Entity Interest Exchanges in Idaho

The Idaho Model Entity Act ("MET Act") authorizes interest exchanges. I.C. § 30-22-301. An interest exchange is easiest to explain in the context of corporations. A corporation's interest is a share of stock. In an interest exchange, the corporation exchanges its stock for stock of another corporation. The shareholders of one corporation essentially trade their shares for shares in another corporation. 

The MET Act authorizes an Idaho entity to exchange interests with a domestic or a foreign entity. I.C. § 30-22-301(a)(1). The interest exchange can involve limited classes or a series of interests as well. I.C. § 30-22-301(a)(2). 

Plan of Interest Exchange

An Idaho entity may be acquired through an interest exchange if it approves a "plan of interest exchange." This plan must be written and state:

  • The name and type of entity of the acquired entity. I.C. § 30-22-302(a)(1).
  • The name, jurisdiction of formation, and the type of entity of the acquiring entity. I.C. § 30-22-302(a)(2).
  • The manner of converting the interests in the acquired entity into interests in the acquiring entity. I.C. § 30-22-302(a)(3).
  • Any proposed amendments to a "public organic record" or "private organic rules" of the acquired entity. I.C. § 30-22-30(2)(a)(4)(A)-(B).
  • Other terms and conditions of the interest exchange. I.C. § 30-22-302(a)(5).
  • Any other terms not prohibited by law. I.C. § 30-22-302(b).

Approval of Interest Exchange by Acquired Entity

A plan of interest exchange must be approved by the interest holders of the acquired entity. I.C. § 30-22-303(a). The MET Act requires it to be approved in accordance with the "organic law" and "organic rules" of the entity. I.C. § 30-22-303(a)(1)(A).

OR

If the "organic law" and "organic rules" do not provide for an approval of an interest exchange, then it must be approved by the same rules that govern a merger. I.C. § 30-22-303(a)(1)(B)(i).

OR

All the interest holders. I.C. § 30-22-303(a)(1)(C).

In addition, the approval of any interest holder of an Idaho entity will have liability for debts, obligations, or other liabilities after the interest exchange. I.C. § 30-22-303(a)(2). There is an exception to this general rule for entities other than a business corporation or nonprofit corporation. Id. If the "organic rules" for the entity:

  1. provide that a vote or consent than fewer than all of the interest holders is allowed; and
  2. the interest holder voted for or consented to that provision of the "organic rule"

then the interest holder approval is not required. I.C. § 30-22-303(2)(A)-(B).

Approval of Interest Exchange by Acquiring Entity is NOT Required

Except as provided by law, the approval of interest holders of the acquiring entity is NOT required. I.C. § 30-22-303(c). 

Amendment of the Plan of Interest Exchange

A Plan of Interest Exchange may be amended if all the parties agree to the amendment. I.C. § 30-22-304(a). The Plan of Interest Exchange may also state how it is amended. I.C. § 30-22-304(b)(1). 

However, interest holders who were entitled to vote on or consent to an interest exchange are entitled to vote or consent to a change to the plan of interest exchange that:

  • Changes the amount or kind of "interests, securities, obligations, money, other property, or rights to acquire interests or securities, or any combination of the foregoing" the interest holders are to receive in the exchange. I.C. § 30-22-304(b)(2)(A). 
  • Changes "public organic record" or "private organic rules" of the acquired entity that the interest holders are entitled to vote on. I.C. § 30-22-304(b)(2)(B).
  • Materially affects the interest holders in any material respect. I.C. § 30-22-304(b)(2)(C). 

Abandonment of a Plan of Merger Before it is Effective

A Plan of Interest Exchange may be abandoned after it is approved but before it becomes effective. I.C. § 30-22-304(c). This is accomplished in one of two ways. First, if the Plan of Interest Exchange states how it can be abandoned, according to its terms. Id. Second, if the Plan of Interest Exchange is silent as to how it is abandoned, then by same manner as the plan was approved. Id.

If a Statement of Interest Exchange has been delivered to the Secretary of State but it is not yet effective, a Statement of Abandonment must be delivered to the Secretary of State. I.C. § 30-22-304(d). 

The Statement of Interest Exchange

A Statement of Interest Exchange must be delivered to the Secretary of State. I.C. § 30-22-305(a). It must be signed by the "acquired entity." Id. 

The Statement of Interest Exchange must state the following:

  • The name and type of entity of the acquired entity t. I.C. § 30-22-305(b)(1).
  • The name, jurisdiction of formation, and type of entity of the acquiring entity. I.C. § 30-22-305(b)(2).
  • If the Statement of Interest Exchange is not effective when it is filed, the date the Interest Exchange is to be effective no more than 90 days after filing. I.C. § 30-22-305(b)(3).
  • A statement that interest exchange was approved by the acquired entity. I.C. § 30-22-305(b)(4).
  • Amendments to the "organic public record" of the acquired entity. I.C. § 30-22-305(b)(5).

The Plan of Interest Exchange may also be filed instead of a Statement of Interest Exchange. I.C. § 30-22-305(d).

Effect of Interest Exchange

When the interest exchange is effective, the interests of the acquired entity are converted. I.C. § 30-22-306(a)(1). The acquiring entity becomes the interest holder of the interest of the acquired entity. I.C. § 30-22-306(a)(2). 

Any interest holder that did not have any liability before the interest exchange, still has no liability after the interest exchange unless the liability arises after the interest exchange. I.C. § 30-22-306(c). If an interest holder had a liability before the interest exchange, but is no longer an interest holder after the interest exchange, the following rules apply:

  • The interest holder is not released from the liability. I.C. § 30-22-306(d)(1).
  • The interest holder has no liability that arises after the merger. I.C. § 30-22-306(d)(2).

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