PRINTER'S NO. 3560
No. 2705 Session of 1992
INTRODUCED BY HANNA, KRUSZEWSKI, MELIO, FAJT, NICKOL, F. TAYLOR, KREBS, COY, COLAIZZO, NOYE, CARONE, STEELMAN, SERAFINI AND THOMAS, MAY 11, 1992
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE, MAY 11, 1992
AN ACT 1 Amending Title 15 (Corporations and Unincorporated Associations) 2 of the Pennsylvania Consolidated Statutes, providing for 3 limited liability companies. 4 The General Assembly of the Commonwealth of Pennsylvania 5 hereby enacts as follows: 6 Section 1. Section 1103 of Title 15 of the Pennsylvania 7 Consolidated Statutes is amended by adding a definition to read: 8 § 1103. Definitions. 9 Subject to additional definitions contained in subsequent 10 provisions of this subpart that are applicable to specific 11 provisions of this subpart, the following words and phrases when 12 used in this subpart shall have the meanings given to them in 13 this section unless the context clearly indicates otherwise: 14 * * * 15 "Limited liability company." A business corporation that has 16 elected to become subject to Chapter 33 (relating to limited 17 liability companies). 18 * * *
1 Section 2. Title 15 is amended by adding a chapter to read: 2 CHAPTER 33 3 LIMITED LIABILITY COMPANIES 4 Subchapter 5 A. Preliminary Provisions 6 B. Management and Financial Matters 7 C. Rights and Responsibilities of Members and Managers 8 D. Dissolution 9 E. Taxation 10 SUBCHAPTER A 11 PRELIMINARY PROVISIONS 12 Sec. 13 3301. Application and effect of chapter. 14 3302. Formation of limited liability companies. 15 3303. Company name. 16 3304. Election of existing business corporation to become 17 limited liability company. 18 3305. Contributions to capital. 19 § 3301. Application and effect of chapter. 20 (a) General rule.--This chapter shall be applicable to a 21 business corporation, other than a management corporation or a 22 professional corporation, that elects to become a limited 23 liability company in the manner provided by this chapter. 24 (b) Application of business corporation law generally.--The 25 existence of a provision of this chapter shall not of itself 26 create any implication that a contrary or different rule of law 27 is or would be applicable to a business corporation that is not 28 a limited liability company. This chapter shall not affect any 29 statute or rule of law that is or would be applicable to a 30 business corporation that is not a limited liability company. 19920H2705B3560 - 2 -
1 (c) Laws applicable to limited liability companies.--Except 2 as otherwise provided in this chapter, this subpart shall be 3 generally applicable to all limited liability companies. The 4 specific provisions of this chapter shall control over the 5 general provisions of this subpart. Except as otherwise provided 6 in this article, a limited liability company may be 7 simultaneously subject to this chapter and one or more other 8 chapters of this article. 9 § 3302. Formation of limited liability companies. 10 A limited liability company shall be formed in accordance 11 with Article B (relating to domestic business corporations 12 generally), except that its articles shall contain a heading 13 stating the name of the corporation and that it is a limited 14 liability company. 15 § 3303. Company name. 16 (a) Designation as limited liability company.--The words 17 "limited liability company" or the abbreviation "L.L.C." shall 18 be the last words in the name of a limited liability company 19 formed under this chapter. 20 (b) Liability imposed for omission of designation.--Omission 21 of the words "limited liability company" or the abbreviation 22 "L.L.C." in the use of the name of a limited liability company 23 shall subject a person who causes the omission, or who knowingly 24 acquiesces in it, to liability for any indebtedness or damage 25 occasioned by the omission. 26 § 3304. Election of existing business corporation to become 27 limited liability company. 28 (a) General rule.--A business corporation may become a 29 limited liability company under this chapter by filing articles 30 of amendment which shall contain, in addition to the 19920H2705B3560 - 3 -
