Entity Mergers and Interest Exchanges

Part 1 of this blog dealt with entity conversions and domestications as set forth in Arizona’s Entity Restructuring Act (the “Act”) which became effective on January 1, 2015 (see Newsletter March 2015). Part 2 will deal with entity mergers and interest exchanges, which are also covered by the same Act.

As previously pointed out, this statute deals with both transactions between or among Arizona entities, as well as transactions between or among entities formed in Arizona and entities formed in other states or countries. That is, provided those foreign jurisdictions permit such transactions with entities formed in other jurisdictions foreign to them. This opens up a broader choice of planning for Arizona businesses. Of course, it is prudent to determine whether such transactions are permitted in such foreign jurisdictions before getting too far into the process.

Teamwork and integration concept with puzzle pieces

Article 2 of Chapter 6 of the Act covers mergers between or among entities. For example, in the event a corporation and a limited liability company wish to combine, they would do so after entering into a plan of merger and after approval in line with state requirements for each entity in each jurisdiction, then delivery of a detailed statement of merger for filing with the appropriate state or country filing authorities. One of these two entities is usually designated as the surviving entity, although the Act does permit the surviving entity to be a newly formed entity.

Article 3 of Chapter 6 of the Act covers interest exchanges between or among entities. For example, the acquiring entity could acquire the issued and outstanding interests of the acquired entity from its interest holders in exchange for the issued and outstanding interests of the acquiring entity. Many variations of consideration are available to be offered by the acquiring entity, but the effect is that the acquired entity is then owned by the acquiring entity. The process would generally be the same as that utilized with a merger transaction, taking into account the differences in the two types of transactions.

A final blog addressing the Act will deal with divisions.

Michael W. Margrave