changes related to mergers, share exchanges, and business combinations

Currently, when a corporation approves a merger or share exchange, it must file articles of merger or share exchange with the Department of Financial Institutions (department). Among other things, the articles of merger or share exchange must include the plan of merger or share exchange. This substitute amendment deletes this requirement and, instead, requires the articles of merger to state that a plan of merger or share exchange has been approved and adopted as required by law, that the plan is on file at the principle place of business of the surviving corporation, and that the surviving corporation will provide a copy of the plan, upon request and without cost, to any shareholder or, upon payment of the cost of producing the copy, to any other interested person. The substitute amendment also specifies other information that must be included in the articles of merger or share exchange.

Currently, a business combination (including certain mergers) must be approved by a specified supermajority of shareholders, unless the shareholders receive a minimum price for their shares, computed under a specified formula. This substitute amendment redefines a component of the formula, the valuation date, as the day before the first public announcement of the proposed business combination.

With certain exceptions, the voting power of a person owning greater than 20 percent of a corporation's stock is currently limited to 10 percent of the full voting power of those shares, unless the corporation's articles of incorporation provide otherwise or unless regular voting power is restored by vote of the shareholders. This substitute amendment permits the board of directors to specify that regular voting power will apply.

Under current law, if a shareholder dissents from certain mergers, share exchanges, or other business combinations, the shareholder may obtain payment of the fair value of his or her shares. Under current law, a dissenting shareholder is entitled to receive fair value if either of the following apply: 1) the corporation that issued the stock held by the dissenting shareholder (issuing corporation) is a party to a merger for which shareholder approval is required under certain provisions in current law or under the issuing corporation's articles of incorporation; or 2) the corporation is a subsidiary corporation that is merging with a parent corporation.

Under the substitute amendment, a dissenting shareholder may also obtain fair value if the issuing corporation is a parent corporation that is merging with a subsidiary, unless the merger satisfies certain conditions specified in the substitute amendment relating to the effect of the merger on the rights of shareholders.

Currently, the fair value is determined pursuant to several specified criteria. With limited exceptions, this substitute amendment provides an exemption from these dissenter's rights if the applicable shares are registered on a national securities exchange or quoted in the National Association of Securities Dealers, Inc. This exemption is identical to the exemption that applies generally to other dissenter's rights provisions.

Currently, a parent corporation that owns at least 90 percent of the outstanding interests of a subsidiary business entity may merge with the subsidiary without the approval of the parent's shareholders or the owners of the interests in the subsidiary. Under the substitute amendment, such a merger requires the approval of the parent's shareholders unless certain conditions relating to the rights of the parent's shareholders are satisfied.

Classes or series of stock

Under current law, a corporation's articles of incorporation may authorize the board to determine the relative rights of a class or series of shares of stock. Generally, the board may set the terms of a class or series without shareholder approval. The board may revise the terms by resolution, as long as no shares have been issued. The board may revise the terms of shares that have already been issued only by amendment to the articles of incorporation.

Under this substitute amendment, at any time after filing articles of amendment creating a class or series of shares, the board may: 1) decrease the number shares of a class or series, but not below the number of outstanding shares of the class or series; 2) eliminate a class or series, if no shares of the class or series are outstanding; or 3) increase the number of shares of a class or series, but not beyond the number of shares authorized by the articles of incorporation.

Shareholder notices and meetings

Current law requires a corporation to notify shareholders of certain events and information. This substitute amendment exempts a corporation from all such notice requirements as to an individual shareholder if a specified number of notices or dividend payments sent to the shareholder are returned to the corporation as undeliverable. A shareholder may reinstate the notice requirements by delivering to the corporation the shareholder's current address.

Transfer of property to certain affiliates and other changes related to business corporations

Current law also prescribes the conditions under which a board may transfer the corporation's property. This substitute amendment permits a board to transfer the corporation's assets to other entities that are wholly owned by the corporation, except in connection with a plan that involves a transfer of all or substantially all of the corporation's assets and that requires shareholder approval.

