CORPORATIONS and LLCs

CORPORATIONS and LLCs CALL FOR DOMESTIC CORPORATIONS FOREIGN CORPORATIONS COPY OF CORPORATE RESOLUTIONS (see exception below) Business Not For Profit Religious Business Not For Profit Yes* Yes Yes Yes* Require shareholder approval for transactions which are not in the usual and regular course of business (such as deeds in lieu of foreclosure or transactions involving all or substantially all of the corporation s assets) and for transfers to the president or other officer or interested person. CERTIFICATE OF GOOD STANDING (Illinois Secretary of State) (see exception below) CORPORATE CHARTER & BY-LAWS (NO EVIDENCE OF CORPORATE NAME) Yes* Yes No Yes* Yes Also request a certificate of good standing from the state of incorporation. No No No Rarely Raised Rarely Raised Raise: We should be informed of the nature of the entity known as and this commitment remains subject to such further exceptions, including information regarding the entity s legal existence, as is then deemed necessary. Do not raise as to builders/developers, tax buyers, banks, savings and loans, insurance companies or well-established franchisees. Effective July 1, 2001 many of the certificates issued by the Secretary of State were discontinued. Certificates of Good Standing are still available. For all other certificates a copy of the application stamped filed by the Secretary of State replaces the certificate. 1

CORPORATE RESOLUTIONS: WE SHOULD BE FURNISHED A CERTIFIED COPY OF THE DIRECTORS RESOLUTIONS AUTHORIZING THE CONVEYANCE OR MORTGAGE TO BE INSURED. SAID RESOLUTIONS SHOULD EVIDENCE THE AUTHORITY OF THE PERSONS EXECUTING THE CONVEYANCE OR MORTGAGE. IF THEY DO NOT, A CERTIFIED COPY OF THE CORPORATE BY-LAWS ALSO SHOULD BE FURNISHED. IF SAID CONVEYANCE OR MORTGAGE COMPRISES ALL OR SUBSTANTIALLY ALL THE CORPORATION S ASSETS, WE ALSO SHOULD BE FURNISHED A CERTIFIED COPY OF THE SHAREHOLDER/MEMBER RESOLUTIONS WHICH AUTHORIZE SAID CONVEYANCE OR MORTGAGE. THIS COMMITMENT IS SUBJECT TO SUCH FURTHER EXCEPTIONS, IF ANY, AS MAY BE DEEMED NECESSARY AFTER OUR REVIEW OF THESE MATERIALS. Whenever we are asked to insure a conveyance or mortgage by a corporation this exception should be raised unless: a. The corporation is in the business of buying or selling real estate (builder, tax buyer etc..); b. The corporation is a lending institution; c. The corporation is a governmental body or religious corporation (see specific sections following); d. The corporation is a well-established franchise (McDonalds etc..); e. The transaction is obviously routine and minor in comparison with the size of the corporation (Commonwealth Edison selling a vacant lot); If there is a conveyance in the chain of title by a corporation, which has not been previously insured, and which occurred within the last two years, then you may consider raising a similar exception requiring a copy of the resolutions for any such prior conveyance. However, it is not recommended to do so unless there are circumstances (i.e. no transfer stamps) which cause some concern as to the validity of the prior conveyance. 2

