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A merger is the combination of one or more corporations, LLCs, or other business entities into a single business entity. Mergers are complex and flexible events. Mergers can involve two or more companies, even dozens of companies. Mergers can also consolidate entities of different types: an LLC can merge with a corporation or with a partnership. When two LLCs enter into a merger, one entity (the disappearing LLC) is absorbed into the other (the surviving LLC). The disappearing LLC ceases to exist for all purposes, with only the surviving LLC continuing. In general, the surviving LLC takes over all rights, liabilities, debts, and obligations of the disappearing LLC.

A consolidation is quite similar, involving an agreement of two or more corporations of LLCs to unite as a single entity. Often, a consolidation involves the formation of a third entity into which the assets and liabilities of the constituent entities are transferred.

For most limited liability company acts, the concepts of merger and consolidation are treated in the same fashion. If you’re considering either, consult with your business attorney.

The mechanics of a merger work as follows. To effect a merger of two entities, the board of directors or managers of both entities cause a plan of merger to be prepared. If a corporation, the board votes to approve the plan and recommends that the plan be submitted to the shareholders for approval. If an LLC, either the members vote or the managers vote and then present their vote to the members for a separate vote. Specifics regarding member and manager meetings and voting are found in later chapters.

A plan of merger includes:

• The names of the entities participating in the merger

• A clear statement of which entity will survive and which entity will disappear

• The date when the merger will take effect; if this is not stated, then the merger is effective upon filing with the secretary of state

• A calculation outlining how much ownership in the surviving entity the owners of the disappearing entity will receive

• Any other information that the entities wish to include (for example, whether the name of the surviving entity will change when the merger becomes effective, whether a new registered agent or office will be appointed, whether there are any contingencies that must occur before the merger is effective)

A sample plan of merger for two fictitious LLCs, providing for a one-for-one ownership exchange, is located at the end of this chapter.

Once the plan of merger has been approved by the managers and owners of both entities, articles of merger must be prepared and submitted to the secretary of state. This is a document separate from the plan of merger. Generally, articles of merger are very brief. Like articles of organization, many secretary of state offices will provide form articles of merger for your use. In some states, you must attach a plan of merger to the articles of merger; in other states, you simply indicate in the articles of merger that the plan of merger is on file. If the merger involves a foreign entity, articles of merger must be sent to the secretary of state in both states.

Articles of merger should include:

• A copy of the plan of merger (if required by the state; if not, an indication that the plan is on file at company headquarters)

• The percentage interest or number of shares voted for and against the plan of merger

• An undertaking on the part of the surviving entity to assume the debts and liabilities of the disappearing entity or entities, if not already included in the plan of merger

• The signature of authorized officers of each entity

The following is a sample plan of merger. The first two paragraphs identify the merging LLCs. The merger is intended to qualify as a tax-free reorganization. Aluminum and Bituminous Coal, LLC (ABC) will be the survivor, assuming all the rights, properties, and liabilities of Dutch Everlight Foundry, LLC (DEF). Ownership shares will be exchanged on a one-for-one basis.

▼ Expert Tip

When you contact the secretary of state’s office to obtain articles of merger, specify whether or not a parent/subsidiary merger is involved. Different forms of articles of merger are used depending on the type of merger. Some states have short, fill-in-the-blank merger forms. The secretary of state will also tell you the fee for filing articles of merger. Don’t forget to consult with your business attorney as well.

ABC’s articles will govern, as amended, to change the name of the entity to ABC/DEF, LLC. ABC’s managers will continue as the managers of the surviving LLC. Both ABC and DEF will continue to operate in their ordinary course of business until the merger. The members of both LLCs must approve the plan.

Sample Plan of Merger

Agreement and Plan of Merger

This Agreement and Plan of Merger is made this February 14, 20__ between Aluminum and Bituminous Coal, LLC, a Washington LLC (ABC), and Dutch Everlight Foundry, LLC, an Oregon LLC (DEF).

Recitals

ABC is a Washington LLC with its principal place of business located in Spokane, Washington.

DEF is an Oregon LLC with its principal place of business located in Portland, Oregon.

Both ABC and DEF are manager-managed LLCs. The elected managers of ABC and DEF agree that it is in the best business interests of the LLCs and their owners that DEF be merged into ABC, in accordance with the terms and conditions of this Agreement and Plan of Merger, in such manner that this transaction qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1954, as amended.

Therefore, in consideration of the mutual covenants set forth in this Agreement and subject to the terms and conditions of this Agreement, the parties agree as follows:

1. DEF shall merge with and into ABC, which shall be the surviving LLC.

2. On the effective date of the merger, the separate existence of DEF shall cease and ABC shall succeed to all the rights, privileges, immunities, and franchises, and all the property, real, personal, or mixed of DEF, without the necessity for any separate transfer. ABC shall thereafter be responsible and liable for all liabilities and obligations of DEF, and neither the rights of creditors nor any liens on the property of the absorbed LLC shall be impaired by the merger.

3. The resulting ownership of the surviving LLC shall be computed as follows.

a. Concurrently with and immediately following the merger, the owners of DEF shall relinquish their ownership interest in DEF in exchange for an ownership in the surviving LLC (ABC) in accordance with and in the amount dictated by this Plan of Merger.

b. The ownership of the surviving LLC following the merger shall be apportioned such that the existing owners of ABC shall hold fifty percent (50%) of the ownership interest in the surviving LLC; such owners of ABC shall bear this reduction in overall ownership interest pro rata.

c. The ownership of the surviving LLC following the merger shall be apportioned such that the existing owners of DEF, in exchange for their relinquishment of ownership in DEF, shall hold fifty percent (50%) of the ownership interest in the surviving LLC; such owners of DEF shall be granted this ownership interest pro rata.

4. The articles of organization of ABC shall continue to be its articles of organization following the effective date of the merger, subject to the following amendment:

Article I of the articles of organization shall be amended to read as follows:

The name of the LLC is ABC/DEF, LLC.

5. The operating agreement of ABC shall continue to be its operating agreement following the effective date of merger.

6. The managers of ABC on the effective date of the merger shall continue as the managers of ABC for the full unexpired terms of their offices and until their successors have been elected or appointed and qualified.

7. Neither ABC nor DEF shall, prior to the effective date of the merger, engage in any activity or transaction other than in the ordinary course of business, except that each LLC may take all action necessary or appropriate under federal or state law to consummate this merger.

8. This Agreement and Plan of Merger shall be submitted for the approval of the owners of ABC and DEF, such approval to be obtained on or before December 31, 20__.

9. The effective date of this merger shall be the date when a certificate of merger is issued by the Secretary of State of the State of Washington.

In witness whereof, the parties have executed this Agreement and Plan of Merger as of the date set forth above.

Aluminum and	Dutch Everlight
Bituminous Coal, LLC	Foundry, LLC
by ________________________	by________________________
President	President