New Law to Govern Pennsylvania Entities

by McNees Wallace & Nurick LLC
Contact

Effective February 21, 2017, Pennsylvania law will change significantly for business corporations, nonprofit corporations, and especially for limited liability companies (“LLCs”), limited partnerships (“LPs”), limited liability LPs (”LLLPs”) and general partnerships. The new law (“Act 170” or the “Act”), amending the Pennsylvania Associations Code, will apply to all new entities formed on or after February 21, 2017, to all entities electing to be covered by the new provisions between February 21 and April 1, 2017, and automatically to all existing entities beginning on April 1, 2017, regardless of when the entity was formed.

Pursuant to Act 170, Pennsylvania has adopted the most current versions of the Uniform Limited Liability Company Act, the Uniform Limited Partnership Act and the Uniform Partnership Act, with some Pennsylvania-specific modifications. The Act also harmonizes the law to a large extent among all types of business forms in Pennsylvania.  The state will now have one of the most flexible and modern legal frameworks for business governance in the U.S., across the entire spectrum of business entity types.

Here are some of the key changes:

  1. Derivative Lawsuits. The new law clarifies, expands and harmonizes the provisions governing derivative lawsuits for LLCs, LPs, LLLPs, business corporations and nonprofit corporations. A derivative lawsuit is a lawsuit filed in the name of the entity by one or more members/shareholders/partners when the entity does not file such a lawsuit itself. The law establishes procedures for the voluntary formation of special litigation committees in the context of derivative lawsuits, threatened or filed, for all types of entities, and defines certain powers of such committees.
  2. Liability Shield. The law now clarifies and expands the scope of liability protection for the partners of an LLP and the general partners of an LLLP.
  3. Charging Orders. Provisions governing charging orders are now codified in detail. A charging order is a remedy for a creditor of a partner/member to obtain the economic rights of the partner/member (“transferable interests” under the new Act) but not the governance or voting rights. The new provisions both clarify the rights of the holder of a charging order, as well as protect the entity and the other partners/members.
  4. Operating Agreements and Partnership Agreements. The new Act and the legislative commentary favor the implication of an operating agreement (or a partnership agreement, as the case may be) even if no such agreement is formally adopted.  Businesses will likely want a clear, written operating (or partnership) agreement, so that there is no confusion over what the “implied” agreement might be.
  5. Duties of Managers and General Partners. The Act codifies the general legal standard that LLC managers (including managing members) and LP general partners owe a duty of loyalty, a duty of care and an obligation of good faith and fair dealing to the entity and the other members/partners. Also under the new Act, the operating agreement or partnership agreement can alter or limit but not eliminate the duty of loyalty and can specify the types of activities that do not violate the duty of loyalty, may alter the duty of care and can identify standards by which the duty of good faith and fair dealing will be measured. In each of these cases, the change cannot be “manifestly unreasonable” at the time that the agreement is entered into in light of the circumstances existing at that time.
  6. Nonprofit and Benefit Entities. The law now allows for the formation of nonprofit LPs and nonprofit LLCs. Previously, the law only provided for nonprofit corporations. Similarly, benefit LLCs and benefit LPs can be formed (similar to benefit corporations), which are for-profit entities that also have a charitable purpose.
  7. Certificates of Authority. The law now allows for an LLC or a partnership to file, amend or cancel a new type of certificate called a Certificate of Authority.  This Certificate is filed with the state to create a public record of the person or position in the organization who has the legal authority to sign contracts, convey property, etc. in the name of the entity, and can also be filed in a county Recorder of Deeds office with respect to authority to convey real property (e.g., deeds, easements and mortgages).  These Certificates will allow third parties without knowledge to the contrary to rely on the authority specified in the Certificate.

Because Act 170, with legislative comments, is over 500 pages, the above list is not inclusive of everything covered. The new Act touches many areas of the law governing the operations of business entities and creates opportunities for greater flexibility in these entities.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McNees Wallace & Nurick LLC | Attorney Advertising

Written by:

McNees Wallace & Nurick LLC
Contact
more
less

McNees Wallace & Nurick LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.