See other bills
under the
same topic
PRIOR PRINTER'S NOS. 1895, 2375
PRINTER'S NO. 2860
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1398
Session of
2015
INTRODUCED BY A. HARRIS, THOMAS, MACKENZIE, STAATS, MILLARD,
LONGIETTI, GIBBONS, ROZZI, McGINNIS, GREINER, BARBIN, COHEN,
MILNE, MARSICO, PETRI, DeLISSIO, DAVIDSON, JAMES, PEIFER,
DAY, GROVE, FARRY, ELLIS, BENNINGHOFF, P. COSTA, F. KELLER,
R. BROWN, D. PARKER, KORTZ, EVERETT, SCHEMEL AND MICCARELLI,
JUNE 24, 2015
AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES,
FEBRUARY 10, 2016
AN ACT
Amending Titles 15 (Corporations and Unincorporated
Associations) and 54 (Names) of the Pennsylvania Consolidated
Statutes, modernizing the law on limited liability
partnerships, general partnerships, limited partnerships and
limited liability companies; and making conforming changes
with respect to associations, corporations, unincorporated
nonprofit associations and business trusts by doing the
following:
As to general provisions, making conforming changes by
revising provisions on application of title, definitions,
defense of usury, tax clearance of certain fundamental
transactions and fee schedule.
As to entities generally, making conforming changes by
revising requirements for foreign association names.
As to entity transactions, making conforming changes by
revising provisions on regulatory conditions and required
notices and approvals, nature of transactions, approval by
limited partnership, effect of merger, statement of division
and effectiveness, effect of division and effect of
domestication.
As to foreign associations, making conforming changes by
revising provisions on governing law.
As to corporations, making conforming changes by revising
provisions on distributions by business corporations and by
adding provisions on DERIVATIVE ACTIONS AND the use of
special litigation committees by business corporations and
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
nonprofit corporations.
As to partnerships generally:
extensively revising provisions on:
interchangeability of partnership, limited
liability company and corporate forms of
organization; and
ownership of certain professional partnerships;
and
adding a provision on failure to observe formalities.
As to limited liability partnerships:
extensively revising provisions on:
scope;
definitions;
limitation on liability of partners;
extraterritorial application of subchapter;
foreign registered limited liability
partnerships; and
annual registration; and
adding provisions on:
distributions; and
dissolution.
As to general partnerships, repealing existing Chapter 83
and replacing it with a new Chapter 84 relating to:
general provisions;
nature of partnership;
relations of partners to persons dealing with
partnership;
relations of partners to each other and to
partnership;
transferable interests and rights of transferees and
creditors;
dissociation;
dissociation as partner if business not wound up; and
dissolution and winding up.
As to limited partnerships, repealing existing Chapter 85
and replacing it with a new Chapter 86 relating to:
general provisions;
formation and filings;
limited partners;
general partners;
contributions and distributions;
dissociation;
transferable interests and rights of transferees and
creditors;
dissolution and winding up; and
actions by partners.
As to limited liability companies, repealing existing
Chapter 89 and replacing it with a new Chapter 88 relating
to:
general provisions;
formation and filings;
20150HB1398PN2860 - 2 -
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
relations of members and managers to persons dealing
with limited liability company;
relations of members to each other and to limited
liability company;
transferable interests and rights of transferees and
creditors;
dissociation;
dissolution and winding up; and
actions by members.
AS TO LIMITED LIABILITY COMPANIES:
REPEALING EXISTING SUBCHAPTERS A, B, C, D, E, F, I
AND K OF CHAPTER 89 AND REPLACING THEM WITH A NEW CHAPTER
88 RELATING TO:
GENERAL PROVISIONS;
FORMATION AND FILINGS;
RELATIONS OF MEMBERS AND MANAGERS TO PERSONS
DEALING WITH LIMITED LIABILITY COMPANY;
RELATIONS OF MEMBERS TO EACH OTHER AND TO LIMITED
LIABILITY COMPANY;
TRANSFERABLE INTERESTS AND RIGHTS OF TRANSFEREES
AND CREDITORS;
DISSOCIATION;
DISSOLUTION AND WINDING UP; AND
ACTIONS BY MEMBERS;
AND
REVISING PROVISIONS ON RESTRICTED PROFESSIONAL
COMPANIES.
As to unincorporated nonprofit associations, making
conforming amendments by revising provisions on ownership and
transfer of property.
As to business trusts, making conforming changes by
revising provisions on application and effect of chapter and
liability of trustees and beneficiaries.
As to names, revising provisions on register established.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 101(c) of Title 15 of the Pennsylvania
Consolidated Statutes is amended to read:
§ 101. Short title and application of title.
* * *
(c) References to prior statutes.--A reference in the
[articles or bylaws or other organic documents] organic rules of
an association to any provision of law supplied or repealed by
this title shall be deemed to be a reference to the superseding
20150HB1398PN2860 - 3 -
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
provision of this title.
Section 1.1. The definitions of "association," "general
partnership," "limited liability company" and "limited
partnership" in section 102(a) of Title 15, amended October 22,
2014 (P.L.2640, No.172), are amended and the section is amended
by adding definitions to read:
§ 102. Definitions.
(a) Defined terms.--Subject to additional or inconsistent
definitions contained in subsequent provisions of this title
that are applicable to specific provisions of this title, the
following words and phrases when used in this title shall have,
unless the context clearly indicates otherwise, the meanings
given to them in this section:
* * *
"Association." A corporation, for profit or not-for-profit,
a partnership, a limited liability company, a business or
statutory trust, an entity or two or more persons associated in
a common enterprise or undertaking. The term does not include:
(1) a testamentary trust or an inter vivos trust as
defined in 20 Pa.C.S. § 711(3) (relating to mandatory
exercise of jurisdiction through orphans' court division in
general);
(2) an association or relationship that:
(i) is not a person that has:
(A) a legal existence separate from any interest
holder of the person; or
(B) the power to acquire an interest in real
property in its own name; and
(ii) is not a partnership under the rules stated in
section [8312 (relating to rules for determining the
20150HB1398PN2860 - 4 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
existence of partnership)] 8422(c) (relating to formation
of partnership) or a similar provision of the laws of
another jurisdiction;
(3) a decedent's estate; or
(4) a government or a governmental subdivision, agency
or instrumentality.
