OFFlCL OF THE ATTORNEV GENERAL. STATE OF TEXAS 

JOHN CORNYN 

October 13, 1999 

The Honorable Jeff Wentworth 

Chair, Nominations Committee 

Texas State Senate 

P.O. Box 12068 

Austin, Texas 7871 l-2068 

Opinion No. JC-0126 

Re: Whether a state license held by a corporation 

is automatically continued when the corporation 

converts to another type of business entity under 

article 5.17 ofthe Texas Business Corporation Act 

(RQ-0074-JC) 

Dear Senator Wentworth: 

The Texas Business Corporation Act allows a corporation to change its organizational form 

and convert to another type ofbusiness entity. You ask whether a state license held by a corporation 

continues automatically with the new entity when the corporation converts to a new entity. You are 

concerned that different state agencies take different positions on whether a license automatically 

continues, and you tell us that “a uniform interpretation of the effect of a conversion from one 

business entity to another on a license held by the converting entity would be helpful to many license 

holders.” Letter from Honorable Jeff Wentworth, Texas State Senate, to Honorable John Comyn, 

Texas Attorney General (June 10, 1999) (on tile with Opinion Committee). 

The Business Corporation Act allows a domestic corporation to “adopt a plan of conversion 

and convert to a foreign corporation or any other entity,” provided certain conditions are met. TEX. 

Bus. CORP. ACT ANN. art. 5.17 (Vernon Supp. 1999). The conversion provision was enacted by the 

Legislature in 1997 as part of a larger bill revising business organization laws. Supporters of the 

provision argued that it would create a more favorable business climate in the state by allowing 

corporations to convert easily from one type of organizational structure to another: 

Texas law recognizes at least seven different forms of business 

orgamzations, in both domestic and foreign forms, each of which 

carries different benefits and drawbacks. However, once a business 

is organized in one form, it cannot change to another business form 

without dissolving in its current form and reforming in a new one. In 

a healthy economy, businesses are dynamic, not static, and there 

should be flexibility to assume new forms. However, the expenses 

required to dissolve a business in one form and start up in another 

now limit such conversions. 
The Honorable Jeff Wentworth - Page 2 (JC-0126) 

To solve this problem, HB 1104 would allow aprocess ofconversion 

and conversion merger. 

HOUSEF@SEARCHORG.,BILLANALYSIS, Tex. H.B. 1104,75thLeg., R.S. 5 (May 5,1997);seealso 

Tex. Att’y Gen. Op. No. JC-0015 (1999) at 4-6 (discussing legislative history of conversion 

provision). 

In order for a corporation to convert to a new business form, it must comply with the 

requirements of the conversion statute. Among other things, the corporation must adopt a plan of 

conversion approved by its shareholders, draft articles of conversion, and deliver the articles of 

conversion to the Secretary of State. TEX. Bus. CORP. ACT ANN. arts. 5.17, 5.18 (Vernon Supp. 

1999). If the Secretary of State finds that the articles of conversion conform to law and that the 

corporation has complied with applicable conversion requirements, the Secretary of State issues a 

certificate of conversion and the conversion becomes effective. Id. arts. 5.18(C), 5.19. 

The Act sets out the effects of a conversion. Generally speaking, upon conversion, the 

converting entity continues to exist and all of the assets and liabilities of the converting entity that 

exist at the time of conversion continue with the entity in its new form: 

A. When a conversion of a converting entity takes effect: 

(1) the converting entity shall continue to exist, without 

interruption, but in the organizational form of the converted entity 

rather than in its prior organizational form; 

(2) all rights, title, and interests to all real estate and other 

property owned by the converting entity shall continue to be owned 

by the converted entity in its new organizational form without 

reversion or impairment, without further act or deed, and without any 

transfer or assignment having occurred, but subject to any existing 

liens or other encumbrances thereon; 

(3) all liabilities and obligations of the converting entity shall 

continue to be liabilities and obligations of the converted entity in its 

new organizational form without impairment or diminution by reason 

of the conversion; 

(4) all rights ofcreditors or other parties with respect to or against 

the prior interest holders or other owners of the converting entity in 

their capacities aa such in existence as of the effective time of the 

conversion will continue in existence as to those liabilities and 

obligations and may be pursued by such creditors and obligees aa if 

the conversion had not occurred, 
The Honorable Jeff Wentworth - Page 3 UC-0126) 

(5) a proceeding pending by or against the converting entity or by 

or against any of the converting entity’s interest holders or owners in 

their capacities as such may be continued by or against the converted 

entity in its new organizational form and by or against the prior 

interest holders or owners, as the case may be, without any need for 

substitution of parties; 

