Issue 9

Winter 1999

A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA

     

SENATE BILL 835 AND MERGERS, CONVERSIONS, CONSOLIDATIONS AND NAME CHANGES 

Thirty-five page Senate Bill 835 has been enacted.  The provisions discussed below apply effective December 15, 1999 to mergers, consolidations, conversions or name changes on or after that date.  IN order to facilitate a concise summary of the real property aspects, the following abbreviations will be used:  DC (domestic corporation); FC (foreign corporation); DNPC (domestic non-profit corporation); FNPC (foreign non-profit corporation); UE (unincorporated entity); DPS (domestic partnership); FPS (foreign partnership); DLPS (domestic limited partnership); FLPS (foreign limited partnership); DLLC (domestic limited liability company); FLLC (foreign limited liability company); BE (business entity); and RLLPS (registered limited liability partnership). 

The transactions permitted by the bill are as follows, and are subject to the bill’s requirements. 

DC may merge with UE and, if desired, with FC, DNPS, or FNPA.  AN UE must be involved.  G.S. 55A-11-09(b) and (f). 

DNPC may merge with UE and, if desired, with FNPC, DC, or FC.  An UE must be involved.  G.S. 55A-11-09(b) and (f).

DLLC may convert to DLP.  G.S. 57C-9A-01(a). 

FLLC, DLPS or FLPS (defined in G.S. 59-102), or any other partnership (defined in G.S. 59-36), RLLPS (defined in G.S. 59-32) or LLPS formed under law of another state, may convert to DLLC.  G.S. 57C-9A-01(b).

DLLC may merge with DLLC or other BE.  G.S. 57C-9A-05. 

DPS may convert to DLLC or to DLPS.  G.S. 59-73.3. 

DPS may merge with DPS or other BE.. G.S. 59-73.3. 

DLPS may convert to DLLC.  G.S. 59-1007(a). 

DLC (defined in G.S. 57C-1-01), FLLC (defined in G.S. 57C-1-103), FLPS, any other partnership defined in G.S. 59-26, RLLPS (defined in G.S. 59-32) or any other LLPS formed under another state'’ laws, but excluding a DLPS, may convert to DLPS.  G.S. 59-1007(b). 

DLPS may merge with DLPS or other BE.  G.S. 59-1011. 

In each merger situation set forth above, a plan of merger is required.  G.S. 55-11-10(c); G.S.  55A-11-09(c); G.S. 57C-9A-06; G.S. 59-73.4 and G.S. 59-1012.  Articles of merger are required to be filed.  G.S. 55-11-10(d); G.S. 55A-11-09(d); G.S. 57C-9A-07; G.S. 59-73.5; G.S. 59-1013.

In each instance, the effect of a merger is to have the merging entities cease as 

separately existing entities and to have one resultant entity; to have the resultant entity have all of the liabilities of the merging entities and to have the title to real estate of the merging entities become vested in the surviving entity.  G.S. 55-11-10(e); G.S. 55A-11-09(e); G.S. 57C-9A-08; G.S. 59-73.6; G.S. 59-1014.

 

With respect to any entity entitled to convert to another entity, a plan of conversion is required.  G.S. 57C-9A-02; G.S. 59-1008.  After the plan of conversion is approved by the converting business entity shall deliver articles of organization to the Secretary of State (G.S. 57C-9A-03) or file a certificate of limited partnership (G.S. 59-1009).

 

With respect to a conversion, the converting entity ceases in its prior form and continues as the resultant converted entity; title is vested in the resultant converted entity; and the liabilities of the converting entity continue as liabilities of the resultant entity.  G.S. 57C-9A-04; G.S. 59-1010.

 

There are several sections of the bill that are entitled “Real Property Records” that provide as follows.

 

Whenever the name of an entity holding title to real property in this State is changed upon execution and filing with the Secretary of State the appropriate documents, or whenever title to its real property in this State is vested by operation of law in another entity upon merger, consolidation, or conversion, a certificate reciting the name change, merger, consolidation, or conversion shall be recorded in the office of the register of deeds of each county where the property lies.  The Secretary of State shall adopt uniform certificates.  In the case of a foreign entity, a similar certificate by any competent authority of the jurisdiction may be registered in accordance with the North Carolina statute.  The certificate shall be recorded by the register of deeds in the same manner as deeds, and for the same fees, but no formalities as to acknowledgement, probate, or approval by any other officer shall be required.  The former name of the entity holding title to the real property before the name change, merger, consolidation, or conversion shall appear in the ‘Grantor’ index, and the new name of the entity holding title to the real property by virtue of the merger, consolidation, or conversion shall appear in the ‘Grantee’ index.”  G.S. 55-4-05; G.S. 55A-4-05; G.S. 57C-2-34; G.S. 59-73.7(k); G.S. 59-206(a)(3a); G.S. 59-206(a)(5).

