Forecast 2014: Legislature And CBA Give Boost To Business
The 2014 New Year will open with a strong message to business entrepreneurs that Connecticut is open for business. On Jan. 1, our state's version of the Model Entity Transactions Act (META) will become effective, making it easier for businesses to merge, consolidate, engage in a share exchange, or domesticate in Connecticut.
Kudos to the General Assembly and the Connecticut Bar Association's Business Law Section for recognizing the opportunity to adopt an innovative way to attract and retain business in Connecticut.
Meanwhile, the 2014 legislative session may also be the year the General Assembly passes Connecticut's version of the Social Benefit Corporation Act, another business-friendly law which would permit officers and directors to run corporations which are not driven exclusively by profits as the sole business objective. This is a good bill, which the CBA is supporting.
With these two statutes on the books, Connecticut will usher in an era in which more choices are available for businesses domiciling in Connecticut. With this expanded legal framework, it is hoped that entrepreneurs will consider Connecticut a preferred place to organize among the small list of states they routinely choose.
Model Entity Transactions Act
The cross-entity merger and conversion statute means that beginning on Jan. 1 varying forms of entities will be permitted to merge, consolidate, enter into an interest exchange with one another, convert from one form of entity to another, or domesticate into Connecticut with a simple filing with the Secretary of the State's Office. This will make Connecticut one of only a few states to offer this option.
Prior to passage of this act, there was no statute in Connecticut that dealt with these "cross-species" combinations other than certain entity-specific statutes, and those were very limited. The passage of META "goes a long way to enhance the efficiency and flexibility of dissimilar entity transactions under Connecticut Law," says attorney Mark Sklarz, the drafter of META and an active member of the CBA Business Law Section.
According to Sklarz, the challenge in drafting the legislation was to create an act that enabled those entities which previously were not permitted to engage in these combinations or domestications to combine or restructure without having an impact on previously existing statutes already permitting certain other entities to do so. Connecticut's META is a "junction box" approach for business restructurings that avoids modifying those pre-existing statutory sections already allowing entity combinations. Attorneys should be aware, however, that the tax implications of these combinations are not affected by this new statute. Companies must still consult with their tax advisors in planning their mergers and restructurings.
As Connecticut opens the door to this business-friendly approach, CBA's Business Law Section will continue to look for more opportunities to make Connecticut a more competitive and attractive place for business.
Social Benefit Corporation Act