Posting for

Monday, November 9, 1998

by: Stephen Farber

sfarber@firstam.com

BUSINESS ENTITIES/COMPETENCY AND CAPACITY/COMMERCIAL PROPERTIES

(Mike Berey (Manhattan) has forwarded a memo by Stephen Farber of his office concerning recent changes in New York law governing mergers and consolidations of business entities. This is an issue we should pay particular attention to. If we insure title in an unqualified or legally non-existent entity the result may be a claim of total failure of title and/or that the insured title remains subject to later-recorded liens and other matters filed against the name of the predecessor/grantor. Here's Stephen's memo.)

Prior to 1997, domestic and/or foreign corporations, in accordance with the Business Corporation Law (BCL), were only permitted to merge or consolidate into other domestic or foreign corporations. Likewise, domestic and/or foreign limited partnerships, in accordance with the New York Partnership Law, were only permitted to merge or consolidate into domestic and/or foreign limited partnerships. Prior to 1997, neither corporations nor limited partnerships could merge or consolidate into other business entities.

Sections 901, 902 and 907 of the BCL were amended (and 904-a added) by Chapters 449, 470 and 494 of the Laws of 1997 to provide for the merger or consolidation of domestic and/or foreign corporations with domestic or foreign limited liability companies. The authority in Chapter 449 for a domestic corporation to merge or consolidate with either a limited partnership or a joint stock association was repealed in Chapter 494.

On July 14, 1998, the BCL was further amended by Chapter 374 of the Laws of 1998 (effective on September 12, 1998) to expand Sections 901, 902 and 904-a to permit the merger or consolidation of corporations with an "other business entity". Likewise, Sections 121-101 and 121-1106 of the Partnership Law were amended to permit the merger or consolidation of domestic and/or foreign limited partnerships into an "other business entity". For your reference, the new merger and consolidation provisions contained in the BCL and the Partnership Law now conform to the already existing merger and consolidation provision set forth in the Limited Liability Law.

"Other business entity" is a broad term and is defined in Section 901 of the BCL, Section 121-101 of the Partnership Law and Section 102 of the Limited Liability Law to effectively include any association, foreign or domestic corporation, joint stock company, estate, general partnership (including any registered domestic or limited liability partnership), limited association, foreign or domestic limited liability company (including a professional service limited liability company), joint venture, limited partnership, natural person, real estate investment trust, business trust or other trust, custodian, nominee or any other individual or entity in its own or any representative capacity.

We will see various different types of business entities merging into each other as a result of these expanded merger and consolidation provisions. Notwithstanding that title to real property of the constituent entity vests by operation of law in the surviving or consolidated entity, counsel should make sure that the certificates of merger or consolidation are properly completed, executed and filed with the New York Department of State.

We should also make sure that, as required by the applicable statutes and as discussed in your memorandum of May 11, the certificate of merger or consolidation includes a provision that the surviving or consolidated entity agrees to file a final franchise tax report for its constituent entities with the Department of Taxation and pay any such taxes due within thirty (30) days after the filing of such certificate.

If you have any questions or comments regarding the above, do not hesitate to call me.

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