* * *
"Charitable purposes." The relief of poverty, the
advancement and provision of education, including postsecondary
education, the advancement of religion, the prevention and
treatment of disease or injury, including mental retardation and
mental disorders, governmental or municipal purposes and any
other purpose the accomplishment of which is recognized as
important and beneficial to the public.
* * *
"Debtor in bankruptcy." A person that is the subject of:
(1) an order for relief under 11 U.S.C. (relating to
bankruptcy) or a comparable order under a successor statute
of general application; or
(2) a comparable order under Federal, State or foreign
law governing insolvency.
* * *
"General partnership." [A domestic or foreign partnership as
defined in section 8311 (relating to partnership defined),
whether or not it is a limited liability partnership or electing
partnership.] Either of the following:
(1) A partnership as defined in section 8412 (relating
to definitions).
(2) An association whose internal affairs are governed
by the laws of a jurisdiction other than this Commonwealth
20150HB1398PN2860 - 5 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
which would be a partnership if its internal affairs were
governed by the laws of this Commonwealth.
* * *
"Limited liability company." [A domestic or foreign limited
liability company as defined in section 8903 (relating to
definitions and index of definitions).] Either of the following:
(1) A limited liability company as defined in section
8812 (relating to definitions).
(2) An association whose internal affairs are governed
by the laws of a jurisdiction other than this Commonwealth
which would be a limited liability company if its internal
affairs were governed by the laws of this Commonwealth.
* * *
"Limited partnership." [A domestic or foreign limited
partnership as defined in section 8503 (relating to definitions
and index of definitions), whether or not it is a limited
liability limited partnership or electing partnership.] Either
of the following:
(1) A limited partnership as defined in section 8612
(relating to definitions).
(2) An association whose internal affairs are governed
by the laws of a jurisdiction other than this Commonwealth
which would be a limited partnership if its internal affairs
were governed by the laws of this Commonwealth.
* * *
Section 1.2. Title 15 is amended by adding a section to
read:
§ 114. Defense of usury.
A domestic association other than a business corporation
shall be subject to section 1510 (relating to certain
20150HB1398PN2860 - 6 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
specifically authorized debt terms) with respect to obligations,
as defined in that section, governed by the laws of this
Commonwealth or affecting real property situated in this
Commonwealth, to the same extent as if the domestic association
were a domestic business corporation.
Section 2. Sections 139(a) and (c), 152, 153(a)(2) and (3),
206, 314(a), (d) and (e), 315, 324(a) and (c) and 336(a)(2) of
Title 15, amended or added October 22, 2014 (P.L.2640, No.172),
are amended to read:
§ 139. Tax clearance of certain fundamental transactions.
(a) Requirement.--Except as provided in subsection (c) or
(d), clearance certificates from the Department of Revenue and
the Department of Labor and Industry, evidencing the payment by
the association of all taxes and charges due the Commonwealth
required by law, must be delivered to the department for filing
when any of the following is delivered to the department for
filing:
(1) Articles or a statement or certificate of merger
merging a domestic association into a nonregistered foreign
association.
(2) Articles or a statement or certificate of conversion
or domestication effecting a conversion or domestication of a
domestic association into a nonregistered foreign
association.
(3) Articles [or] of dissolution, a certificate of
dissolution or termination or a statement of revival of a
domestic association.
(4) An application for termination of registration,
statement of withdrawal or similar document by a registered
foreign association.
20150HB1398PN2860 - 7 -
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(5) Articles or a statement or certificate of division
dividing a domestic association solely into foreign
associations.
* * *
(c) [Alternative provisions.--If clearance certificates are
filed with the court as required under subsection (b), it shall
not be necessary to file the clearance certificates with the
Department of State.] Exceptions.--It shall not be necessary to
file tax clearance certificates with the Department of State:
(1) If clearance certificates are filed with the court
as required under subsection (b).
(2) With articles of dissolution under section 1971
(relating to voluntary dissolution by shareholders or
incorporators).
(3) With a certificate of dissolution under section
8482(b)(2)(i) (relating to winding up and filing of optional
certificates).
(4) With a certificate of termination under section
8681.1 (relating to voluntary termination by partners).
(5) With a certificate of dissolution under section
8872(b)(2)(i) (relating to winding up and filing of optional
certificates).
(6) With a certificate of termination under section 8878
(relating to voluntary termination by members or organizers).
* * *
§ 152. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Ancillary transaction." Includes:
20150HB1398PN2860 - 8 -
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(1) preclearance of document;
(2) amendment of articles, charter, certificate or other
organic document, restatement of articles, charter,
certificate or other organic document;
(3) dissolution, cancellation or termination of an
association;
(4) withdrawal or transfer of registration by foreign
association;
(5) [withdrawal by] dissociation as a partner;
(5.1) statement or certificate of authority and denial
or negation of authority;
(6) any transaction similar to any item listed in
paragraphs (1) through [(5)] (5.1);
(6.1) withdrawal, abandonment or termination of a
document which has been delivered to the department for
filing but has not yet become effective; or
(7) delivery to the department for filing in, by or with
the department or the Secretary of the Commonwealth of any
articles, statements, proceedings, agreements or any similar
papers affecting associations under the statutes of this
Commonwealth for which a specific fee is not set forth in
section 153 (relating to fee schedule) or other applicable
statute.
§ 153. Fee schedule.
