In 1999, the Business Law Section of the California State Bar sponsored AB 197 (Ackerman). That bill established a comprehensive scheme under the California Corporations Code for the conversion of limited partnerships and limited liability companies into other forms of business entities. The bill, however, did not address the application of the Corporate Securities Law of 1968 to conversion transactions.

The following year, the Commissioner of Corporations requested that a clean-up bill, AB 1894 (Ackerman), include provisions clarifying the status of entity conversion transactions under the CSL. AB 1894 added Corporations Code § 25005.1 to define “entity conversion transaction” and amended Corporations Code § 25120 to specifically list an “entity conversion transaction” as being subject to qualification unless exempt or not subject to qualification. Finally, the bill amended Corporations Code § 25103 to include specified entity conversion transactions as exempt from qualification under either Corporations Code § 25110 (issuer transactions) or § 25120 (recapitalizations and reorganizations).