New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on June 9, 2004, representing the position of the New York State Insurance Department.

RE: Licensing Requirements Upon Conversion from Corporation to Limited Liability Company

Questions Presented:

1) Must a licensed non-resident insurance broker submit a new license application when it has converted its organizational form from a corporation to a limited liability company ("LLC")?

2) After the LLC has filed its license application and is awaiting issuance of the new license, may it continue to operate under its former corporation’s license, although the conversion to an LLC is complete?

3) May all sublicensees of the newly formed LLC be non-members of the LLC?

Conclusions:

1) A licensed non-resident insurance broker must submit a new license application when it has converted its organizational form from a corporation to an LLC because the Department deems the conversion the creation of a new entity.

2) After the LLC has filed its license application and is awaiting issuance of the new license, it may continue to operate under its former corporation’s license, although the conversion to an LLC is complete so long as there are no substantial changes to the entity other than the conversion of the organizational structure (i.e., the officers, members, and sublicensees remain the same under the new organizational form) and the LLC has promptly notified the Department of the conversion and submitted its new license application.

3) All sublicensees of the newly formed LLC may be non-members of the LLC provided that the individuals named occupy roles that are the functional equivalent of a corporation’s director or officer, and provided also that such individuals meet all requirements necessary to become a sublicensee under the New York Insurance Law.

Facts:

An entity incorporated in Delaware maintains a New York non-resident insurance broker’s license. This broker plans to convert its organizational form from a corporation to an LLC. The broker’s representative stated that under Delaware law, a corporation that converts to an LLC is deemed a continuation of the converting corporation, and that, therefore, Delaware does not require an entity to terminate its insurance producer’s license and acquire a new one. The entity will only be required to amend its insurance producer’s license to reflect the conversion and new name.

It was posited that the broker should not be required to apply for a new non-resident insurance broker’s license upon conversion and that none of its sub-licensees are required to be members of the LLC. It was questioned whether, if the broker is made to apply for a new license, the broker may continue to operate under its current license while awaiting its new license even though the conversion is completed and its organizational form has changed.

Analysis:

The New York Insurance Law authorizes the licensing of individuals, associations, firms and corporations as, among other things, insurance brokers and non-resident insurance brokers.

N.Y. Ins. Law § 2104 (McKinney Supp. 2004) states in relevant part:

(b)(1) Such license shall confer upon the licensee authority to act in this state as an insurance broker, and upon every natural person named as sub-licensee in such license authority to act in this state as insurance broker in the name of and on behalf of such licensee…

* * * *

(2) A license issued to a corporation may name as sub-licensees only the officers and directors of such corporation… Each sub-licensee named in such license must be qualified to obtain a license as an insurance broker[.]

Thus, where the license is issued to an entity, rather than an individual, there must be a sublicensee who is a natural person, who must meet the same requirements that a person seeking to be licensed as an individual for the same kind of license would be required to meet.

The Department permits the kinds of licenses authorized by Article 21 of the New York Insurance Law to be issued to an LLC, and allows an LLC to name as its sublicensee a non-member manager, provided that the non-member manager meets all requirements to be a sublicensee for the kind of license issued.

It was questioned whether an LLC may name more than one individual as a sublicensse, none of whom are members of the LLC. Provided that such individuals occupy roles that are the functional equivalent of a corporation’s director or officer, and provided also that such individuals meet all requirements necessary to become a sublicensee under the New York Insurance Law, these non-member individuals may be named as sublicensees of the LLC.

Questions were also posed regarding a non-resident insurance broker that is licensed in New York as a corporation but which plans to undergo a conversion in its organizational form to an LLC.

A licensed non-resident insurance broker must submit a new license application when it has converted its organizational form from a corporation to an LLC because the Department deems the conversion the creation of a new entity.

After the LLC has filed its license application and is awaiting issuance of the new license, it may continue to operate under its former corporation’s license, although the conversion to an LLC is complete, so long as there are no substantial changes to the entity other than the conversion of the organizational structure (i.e., the officers, members, and sublicensees remain the same under the new organizational form) and the LLC has promptly notified the Department of the conversion and submitted its new license application.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.