(6) the shares and other evidences of ownership in the converting 

entity that are to be converted into shares, evidences of ownership, or 

other securities in the converted entity as provided in the plan of 

conversion shall be so converted, and if the converting entity is a 

domestic corporation, the former holders of shares in the domestic 

corporation shall be entitled only to the rights provided in the plan of 

conversion or to their rights under Article 5.11 of this Act; 

(7) if, after the effectiveness of the conversion, a shareholder, 

partner, member, or other owner of the converted entity would be 

liable under applicable law, in such capacity, for the debts or 

obligations of the converted entity, such shareholder, partner, 

member, or other owner of the converted entity shall be liable for the 

debts and obligations of the converting entity that existed before the 

conversion takes effect only to the extent that such shareholder, 

partner, member, or other owner: (a) agreed in writing to be liable for 

such debts or obligations, (b) was liable under applicable law, prior 

to the effectiveness of the conversion, for such debts or obligations, 

or(c) by becoming a shareholder, partner, member, or other owner of 

the converted entity, becomes liableunder applicable law for existing 

debts and obligations of the converted entity; 

(8) if the converted entity is a foreign corporation or other entity, 

such converted entity shall be deemed to: (a) appoint the Secretary 

of State in this state as its agent for service of process in a proceeding 

to enforce any obligation or the rights of dissenting shareholders of 

the converting domestic corporation, and (b) agree that it will 

promptly pay the dissenting shareholders of the converting domestic 

corporation the amount, if any, to which they are entitled under 

Article 5.11 of this Act; and 

(9) if the converting corporation is a domestic corporation, the 

provisions ofArticles 5.11, 5.12, and 5.13 ofthis Act shall apply as 

if the converted entity were the survivor of a merger with the 

converting entity. 
The Honorable Jeff Wentworth - Page 4 (~~-0126) 

TEX. BUS. CORP. ACT ANN. art. 5.20 (Vernon Supp. 1999). While the Act generally speaks ofthe 

continuation of the converting entity and its continued ownership of all “rights, title, and interests 

to all real estate and otherproperty,“no specific mention is made ofthe continuation of state licenses 

held by the converting entity. 

As a genera) rule, the authority granted in an official license cannot be transferred or assigned 

without the consent of the licensing authority, unless a pertinent statute provides otherwise. 

John B. Barbour Trucking Co. Y. State, 758 S.W.2d 684,691 (Tex. App.-Austin 1988, writ denied). 

Some licensing statutes and regulations specifically allow transfer, and others forbid it. For 

example, a pawnshop license may be transferred or assigned with the approval of the Consumer 

Credit Commissioner, TEX. FIN. CODEANN. 5 371.070 (Vernon 1998), but a pharmacy license issued 

by the State Board of Pharmacy “is not transferable or assignable,” TEX. REV. CIV. STAT. ANN. art. 

4542a-1 5 30(d) (Vernon Supp. 1999). 

However, in the case of a conversion of a business entity under the Business Corporation Act, 

no transfers take place. Instead, the converted entity “continue[s] to exist, without interruption,” 

TEX. BUS. CORP. ACT ANN. art. 5.20(A)(l) (Vernon Supp. 1999), and “all rights, title, and interests 

to all real estate and other property owned by the converting entity” continue to be owned by the 

converted entity in its,new organizational form “without further act or deed, and without any transfer 

or assignment having occurred,” id. art. 5.20(A)(2). All assets and liabilities, all rights of creditors, 

all pending causes of action, and all shares and evidences of ownership, all stay with the converted 

entity in its new form. Id. art. 5.20(A)(l)-(9). These automatic continuations are consistent with the 

purpose of the conversion provision: to facilitate the transition from one type of business form to 

another. 

In our view, the continuation of the converting entity encompasses the continuation of state 

licences held by it. The essential feature ofthe conversion statute is that the converting corporation 

continues to exist, uninterrupted, as it assumes its new business form. As we have said, no transfers 

take place when there is a conversion. Instead, everything that the corporation has simply stays with 

it. Although state licenses are not specifically mentioned among the those things that automatically 

make the transition, we think that the statute as a whole, viewed in light of its purpose, contemplates 

that a state license does not die upon a corporation’s conversion, but continues with it. Accordingly, 

we conclude that, as a general rule, when a corporation converts to another type of business entity 

pursuant to article 5.17 ofthe Business Corporation Act, a license held by the converting corporation 

continues to be held by the converted entity in its new form. 