1 requirements of section 1915 (relating to articles of 2 amendment): 3 (1) A heading stating the name of the corporation and 4 that it is a limited liability company. 5 (2) A statement that it elects to become a limited 6 liability company. 7 (b) Procedure.--An election to become subject to this 8 chapter shall be proposed by a resolution adopted by the board 9 of directors and shall be adopted in accordance with the 10 requirements of Subchapter B of Chapter 19 (relating to 11 amendment of articles). If an effective date is not stated in 12 the articles of amendment, this chapter shall become applicable 13 to the corporation on the date the articles of amendment are 14 filed in the department. 15 (c) Dissenters rights upon election.--If any shareholder of 16 a corporation that adopts an election under this chapter to 17 become a limited liability company objects to that action and 18 complies with the provisions of Subchapter D of Chapter 15 19 (relating to dissenters rights), the dissenting shareholder 20 shall be entitled to the rights and remedies of dissenting 21 shareholders therein provided. 22 (d) Cross reference.--See section 134 (relating to docketing 23 statement). 24 § 3305. Contributions to capital. 25 (a) General rule.--The contributions to capital by a member 26 of a limited liability company may consist of cash or other 27 property. 28 (b) Services not considered contribution.--Services received 29 by or performed for a limited liability company shall not 30 constitute capital contributions. 19920H2705B3560 - 4 -
1 SUBCHAPTER B 2 MANAGEMENT AND FINANCIAL MATTERS 3 Sec. 4 3311. Management of limited liability company. 5 3312. Bylaws. 6 3313. Debts and liabilities. 7 3314. Limited liability company property. 8 3315. Distribution of property. 9 § 3311. Management of limited liability company. 10 (a) Management by members.--The management of the limited 11 liability company, unless otherwise provided in the articles of 12 incorporation, shall be vested in its members in proportion to 13 their contributions to the capital of the limited liability 14 company, as adjusted from time to time to properly reflect any 15 additional contributions or withdrawals by the members. 16 (b) Elected managers.--The articles of incorporation may 17 provide for the management of the limited liability company by a 18 manager or managers who shall be elected annually by the members 19 in the manner prescribed by and provided in the bylaws of the 20 limited liability company. The manager or managers shall also 21 hold the offices and have the responsibilities accorded to them 22 by the members as set forth in the articles of incorporation. 23 § 3312. Bylaws. 24 The power to adopt, alter, amend or repeal the bylaws of a 25 limited liability company shall be vested in the members of the 26 company, unless vested in the manager or managers of the company 27 by the articles of incorporation. Bylaws adopted by the members 28 or by the manager may be repealed or altered. New bylaws may be 29 adopted by the members, and the members may prescribe in bylaws 30 made by them that the bylaws may not be altered, amended or 19920H2705B3560 - 5 -
1 repealed by the manager. The bylaws may contain any provisions 2 for the regulation and management of the affairs of the limited 3 liability company not inconsistent with law or the articles of 4 incorporation. 5 § 3313. Debts and liabilities. 6 Except as otherwise provided in this chapter or the articles 7 of incorporation, no debt shall be contracted nor liability 8 incurred by or on behalf of a limited liability company, except 9 by the following: 10 (1) One or more of its managers, if management of the 11 limited liability company has been vested by the members in a 12 manager or managers. 13 (2) Any member, if management of the limited liability 14 company is retained by the members. 15 § 3314. Limited liability company property. 16 (a) General rule.--Real or personal property owned or 17 purchased by a limited liability company shall be held, owned 18 and conveyed in the name of the limited liability company. 19 (b) Execution of documents.--Instruments and documents 20 providing for the acquisition, mortgage or disposition of 21 property of the limited liability company shall be valid and 22 binding upon the company if they are executed by one or more 23 managers of a limited liability company having a manager or 24 managers or if they are executed by one or more members of a 25 limited liability company in which management has been retained 26 in the members. 27 § 3315. Distribution of property. 28 (a) General rule.--A limited liability company may, from 29 time to time, distribute its property to the members of the 30 limited liability company upon the basis stipulated in the 19920H2705B3560 - 6 -