CERTIFICATE OF GOOD STANDING: Proof should be obtained that the corporation making a conveyance or mortgage is in good standing in its state of incorporation. For Illinois corporations the corporate status can be checked by calling the Illinois Secretary of State or checking the website. Otherwise, the following exception can be raised. WE SHOULD BE FURNISHED CURRENT CERTIFICATES OF GOOD STANDING FROM THE ILLINOIS SECRETARY OF STATE AND THE STATE OF INCORPORATION OF (corporate name). IF SUCH CERTIFICATES ARE NOT PROVIDED, OUR POLICY WILL BE SUBJECT TO THE FOLLOWING EXCEPTION: CONSEQUENCES OF THE FAILURE OF THE PARTY IN TITLE TO THE ESTATE OR INTEREST IN THE LAND DESCRIBED IN SCHEDULE A TO COMPLY WITH THE APPLICABLE DOING BUSINESS LAWS OF THE STATE OF ILLINOIS. If the certificate is not provided, modify the exception for the policy to delete the first paragraph. Additionally, we obviously would not be willing to issue a Doing Business endorsement to the policy. FRANCHISE TAX: TO CHECK ON THE STATUS OF AN ILLINOIS CORPORATION YOU CAN CALL THE ILLINOIS SECRETARY OF STATE S OFFICE AT: (217) 782-7880 OR VISIT THE FOLLOWING WEBSITE: HTTP://WWW.SOS.STA TE.IL.US/DEPARTMENT S/BUSINESS_SERVICES /CORPNAMES.HTML In Illinois, corporations are assessed with an annual franchise tax. Failure to pay the tax results in a lien which attaches to real property owned by the corporation at that date and to property thereafter acquired. We will assume that the franchise tax is paid if we have proof that the corporation is in good standing. However, if you are requested to issue a policy without proof that the corporation is in good standing, the following exception should be raised (unless the corporation is a large financially sound one such as McDonald s or Commonwealth Edison): FRANCHISE TAX IN FAVOR OF THE STATE OF ILLINOIS AGAINST A CORPORATION OF THE STATE OF. 3

Exceptions to Above Procedures: If you are insuring a corporation as purchaser under an owner s policy and no loan policy is involved, then the above requirements/exceptions for a Certificate of Good Standing and/or franchise tax may be waived. DISSOLVED CORPORATIONS Retain title in the corporation as a dissolved corporation, e.g., ACME CORPORATION, A DISSOLVED CORPORATION OF THE STATE OF ILINOIS, and raise the following: ADMINISTRATIVE DISSOLUTIONS COPY OF CORPORATE RESOLUTIONS CERTIFICATE OF GOOD STANDING Raise a note such as: This commitment is based on the assumption that the corporation will be reinstated prior to the conveyance or mortgage; we should be furnished proper evidence of reinstatement VOLUNTARY DISSOLUTIONS COPY OF CORPORATE RESOLUTIONS Raise an exception such as: We should be furnished evidence that the conveyance is necessary to wind up and liquidate the corporation. Winding up should not be used more than six months after the voluntary dissolution of the corporation. ADMINISTRATIVE DISSOLUTION If a corporation has been administratively dissolved by the state of Illinois for failure to file an annual report or failure to pay its franchise tax then it can be reinstated within five years from the date of administrative dissolution. (805 ILCS 4

5/12.45). If asked to insure a transaction within that five years, the following exception should be raised: EVIDENCE OF ADMINISTRATIVE DISSOLUTION WAS RECORDED ~ AS DOCUMENT NUMBER ~ DISSOLVING ~. THIS COMMITMENT IS BASED ON THE ASSUMPTION THAT THE CORPORATION WILL BE REINSTATED PRIOR TO ANY CONVEYANCE OR MORTGAGE BY SAID CORPORATION. WE SHOULD BE FURNISHED PROPER EVIDENCE OF REINSTATEMENT AND THIS COMMITMENT REMAINS SUBJECT TO SUCH FURTHER EXCEPTIONS, IF ANY, AS MAY THEN BE DEEMED NECESSARY. If reinstatement is not an option because more than 5 years have lapsed and the corporation has ceased to exist since the articles of dissolution have been filed and recorded, refer to the section on Voluntary Dissolution. VOLUNTARY DISSOLUTION Party in Title Schedule A If a corporation has been voluntarily dissolved, title is then placed in the stockholders of the corporation. In the event the customer has not furnished us with a list of the names of the stockholders, title must be found in "the stockholders of XYZ corporation, a dissolved corporation of Illinois." Schedule B In addition to setting up a brief history of the dissolution, the following should be raised (either separately, or as one exception): 1. RIGHTS OF THE CREDITORS OF SAID CORPORATION INCLUDING, BUT NOT LIMITED TO, THE UNITED STATES OF AMERICA. 5