This substitute amendment also permits a corporation to specify in its articles of incorporation or bylaws the rules for conducting shareholder meetings, and sets default rules for corporations that do not adopt their own rules. The substitute amendment also makes changes to current law regarding the formation and membership of a committee created by a board, and the substitute amendment deletes certain restrictions on the power of such committees. Further, the substitute amendment makes changes to current law relating to identifying a registered agent.

Other changes

Under current law, when a limited partnership, business corporation, nonstock corporation, or limited liability company merges with or converts to another entity (or when a business corporation enters into a share exchange), title to all personal property transfers, by operation of law, to the surviving entity. Title to real estate generally must be transferred by deed, which must be recorded in the appropriate office of the register of deeds. This substitute amendment deletes the requirement that a deed be executed and recorded. Under the substitute amendment, if a limited partnership, business corporation, nonstock corporation, or limited liability company merges with or converts to another entity, the articles of merger or certificate of conversion filed with department must indicate whether a business entity that does not survive the merger or conversion has a fee simple ownership interest in real estate in this state.

Currently, the name of a limited partnership must contain the words "limited partnership" without abbreviation. This substitute amendment allows the name to include abbreviated versions of those words.

The substitute amendment requires that the surviving entity of a merger or conversion file a report with the Department of Revenue (DOR) that specifies the effective date of the merger or conversion, the name and address of each business entity that is a party to the merger or conversion, the name of any person at the surviving entity that DOR may contact with regard to submitting the report and the information contained in the report, the parcel identification number and location of all fee simple ownership interests in real estate located in this state acquired by the surviving entity in the merger or conversion, a certified copy of the document providing evidence of the merger or conversion, and, in the case of a conversion, a sworn statement that the ownership interests in the surviving entity are identical with the ownership interests in the original entity immediately preceding the conversion. Under the substitute amendment, forms prescribed by the Department of Financial Institutions (DFI) for articles of merger and certificates of conversion must contain a notice of the real estate reporting requirement.

Under the substitute amendment, DFI must report quarterly to DOR identifying mergers and conversions for which articles of merger and certificates of conversion have been filed with DFI indicating that an entity acquired in the merger or an entity converted in the conversion had a fee simple ownership interest in any Wisconsin real estate.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB619-SSA1, s. 1 Section 1. 73.14 of the statutes is created to read:

SB619-SSA1,6,7 73.14 Merger and conversion real estate reports. (1) If an acquired business entity in a merger or the converted business entity in a conversion owned a fee simple ownership interest in any Wisconsin real estate immediately prior to the merger or conversion, the surviving business entity shall submit a report to the department of revenue, on a form prescribed by the department, no later than 60 days after the effective date of the merger or conversion that provides the following information:

SB619-SSA1,6,8 (a) The effective date of the merger or conversion.

SB619-SSA1,6,10 (b) The name, address, and federal employer identification number of each business entity that is a party to the merger or conversion.

SB619-SSA1,6,15 (c) The name, telephone number, and address of any person at the surviving business entity that the department of revenue may contact with regard to submitting the report and the information contained in the report and the address to which tax bills should be sent, if different from the address for the contact person described in this paragraph.

SB619-SSA1,6,18 (d) The parcel identification number of each fee simple ownership interest in Wisconsin real estate owned by the acquired business entity in a merger or by the converted entity in a conversion and municipality in which such interest is located.

SB619-SSA1,6,21 (e) In the case of a conversion, a sworn statement that, after the conversion, the ownership interests in the surviving entity are identical with the ownership interests in the original entity immediately preceding the conversion.

SB619-SSA1,6,25 (f) A certified copy of the document providing evidence of the merger or conversion, as filed with the state in which the surviving entity is organized and a copy of any merger or conversion plan, regardless of whether the plan is required to be filed with the state in which the surviving entity is organized.