1 bylaws. 2 (b) Limitation.--A distribution of property shall not be 3 made if, after a distribution, the liabilities of the limited 4 liability company would exceed its assets. For purposes of this 5 section, liabilities to members on account of their capital 6 contributions shall not be considered liabilities of a limited 7 liability company. 8 (c) Status of dividend.--A distribution of the property of a 9 limited liability company shall be considered a dividend under 10 section 316 of the Internal Revenue Code of 1986 (Public Law 99- 11 514, 26 U.S.C. § 1 et seq.). 12 SUBCHAPTER C 13 RIGHTS AND RESPONSIBILITIES 14 OF MEMBERS AND MANAGERS 15 Sec. 16 3321. Nature of interest of member in limited liability 17 company. 18 3322. Withdrawal or reduction of members' contributions to 19 capital. 20 3323. Transferability of member's interest. 21 3324. Liability of member to limited liability company. 22 3325. Liability of members and managers. 23 3326. Unauthorized assumption of powers. 24 3327. Parties to actions by or against limited liability 25 company. 26 § 3321. Nature of interest of member in limited liability 27 company. 28 The interest of a member in a limited liability company is 29 personal property. 30 § 3322. Withdrawal or reduction of members' contributions to 19920H2705B3560 - 7 -
1 capital. 2 (a) General rule.--A member shall not receive out of limited 3 liability company property any part of his contribution to 4 capital until: 5 (1) All liabilities of the limited liability company, 6 except liabilities to members on account of their 7 contributions to capital, have been paid or sufficient 8 property of the company remains to pay them. 9 (2) The consent of all members is obtained, unless the 10 return of the contribution to capital may be rightfully 11 demanded as provided in this chapter. 12 (3) The articles of incorporation are canceled or are 13 amended to provide for the withdrawal reduction. 14 (b) Demand for return of contribution.--Subject to the 15 provisions of subsection (a), a member may rightfully demand the 16 return of his contribution upon the occurrence of any of the 17 following: 18 (1) On the dissolution of the limited liability company. 19 (2) When the date an event specified in the articles of 20 incorporation for the return of the contribution has arrived. 21 (3) After the member has given all other members of the 22 limited liability company six months' prior notice in 23 writing, if no time is specified in the articles of 24 incorporation, for dissolution of the limited liability 25 company. 26 (c) Cash in return for contribution.--In the absence of a 27 statement in the articles of incorporation to the contrary or 28 the consent of all members of the limited liability company, a 29 member, irrespective of the nature of his contribution, has only 30 the right to demand and receive cash in return for his 19920H2705B3560 - 8 -
1 contribution to capital. 2 (d) Dissolution.--A member of a limited liability company 3 may have the limited liability company dissolved and its affairs 4 wound up when either of the following occurs: 5 (1) The member rightfully, but unsuccessfully, has 6 demanded the return of his contribution. 7 (2) The other liabilities of the limited liability 8 company have not been paid, or the limited liability company 9 property is insufficient for their payment, and the member 10 otherwise would be entitled to the return of his 11 contribution. 12 § 3323. Transferability of member's interest. 13 (a) General rule.--The interest of a member in a limited 14 liability company may be transferred or assigned as provided in 15 the bylaws. 16 (b) Rights of transferee.--If all of the other members of 17 the limited liability company, other than the member proposing 18 to dispose of his interest, do not approve of the proposed 19 transfer or assignment by unanimous written consent, the 20 transferee of the interest of the member shall have no right to 21 participate in the management of the business and affairs of the 22 limited liability company or to become a member. The transferee 23 shall be entitled to receive only the share of profits or other 24 compensation by way of income and the return of contributions to 25 which the transferor member otherwise would be entitled. 26 § 3324. Liability of member to limited liability company. 27 (a) General rule.--A member of a limited liability company 28 is liable to the company for both of the following: 29 (1) The difference between the amount of his 30 contributions to capital which have been actually made and 19920H2705B3560 - 9 -