2. WE SHOULD BE FURNISHED WITH A DULY CERTIFIED LIST OF ALL OF THE STOCKHOLDERS OFFICERS OF SAID CORPORATION SO THAT WE MAY COMPLETE OUR SEARCHES AND THIS REPORT IS SUBJECT TO SUCH FURTHER EXCEPTIONS AS MAY THEN BE CONSIDERED NECESSARY. 3. FRANCHISE TAX IN FAVOR OF THE STATE OF ILLINOIS AGAINST, A CORPORATION OF (STATE OF CORPORATION) 4. RIGHTS OF ALL THE STOCKHOLDERS OF THE CORPORATION AND OF ALL PERSONS CLAIMING THEREUNDER, INCLUDING JUDGMENT AND DECREE CREDITORS. When a corporation has been voluntarily dissolved it is unnecessary to raise franchise tax since the secretary of state will not approve the articles of dissolution unless the tax has been paid. However, when a corporation has been administratively dissolved and is not being reinstated, franchise tax should be raised as a Schedule B exception. In order to insure a conveyance from a dissolved corporation, a deed should be obtained from all disclosed stockholders individually together with a deed from the corporation by the last officers. Indemnification may be required. NOTE: If a court order has been entered which dissolves a corporation, consult with an underwriter of the company. MUNICIPAL CORPORATIONS When a municipal corporation is in title, raise the following exception: 6

IN ORDER FOR THE COMPANY TO INSURE TITLE COMING THROUGH THE SALE OR TRANSFER OF LAND FROM THE MUNICIPALITY IN TITLE, WE SHOULD BE FURNISHED A CERTIFIED COPY OF THE ORDINANCE OR RESOLUTION AUTHORIZING THE CONVEYANCE, TOGETHER WITH THE NUMBER OF AYES AND NAYS FOR ITS PASSAGE, AND EVIDENCE OF ANY REQUIRED PUBLICATION. IF THE ORDINANCE OR RESOLUTION PASSED WITH FEWER THAN 3/4 OF THE MEMBERS ELIGIBLE TO VOTE VOTING IN FAVOR OF THE ORDINANCE, AN ATTORNEY FOR THE PARTIES SEEKING INSURANCE MUST PRESENT A SATISFACTORY EXPLANATION AS TO WHY A VOTE OF LESS THAN 3/4 SATISFIES THE STATUTORY PREREQUISITES FOR THE CONVEYANCE IN QUESTION. IF SAID MUNICIPALITY IS A HOME RULE UNIT PURSUANT TO ARTICLE 7, SECTION 6 OF THE ILLINOIS CONSTITUTION, WE SHOULD BE FURNISHED EVIDENCE OF COMPLIANCE WITH THE MUNICIPALITY S ORDINANCE(S) WHICH RELATE TO THE SALE OR TRANSFER OF MUNICIPAL PROPERTY. THIS COMMITMENT IS SUBJECT TO SUCH ADDITIONAL EXCEPTIONS, IF ANY, AS MAY BE DEEMED NECESSARY AFTER OUR REVIEW OF THESE MATERIALS. - [65 ILCS 5/11-76-1 AND 65 ILCS 5/11-76-2 REFER TO THE SALE OF SURPLUS PROPERTY BY ORDINANCE AND PUBLICATION. 65 ILCS 5/11-76-4.2. IF THE TRANSFER IS BETWEEN TWO MUNICIPALITIES, SEE 50 ILCS 605/1 ET. SEQ.] 65 ILCS 5/11-76-2 AND 76-4.1 REQUIRE A 3/4 VOTE. 76-4.1 ALSO REQUIRES SALE IN NO EVENT LESS THAN 80% OF THE APPRAISED VALUE. URBAN RENEWAL DISPOSITIONS MUST BE MADE WITHIN 5 YEARS OF THE PASSAGE OF THE ORDINANCE. RELIGIOUS CORPORATIONS The following exception should be raised on the commitment when a religious corporation is in title to the land: UPON ANY CONVEYANCE OR MORTGAGE OF SAID LAND, A CERTIFIED COPY OF THE BYLAWS AND A RESOLUTION PASSED BY THE MEMBERS OF THE PARTY IN TITLE AUTHORIZING THE EXECUTION OF THE 7

