Banking Interpretations

Banking Law §370-a 

April 17, 2003

Re:  Merger of Licensed Check Cashers 

Dear                 :   

Your February 27, 2003 letter to Deputy Superintendent and Counsel Sara Kelsey has been referred to me for response.  In connection with your request, I have reviewed applicable provisions of the Banking Law of the State of New York (the "Banking Law") and the regulations promulgated thereunder, and such other materials as I have deemed appropriate.   

According to the facts presented in your letter and clarified in my telephone conversation with your colleague,                         , your client currently has licenses for multiple check cashers, several operating through a Subchapter S Corporation (the "Corporation") and others operating through a Limited Liability Company (the "LLC").  The current ownership of the Corporation and the LLC is exactly the same.  Your client desires to complete a tax-free reorganization of these entities pursuant to which the Corporation will ultimately be "merged" into the LLC.  The reorganization will be effected in several steps.  The Corporation will contribute all of its assets to the LLC in exchange for an ownership interest in the LLC.  The licenses currently held by the Corporation will be surrendered and the LLC will ask the Banking Department to issue new ones in the name of the LLC.  The Corporation will remain in existence with only one asset - its membership in the LLC - for at least one year.  After the expiration of such time, the Corporation will commence its dissolution and liquidation in New York.  The sole asset of the Corporation will be transferred to its shareholders.  Since the ownership percentage of the Corporation and the LLC is identical, at the end of the day, the LLC will continue to be held by its current holders in the same proportion as it is now.[1] 

You have asked what documents your client will be required to file with the Banking Department to effect the tax-free reorganization described above.  Section 370-a(4)(b) of the Banking Law provides that "control" is presumed to exist if any person (defined to include any individual, partnership, corporation, association or any other organization), directly or indirectly, owns, controls or holds with power to vote 10% or more of the voting stock of (i) any licensee or (ii) any person which owns, controls or holds with power to vote 10% or more of the voting stock of any licensee.  I do not believe that the reorganization described above should be considered a "change in control."  Even though the Corporation could have presumed control of the LLC once it becomes a member of the LLC, its shareholders, who are the same individuals currently holding membership interests in the LLC, hold the ultimate control of the Corporation.  It is important to note that these individuals own both their share interest in the Corporation and their membership interest in the LLC in the same proportion.  Since there is no change in control resulting from the reorganization described and since both are currently licensed in the State of New York, your client would need only to file a copy of the documents memorializing the reorganization - an Asset Purchase Agreement, Agreement and Plan of Merger, or Amended and Restated Limited Liability Agreement and related Operating Agreement, or such other documentation as the case may be, any documentation to be filed with the Secretary of State of the State of New York in connection with the contemplated reorganization and a letter surrendering the licenses registered to the Corporation and requesting that new licenses issued in the name of the LLC be issued.   

I trust that this letter is responsive to your inquiry.   

Very truly yours, 

Jacquelyn A. Hart
Associate Counsel 

cc:  Paul J. Fazio, Deputy Superintendent - Licensed Financial Services Division

[1].      As an example, LLC currently has 100 units of membership interest outstanding, held 50 units by person A and 50 units by person B.  Corporation has 20 shares of common stock outstanding, person A holds 10 shares and person B holds 10 shares.  In exchange for all of its assets, Corporation is given a 20% interest in LLC.  Corporation will then hold 20 units, person A will hold 40 units and person B will hold 40 units.  Upon dissolution and liquidation of Corporation, the membership interest of person A and person B in LLC will again be 50 units each.