(a) General rule.--The nonrefundable fees of the bureau,
including fees for the public acts and transactions of the
Secretary of the Commonwealth administered through the bureau,
shall be as follows:
* * *
(2) Foreign associations:
20150HB1398PN2860 - 9 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(i) Registration statement or similar
qualifications to do business..................... 250
(ii) Amendment of registration statement or
similar change in qualification to do business.... 250
(iii) Domestication of alien association
under section 161 (relating to domestication of
certain alien associations)....................... 250
[(iv) Statement of merger, division or
conversion or similar instrument reporting
occurrence of merger, division or conversion not
effected by a filing in the department............ 70]
(v) Additional fee for each [qualified]
registered foreign association which is named in a
statement of merger or similar instrument......... 40
(vi) Each ancillary transaction.............. 70
(3) Partnerships and limited liability companies:
(i) Certificate of limited partnership or
certificate of organization of a limited liability
company........................................... 125
(ii) Statement of registration of
[registered] limited liability partnership or
limited liability limited partnership or statement
of election as an electing partnership............ 125
(iii) Each ancillary transaction............. 70
* * *
§ 206. Requirements for foreign association names.
(a) General rule.--The department shall not file a
registration statement pursuant to section 412 (relating to
foreign registration statement) for a foreign association that,
except as provided under subsection (b), has a name that is
20150HB1398PN2860 - 10 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
rendered unavailable for use by a covered association [under
section 202(a), (b) or (c)(1)(i), (iii), (iv) or (v) or (2)
(relating to requirements for names generally)] by any provision
of this subchapter.
(b) Exception.--The provisions of section 202(b) and (c)
(relating to requirements for names generally) shall not prevent
the filing of a registration statement of a foreign association
[setting forth a name that is prohibited] whose name in its
jurisdiction of formation would be prohibited from use in this
Commonwealth by section 202(b) and (c) if the foreign
association [delivers to the department for filing a resolution
of its governors adopting] adopts a name for use in registering
to do business in this Commonwealth that is available for use by
a covered association.
§ 314. Regulatory conditions and required notices and
approvals.
(a) Regulatory approvals.--If [laws] the law of this
Commonwealth other than this chapter requires notice to or the
approval of a governmental agency or officer of the Commonwealth
in connection with the participation under an organic law that
is not part of this title by a domestic or foreign association
in a transaction which is a form of transaction authorized by
this chapter, the notice must be given or the approval obtained
by the association before it may participate in any form of
transaction under this chapter.
* * *
(d) Preservation of transfers.--[A] Subject to subsection
(c) and section 5550 (relating to devises, bequests and gifts
after certain fundamental changes), a bequest, devise, gift,
grant or promise contained in a will or other instrument of
20150HB1398PN2860 - 11 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
donation, subscription or conveyance that is made to:
(1) a merging association that is not the surviving
association and that takes effect or remains payable after
the merger inures to the surviving association[.]; and
(2) a dividing association may be allocated in the
division as if it were an asset of the dividing association
and, if the bequest, devise, gift, grant or promise takes
effect or remains payable after the division, vests as
provided in section 367(a)(4) (relating to effect of
division).
(e) Trust obligations.--A trust obligation that would govern
property:
(1) if transferred to a merging association that is not
the surviving association applies to property that is
transferred after a merger to the surviving association[.];
and
(2) if transferred to a dividing association that is not
a resulting association applies to property that is
transferred after a division to a resulting association.
[(e)] (f) Cross reference.--See section 318 (relating to
excluded entities and transactions).
§ 315. Nature of transactions.
(a) General rule.--The fact that a sale or conversion of the
interests in or assets of an association or a transaction under
a particular subchapter produces a result that could be
accomplished in any other manner permitted by a different
subchapter or other law shall not be a basis for
recharacterizing the sale, conversion or transaction as a
different form of sale, conversion or transaction under any
other subchapter or other law.
20150HB1398PN2860 - 12 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(b) Business purpose not required.--A transaction under this
chapter does not require an independent business purpose in
order for the transaction to be lawful.
§ 324. Approval by limited partnership.
(a) Proposal of plan.--[A] Except as provided in the organic
rules, a plan shall be proposed in the case of a domestic
limited partnership by the adoption by a unanimous vote of the
general partners of a resolution approving the plan. Except
where the approval of the limited partners is unnecessary under
this chapter or the organic rules, the general partners shall
submit the plan to a vote of the limited partners entitled to
vote thereon at a regular or special meeting of the limited
partners.
* * *
(c) Required vote by limited partners.--[The] Except as
provided in the organic rules:
(1) A plan shall be adopted upon receiving [a majority
of the votes cast by all limited partners, if any, entitled
to vote thereon] the affirmative vote or consent of limited
partners owning the rights to receive a majority of the
distributions as limited partners of each domestic limited
partnership that is a party to the proposed transaction under
the plan and, if any class of limited partners is entitled to
vote thereon as a class, [a majority of the votes cast] the
affirmative vote or consent of limited partners owning the
rights to receive a majority of the distributions as limited
partners in each class vote.
(2) A proposed plan [may] shall not be deemed to have
been adopted by the limited partnership unless it has also
been approved by the general partners, regardless of the fact
20150HB1398PN2860 - 13 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
that the general partners have directed or suffered the
submission of the plan to the limited partners for action.
* * *
§ 336. Effect of merger.
(a) General rule.--When a merger under this subchapter
becomes effective, all of the following apply:
* * *
(2) [Each] The separate existence of each merging
association that is not the surviving association ceases [to
exist].
* * *
Section 2.1. Section 366(h) of Title 15, added October 22,
2014 (P.L.2640, No.172), is amended and the section is amended
by adding a subsection to read:
§ 366. Statement of division; effectiveness.
