Amendments to New Jersey’s Business Corporation Act (BCA) will soon make entity conversion and domestication easier for businesses operating in the state...
Amendments to New Jersey’s Business Corporation Act (BCA) will soon make entity conversion and domestication easier for businesses operating in the state. The new law (Senate Bill 142) aims to make New Jersey a more attractive state for the incorporation of businesses, by bringing its corporate laws in line with many other states that allow both domestication and conversion.
Conversion and Domestication Transactions
It is not uncommon for businesses to change where they call “home” or to alter their business structures. In some cases, the decision may be necessitated by a change in the way the business operates; in other situations, businesses may seek to reap tax benefits or take advantage of more business-friendly laws.
New Jersey’s new law addresses both conversions and domestications. Conversion is the process of converting from one type of business entity to another type. Meanwhile, domestication is the process of an out-of-state business entity converting to a domestic corporation.
In order for New Jersey’s new law to apply, either the converting entity or the resulting entity (or both) must be a corporation under the BCA. Conversions involving limited liability corporations (LLCs) are governed by the New Jersey Revised Uniform Limited Liability Company Act (RULLCA). New Jersey’s laws governing general and limited partnerships do not currently authorize conversions, although legislation has been introduced.
Converting From Another Entity to a NJ Corporation
The new law allows entities, including domestic or foreign LLC and foreign corporations, to convert into a New Jersey corporation. To get started, the entity must adopt a plan of conversion, approve a certificate of incorporation, and execute a certificate of conversion in accordance with its governing documents, i.e., by-laws, operating agreement, etc. Then, the certificate of incorporation and conversion certificate must be filed with the Division of Revenue and Enterprise Services of the New Jersey Department of the Treasury (DORES).
The certificate of conversion must include:
The date on which and jurisdiction where the other entity was first created, incorporated, formed or otherwise came into being and, if it has changed, its jurisdiction immediately prior to its conversion to a domestic corporation;
The name of the other entity immediately prior to the filing of the certificate of conversion to corporation;
The name of the New Jersey corporation as set forth in its certificate of incorporation;
The future effective date or time of the conversion if it is not to be effective upon the filing of the certificate of conversion, which is not to exceed 90 days after the date of filing; and
That the plan of conversion has been approved in the manner provided for by the document, instrument, agreement or other writing, as the case may be, governing the internal affairs of the other entity and the conduct of its business and in accordance with applicable law, as appropriate.
Under the new law, the conversion of any other entity to a domestic corporation will not be deemed to affect any obligations or liabilities of the other entity incurred prior to its conversion to a domestic corporation or the personal liability of any person incurred prior to conversion. Additionally, when an entity converts to a domestic corporation pursuant to the law, the domestic corporation will, for all purposes of the laws of the State of New Jersey, be deemed to be the same entity as the converting other entity.
Notably, the law further provides that the rights or securities of, or interests in, the entity which that converted to a domestic corporation may be exchanged for or converted into cash, property, or shares of stock, rights or securities of that domestic corporation or, in addition to or in lieu thereof, may be exchanged for or converted into cash, property, or shares of stock, rights or securities of or interests in another domestic corporation or other entity or may be cancelled.
Converting From a New Jersey Corporation to Another Entity
A New Jersey corporation can also convert to a new “other entity.” To do so, the board of directors of the corporation must adopt a resolution approving a plan of conversion, specifying the type of other entity into which the corporation will be converted, and direct that the conversion be submitted to a vote at a meeting of shareholders.
Written notice must be given to each shareholder of record, whether or not entitled to vote at that meeting, not less than 20 nor more than 60 days before the meeting. The conversion must be approved by an affirmative vote of the holders of all shares of outstanding stock, whether voting or nonvoting. The conversion must then also be approved in the manner provided for by the document, instrument, agreement or other writing governing the internal affairs of the other entity and the conduct of its business. Once approved, a domestic corporation that converts to any other entity must file a certificate of conversion with DORES.
Under the new law, the converting New Jersey corporation is not required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion does not constitute a dissolution of the corporation. Rather, the new “other entity” will have all rights, privileges, powers, and property of the converting corporation, as well as be subject to all of its debts, liabilities, and duties. As with other corporate conversions under the law, shares of stock of the converting corporation may be exchanged for or converted into cash, property rights or securities of, or interest in, the “other entity” or, in addition to or in lieu thereof, may be exchanged for or converted into cash, property, shares of stock, rights or securities of, or interest in, another domestic corporation or other entity or may be cancelled.
Converting to a Foreign Entity
If a corporation converts to any other entity organized, formed, or created under the laws of a jurisdiction other than New Jersey, and plans to transact business in New Jersey, it must comply with the law’s provisions with respect to foreign entities.
The new law also makes it clear that the conversion of a corporation out of the State of New Jersey and the resulting cessation of its existence as a domestic corporation pursuant to a certificate of conversion will not be deemed to affect any obligations or liabilities of the corporation incurred prior to conversion or the personal liability of any person incurred prior to conversion. The law similarly provides that the conversion will not be deemed to affect the choice of law applicable to the corporation with respect to matters arising prior to conversion.
Key Takeaway
The new law provides greater flexibility when conducting conversion and domestication transactions. Nonetheless, businesses must still carefully consider whether a conversion is in their best interests and satisfy the numerous legal requirements. For guidance, we encourage you to contact a member of Scarinci Hollenbeck’s Corporate Transactions & Business Law Group.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Jeff Pittard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
New Law Makes It Easier for NJ Corporations to Make Changes
Author: Scarinci Hollenbeck, LLC
Amendments to New Jersey’s Business Corporation Act (BCA) will soon make entity conversion and domestication easier for businesses operating in the state...
