Business Reorganization (Conversion, Merger, Asset Purchase, etc.)

General Information

The various statutory forms of business combinations available in Kentucky are summarized in the chart below.

Purpose/Necessity

For a variety of reasons, two or more business organizations may choose to consolidate operations, personnel, or assets. This may involve changing the existing business structure, absorbing another company, or ending operations and selling business assets. Potential reasons for such a decision include:

  1. Reduced costs / increased revenues
  2. Increased production or service delivery
  3. Expanded market presence (geographical or otherwise)
  4. Organizational efficiencies: centralized management, consolidated reporting and recordkeeping, compliance with business formalities, etc.
  5. Preserve existing leases, loan agreements, franchises, employment contracts, etc. entered into by an existing entity and which are non-assignable
  6. Avoid the delay and expense of dissolution: winding up, distributing assets, notifying creditors, etc.
  7. Avoid the burden and expense of qualification: filings with Secretary of State and County Clerk, maintenance of a Registered Agent, etc.

The constituent companies must make a well-informed business decision as to whether a combination would be greater than the sum of their parts individually. Efficiency gains from economies of scale may not be worthwhile if the organizations cannot agree how to manage the entity post-combination. But where the organizations have relative and complementary strengths they can unite for a shared mission, a merger, consolidation, or share exchange can be very advantageous.

 

About

Availability

Liability

Transfer

Business Identity

Conversion

One business continues its existence but changes its entity type Most business entity types may convert into another available entity type in Kentucky. See, e.g., KRS 275.376, KRS 362.1-902,KRS 362.2-1102 The new (converted) business generally assumed liabilities for debts of the previous (converting) business(es). See KRS 275.375(2),KRS 362.1-904(2), KRS 362.2-1105(2) Instruments of transfer not required because only one business is involving; no sales or transfer taxes Business identity does not change because only one business is involved; no need to reacquire permits, licenses, qualifications, etc.

Merger

One or more businesses terminates its existence while transferring its assets and liabilities to an existing business Most business entity types may merge with one another in Kentucky. See, e.g., KRS 271B.11-010(1), KRS 275.345(1), KRS 362.1-905(1), KRS 362.2-1106(1) The existing (merged into) business generally assumes liabilities for debts of the terminating (merging) business(es). See KRS 271B.11-060, KRS 275.365, KRS 362.1-906, KRS 362.2-1109 Instruments of transfer (deeds, bills of sale, etc.) generally not needed to transfer assets and liabilities; sales and transfer taxes are avoided Business identity of the terminating business(es) generally not preserved; permits, licenses, qualifications, etc. must be reacquired

Consolidation

Two or more organizations terminate their existence while transferring their assets and liabilities to a newly formed organization Only non-profit corporations may consolidate in Kentucky. KRS 273.281 and KRS 273.293(1) The newly formed (consolidated into) organization generally assumes liabilities for debts of the terminating (consolidating) organizations. See KRS 273.291 Instruments of transfer (deeds, bills of sale, etc.) generally not needed to transfer assets and liabilities; sales and transfer taxes are avoided Business identity of the terminating organization(s) generally not preserved; permits, licenses, qualifications, etc. must be reacquired

Share Exchange

A business acquires outstanding shares of another business, and both of which continue their existence Only LLCs and other corporations may acquire shares of a corporation in Kentucky. KRS 271B.11-020(1) and KRS 275.500(1) The acquiring business generally does assume liabilities for debts of the acquired business (parent-subsidiary context) Instruments of transfer (deeds, bills of sale, etc.) generally needed to transfer assets; sales and transfer taxes must be paid Business identity of the selling business generally preserved; permits, licenses, qualifications, etc. need not be reacquired