* * *
(h) Coordination of transactions.--A new association may be
a party to another transaction under this chapter that takes
effect simultaneously with the division. The new association
shall be deemed to exist before the effectiveness of the other
transaction, but solely for the purpose of being a party to the
other transaction. The plan relating to the other transaction
shall be deemed to have been approved by the new association if
the plan is approved by the dividing association in connection
with its approval of the plan of division. The statement that is
delivered to the department for filing with respect to the other
transaction shall state that it was approved by the new
association under this subsection.
[(h)] (i) Cross references.--See sections 134 (relating to
docketing statement) and 135 (relating to requirements to be met
20150HB1398PN2860 - 14 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
by filed documents).
Section 2.2. Sections 367(a)(2) and (6), 368(J) and 376(f)
of Title 15, added October 22, 2014 (P.L.2640, No.172), are
amended to read:
§ 367. Effect of division.
(a) General rule.--When a division becomes effective, all of
the following apply:
* * *
(2) If the dividing association is not to survive the
division, the separate existence of the dividing association
ceases [to exist].
* * *
(6) The liabilities of the dividing association are
allocated between or among the resulting associations as
provided in section 368 (relating to allocation of
liabilities in division)[.] and the resulting associations to
which liabilities are allocated are liable for those
liabilities as successors to the dividing association, and
not by transfer, whether directly, indirectly or by operation
of law.
* * *
§ 368. ALLOCATION OF LIABILITIES IN DIVISION.
* * *
(J) TAXES.--ANY TAXES, INTEREST, PENALTIES AND PUBLIC
ACCOUNTS OF THE COMMONWEALTH CLAIMED AGAINST THE DIVIDING
ASSOCIATION FOR PERIODS PRIOR TO THE EFFECTIVE DATE OF THE
DIVISION THAT ARE SETTLED, ASSESSED OR DETERMINED PRIOR TO OR
AFTER THE DIVISION SHALL BE THE LIABILITY OF ALL OF THE
RESULTING ASSOCIATIONS AND, TOGETHER WITH INTEREST THEREON,
SHALL BE A LIEN AGAINST THE FRANCHISES AND PROPERTY OF EACH
20150HB1398PN2860 - 15 -
<--
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
RESULTING ASSOCIATION. UPON THE APPLICATION OF THE DIVIDING
ASSOCIATION, THE DEPARTMENT OF REVENUE, WITH THE CONCURRENCE OF
THE DEPARTMENT OF LABOR AND INDUSTRY, SHALL RELEASE ONE OR MORE,
BUT LESS THAN ALL, OF THE RESULTING ASSOCIATIONS FROM LIABILITY
AND LIENS FOR ALL TAXES, INTEREST, PENALTIES AND PUBLIC ACCOUNTS
OF THE DIVIDING ASSOCIATION DUE THE COMMONWEALTH FOR PERIODS
PRIOR TO THE EFFECTIVE DATE OF THE DIVISION IF THOSE DEPARTMENTS
ARE SATISFIED THAT THE PUBLIC REVENUES WILL BE ADEQUATELY
SECURED.
§ 376. Effect of domestication.
* * *
[(f) Service of process.--When a domestication becomes
effective, a foreign domesticated entity may be served with
process in this Commonwealth for the collection and enforcement
of any of its debts, obligations and other liabilities in
accordance with applicable law.]
* * *
Section 2.3. Section 402 of Title 15 is amended by adding a
subsection to read:
§ 402. Governing law.
* * *
(g) Defense of usury.--A foreign association shall be
subject to section 1510 (relating to certain specifically
authorized debt terms) with respect to obligations, as defined
in that section, governed by the laws of this Commonwealth or
affecting real property situated in this Commonwealth, to the
same extent as if the foreign association were a domestic
business corporation.
Section 3. Sections 521, 522 and 523(a) and (b) of Title 15
are amended to read:
20150HB1398PN2860 - 16 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
§ 521. Pensions and allowances.
A banking institution [or a savings association] may grant
allowances or pensions to officers, directors and employees for
faithful and long-continued services and, after the death of the
officer, director or employee either while in the service of the
corporation or after retirement, pensions or allowances may be
granted or continued to their dependents. The allowances to
dependents shall be reasonable in amount and paid only for a
limited time and, unless part of an employee benefit plan or
employment contract in effect at the time of retirement or death
of the officer, director or employee, shall not exceed in total
the amount of the compensation paid to the officer, director or
employee during the 12 months preceding retirement or death.
§ 522. Indemnification of authorized representatives.
A banking institution [or a savings association] shall be
governed by the provisions of Subchapter D of Chapter 17
(relating to indemnification).
§ 523. Actions by shareholders or members to enforce a
secondary right.
(a) General rule.--In any action brought to enforce a
secondary right on the part of one or more shareholders or
members against any officer or director or former officer or
director of a banking institution [or a savings association],
because the corporation refuses to enforce rights which may
properly be asserted by it, the plaintiff or plaintiffs must
aver and it must be made to appear that the plaintiff or each
plaintiff was a shareholder or was a member of the corporation
at the time of the transaction of which he complains or that his
stock or membership devolved upon him by operation of law from a
person who was a shareholder or member at that time.
20150HB1398PN2860 - 17 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(b) Security for costs.--In any such action instituted or
maintained by a holder or holders of less than 5% of the
outstanding shares of any class of the corporation or voting
trust certificates therefor, or by a member or members of a
corporation organized without capital stock which has
outstanding contracts or accounts with its members if the value
of the contracts or accounts held or owned by the member or
members instituting or maintaining the suit is less than 5% of
the value of all the contracts or accounts outstanding, the
corporation in whose right the action is brought shall be
entitled, at any stage of the proceedings, to require the
plaintiff or plaintiffs to give security for the reasonable
expenses, including attorneys' fees, which may be incurred by
[it] the corporation in connection therewith [and] or for which
it may become liable pursuant to section 522 (relating to
indemnification of authorized representatives) (but only insofar
as relates to mandatory indemnification in actions by or in the
right of the corporation) to which security the corporation
shall have recourse in such amount as the court having
jurisdiction shall determine upon the termination of the action.