G.S. 47-18.1 is a statute in the chapter pertaining to registration or recording.  The statute traces the language of the statutes noted in the preceding paragraph pertaining to the recording of a certificate in the register of deeds office.  However, G.S. 47-18.1 does not refer to name changes.  It only refers to merger, consolidation or conversion is effective against lien creditors or purchasers for value from the time of registration of the certificate  as required by G.S. 47-18.1.  It would be helpful to amend G.S. 47-18.1 to require registration of name change certificates to avoid potential title examination and priority problems. 

There are other provisions of Senate Bill 835 worth noting.  Whenever a foreign corporation ceases its separate or prior existence because of a statutory merger, consolidation or conversion, the resulting entity shall apply for a certificate of withdrawal for the foreign corporation under G.S. 55-15-21.  There are similar provision under Chapter 55A (G.S. 55A-15-21), Chapter 57C (G.S. 57C-7-12), and Chapter 59 (G.S. 59-909).  G.S. 58-10-10 pertains to mutual to stock insurance conversion, requiring a plan of conversion and specifying that title to real property is deemed transferred to and vested in the stock insurer without any other deed or transfer, with the stock insurer assuming all obligations and liabilities of the former mutual insurer.  G.S. 58-10-10 is effective October 1, 1999.

ZONING ENDORSEMENTS 

The ALTA (American Land Title Association) has had two zoning endorsements for some time.  They have been recently amended. 

ALTA Endorsement Form 3 (Zoning) (10-17-98) is for vacant land.  It can be used for improved land.  IN the endorsement, the Company insures the insured against loss or damage sustained in the event that, at Date of Policy: (1) according to applicable zoning ordinances and amendments thereto, the land is not classified Zone                                       ; and (2) the following use or uses are not allowed under that classification:                                                        .  The endorsement continues by saying that there shall be no liability based on: (a) lack of compliance with any conditions, restrictions, or requirements contained in the zoning ordinances and amendments thereto mentioned above, including but not limited to the failure to secure necessary consents or authorizations as a prerequisite to the use or uses; (b) the invalidity of the ordinances and amendments thereto mentioned above until after a final decree of a court of competent jurisdiction adjudicating the invalidity, the effect of which is to prohibit the use or uses; and (c) refusal of any person to purchase, lease or lend money on the estate or interest covered by the policy.

ALTA endorsement Form 3.1 (Zoning – Completed Structure) (10-17-98) is for improved land. 

Insuring Provision 1 of Form 3.1 contains the same coverage as Insuring Provisions 1 and 2 of Form 3 in (1) and (2) referred to above.  Limitations on coverage are the same as in (a), (b) and (c) above in regard to Form 3. 

In addition, Insuring Provision 2 of Form 3.1 states that:  The Company further insures against loss or damage arising from a final decree of a court of competent jurisdiction (a) prohibiting the use of the land, with any structure presently located thereon, as specified in paragraph 1(b); or (b) requiring the removal or alteration of the structure on the basis that, at Date of Policy, the ordinances and amendments thereto have been violated with respect to any of the following matters:  (i) area, width or depth of the land as a building site for the structure; (ii) floor space area of the structure; (iii) setback of the structure from the property lines of the land; (iv) height of the structure; or (v) number of parking spaces.  This Form 3.1 coverage is also subject to limitations set out in (b) and (c) above in regard to Form 3.

The 1998 endorsements recast the language to change the coverage from affirmative statements to coverage in the event certain circumstances do not exist.  Also, Form 3.1 added parking coverage as noted above.

Form 3 can be given if a zoning letter is received specifying the zoning classifications and uses.

As a practical matter, for Form 3.1, the title insurer can rely upon the certificate of completion and occupancy if that document, or a supplemental document, from the appropriate zoning official reveals that zoning laws have been complied with, that a “C.O.” has been issued, and that matters covered by the endorsement have been compiled with.  This is especially true with respect to improvements that have been in existence for some time.  In fact, the title insurer will typically rely upon a zoning letter specifying the zoning classification, the permitted uses and that there are no known violations. 

The endorsements are available for commercial or residential transactions and for owner’s or loan policies.  Typically, the coverage is requested more often in a commercial transaction.  Also, if there are minor violations, such as setbacks, the title insurer can, depending on the circumstances, point the violation out and give special affirmative coverage.

DIRT LAW FORUM ISSUES

The November 1999 N.C. Bar Association “Dirt Law Forum” raised many interesting issues confronting real property attorneys and title insurers.  The Title Company of North Carolina supports the current roles of the approved attorney and title insurer that have served us so well.  We appreciate not only your business but also the difficult job that you have done so well.

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