1 the amount which is stated in the articles of incorporation 2 having been made. 3 (2) Any unpaid contribution to capital which he agreed 4 in the articles of incorporation to make in the future at the 5 time and on the conditions stated in the articles of 6 incorporation. 7 (b) Member as trustee.--A member holds as trustee for the 8 limited liability company the following property: 9 (1) Specific property which is declared in the articles 10 of incorporation as having been contributed by the member, 11 where the property was not contributed or where the property 12 was wrongfully or erroneously returned. 13 (2) Money or other property wrongfully paid or conveyed 14 to the member on account of his contribution. 15 (c) Waiver or compromise of liabilities.--The liabilities of 16 a member may be waived or compromised only by the consent of all 17 members, but a waiver or compromise shall not affect the right 18 of a creditor of the limited liability company, who extended 19 credit or whose claim arose after the filing and before a 20 cancellation or amendment of the articles of incorporation, to 21 enforce such liabilities. 22 (d) Liability to certain creditors.--When a contributor has 23 rightfully received the return in whole or in part of his 24 contribution, the contributor is nevertheless liable to the 25 limited liability company for any sum, not in excess of the 26 return with interest, necessary to discharge its liability to 27 all creditors of the limited liability company who extended 28 credit or whose claims arose before the return of the 29 contribution. 30 § 3325. Liability of members and managers. 19920H2705B3560 - 10 -
1 Neither the members of a limited liability company nor the 2 managers of a limited liability company managed by a manager or 3 managers are liable under a judgment, decree or order of a 4 court, or in any other manner, for a debt, obligation or 5 liability of the limited liability company. 6 § 3326. Unauthorized assumption of powers. 7 Persons who assume to act as a limited liability company 8 without authority to do so shall be jointly and severally liable 9 for all debts and liabilities. 10 § 3327. Parties to actions by or against limited liability 11 company. 12 A member of a limited liability company is not a proper party 13 to an action by or against a limited liability company, except 14 when the action is brought to enforce a member's right against 15 or liability to the limited liability company. 16 SUBCHAPTER D 17 DISSOLUTION 18 Sec. 19 3331. Dissolution upon occurrence of certain events. 20 3332. Statement of intent to dissolve. 21 3333. Distribution of assets upon dissolution. 22 3334. Articles of dissolution. 23 3335. Involuntary dissolution. 24 § 3331. Dissolution upon occurrence of certain events. 25 (a) General rule.--A limited liability company organized 26 under this chapter shall be dissolved upon the occurrence of any 27 of the following events: 28 (1) When the period fixed for the duration of the 29 limited liability company expires. 30 (2) By the unanimous written agreement of all members. 19920H2705B3560 - 11 -
1 (3) Upon the death, retirement, resignation, expulsion, 2 bankruptcy or dissolution of a member or upon the occurrence 3 of any other event which terminates the continued membership 4 of a member in the limited liability company, unless the 5 business of the limited liability company is continued by the 6 consent of all the remaining members or under a right to 7 continue provided for in the articles of incorporation. 8 (b) Filing of statement of intent to dissolve.--As soon as 9 possible following the occurrence of any of the events listed in 10 subsection (a), the limited liability company shall execute and 11 file with the department a statement of intent to dissolve in 12 the form prescribed by the department. 13 § 3332. Statement of intent to dissolve. 14 (a) Effect of filing of statement of intent to dissolve.-- 15 Upon the filing of a statement of intent to dissolve, the 16 limited liability company shall cease to carry on its business, 17 except insofar as may be necessary for the winding up of its 18 business, but its separate existence shall continue until 19 articles of dissolution are filed with the department. 20 (b) Notice to creditors and claimants.--Within 20 days after 21 the filing of a statement of intent to dissolve, the limited 22 liability company shall immediately cause notice of the filing 23 to be mailed to each creditor of and claimant against the 24 limited liability company. 25 (c) Winding up.--Upon filing the statement of intent to 26 dissolve, the limited liability company shall: 27 (1) Proceed to collect its assets. 28 (2) Convey and dispose of such of its properties as are 29 not to be distributed in kind to its members. 30 (3) Pay, satisfy or discharge its liabilities and 19920H2705B3560 - 12 -