The amount of the security may, from time to time, be increased
or decreased in the discretion of the court having jurisdiction
of the action upon showing that the security provided has or
[may] is likely to become inadequate or excessive. The security
may be denied or limited by the court if the court finds after
an evidentiary hearing that undue hardship on plaintiffs and
serious injustice would result.
* * *
Section 4. Section 1551(b) of Title 15 is amended and the
section is amended by adding a subsection to read:
20150HB1398PN2860 - 18 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
§ 1551. Distributions to shareholders.
* * *
(b) Limitation.--A distribution, including a distribution
under Subchapter F (relating to voluntary dissolution and
winding up) or H (relating to postdissolution provision for
liabilities) of Chapter 19, may not be made if, after giving
effect thereto:
(1) the corporation would be unable to pay its debts as
they become due in the usual course of its business; or
(2) the total assets of the corporation would be less
than the sum of its total liabilities plus (unless otherwise
provided in the articles) the amount that would be needed, if
the corporation were to be dissolved at the time as of which
the distribution is measured, to satisfy the preferential
rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution.
* * *
(d.1) Distribution in winding up.--In measuring the effect
of a distribution under Subchapter F or H of Chapter 19, the
liabilities of a dissolved corporation do not include any
liabilities for which adequate provision has been made or any
claim that has been barred under those subchapters.
* * *
Section 5. Sections 1781 and 1782 heading and (c) of Title
15 are amended to read:
§ 1781. [(Reserved).] Derivative action.
(a) General rule.--Subject to section 1782 (relating to
eligible shareholder plaintiffs and security for costs) and
subsection (b), a plaintiff may maintain a derivative action to
enforce a right of a business corporation only if:
20150HB1398PN2860 - 19 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(1) the plaintiff first makes a demand on the
corporation or the board of directors requesting that it
cause the corporation to bring an action to enforce the
right, and:
(i) if a special litigation committee is not
appointed under section 1783 (relating to special
litigation committee), the corporation does not bring the
action within a reasonable time; or
(ii) if a special litigation committee is appointed
under section 1783, a determination is made:
(A) under section 1783(e)(1) that the
corporation not object to the action; or
(B) under section 1783(e)(5)(i) that the
plaintiff continue the action;
(2) demand is excused under subsection (b);
(3) the action is maintained for the limited purpose of
seeking court review under section 1783(f); or
(4) the court has allowed the action to continue under
the control of the plaintiff under section 1783(f)(3)(ii).
(b) Prior demand excused.--
(1) A demand under subsection (a)(1) is excused only if
the plaintiff makes a specific showing that immediate and
irreparable harm to the business corporation would otherwise
result.
(2) If demand is excused under paragraph (1), demand
shall be made promptly upon commencement of the action.
(c) Contents of demand.--A demand under this section must be
in record form and give notice with reasonable specificity of
the essential facts relied upon to support each of the claims
made in the demand.
20150HB1398PN2860 - 20 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(d) Additional claims.--If a derivative action is commenced
after a demand has been made under this section and includes a
claim that was not fairly subsumed under the demand, a new
demand must be made with respect to that claim. The new demand
shall not relate back to the date of the original demand for
purposes of subsection (e).
(e) Statute of limitations.--The making of a demand tolls
any applicable statute of limitations with respect to a claim
asserted in the demand until the earlier of the date:
(1) the plaintiff making the demand is notified either:
(i) that the board of directors has decided not to
bring an action and not to appoint a special litigation
committee; or
(ii) of a determination under section 1783(e) after
the appointment of a special litigation committee under
section 1783; or
(2) the plaintiff commences an action asserting the
claim.
(f) Certain provisions of articles ineffective.--This
section may not be relaxed by any provision of the articles.
§ 1782. [Actions against directors and officers] Eligible
shareholder plaintiffs and security for costs .
* * *
(c) Security for costs.--In any action or proceeding
instituted or maintained by holders or owners of less than 5% of
the outstanding shares of any class of the corporation, unless
the shares held or owned by the holders or owners have an
aggregate fair market value in excess of $200,000, the
corporation in whose right the action or proceeding is brought
shall be entitled at any stage of the proceedings to require the
20150HB1398PN2860 - 21 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
plaintiffs to give security for the reasonable expenses,
including attorneys' fees, that may be incurred by [it] the
corporation in connection therewith or for which it may become
liable pursuant to section 1743 (relating to mandatory
indemnification) (but only insofar as relates to actions by or
in the right of the corporation) to which security the
corporation shall have recourse in such amount as the court
determines upon the termination of the action or proceeding. The
amount of security may, from time to time, be increased or
decreased in the discretion of the court upon showing that the
security provided has or [may] is likely to become inadequate or
excessive. The security may be denied or limited [in the
discretion of] by the court [upon preliminary showing to the
court, by application and upon such verified statements and
depositions as may be required by the court, establishing prima
facie that the requirement of full or partial security would
impose] if the court finds after an evidentiary hearing that
undue hardship on plaintiffs and serious injustice would result.
* * *
Section 6. Title 15 is amended by adding sections to read:
§ 1783. Special litigation committee.
(a) General rule.--If a business corporation or the board of
directors receives a demand to bring an action to enforce a
right of the corporation, or if a derivative action is commenced
before demand has been made on the corporation or the board, the
board may appoint a special litigation committee to investigate
the claims asserted in the demand or action and to determine on
behalf of the corporation or recommend to the board whether
pursuing any of the claims asserted is in the best interests of
the corporation. The corporation shall send a notice in record
20150HB1398PN2860 - 22 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
form to the plaintiff promptly after the appointment of a
committee under this section notifying the plaintiff that a
committee has been appointed and identifying by name the members
of the committee. A committee may not be appointed under this
section if every shareholder of the corporation is also a
director of the corporation.
