California Corporate Conversion Statute Expanded

By Rose B. Sorensen and Chance Brooks 

On September 2, 2022, California Governor Gavin Newsom signed SB 49 into law, amending California Corporations Code §1151 (Cal. Corp. Code §1151) to allow domestic corporations to convert into foreign entity types as of January 1, 2023.

Previously, California only allowed domestic corporations to convert into other domestic entity types. For example, before January 1, 2023, a California corporation could convert into a California limited liability company, limited partnership, or general partnership, but not a Delaware or other foreign corporation, limited liability company, limited partnership, or general partnership. Now Cal. Corp. Code §1151 allows for a California corporation to convert into an entity of another state (e.g., a foreign corporation, limited liability company, limited partnership, or general partnership), provided that the foreign state also allows for the conversion and the corporation complies with any requirements of laws that apply to the conversion of the converted entity.

California Corporations Code §1152 and §1153 have also been amended to address the requirements relating to a corporation's plan of conversion to a domestic other business entity, a foreign other business entity, or a foreign corporation and to provide for the effectiveness of the conversion.

The expansion of Cal. Corp. Code §1151 provides a key benefit because a conversion is a single entity transaction, and in many cases, is the simplest and most cost-effective method for converting one entity type into another. Like with all corporate transactions, there may be legal, tax, and accounting implications and you may want to consult with your advisors prior to undertaking any actions.