INSTRUMENT OF CONVEYANCE OR MORTGAGE SHOULD BE FURNISHED, TOGETHER WITH A CERTIFICATE BY THE CUSTODIAN OF RECORDS UNDER SEAL ESTABLISHING (1) THE NAMES OF ALL PERSONS ELECTED MEMBERS OF THE BOARD OF TRUSTEES AT THE LAST ELECTION; (2) THE FORM OF NOTICE FOR THE ELECTION; (3) THE TOTAL NUMBER OF MEMBERS ENTITLED TO VOTE ON CORPORATE MATTERS; (4) PROPER NOTICE OF THE MEETING TO CONSIDER THE QUESTIONS OF CONVEYING OR MORTGAGING THE LAND WAS GIVEN TO ALL MEMBERS; (5) THE NUMBER OF MEMBERS PRESENT AT SUCH MEETING; AND (6) THE NUMBER OF THE AYES AND NAYS VOTED ON SUCH QUESTION. Alternatively, if a religious corporation has conveyed its title to the land or made a mortgage thereon that the Company is requested to insure, the following should be raised: A CERTIFIED COPY OF THE BYLAWS AND THE RESOLUTION PASSED BY THE MEMBERS OF ~, A RELIGIOUS CORPORATION, AUTHORIZING THE EXECUTION OF THE ~, RECORDED ~ AS DOCUMENT NUMBER ~, SHOULD BE FURNISHED, TOGETHER WITH A CERTIFICATE BY THE CUSTODIAN OF RECORDS UNDER SEAL ESTABLISHING (1) THE NAMES OF ALL PERSONS ELECTED MEMBERS OF THE BOARD OF TRUSTEES AT THE LAST ELECTION; (2) THE FORM OF NOTICE FOR THE ELECTION; (3) THE TOTAL NUMBER OF MEMBERS ENTITLED TO VOTE ON CORPORATE MATTERS; (4) PROPER NOTICE OF THE MEETING TO CONSIDER THE QUESTION OF CONVEYING OR MORTGAGING THE LAND WAS GIVEN TO ALL MEMBERS; (5) THE NUMBER OF MEMBERS MANY RELIGIOUS CORPORATIONS HAVE TO GET THE APPROVAL OF A HIGHER BODY IN THE CHURCH ORGANIZATION, SUCH AS THE SYNOD, DIOCESES ETC. THIS SHOULD BE APPARENT BY EITHER THE BYLAWS OR THE CONSTITUTION OF THE RELIGIOUS CORPORATION. PRESENT AT SUCH MEETING; AND (6) THE NUMBER OF THE AYES AND NAYS VOTED ON SUCH QUESTION. If the religious corporation s deed has been of record over five years prior to the cover date of the examination, however, it can be assumed that it was made pursuant to proper resolutions, eliminating the necessity of raising the above as an exception. If, however; it appears that only an owner s policy is to issue insuring the title of the corporation, the exception can be waived and should be marked N.B. for Continuation Only on the 8

office opinion. A religious corporation is formed in this State by the filing of an affidavit in the Recorder s Office of the county wherein such corporation is to be organized, which affidavit states the date and place of the meeting of the members where two or more of its members were elected trustees, wardens or vestrymen, etc., according to its custom, and that a corporate name was adopted. The affidavit is to be made by the chairman or secretary of such meeting. The control of the real property of a religious corporation is placed in the trustees. The trustees of the corporation may, when directed by the congregation, church or society, sell and mortgage the real estate of the corporation. The provisions in its constitution, bylaws or other governing instruments would govern the proper procedure to be followed as to matters concerning the sufficiency of notice to the members, the number of members required to constitute a quorum and the number of members of the quorum that must approve the action before the action would be considered one of the membership of the corporation. In the absence of provisions in, or the complete lack of, regulations governing the internal procedure of the corporation, the principles of common law would govern. Consequently, in this situation, adequate and reasonable notice would have to be given to all members; a quorum would consist of all members who were present at the meeting pursuant to the notice, the body being indefinite in number; and an affirmative approval by a majority of such quorum would constitute the action of the membership. See Jones v. Sacramento Ave. Methodist Church, 198 Ill. 626, 630. It is apparent from the foregoing that it is essential that a certified copy of the bylaws of the religious corporation or satisfactory evidence that the corporation has no bylaws should be provided before the company can determine if the trustees were properly authorized by the members of the body to make a deed or mortgage. Further, the 9