1 obligations or make adequate provisions for the payment or 2 discharge of its liabilities and obligations. 3 (4) Do all other acts required to liquidate its business 4 and affairs. 5 (d) Distribution to members.--After paying or discharging 6 all its obligations or making adequate provision for payment or 7 discharge of its obligations, the limited liability company may 8 distribute the remainder of its assets, either in cash or in 9 kind, among its members according to their respective rights and 10 interests. 11 § 3333. Distribution of assets upon dissolution. 12 (a) Discharge of liabilities.--In settling accounts upon 13 dissolution, the liabilities of the limited liability company 14 shall be discharged in the following order: 15 (1) Liabilities to creditors, in the order of priority 16 as provided by law, except liabilities to members of the 17 limited liability company on account of their contributions. 18 (2) Liabilities to members of the limited liability 19 company in respect of their shares of the profits and other 20 compensation by way of income on their contributions. 21 (3) Liabilities to members of the limited liability 22 company in respect of their contributions to capital. 23 (b) Distribution to members.--Subject to any provision in 24 the bylaws, members shall share in the limited liability company 25 assets in respect to their claims for capital and in respect to 26 their claims for profits or for compensation by way of income on 27 their contributions, respectively, in proportion to the 28 respective amounts of the claims. 29 § 3334. Articles of dissolution. 30 (a) Contents.--When all debts, liabilities and obligations 19920H2705B3560 - 13 -
1 of the limited liability company have been paid or discharged, 2 or adequate provision has been made for payment or discharge, 3 and all of the remaining property and assets of the limited 4 liability company have been distributed to the members, articles 5 of dissolution shall be executed and filed with the department. 6 The articles of dissolution shall set forth the following: 7 (1) The name of the limited liability company. 8 (2) The fact that a statement of intent to dissolve the 9 limited liability company has filed and the date on which the 10 statement was filed. 11 (3) The fact that all debts, obligations and liabilities 12 have been paid or discharged or that adequate provision has 13 been made for payment on discharge. 14 (4) The fact that all the remaining property and assets 15 have been distributed among its members in accordance with 16 their respective rights and interests. 17 (5) The fact that there are no suits pending against the 18 limited liability company in any court or that adequate 19 provision has been made for the satisfaction of any judgment, 20 order or decree which may be entered against it in any 21 pending suit. 22 (b) Tax clearance statement.--The limited liability company 23 shall file the certificate required by section 139 (relating to 24 tax clearance of certain fundamental transactions) with the 25 department at the same time it files the articles of 26 dissolution. 27 (c) Postdissolution claims.--Postdissolution claims against 28 a limited liability company shall be made under Subchapter H of 29 Chapter 19 (relating to postdissolution claims). 30 § 3335. Involuntary dissolution. 19920H2705B3560 - 14 -
1 A limited liability company may be dissolved involuntarily by 2 the court when it is established that the limited liability 3 company has done any of the following: 4 (1) Procured its articles of incorporation through 5 fraud. 6 (2) Exceeded the authority conferred upon it by law. 7 (3) Committed a violation of any provision of law 8 whereby it has forfeited its charter. 9 (4) Carried on, conducted or transacted its business in 10 a persistently fraudulent or illegal manner. 11 (5) By the abuse of its powers contrary to the public 12 policy of the Commonwealth, become liable to be dissolved. 13 SUBCHAPTER E 14 TAXATION 15 Sec. 16 3341. Tax on income of limited liability company. 17 § 3341. Tax on income of limited liability company. 18 The income of a limited liability company organized pursuant 19 to this chapter shall be subject to tax provisions in Article IV 20 of the act of March 4, 1971 (P.L.6, No.2), known as the Tax 21 Reform Code of 1971. 22 Section 3. This act shall take effect in 60 days. B14L15PJP/19920H2705B3560 - 15 -