Entity Conversions -
On April 3, 2013, the Maryland legislature approved HB 1140, which we expect Governor O’Malley to sign into law this month. The bill enacts new provisions of the Corporations and Associations Article of the Annotated Code of Maryland to authorize the conversion of most types of Maryland business entities into other types of Maryland business entities or into business entities formed in other jurisdictions. The new statute will also permit business entities formed in other jurisdictions to convert into Maryland business entities. These provisions were jointly proposed and drafted by the Corporate Laws Committee and the Unincorporated Associations Committee of the Business Law Section of the Maryland State Bar Association and, once enacted, will take effect on October 1, 2013.
Entity conversion has become popular over the last decade. It allows a business entity to become another type of entity by making appropriate filings in the jurisdiction in which it is formed and the jurisdiction in which it will continue. For example, a limited liability company can convert into a corporation, and vice versa. Currently, a Maryland business entity can change its form or jurisdiction of organization by merging into, or transferring its assets to, a new entity of the desired type. The important advantage of entity conversion is that, unlike in a merger or asset transfer, the resulting business entity is the same entity as the original entity. As a result, fewer third-party consents and regulatory approvals are typically required for a conversion than a merger or asset transfer, which reduces the expense and time required for a business to change its form or jurisdiction of organization.
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