However, as your question implies, a specific licensing statute or regulation might conflict 

with this general rule by prohibiting the continuation of a license, by imposing conditions or 

requirements on its continuation, or by restricting the issuance of a license to certain types of 

business entities. For example, the Alcoholic Beverage Code allows conversion of a business 

holding a permit or license only if the ownership of the newly created business entity is identical to 

the ownership of the former business entity. See TEX. ALCO. BEV. CODE ANN. @ 11.12, 61.14 

(Vernon Supp. 1999). It also requires a converting license holder to file a notice ofthe conversion 
The Honorable Jeff Wentwortb - Page 5 (X-0126) 

and pay a $100 fee for each licensed premises affected by the conversion. Id. And the Consumer 

Credit Commissioner requires a pawnshop licensee to tile an application to alter its organizational 

form of business. See 7 TEX. ADMIN. CODE $ 85.2 (1999). Similarly, the Railroad Commission 

requires a licensed gas dealer to apply for a license when converting to a new business form. See 

16 TEX. ADMIN. CODE §§ 9.16, 13.67 (1999). 

Such conditions and restrictions are normally part of a licensing entity’s authority, and the 

conversion statute does not take away that authority. A license is generally a privilege, and once a 

license or permit has been granted, “the holder may be subject to certain requirements in order to 

keep it.” Exparte Mata, 925 S.W.2d 292, 292 (Tex. App.Corpus Christi 1996, no pet.). The 

requirements “vary with the nature of the activity and the goals of the regulating government.” Id. 

at 294. Texas has a diverse array of licensing entities, and each might have particular reasons for 

imposing conditions or requirements on a converting license holder. As we have said, the particular 

requirements of a licensing statute or regulation might conflict with the general provisions in the 

Business Corporation Act that the converting entity continues to exist in its new form with all that 

it had in its previous form. 

Normally, when a general statute conflicts with a more specific statute, the statutes should 

be construed to give effect to both, ifpossible. TEX. Gov’TCODEANN. 5 3 11.026(a) (Vernon 1998). 

However, if the conflict between the general provision and the specific provision is irreconcilable, 

the specific provision prevails as an exception to the general provision, unless the general provision 

is the later enactment and the manifest intent is that the general provision prevail. Id. 5 3 11.026(b). 

We find nothing in the conversion provision or its legislative history that manifests an intent 

that it prevail over more specific, previously enacted licensing provisions. In fact, the statute may 

be read to express an intent to yield to laws with which it is inconsistent: 

A domestic corporation may adopt a plan of conversion and convert 

to a foreign corporation or any other entity if. the conversion (a) 

is permitted by, or not inconsistent with, the laws of the state or 

country in which the converted entity is to be incorporated, formed, 

or organized, and(b) the incorporation, formation, or organization of 

the converted entity is effected in compliance with such laws . 

TEX. Bus. CORP. ACT ANN. art. 5.17(A) (Vernon Supp. 1999). Since the legislature requires a 

conversion to be consistent with and in compliance with other laws, we doubt that the legislature 

intended it to prevail over more specific laws. Thus, if a state licensing law or regulation imposes 

additional requirements or restrictions on a converting entity, the entity must comply with those 

requirements or restrictions. 

Whether a specific licensing statute or regulation conflicts with the general conversion 

provisions of the Business Corporation Act, and whether the Act or a conflicting statute or rule 

controls in such event, depends upon the particular statute or regulation at issue. Consequently, we 
The Honorable Jeff Wentworth - Page 6 (~~-0126) 

are unable to say that all state agencies must treat all state licenses the same when a conversion takes 

place. It is within the discretion of the legislature to implement a uniform treatment of licenses by 

all state agencies upon the conversion of a corporation holding a license. In the absence of such a 

law, we conclude that while the general rule is that licenses convert automatically, this rule may be 

subject to the specific statutory requirements or regulations of particular licensing entities. 

SUMMARY 

When a corporation converts to another type of business 

entity in accordance with the Texas Business Corporation Act, aa a 

general rule a state license held by the converting corporation 

continues to be held by the new business entity. This rule may be 

subject to the particular statutory requirements or regulations of the 

specific state entity that issued the license. 

JOHN CORNYN 

Attorney General of Texas 

ANDY TAYLOR 

First Assistant Attorney General 

CLARK RENT ERVIN 

Deputy Attorney General - General Counsel 

ELIZABETH ROBINSON 

Chair, Opinion Committee 

Barbara Griffin 

Assistant Attorney General - Opinion Committee