Laws, Regulations & Annotations

C

220.0000 CHANGE IN OWNERSHIP

Annotation 220.0601

220.0601 Rescission—Legal Entity Interests. Corporation X indirectly owned several parcels of California real property through wholly owned subsidiaries. Corporation X assigned its interests in each subsidiary to another indirectly held limited liability company, Limited Liability Company B (LLC B) such that LLC B obtained 100 percent ownership of all the subsidiaries. Because the proportional ownership interests in each and every piece of real property remained the same before and after the transfers, the transfers were excluded under Property Tax Rule 462.180(d)(4). As a result of this exclusion, LLC A, as the holder of the interests in LLC B, became an original co-owner in LLC B, for purposes of counting future transfers of LLC B interests under section 64(d). Corporation X and LLC B now desire to unwind the assignment of interests and have mutually agreed to rescind the assignments. The assignments were "transfers" within the meaning of Civil Code section 1040 because they were intended to pass title to interests in the subsidiaries. Moreover, since the assignments were voluntary transfers, they were considered executed contracts under Civil Code section 1040, regardless of consideration. Thus, Civil Code section 1689 allows for their rescission. As with rescissions of real property transfers, the rescission of a contract for the transfer of legal entity interests voids the transactions ab initio as though the transfers had never been made, and restores the parties to the positions they held before the transfers being rescinded. The property tax consequence is that the former base year value of the property prior to the transfer is restored and the original co-owner status created under Rule 462.180(d)(4) is extinguished. C 11/21/2012.