SB619: Bill Text

LRB-4583/1

CTS:lmk:pg

2005 - 2006 LEGISLATURE

2005 Senate BILL 619

February 22, 2006 - Introduced by Senators Kanavas, Grothman and Leibham, cosponsored by Representatives Lamb, McCormick, Hahn, Hundertmark, Albers, Townsend and Strachota. Referred to Committee on Job Creation, Economic Development and Consumer Affairs.

SB619,2,3 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 77.22 (1), 179.02 (1), 179.76 (4) (c), 179.77 (6) (c), 180.0502 (3), 180.0706 (title), 180.0824 (3), 180.0825 (1), 180.1103 (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), 181.1106 (2), 181.1161 (4) (c), 183.1202 (1), 183.1205 (2) and 183.1207 (4) (c); to repeal and recreate 180.1130 (14); and to create 77.264, 179.76 (5) (bm), 179.77 (5) (bm), 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), 183.1204 (1) (cm) and 183.1207 (5) (bm) of the statutes; relating to: mergers, conversions, and other business combinations; merger and conversion reports for real estate transfer fee purposes; 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 bill 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 bill 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 bill 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 bill 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 bill 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 bill 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 bill, 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 bill 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 bill 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.

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 bill, 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 bill 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 bill 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 bill 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 bill also makes changes to current law regarding the formation and membership of a committee created by a board, and the bill deletes certain restrictions on the power of such committees. Further, the bill 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 bill deletes the requirement that a deed be executed and recorded. Under the bill, 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 bill allows the name to include abbreviated versions of those words.

Under current law, a conveyance of real property pursuant to a merger or business conversion is not subject to the real estate transfer fee. Under current law, the reason for a real estate transfer fee exemption must be specified on the conveyance at the time that the conveyance is recorded with the register of deeds of the county in which the real property is located. Under the bill, in order to claim the real estate transfer fee exemption for a conveyance of real property pursuant to a merger or business conversion, a certified copy of the document providing evidence of the merger or conversion must be submitted with the real estate transfer return. The bill also 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 real property interests owned by the surviving entity, 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.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

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

SB619, s. 1 Section 1. 77.22 (1) of the statutes is amended to read:

SB619,6,14 77.22 (1) There is imposed on the grantor of real estate a real estate transfer fee at the rate of 30 cents for each $100 of value or fraction thereof on every conveyance not exempted or excluded under this subchapter. In regard to land contracts the value is the total principal amount that the buyer agrees to pay the seller for the real estate. This fee shall be collected by the register at the time the instrument of conveyance is submitted for recording. Except as provided in s. 77.255, at the time of submission the grantee or his or her duly authorized agent or other person acquiring an ownership interest under the instrument, or the clerk of court in the case of a foreclosure under s. 846.16 (1), shall execute a return, signed by both grantor and grantee, on the form prescribed under sub. (2). The register shall enter the fee paid on the face of the deed or other instrument of conveyance before recording, and, except as provided in s. 77.255, submission of a completed real estate transfer return and collection by the register of the fee shall be prerequisites to acceptance of the conveyance for recording. The register shall have no duty to determine either the correct value of the real estate transferred or the validity of any exemption or exclusion claimed. If the transfer is not subject to a fee as provided in this subchapter, the reason for exemption shall be stated on the face of the conveyance to be recorded by reference to the proper subsection under s. 77.25. No exemption shall be granted under s. 77.25 (6) or (6m), unless 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, is submitted with the return.

SB619, s. 2 Section 2. 77.264 of the statutes is created to read:

SB619,6,21 77.264 Merger and conversion reports. (1) If an acquired business entity in a merger or the converted business entity in a conversion had 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 no later than 60 days after the effective date of the merger or conversion that provides the following information:

SB619,6,22 (a) The effective date of the merger or conversion.

SB619,6,24 (b) The name and address of each business entity that is a party to the merger or conversion.

SB619,7,3 (c) The name and telephone number 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.

SB619,7,6 (d) The parcel identification number of each fee simple ownership interest in Wisconsin real estate owned by the surviving business entity and municipality in which such interest is located.