(b) Discovery stay.--If the board of directors appoints a
special litigation committee and an action is commenced before a
determination has been made under subsection (e):
(1) On motion by the committee made in the name of the
business corporation, the court shall stay discovery for the
time reasonably necessary to permit the committee to complete
its investigation, except for good cause shown.
(2) The time for the defendants to plead shall be tolled
until the process provided for under subsection (f) has been
completed.
(c) Composition of committee.--A special litigation
committee shall be composed of two or more individuals who:
(1) are not interested in the claims asserted in the
demand or action;
(2) are capable as a group of objective judgment in the
circumstances; and
(3) may, but need not, be shareholders or directors.
(d) Appointment of committee.--A special litigation
committee may be appointed:
(1) by a majority of the directors not named as actual
or potential parties in the demand or action; or
(2) if all the directors are named as actual or
potential parties in the demand or action, by a majority of
the directors so named.
20150HB1398PN2860 - 23 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(e) Determination.--After appropriate investigation by a
special litigation committee, the committee or the board of
directors may determine that it is in the best interests of the
business corporation that:
(1) an action based on some or all of the claims
asserted in the demand not be brought by the corporation but
that the corporation not object to an action being brought by
the party that made the demand;
(2) an action based on some or all of the claims
asserted in the demand be brought by the corporation;
(3) some or all of the claims asserted in the demand be
settled on terms approved by the committee;
(4) an action not be brought based on any of the claims
asserted in the demand;
(5) an action already commenced continue under the
control of:
(i) the plaintiff;
(ii) the corporation; or
(iii) the committee;
(6) some or all the claims asserted in an action already
commenced be settled on terms approved by the committee; or
(7) an action already commenced be dismissed.
(f) Court review and action.--If a special litigation
committee is appointed and a derivative action is commenced
either before or after a determination is made under subsection
(e):
(1) The business corporation shall file with the court
after a determination is made under subsection (e) a
statement of the determination and a report of the committee
supporting the determination. The corporation shall serve
20150HB1398PN2860 - 24 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
each party with a copy of the determination and report. If
the corporation moves to file the report under seal, the
report shall be served on the parties subject to an
appropriate stipulation agreed to by the parties or a
protective order issued by the court.
(2) The corporation shall file with the court a motion,
pleading or notice consistent with the determination under
subsection (e).
(3) If the determination is one described in subsection
(e)(2), (3), (4), (5)(ii), (6) or (7), the court shall
determine whether the members of the committee met the
qualifications required under subsection (c)(1) and (2) and
whether the committee conducted its investigation and made
its recommendation in good faith, independently and with
reasonable care. If the court finds that the members of the
committee met the qualifications required under subsection
(c)(1) and (2) and that the committee acted in good faith,
independently and with reasonable care, the court shall
enforce the determination of the committee. Otherwise, the
court shall:
(i) dissolve any stay of discovery entered under
subsection (b);
(ii) allow the action to continue under the control
of the plaintiff; and
(iii) permit the defendants to file preliminary
objections, other appropriate pleadings and motions.
(g) Certain provisions of articles ineffective.--The
provisions of this section may not be varied by the articles.
§ 1784. Proceeds and expenses.
(a) Proceeds.--Except as provided in subsection (b):
20150HB1398PN2860 - 25 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(1) any proceeds or other benefits of a derivative
action, whether by judgment, compromise or settlement, belong
to the business corporation and not to the plaintiff; and
(2) if the plaintiff or its counsel receives any
proceeds, the proceeds shall be remitted immediately to the
corporation.
(b) Expenses.--If a derivative action is successful in whole
or in part, the court may award the plaintiff reasonable
expenses, including reasonable attorney fees and costs, from the
recovery of the business corporation , but in no event shall the
attorney fees awarded exceed a reasonable proportion of the
value of the relief, including nonpecuniary relief, obtained by
the plaintiff for the corporation.
(c) Certain provisions of articles ineffective.--This
section may not be relaxed by any provision of the articles.
Section 7. Section 4146 of Title 15 is amended to read:
SECTION 6.1. SECTIONS 1971(A) AND 3301(D) OF TITLE 15 ARE
AMENDED TO READ:
§ 1971. VOLUNTARY DISSOLUTION BY SHAREHOLDERS OR INCORPORATORS.
(A) GENERAL RULE.--THE SHAREHOLDERS OR INCORPORATORS OF A
BUSINESS CORPORATION THAT HAS [NOT COMMENCED BUSINESS] NEVER
TRANSACTED BUSINESS OR HELD ASSETS OTHER THAN MONEY RECEIVED
FROM SUBSCRIPTIONS FOR SHARES MAY EFFECT THE DISSOLUTION OF THE
CORPORATION BY FILING ARTICLES OF DISSOLUTION IN THE DEPARTMENT
OF STATE. THE ARTICLES OF DISSOLUTION SHALL BE EXECUTED IN THE
NAME OF THE CORPORATION BY A MAJORITY OF THE INCORPORATORS OR A
MAJORITY IN INTEREST OF THE SHAREHOLDERS AND SHALL SET FORTH:
(1) THE NAME OF THE CORPORATION AND, SUBJECT TO SECTION
109 (RELATING TO NAME OF COMMERCIAL REGISTERED OFFICE
PROVIDER IN LIEU OF REGISTERED ADDRESS), THE ADDRESS,
20150HB1398PN2860 - 26 -
<--
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
INCLUDING STREET AND NUMBER, IF ANY, OF ITS REGISTERED
OFFICE.
(2) THE STATUTE UNDER WHICH THE CORPORATION WAS
INCORPORATED AND THE DATE OF INCORPORATION.
