Changing from “non for profit” to “for profit”.... Owners about to get paid! Cannabis-Related Businesses and Entity Conversions
When the Governor signed into law Senate Bill 94, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) created a comprehensive regulatory and licensing framework for both medicinal and adult-use commercial cannabis. MAUCRSA defines the power and duties of the various local and state agencies responsible for controlling and regulating the commercial medicinal and adult-use cannabis industry. Because of this, current nonprofit mutual benefit corporations or cooperative corporations may be looking for ways to change or convert into for-profit entities such as corporations, limited liability companies, and general or limited partnerships. Below are requirements for making those changes.
Changing or Converting into a General Stock Corporation
To change the status of an existing nonprofit corporation, such as a mutual benefit corporation or cooperative corporation to a for-profit corporation, you may file either a Certificate of Amendment or Amended and Restated Articles of Incorporation with the California Secretary of State. Since you will need to change several provisions listed in your nonprofit Articles of Incorporation, filing Amended and Restated Articles of Incorporation may be the preferred method of making these changes. Samples of Amended and Restated Articles of Incorporation and a Certificate of Amendment may be found on the bizfile California Portal located on the Secretary of State website under Forms and Filing Tips. You should use the sample that is designated as either “Certificate of Amendment – Nonprofit” or “Amended and Restated Articles of Incorporation – Nonprofit” since your entity will not change to a for-profit stock corporation until the document is filed with the Secretary of State.
Amended and Restated article provisions will need to include at least the following:
1 The name of the corporation.
2 The purpose statement for a general stock corporation.
3 The number of shares authorized to be issued.
If there are outstanding membership interests for the nonprofit corporation, the articles will also need to include a statement of the effect of the amendment/restatement on those interests (e.g., a statement indicating that upon the filing of the Amended and Restated Articles of Incorporation, each outstanding membership interest shall be converted into 1 common share or a statement that each outstanding membership interest shall be canceled without consideration upon the filing of the Amended and Restated Articles of Incorporation with the Secretary of State).
While you may include additional article provisions, any article provisions that previously appeared in the nonprofit Articles of Incorporation that are specific to a nonprofit entity type, must be omitted from the Amended and Restated Article provisions (e.g., statements referencing members or the purpose statement for a nonprofit mutual benefit corporation and tax exemption provisions).
Finally, if the nonprofit corporation has not yet filed a Statement of Information with the Secretary of State, the Amended and Restated Articles of Incorporation will need to include:
• Name and address of the agent for service of process.
• Initial street and mailing address of the corporation exactly as it appeared in the original nonprofit Articles of Incorporation.
Alternatively, if the nonprofit corporation has already filed a Statement of Information, the name and address of the agent for service of process and the street and mailing address of the corporation must be omitted. Once the Amended and Restated Articles of Incorporation are filed, you should file an updated Statement of Information – Stock (Form SI-550) within 90 days.
Changing or Converting into a Limited Liability Company, Limited Partnership or General Partnership
Under California law, California nonprofit corporations cannot “convert” (change the entity type from a nonprofit corporation to a limited liability company, limited partnership, or general partnership). However, nonprofit corporations can amend or restate their Articles of Incorporation to become a stock corporation (see the information above for information on how to do this). Once the corporation is a stock corporation the corporation can follow the procedures outlined in Corporations Code Sections 1150 through 1160 to convert to a limited liability company, limited partnership, or general partnership.
To convert from a stock corporation to a limited liability company, limited partnership, or general partnership, you can use the applicable conversion form provided by the Secretary of State. For more information, forms, and instructions relating to conversions with the Secretary of State, please see Conversion Information and the Conversion Information Chart.