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Broker Mergers, Acquisitions, and Change in Ownership

Licensing Requirements

 

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In the case of a change in ownership of a licensed entity, the California Department of Insurance (CDI) must be notified. The Business Entity Disclosure form (LIC BED-1) and a cover letter providing details about the change in ownership must be provided to CDI. This form should be submitted before the end of the month after the month in which the transaction closed.

Below are instructions explaining what the surviving entity must do in the case of a merger or acquisition:

  1. If the buyer is keeping the surviving licensee just the way it is, the surviving entity must submit a letter informing the CDI of the merger/acquisition. The letter must:
    • Be signed by officer, member, manager or all partners of the surviving entity;
    • Include the non-survivor's business name and license number;
    • Request that the non-survivor license be canceled; and
    • Include a copy of the approved articles of the merger from the Secretary of State's office in the resident state.
  2. If changes in management are part of the acquisition, then the following documents must be completed:
    • Officers, managers, members, partners and stockholders - If there are changes in the officers, managers, members, partners and stockholders of the surviving entity, it must submit the Business Entity Disclosure Form LIC BED-1 to inform the CDI. This form should be submitted before the end of the month after the month in which the transaction closed
    • Legal Name - If the surviving entity is changing its legal name due to the merger then the surviving entity must submit a Name Approval Request Form LIC 447-42A. The filing fee ($53 as of August 2018 but subject to change by the CDI) must be included and the Form LIC 447-42A must be signed by an officer, member, manager, or partner.
    • Federal Employer Identification Number (FEIN) - If the surviving entity's FEIN is changing due to the merger, the surviving entity is required to submit a new business entity application and filing fees to obtain a new business entity license.
  3. If there are any name changes in regards to the acquisition, then the following tasks need to be completed:
  4. If the surviving entity is changing its legal name due to the merger then the surviving entity must submit a Name Approval Request Form LIC 447-42A which must be signed by an officer, member, manager, or partner with a filing fee($53 as of August 2018 but subject to change by the CDI); and
  5. Submit a copy of the approved articles of the name change from the Secretary of State's office in the resident state.

The SLA should also be notified of the merger/acquisition. The SLA will need to confirm that the CDI has the required documentation of the merger/acquisition on file before processing transactions or granting access to records.

For tax purposes, be sure to document your records carefully to reflect the merger/acquisition.

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If a business entity has new officers, directors, managers, members, or stockholders, the CDI must be notified via the Business Entity Disclosure form, LIC BED-1 (CIC Section 1656.1). This form should be submitted before the end of the month after the month in which the transaction closed.

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If you no longer wish to conduct business under your licensed entity, corporation, partnership, etc., a License Cancellation Request form (LIC CC2) signed by an officer (corporation), all partners (partnership), or an officer, manager or member (LLC) must be submitted to the CDI.

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It is the acquiring broker’s responsibility to contact the CDI when there is a merger or acquisition.

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If a broker purchases another broker’s business that includes an office, the acquiring broker would need to have at least one licensed individual at that office.

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More information is available in the Business Entity Frequently Asked Questions section of the California Department of Insurance’s website at: http://www.insurance.ca.gov/0200-industry/0020-apply-license/0300-business-license/business-entity-faq.cfm

If you need further assistance, the CDI’s Business Entity Licensing Inquiry line is 916-492-3069, or your can send an email through https://interactive.web.insurance.ca.gov/pli/servlet/InformationRequest.


Filing Requirements

 

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Filings cannot be processed by the SLA until the CDI has confirmed receipt of the required paperwork.

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If there are no outstanding licensing issues, the surviving entity of an acquisition can request access to the acquired entity’s records. The SLA will need to verify that the CDI has the required documentation for the merger/acquisition on file before access can be granted.

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The acquiring broker can submit policies from the acquired broker under its own license, even if the transactions occurred prior to the acquisition. This includes certificates and endorsements. However, the SL1 form must be amended to show the acquiring broker’s license number on Section 1.

For tax purposes, be sure to document your records carefully to reflect the merger.