Amendments to New Jersey’s Business Corporation Act (BCA) will soon make entity conversion and domestication easier for businesses operating in the state. The new law (Senate Bill 142) aims to make New Jersey a more attractive state for the incorporation of businesses, by bringing its corporate laws in line with many other states that allow both domestication and conversion.
Conversion and Domestication Transactions
It is not uncommon for businesses to change where they call “home” or to alter their business structures. In some cases, the decision may be necessitated by a change in the way the business operates; in other situations, businesses may seek to reap tax benefits or take advantage of more business-friendly laws.
New Jersey’s new law addresses both conversions and domestications. Conversion is the process of converting from one type of business entity to another type. Meanwhile, domestication is the process of an out-of-state business entity converting to a domestic corporation.
In order for New Jersey’s new law to apply, either the converting entity or the resulting entity (or both) must be a corporation under the BCA. Conversions involving limited liability corporations (LLCs) are governed by the New Jersey Revised Uniform Limited Liability Company Act (RULLCA). New Jersey’s laws governing general and limited partnerships do not currently authorize conversions, although legislation has been introduced.
Converting From Another Entity to a NJ Corporation
The new law allows entities, including domestic or foreign LLC and foreign corporations, to convert into a New Jersey corporation. To get started, the entity must adopt a plan of conversion, approve a certificate of incorporation, and execute a certificate of conversion in accordance with its governing documents, i.e., by-laws, operating agreement, etc. Then, the certificate of incorporation and conversion certificate must be filed with the Division of Revenue and Enterprise Services of the New Jersey Department of the Treasury (DORES).
The certificate of conversion must include:
The date on which and jurisdiction where the other entity was first created, incorporated, formed or otherwise came into being and, if it has changed, its jurisdiction immediately prior to its conversion to a domestic corporation;
The name of the other entity immediately prior to the filing of the certificate of conversion to corporation;
The name of the New Jersey corporation as set forth in its certificate of incorporation;
The future effective date or time of the conversion if it is not to be effective upon the filing of the certificate of conversion, which is not to exceed 90 days after the date of filing; and
That the plan of conversion has been approved in the manner provided for by the document, instrument, agreement or other writing, as the case may be, governing the internal affairs of the other entity and the conduct of its business and in accordance with applicable law, as appropriate.
Under the new law, the conversion of any other entity to a domestic corporation will not be deemed to affect any obligations or liabilities of the other entity incurred prior to its conversion to a domestic corporation or the personal liability of any person incurred prior to conversion. Additionally, when an entity converts to a domestic corporation pursuant to the law, the domestic corporation will, for all purposes of the laws of the State of New Jersey, be deemed to be the same entity as the converting other entity.
Notably, the law further provides that the rights or securities of, or interests in, the entity which that converted to a domestic corporation may be exchanged for or converted into cash, property, or shares of stock, rights or securities of that domestic corporation or, in addition to or in lieu thereof, may be exchanged for or converted into cash, property, or shares of stock, rights or securities of or interests in another domestic corporation or other entity or may be cancelled.
Converting From a New Jersey Corporation to Another Entity
A New Jersey corporation can also convert to a new “other entity.” To do so, the board of directors of the corporation must adopt a resolution approving a plan of conversion, specifying the type of other entity into which the corporation will be converted, and direct that the conversion be submitted to a vote at a meeting of shareholders.
Written notice must be given to each shareholder of record, whether or not entitled to vote at that meeting, not less than 20 nor more than 60 days before the meeting. The conversion must be approved by an affirmative vote of the holders of all shares of outstanding stock, whether voting or nonvoting. The conversion must then also be approved in the manner provided for by the document, instrument, agreement or other writing governing the internal affairs of the other entity and the conduct of its business. Once approved, a domestic corporation that converts to any other entity must file a certificate of conversion with DORES.
Under the new law, the converting New Jersey corporation is not required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion does not constitute a dissolution of the corporation. Rather, the new “other entity” will have all rights, privileges, powers, and property of the converting corporation, as well as be subject to all of its debts, liabilities, and duties. As with other corporate conversions under the law, shares of stock of the converting corporation may be exchanged for or converted into cash, property rights or securities of, or interest in, the “other entity” or, in addition to or in lieu thereof, may be exchanged for or converted into cash, property, shares of stock, rights or securities of, or interest in, another domestic corporation or other entity or may be cancelled.
Converting to a Foreign Entity
If a corporation converts to any other entity organized, formed, or created under the laws of a jurisdiction other than New Jersey, and plans to transact business in New Jersey, it must comply with the law’s provisions with respect to foreign entities.
The new law also makes it clear that the conversion of a corporation out of the State of New Jersey and the resulting cessation of its existence as a domestic corporation pursuant to a certificate of conversion will not be deemed to affect any obligations or liabilities of the corporation incurred prior to conversion or the personal liability of any person incurred prior to conversion. The law similarly provides that the conversion will not be deemed to affect the choice of law applicable to the corporation with respect to matters arising prior to conversion.
Key Takeaway
The new law provides greater flexibility when conducting conversion and domestication transactions. Nonetheless, businesses must still carefully consider whether a conversion is in their best interests and satisfy the numerous legal requirements. For guidance, we encourage you to contact a member of Scarinci Hollenbeck’s Corporate Transactions & Business Law Group.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Jeff Pittard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