Company must have satisfactory evidence that compliance had been made with the bylaws or, if none, with the common law requirements. This evidence would consist of meeting the requirements specified in the following exception: WE SHOULD BE FURNISHED CERTIFIED COPIES OF THE CORPORATE BY- LAWS AND THE RESOLUTION PASSED BY THE MEMBERS OF THE PARTY IN TITLE AUTHORIZING THE CONVEYANCE OR MORTGAGE TO BE INSURED, TOGETHER WITH A CERTIFICATION, UNDER SEAL, FROM THE CUSTODIAN OF RECORDS ESTABLISHING: A). THE NAMES OF ALL PERSONS ELECTED MEMBERS OF THE BOARD OF TRUSTEES AT THE LAST ELECTION; B). THE FORM OF NOTICE FOR THE ELECTION; C). THE TOTAL NUMBER OF MEMBERS ENTITLED TO VOTE ON CORPORATE MATTERS; D). THAT PROPER NOTICE OF THE MEETING TO CONSIDER THE QUESTION OF CONVEYING OR MORTGAGING THE LAND WAS GIVEN TO ALL MEMBERS; E). THE NUMBER OF MEMBERS PRESENT AT SUCH MEETING; AND F). THE NUMBER OF AYES AND NAYS VOTED ON SUCH QUESTION. In the event that the deed or mortgage in question have already been placed of record, simply amend the above noted exceptions to include references to the particular recording information. LIMITED LIABILITY COMPANY EXCEPTIONS Limited liability companies may take on the characteristics of either a partnership or a business corporation, depending on the desired business and tax goals. If management is to be conducted by the owner/members, the articles of organization will name the initial members and make no provision for management by managers, in which case the company will function with the characteristics of a partnership. If, OFF RECORD CONVERSIONS AND MERGERS: Under the 1997 UPA (Effective 1/1/2003) conversions and mergers of various entities can take place by operation of law without the necessity of a recorded conveyance. Section 908 permits one or more partnerships to merge with or into one or more limited liability companies. After conversion all property originally owned by the partnership vests in the new entity. All property originally owned by each of the partnerships vests in the surviving entity. In this event we should require the written approval of the all partners (unless a lesser number or percentage is specified in the partnership agreement) of the conversion or merger. however, the articles provide for management by managers, (as the articles must so provide if that is the intent), the initial managers, and not the initial members will be named, in which case the company will function more as a corporation with a board of directors. 10

Limited liability companies pay no franchise taxes in Illinois, but are formed by filing articles of organization and maintained by filing annual reports, all with the Secretary of State, similar to limited partnerships and corporations. There is no express provision for the issuance of a document analogous to a corporate certificate of good standing or a limited partnership certificate of existence, but according to the office of the Secretary or State, as is the case with limited partnerships, they will respond to a written request (for a fee) for information concerning the existence and good standing of a particular limited liability company. Articles of Organization: The articles may contain restrictions pertaining to the rights and powers of the company, and of its members or managers on behalf of the company, to deal in real estate, and for this reason also, a copy of the articles should be produced for examination as discussed above. In any case the articles will typically be skeletal in nature, similar to articles of incorporation or a certificate of limited partnership. Operating Agreement: The agreement of the members and managers, if any, relating to the internal affairs of the company, and among the members regarding their business relationship, will be contained in an operating agreement which is a private document, i.e., not filed with the Secretary of State. While having many of the same features as corporate by-laws, an operating agreement is broader and more analogous to a partnership agreement. In most cases, the agreement will need to be examined to determine first whether or not it contains any self-imposed restrictions on the company s right to deal in real estate, and second, any applicable restrictions and requirements for the authority of the members or managers to act on behalf of the company. In some cases deeds and mortgages will be executed by all or a portion of the members, and in others by certain managers following a decision by the members. Thus, in each case, the operating agreement will need to be examined to determine who among the members or managers is authorized to sign, under the circumstances of that case. Because of the great flexibility permitted in the structuring of a limited liability company, title examiners will likely find their involvement with limited liability company transactions more extensive than with any other organization form. Resolutions: Where the form of company structure tends to resemble a corporation rather than a partnership, the approval and vote by either the members or a board of managers may be required in order to authorize the execution of a deed or mortgage. If an examination of the company s articles and operating agreement reveal the necessity for this approval, resolutions should be provided. 11