Asset Purchase

A business purchases desired assets from another business, and both of which continue their existence There are no restrictions on the ability of a particular business entity type to purchase the assets of another business entity type in Kentucky. See KRS 271B.12-010(1), KRS 275.247 The purchasing business generally does not assume liabilities for debts of the selling business Instruments of transfer (deeds, bills of sale, etc.) generally needed to transfer assets; sales and transfer taxes must be paid Business identity of the selling business generally not preserved; permits, licenses, qualifications, etc. must be reacquired

 

Frequently Asked Questions

  • Why might a business seek to change its structure or entity type?
    • In Kentucky, there are seven different for-profit business entity types. Each entity type differs in the ways that its business owners are shielded from business liabilities, the method by which it is taxed, and the managerial formalities it is required to comply with by law. An existing business might greatly benefit from the laws applicable to a different entity type or from a different federal taxation method.An obvious way to change entity type is through conversion, which is available to many different entity types in Kentucky. Where conversion is not available or otherwise preferred, a merger, consolidation, or asset purchase combined with a dissolution may achieve the same result. Before any such change is begun, the pros and cons of each method should be carefully considered.
  • What are dissenters’ rights?
    • Dissenters’ rights are a protection afforded to corporate shareholders who object to fundamental corporate changes that are lawfully undertaken. If such shareholders are outvoted, those shareholders may liquidate their shares, thereby receiving payment for such shares at fair market value.Dissenters’ rights only come into play when fundamental corporate changes are being considered, which include:

      •  Conversion
      •  Merger
      •  Share Exchange
      •  Asset Purchase (sale of all/substantially all of the business assets not in the usual/regular course of business)Before such changes are voted upon, the corporation must comply with statutory requirements to provide shareholders with appropriate notice. A shareholder wishing to assert dissenters’ rights must properly notify the corporation of his or her intention to demand payment for the shares owned.

      Because of the complicated process of giving and receiving adequate notice, it is best to consult with an attorney with knowledge of Kentucky corporate law and dissenters’ rights before any fundamental corporate changes are contemplated.

  • Do the Articles of Merger have to be recorded?
    • According to state law, the recording process is mandatory. KRS 14A.2-040(1)(h). To stay in compliance with the law, the business should make the appropriate recording soon after the Articles are accepted by the Secretary of State’s office.
  • Under what circumstances does a purchaser of business assets assume liabilities from the seller?
    • Though the general rule is that liabilities do not transfer from a seller to a purchaser following a sale of business assets, there are several exceptions to this general rule:•  The purchaser expressly or impliedly agrees to assume such liabilities
      •  The transaction amounts to a de facto merger or consolidation (in which case liability does generally transfer)
      •  The purchaser is merely a continuation of the seller (due to a continuity of ownership and/or management, operating from the same physical location, etc.)
      •  The transaction was entered into with the fraudulent intent to escape such liabilitiesSee Pearson ex rel. Trent v. National Feeding Systems, Inc., 90 S.W.3d 46 (Ky. 2002)

      Accordingly, to avoid such liabilities, it is important to verify the independence of the parties and structure the transaction so that the exceptions are avoided.

Legal Services Offered and Cost

Business Conversion
Legal fees: hourly rate
Filing fees and other costs: $40. KRS 271B.1-220(1), KRS 275.055(1), KRS 362.1-109, KRS 362.2-122(1)
This includes:

  1. Review client’s information, answer client questions and verify current information about business
  2. Draft Plan of Conversion based on Kentucky legal requirements and client goals
  3. If a corporation is involved, draft meeting minutes, board of directors and shareholders/members resolutions, forms of notice, written consents, etc. to comply with corporate laws and dissenters’ rights requirements
  4. Secure approval of Plan of Conversion by business owners given relevant business entity laws and the business’ internal documents
  5. Draft new business formation document (Articles of Incorporation, Articles of Organization, Certificate of Limited Partnership, etc.) for converted entity and have document executed
  6. Submission of new business formation document and filing fee with the Kentucky Secretary of State
  7. All postage and mailing charges
  8. Email confirmation of conversion acceptance by Secretary of State and completion of other necessary tasks to convert

If you are ready to get started, please CLICK HERE to enter basic information using our secure online form.

