BRO-03-03
OT:RR:CTF:ER H031295 DCC
Mr. Jonathan M. Fee
Alston & Bird, LLP
950 F Street, NW
Washington, D.C. 20004-1404
Dear Mr. Fee:
This letter is in response to your request for an advance ruling, dated June 16, 2008, pursuant to 19 C.F.R. § 177.1. Your request, filed on behalf of Unique Logistics International (ATL), Inc. (“Unique, Inc.”), concerns the customs broker licensing requirements.
FACTS:
Unique, Inc. was originally incorporated under the state law of Georgia as ATE Logistics Company, Inc. (“ATE Logistics”) on February 19, 1999. On June 1, 2001, ATE Logistics filed Articles of Amendment to change the name of the corporation to ATE Logistics Company (Georgia) (“ATE Georgia”). The Articles of Amendment also authorized the corporation to operate as a licensed customs broker.
On April 21, 2006, the corporation filed Articles of Amendment to change its name a second time, from ATE Georgia to Unique, Inc., which is the subject of this ruling.
Unique, Inc. now plans to reorganize under the Georgia Limited Liability Company Act to form a limited liability company (“LLC”). You submitted draft Articles of Organization that state the new company will be “authorized to engage in any lawful business or activity. . ., including without limitation, to transact customs business as a broker.” The name of the new entity will be Unique Logistics International (ATL), LLC (“Unique, LLC”).
Unique, Inc. has an importer’s customs bond, which the corporation uses for an annual importation of printed matter for its own use. According to its surety, Unique, Inc. will be required to obtain a new bond pursuant to instructions
from CBP’s National Finance Center. It is the policy of CBP’s National Finance Center to require a new customs bond in any circumstance when a bond principal changes its IRS Employer Identification Number (“EIN”).
You state that Unique, Inc. may be required by the U.S. Internal Revenue Service to obtain a new EIN following its conversion to Unique, LLC. This requirement is based on the fact that limited liability companies and corporations may be treated differently for federal tax purposes.
A U.S. shareholder of Unique, Inc. plans to transfer his share in the company to Unique Logistics Holding Limited (“Unique, Ltd.), a nonresident alien based in Hong Kong. You state that because the new entity is not a publicly traded company, Unique, Ltd. will report the change in ownership to CBP as required by 19 C.F.R. § 111.28(c).
ISSUES:
Whether Unique, LLC should be treated as a corporation for purposes of Part 111 of the Customs Regulations.
Whether Unique, LLC is required to obtain a new license to conduct customs business.
LAW AND ANALYSIS:
Corporate Form
The first issue is whether Unique, LLC may be treated as a corporation for purposes of CBP regulations. Limited liability companies (“LLCs”) are not specifically provided for in the CBP Regulations. The broker licensing statute and corresponding regulations authorize CBP to grant licenses to individuals, corporations, partnerships, and associations. Different licensing requirements attach depending on which of these categories a license applicant falls.
LLCs are difficult to categorize because they are a hybrid entity with characteristics of both corporations and partnerships. See Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) (noting “LLCs resemble both partnerships and corporations.”). LLCs are essentially a limited partnership without the General Partner. The LLC form allows a choice between entity and aggregate (pass-through) taxation for federal tax purposes, while allowing the business entity to maintain the benefit of limited liability.
Because LLCs are not classified clearly as either corporations or partnerships, we determine that such organizations should be treated as associations for purposes of the customs licensing regulations. Consequently, LLCs are subject to the licensing requirements in 19 C.F.R. § 111.11(c) that pertain to the licensing of associations. Section 111.11(c) states:
§ 111.11 Basic requirements for a license.
* * *
(c) Association or corporation. In order to qualify for broker’s license, an association or corporation must:
(1) Be empowered under its articles of association or articles of incorporation to transact customs business as a broker; and
(2) Have at least one officer who is a broker.
In this case, instead of articles of association Unique, Inc. intends to file articles of organization to form a limited liability company under Georgia state law. The draft articles of organization submitted for review include a provision that empowers the new company to transact customs business as a broker. Although section 111.11(c) does not specifically mention articles of organization as a required organizing document to be filed with the license application, the proposed articles of organization meet the regulatory requirement for empowering the company to engage in customs business as a broker.
Customs License
Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. § 1641), provides that a “person” must hold a valid customs broker’s license and permit in order to transact customs business on behalf of others, sets forth standards for the issuance of broker’s licenses and permits. Section 641 also provides for the issuance of rules and regulations relating to the customs business of brokers as may be necessary to protect importers and the revenue of the United States and to carry out the provisions of section 641. The regulations issued under the authority of section 641 are set forth in 19 C.F.R. Part 111. This part includes the rules regarding the issuance of licenses to persons who seek to transact customs business as customs brokers.
The basic rules regarding when a person must obtain a customs broker license are set forth in 19 C.F.R. § 111.2. According to this provision, a customs license is required by any person conducting customs business unless otherwise excepted by section 111.2(a)(2). The regulations further provide that any person who intentionally transacts customs business, other than as provided in section 111.2(a)(2), without a valid broker’s license, will be liable for a monetary penalty for each such transaction as well as for each violation of any other provision of section 641. See 19 C.F.R. § 111.4.
