CSG Law Alert: Statutory Conversion and Business Domestication Comes to New Jersey
A new law going into effect later this year aims to make the Garden State a more attractive place to do business by easing restrictions on conversion and domestication of out-of-state companies seeking to enter New Jersey.
On May 8, 2023, New Jersey Governor Phil Murphy signed into law Senate Bill 142 (P.L. 2023, Chapter 38) (the “New Law”), which amends the New Jersey Business Corporation Act (“BCA”) to allow for statutory conversion and business domestication across all entity types. The New Law, unanimously approved by New Jersey’s Senate and General Assembly, is intended to “make New Jersey a more attractive State for the incorporation of businesses,” and takes effect on November 4, 2023 (180 days following its enactment).
Statutory Conversion and Business Domestication
- Statutory Conversion
Conversion is the process of changing one type of entity to another; for instance, a limited liability company (“LLC”) converting to a corporation or vice versa. Statutory Conversion is a convenient and efficient way to change one entity type to another. Prior to the New Law, New Jersey prohibited out-of-state entities from converting to domestic New Jersey corporations. Foreign entities converted by either dissolving and re-forming in New Jersey, or by completing a statutory merger, each of which are cumbersome and inefficient compared to conversion.
- Business Domestication
Business domestication is the process of changing a business’s domicile from the state of formation to a different state. Domestication is more complex than simply closing an office in one state and opening a new office in another. Domesticating a business in a new state will officially dissolve the business in the former state, subjecting the business to the laws and regulations of the new state. A business entity can change its residence (domicile) from any state, but only into a state that supports domestication.
In 2012, New Jersey enacted the Revised Uniform Limited Liability Company Act (“RULLCA”), to govern limited liability companies in New Jersey. RULLCA allowed corporations and other business entities to convert to LLCs. It also allowed out-of-state business entities to domesticate into New Jersey LLCs.
However, conversions could not be accomplished until amendments were made to other New Jersey business statutes, such as the BCA, which at the time did not provide for conversions of domestic non-corporate entities, or domestications of foreign entities, to New Jersey corporations. The New Law finally addresses these inconsistencies.
Overview of Senate Bill 142
- The New Law concerns certain corporations, amends N.J.S.14A:15-2, and supplements Title 14A of the New Jersey Statutes by:
- (1) Allowing conversions of other business entities such as LLCs into New Jersey corporations;
- (2) Allowing conversions of New Jersey corporations into foreign or domestic LLCs; and
- (3) Allowing conversions of other business entities registered to do business in New Jersey into foreign corporations.
- “Other business entity” means a partnership, limited liability company, statutory trust, business trust or association, real estate investment trust, common-law trust, national association, or any other unincorporated business, not including a sole proprietorship.
- There are several steps necessary to complete a conversion or domestication in New Jersey. Filings are required with the New Jersey Division of Revenue and Enterprise Services in the Department of Treasury, including, without limitation:
- A certificate setting forth that the entity is in good standing under the laws of the jurisdiction of its incorporation.
- A certificate and plan of conversion governing the internal affairs of the other entity and the conduct of its business.
- A certificate of incorporation, bylaws, and shareholder agreements (if any).
For more information on the New Law, please visit the New Jersey Legislature at https://www.njleg.state.nj.us/bill-search/2022/S142.
If you have any questions about the New Law, or any other questions regarding conversion or domestication matters, please contact the Corporate Group at CSG Law.