 

Business Merger
Legal fees: hourly rate
Filing fees and other costs: $

This includes:

  1. Review client’s information, answer client questions and verify current information about business
  2. Draft Plan of Merger based on Kentucky legal requirements and client goals
  3. If a corporation is involved, draft meeting minutes, board of directors and shareholders/members resolutions, forms of notice, written consents, etc. to comply with corporate laws and dissenters’ rights requirements
  4. Secure approval of Plan of Merger by business owners given relevant business entity laws and the business’ internal documents
  5. Draft Articles of Merger and have Articles executed by each constituent business entity
  6. Submission of Articles of Merger and filing fee with the Kentucky Secretary of State
  7. Recording of Articles of Merger with the appropriate County Clerk’s office
  8. All postage and mailing charges
  9. Email confirmation of merger acceptance by Secretary of State and completion of other necessary tasks to merge

If you are ready to get started, please CLICK HERE to enter basic information using our secure online form.

 

Business Consolidation
Note: this is only available to non-profit corporations
Legal fees: hourly rate
Filing fees and other costs: $8. KRS 273.368(4)
This includes:

  1. Review client’s information, answer client questions and verify current information about business
  2. Draft Plan of Consolidation based on Kentucky legal requirements and client goals
  3. Draft meeting minutes, board of directors and members resolutions, forms of notice, written consents, etc.
  4. Secure approval of Plan of Consolidation by business owners given relevant business entity laws and the business’ internal documents
  5. Draft Articles of Consolidation and have Articles executed by each constituent business entity
  6. Submission of Articles of Consolidation and filing fee with the Kentucky Secretary of State
  7. All postage and mailing charges
  8. Email confirmation of consolidation acceptance by Secretary of State and completion of other necessary tasks to consolidate

If you are ready to get started, please CLICK HERE to enter basic information using our secure online form.

 

Share Exchange
Note: this is only available to a corporation exchanging shares with a corporation or a corporation exchanging shares with a LLC
Legal fees: hourly rate
Filing fees and other costs: $50.00. KRS 271B.1-220(5), KRS 275.055(8)
This includes:

  1. Review client’s information, answer client questions and verify current information about business
  2. Draft Plan of Share Exchange based on Kentucky legal requirements and client goals
  3. Draft meeting minutes, board of directors and shareholders resolutions, forms of notice, written consents, etc. to comply with corporate laws and dissenters’ rights requirements
  4. Secure approval of Plan of Share Exchange by business owners given relevant business entity laws and the business’ internal documents
  5. Draft Articles of Share Exchange and have Articles executed by each constituent business entity
  6. Submission of Articles of Share Exchange and filing fee with the Kentucky Secretary of State
  7. All postage and mailing charges
  8. Email confirmation of share exchange acceptance by Secretary of State and completion of other necessary tasks to exchange shares

If you are ready to get started, please CLICK HERE to enter basic information using our secure online form.

 

Asset Purchase / Sale of Business Assets
Legal fees: hourly rate
Filing fees and other costs: varies
This includes:

  1. Review client’s information, answer client questions and verify current information about business
  2. Determine which assets will be purchased/sold and prepare instruments of transfer (deeds, bills of sale, etc.) to affect such transactions
  3. If a corporation is involved, draft meeting minutes, board of directors and shareholders resolutions, forms of notice, written consents, etc. to comply with corporate laws and dissenters’ rights requirements
  4. Secure approval of transaction by business owners given relevant business entity laws and the business’ internal documents
  5. Draft instruments of transfer based on Kentucky legal requirements and client goals
  6. Recording of deeds and other instruments and payment of transfer tax or other fees with the appropriate County Clerk’s office
  7. Other tasks as appropriate to complete transaction

If you are ready to get started, please CLICK HERE to enter basic information using our secure online form.

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