Providing for the conversion of partnerships into other forms of domestic or foreign organizations, and providing for fees

BACKGROUND —— GENERAL. This bill amends the “Uniform Partnership Act” (Code chapter 486A) prepared and recommended by the national conference of commissioners of uniform state laws, and providing for partnership law in Iowa. A partnership refers to a general partnership which involves an association of individuals who assume co-ownership of business assets. Generally, the general partners are responsible for collective decisionmaking, taking an equal share of business profits, and assuming full personal liability in case of a lawsuit or creditor action. A partnership is governed by a partnership agreement which is a type of private contract entered into by the partners that describes the internal affairs of the organization, and is not required to be filed with the secretary of state. TYPES OF ORGANIZATIONS. A partnership is often compared with other types of organizations that limit the income earned and liability incurred by investors based on their respective contributions. The organization may delegate control over the organization’s affairs to one or more persons who serve in a fiduciary capacity as one or more general partners of a limited partnership (Code chapter 488), managers of a limited liability company (Code chapter 489), or board members of a business corporation (Code chapter 490) or nonprofit corporation (Code chapter 504). These types of filing organizations must be formed under what the bill refers to as a domestic governing statute or foreign governing statute that controls the organization’s internal governance with certain tax consequences. A foreign organization may also include other types of organizations under a comparable foreign governing statute. A public organic document required to be filed to form a domestic organization includes a certificate of limited partnership for a domestic limited partnership, a certificate of organization for a domestic limited liability company, articles of incorporation for a domestic business corporation or not-for-profit corporation. An organizational document includes a public organic document and other documents not required to be filed, including a partnership agreement for a domestic partnership, an operating agreement for a domestic limited liability company, bylaws and shareholder agreements for a domestic business corporation, and bylaws and other member agreements for a nonprofit corporation. BACKGROUND —— CONVERSION. The process of conversion allows a domestic organization to become another type of domestic or foreign organization. Under Code chapter 486A, the conversion process is limited. A domestic partnership formed under Code chapter 486A may only convert to a limited partnership governed under Code chapter 488 and only pursuant to certain requirements. The terms of the conversion must be approved by the partners. After the conversion, the converted limited partnership must file a certificate of limited partnership with the secretary. A general partner which becomes a limited partner of a converted limited partnership must remain liable as a general partner for any liability for an obligation incurred by the partnership. BILL’S PROVISIONS —— PROCESS OF CONVERSION. The bill provides for the conversion of a domestic partnership to a domestic limited partnership or any other type of domestic or foreign organization, so long as the other organization’s governing statute authorizes the conversion, the conversion is not prohibited by the other organization’s governing statute, and the other organization complies with its governing statute. The terms of the conversion must be set out in a plan of conversion for approval by all of the general partnership’s partners or a percentage specified in its partnership agreement. The plan of conversion must include organizational documents of the converted organization. After the conversion is approved, the secretary of state must file articles of conversion with the secretary of state that includes information regarding the converting partnership and converted organization. The conversion takes effect when articles of conversion and any public organic record for the converted organization are filed, or a later date as specified in the filed articles. The bill retains a provision that holds a general partner liable for any obligation incurred by the partnership before the conversion takes effect. BILL’S PROVISIONS —— EFFECT OF CONVERSION. When a conversion takes effect, property owned by the converting organization becomes property of the converted organization. Obligations, including debts, incurred by the converting organization become obligations of the converted organization. Any pending legal action brought by or against the converting organization continues as if the conversion had not occurred. The converted foreign organization consents to the jurisdiction of the courts of this state to enforce any obligation owed by the converting organization. A converted foreign organization that is not authorized to transact business in this state must appoint the secretary of state as its agent for service of process.