(3) THAT THE CORPORATION HAS [NOT COMMENCED BUSINESS]
NEVER TRANSACTED BUSINESS OR HELD ASSETS OTHER THAN MONEY
RECEIVED FROM SUBSCRIPTIONS FOR SHARES.
(4) THAT THE AMOUNT, IF ANY, ACTUALLY PAID IN ON
SUBSCRIPTIONS FOR ITS SHARES, LESS ANY PART THEREOF DISBURSED
FOR NECESSARY EXPENSES, HAS BEEN RETURNED TO THOSE ENTITLED
THERETO.
(5) THAT ALL LIABILITIES OF THE CORPORATION HAVE BEEN
DISCHARGED OR THAT ADEQUATE PROVISION HAS BEEN MADE THEREFOR.
(6) THAT A MAJORITY OF THE INCORPORATORS OR A MAJORITY
IN INTEREST OF THE SHAREHOLDERS ELECT THAT THE CORPORATION BE
DISSOLVED.
* * *
§ 3301. APPLICATION AND EFFECT OF CHAPTER.
* * *
(D) ORGANIC [RECORDS] RULES MAY NOT BE INCONSISTENT.--A
PROVISION OF THE ARTICLES OR BYLAWS OF A BENEFIT CORPORATION MAY
NOT RELAX, BE INCONSISTENT WITH OR SUPERSEDE ANY PROVISION OF
THIS CHAPTER.
SECTION 6.2. THE DEFINITIONS OF "BENEFIT CORPORATION,"
"INDEPENDENT," "MINIMUM STATUS VOTE" AND "SUBSIDIARY" IN SECTION
3302 OF TITLE 15 ARE AMENDED TO READ:
§ 3302. DEFINITIONS.
THE FOLLOWING WORDS AND PHRASES WHEN USED IN THIS CHAPTER
SHALL HAVE THE MEANINGS GIVEN TO THEM IN THIS SECTION UNLESS THE
CONTEXT CLEARLY INDICATES OTHERWISE:
20150HB1398PN2860 - 27 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
"BENEFIT CORPORATION." A BUSINESS CORPORATION THAT [HAS
ELECTED TO BECOME] IS SUBJECT TO THIS CHAPTER [AND WHOSE STATUS
AS A BENEFIT CORPORATION HAS NOT BEEN TERMINATED].
* * *
"INDEPENDENT." WHEN A PERSON HAS NO MATERIAL RELATIONSHIP
WITH A BENEFIT CORPORATION OR ANY OF ITS SUBSIDIARIES, OTHER
THAN THE RELATIONSHIP OF SERVING AS THE BENEFIT DIRECTOR OR
BENEFIT OFFICER. A MATERIAL RELATIONSHIP BETWEEN AN INDIVIDUAL
AND A BENEFIT CORPORATION OR ANY OF ITS SUBSIDIARIES WILL BE
CONCLUSIVELY PRESUMED TO EXIST IF:
(1) THE PERSON IS OR HAS BEEN WITHIN THE LAST THREE
YEARS AN EMPLOYEE OF THE BENEFIT CORPORATION OR ANY OF ITS
SUBSIDIARIES, OTHER THAN AS A BENEFIT OFFICER;
(2) AN IMMEDIATE FAMILY MEMBER OF THE PERSON IS OR HAS
BEEN WITHIN THE LAST THREE YEARS AN EXECUTIVE OFFICER, OTHER
THAN A BENEFIT OFFICER, OF THE BENEFIT CORPORATION OR ANY OF
ITS SUBSIDIARIES; OR
(3) THE PERSON, OR AN ASSOCIATION OF WHICH THE PERSON IS
A [DIRECTOR, OFFICER OR OTHER MANAGER] GOVERNOR OR OFFICER
OR IN WHICH THE PERSON OWNS BENEFICIALLY OR OF RECORD 5% OR
MORE OF THE OUTSTANDING [EQUITY] INTERESTS, OWNS BENEFICIALLY
OR OF RECORD 5% OR MORE OF THE OUTSTANDING SHARES OF THE
BENEFIT CORPORATION. THE PERCENTAGE OF OWNERSHIP IN AN
ASSOCIATION SHALL BE CALCULATED AS IF ALL OUTSTANDING RIGHTS
TO ACQUIRE [EQUITY] INTERESTS IN THE ASSOCIATION HAD BEEN
EXERCISED.
"MINIMUM STATUS VOTE." AS FOLLOWS:
(1) IN THE CASE OF A BUSINESS CORPORATION, IN ADDITION
TO ANY OTHER REQUIRED APPROVAL OR VOTE, THE SATISFACTION OF
THE FOLLOWING CONDITIONS:
20150HB1398PN2860 - 28 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(I) THE SHAREHOLDERS OF EVERY CLASS OR SERIES MUST
BE ENTITLED, AS A CLASS, TO VOTE ON THE CORPORATE ACTION
REGARDLESS OF A LIMITATION STATED IN THE ARTICLES OF
INCORPORATION OR BYLAWS ON THE VOTING RIGHTS OF ANY CLASS
OR SERIES.
(II) THE CORPORATE ACTION MUST BE APPROVED BY A VOTE
OF THE SHAREHOLDERS OF EACH CLASS OR SERIES ENTITLED TO
CAST AT LEAST TWO-THIRDS OF THE VOTES THAT ALL
SHAREHOLDERS OF THE CLASS OR SERIES ARE ENTITLED TO CAST
ON THE ACTION.