Rights and liabilities of members: Since the interest of the members in a limited liability company is defined as being personal property and is assignable, and the members, like shareholders in a corporation, have no liability for company debts (except those on which a member becomes surety or guarantor) unless insulation is lost as a result of court determination, no reason to raise the rights of members seems to exist, and no judgment search on the members need be made. Designation of Grantor/Mortgagor: Since one may assume title will be taken in the company name, title should be conveyed or mortgaged by that same company name. Non-individual Partners: It is anticipated that the limited liability company will become a frequently used form of organization for investment groups and others seeking the best of both the partnership and corporate worlds. It is likely that partnerships (both general and limited) and business corporations will become involved as members in limited liability companies, and in those situations, the additional requirements brought about by those forms of organization will need to be considered as sub-parts of the limited liability structure. LLC - EXCEPTION WE SHOULD BE FURNISHED (A) CERTIFICATION FROM THE ILLINOIS SECRETARY OF STATE THAT ~ L.L.C. HAS PROPERTY FILED ITS ARTICLES OF ORGANIZATION, (B) A COPY OF THE ARTICLES OF ORGANIZATION, TOGETHER WITH ANY AMENDMENTS THERETO, (C) A COPY OF THE OPERATING AGREEMENT, IF ANY, TOGETHER WITH ANY AMENDMENTS THERETO, (D) A LIST OF INCUMBENT MANAGERS OR OF INCUMBENT MEMBERS IF MANAGERS HAVE NOT BEEN APPOINTED, AND (E) CERTIFICATION THAT NO EVENT OF DISSOLUTION HAS OCCURRED. NOTE: IN THE EVENT OF A SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE L.L.C. OR OF A SALE OF L.L.C. ASSETS TO A MEMBER OR 12

MANAGER, WE SHOULD BE FURNISHED A COPY OF A RESOLUTION AUTHORIZING THE TRANSACTION ADOPTED BY THE MEMBERS OF SAID L.L.C. UNINCORPORATED ASSOCIATIONS An unincorporated association may hold title to real estate. Examples are such entities as the Moose Lodge, or the Carpenters Union. The procedure required for dealing with real estate transactions are typically controlled by their by-laws and organizational documents. Particular care must be taken to determine whether the consent of their parent organization is required which is very common. In the absence of any by-laws or organizational documents addressing the ability to convey or mortgage real estate the following statute would by applicable. 765 ILCS 115/2. Procedure to effect acts of ownership over real estate Sec. 2. Procedure to effect acts of ownership over real estate. The presiding officer of such lodge or subordinate body, together with the secretary or officer keeping the records thereof, may execute mortgages and execute or receive conveyances or leases of any real estate by or to such lodge or subordinate body when authorized by a vote of the members present at a regular meeting held by said lodge or subordinate body, after at least ten days notice has been given to all members of said lodge or subordinate body by mailing a written notice of said proposed action to the last known address of all such members. All conveyances, leases or mortgages executed hereunder shall be in the name of the lodge, attested by the presiding officer and secretary or other officer in charge of the records, and shall have affixed the seal, if any, of such lodge or subordinate body. 13