The regulations define the term “person” for purposes of Part 111 to include “individuals, partnerships, associations, and corporations.” 19 C.F.R. § 111.1. The term “customs business” is defined as the following:
those activities involving transactions with CBP concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by CBP on merchandise by reason of its importation, and the refund, rebate, or drawback of those duties, taxes, or other charges. “Customs business” also includes the preparation, and activities relating to the preparation, of documents in any format and the electronic transmission of documents and parts of documents intended to be filed with CBP in furtherance of any other customs business activity, whether or not signed or filed by the preparer. However, “customs business” does not include the mere electronic transmission of data received for transmission to CBP.
You acknowledge that the reorganization of a corporation into an LLC would be a change in the legal nature of the corporation that would require the new entity to notify CBP of the change pursuant to 19 C.F.R. § 111.30(b)(2). You claim, however, that the proposed reorganization would not preclude the new LLC from conducting customs business under the license granted to Unique, Inc.
In support of your position, you cite three CBP ruling letters that you claim support your position that Unique, Inc. is not required to obtain a new broker license following its reorganization into a limited liability company.
The first ruling, HRL 115576 (January 30, 2002), addressed whether new licenses were required when a parent corporation restructured its business to move two subsidiary corporations, which both held broker licenses, under a newly-formed subsidiary. In that ruling, we did not require the two subsidiary corporations to obtain new broker licenses because the corporate structure of the two entities was unchanged.
In the next rule, HRL 115013 (September 6, 2000), we reviewed whether a broker was required to obtain new powers of attorney when it was acquired through a stock purchase. That ruling determined that the original broker was not required to obtain new powers of attorney for its clients, provided the acquired company continued to exist as the same legal entity and to operate under its pre-merger corporate broker’s license.
Finally, in HRL 223119 (August 26, 1991), we considered the merger of a company and its wholly-owned subsidiary. In that ruling, we found that the customs broker’s license held by the subsidiary was not transferable to the parent upon merger of the two entities. We noted that the surviving corporation was a separate legal entity, and as such, had to obtain a new customs license in its own name.
You correctly state that in the cited rulings CBP required business entities to obtain a new license when a corporate reorganization results in a new and different legal entity. You claim, however, that under that the proposed conversion of the corporation (Unique, Inc.) into a limited liability company (Unique, LLC) does not result in the formation of a new legal being. Rather, you maintain, the conversion represents a continuation of the existence of Unique, Inc. as the same entity. In support, you state that pursuant to § 14-11-212(d) of the Official Code of Georgia Annotated (O.C.G.A.), a conversion:
pursuant to this Code section shall not be deemed to constitute a dissolution of the entity making the election and shall constitute a continuation of the existence of the entity making the election in the form of a limited liability company. A limited liability company formed by an election pursuant to this Code section shall for all purposes be deemed to be the same entity as the entity making such election.
You further note that under Georgia state law, the successor entity, Unique, LLC, will be treated as the same entity following its conversion. See O.C.G.A. § 14-11-212. Because Georgia state law treats the conversion as a continuation of the original entity, you argue, CBP should not require Unique, LLC to obtain a new broker’s license following the conversion from a corporation to a limited liability company.
We determine that Unique, LLC, once formed, represents a new entity that is separate and distinct from its predecessor, Unique, Inc. The new LLC will be formed by the filing of Articles of Organization, which are different from the Articles of Incorporation that were used to establish Unique, Inc. as a corporation under Georgia state law. Although the state law may treat the new LLC as a continuation of the precursor corporation, we determine that the new entity constitutes an “association,” as discussed above, for purposes of Part 111 of the CBP Regulations.
Furthermore, we note that Unique, Inc. will be required to obtain a new customs bond from its surety upon conversion to form a limited liability company. This requirement is based on the CBP’s policy of requiring principals to obtain a
new bond whenever the bond principal obtains a new Employer Identification Number from the IRS or undergo a changes its legal status. Although the CBP regulations governing the issuance of customs bonds authorize port directors to accept a bond rider when a principal merely changes its name, such riders may only be used,
when the change in name does not change the legal identity or status of the principal. If a new corporation is created as a result of a merger, reorganization or similar action, a bond rider for a name change of the principal can not be used. A new bond would be required.
19 C.F.R. § 113.24
As a new legal being, Unique, LLC must obtain a new broker’s license in its own name. The fact that under Georgia state law a corporation converted into an LLC retains all rights and obligations of the predecessor does not preclude CBP from requiring a new broker’s license upon formation of the new entity.
HOLDING:
For the reasons discussed above, upon conversion from a corporation to a limited liability company, the new entity should be treated as an association for purposes of the broker licensing regulations codified at 19 C.F.R. Part 111. In addition, as a legal entity separate and distinct from its predecessor corporation, the new limited liability company is required to obtain a new customs broker license.
Sincerely,
William G. Rosoff, Chief
Entry Process and Duty Refund Branch