(2) IN THE CASE OF A DOMESTIC ASSOCIATION OTHER THAN A
BUSINESS CORPORATION, IN ADDITION TO ANY OTHER REQUIRED
APPROVAL, VOTE OR CONSENT, THE SATISFACTION OF THE FOLLOWING
CONDITIONS:
(I) THE HOLDERS OF EVERY CLASS OR SERIES OF [EQUITY]
INTEREST IN THE ASSOCIATION THAT ARE ENTITLED TO RECEIVE
A DISTRIBUTION OF ANY KIND FROM THE ASSOCIATION MUST BE
ENTITLED AS A CLASS TO VOTE ON OR CONSENT TO THE ACTION
REGARDLESS OF ANY OTHERWISE APPLICABLE LIMITATION ON THE
VOTING OR CONSENT RIGHTS OF ANY CLASS OR SERIES.
(II) THE ACTION MUST BE APPROVED BY VOTE OR CONSENT
OF THE HOLDERS DESCRIBED IN SUBPARAGRAPH (I) ENTITLED TO
CAST AT LEAST TWO-THIRDS OF THE VOTES OR CONSENTS THAT
ALL OF THOSE HOLDERS ARE ENTITLED TO CAST ON THE ACTION.
* * *
"SUBSIDIARY." AN ASSOCIATION IN WHICH A PERSON OWNS
BENEFICIALLY OR OF RECORD 50% OR MORE OF THE OUTSTANDING
[EQUITY] INTERESTS. THE PERCENTAGE OF OWNERSHIP IN AN
ASSOCIATION SHALL BE CALCULATED AS IF ALL OUTSTANDING RIGHTS TO
ACQUIRE [EQUITY] INTERESTS IN THE ASSOCIATION HAD BEEN
20150HB1398PN2860 - 29 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
EXERCISED.
* * *
SECTION 7. SECTIONS 3321(C), 3322(E), 3323(C), 3325(B) AND
4146 OF TITLE 15 ARE AMENDED TO READ:
§ 3321. STANDARD OF CONDUCT FOR DIRECTORS.
* * *
(C) EXONERATION FROM PERSONAL LIABILITY.--
(1) A DIRECTOR SHALL NOT BE PERSONALLY LIABLE, AS SUCH,
FOR MONETARY DAMAGES FOR ANY ACTION TAKEN AS A DIRECTOR [IF
THE DIRECTOR PERFORMED THE DUTIES OF HIS OR HER OFFICE IN
COMPLIANCE WITH SECTION 1712 AND THIS SECTION.] IN THE COURSE
OF PERFORMING THE DUTIES SPECIFIED IN SUBSECTION (A) UNLESS
THE ACTION CONSTITUTES SELF-DEALING, WILLFUL MISCONDUCT OR A
KNOWING VIOLATION OF LAW.
(2) A DIRECTOR SHALL NOT BE PERSONALLY LIABLE FOR
MONETARY DAMAGES FOR FAILURE OF THE BENEFIT CORPORATION TO
PURSUE OR CREATE GENERAL PUBLIC BENEFIT OR A SPECIFIC PUBLIC
BENEFIT.
* * *
§ 3322. BENEFIT DIRECTOR.
* * *
[(E) ALTERNATIVE GOVERNANCE ARRANGEMENTS.--
(1) THE BYLAWS OF A BENEFIT CORPORATION MUST PROVIDE
THAT THE PERSONS OR SHAREHOLDERS WHO PERFORM THE DUTIES OF
THE BOARD OF DIRECTORS INCLUDE A PERSON WITH THE POWERS,
DUTIES, RIGHTS AND IMMUNITIES OF A BENEFIT DIRECTOR IF ANY OF
THE FOLLOWING APPLY:
(I) THE BYLAWS OF A BENEFIT CORPORATION PROVIDE THAT
THE POWERS AND DUTIES CONFERRED OR IMPOSED UPON THE BOARD
OF DIRECTORS SHALL BE EXERCISED OR PERFORMED BY A PERSON
20150HB1398PN2860 - 30 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
OTHER THAN THE DIRECTORS UNDER SECTION 1721(A) (RELATING
TO BOARD OF DIRECTORS).
(II) THE BYLAWS OF A STATUTORY CLOSE CORPORATION
THAT IS A BENEFIT CORPORATION PROVIDE THAT THE BUSINESS
AND AFFAIRS OF THE CORPORATION SHALL BE MANAGED BY OR
UNDER THE DIRECTION OF THE SHAREHOLDERS.
(2) A PERSON THAT EXERCISES ONE OR MORE OF THE POWERS,
DUTIES OR RIGHTS OF A BENEFIT DIRECTOR UNDER THIS SUBSECTION:
(I) DOES NOT NEED TO BE INDEPENDENT OF THE BENEFIT
CORPORATION;
(II) SHALL HAVE THE IMMUNITIES OF A BENEFIT
DIRECTOR;
(III) MAY SHARE THE POWERS, DUTIES AND RIGHTS OF A
BENEFIT DIRECTOR WITH ONE OR MORE OTHER PERSONS; AND
(IV) SHALL NOT BE SUBJECT TO THE PROCEDURES FOR
ELECTION OR REMOVAL OF DIRECTORS IN SUBCHAPTER C OF
CHAPTER 17 UNLESS:
(A) THE PERSON IS ALSO A DIRECTOR OF THE BENEFIT
CORPORATION; OR
(B) THE BYLAWS MAKE THOSE PROCEDURES
APPLICABLE.]
* * *
§ 3323. STANDARD OF CONDUCT FOR OFFICERS.
* * *
(C) EXONERATION FROM PERSONAL LIABILITY.--
(1) AN OFFICER SHALL NOT BE PERSONALLY LIABLE, AS SUCH,
FOR MONETARY DAMAGES FOR ANY ACTION TAKEN AS AN OFFICER [IF
THE OFFICER PERFORMED THE DUTIES OF THE POSITION IN
COMPLIANCE WITH SECTION 1712(C) AND THIS SECTION.] IN THE
COURSE OF PERFORMING THE DUTIES SPECIFIED IN SUBSECTION (A)
20150HB1398PN2860 - 31 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
UNLESS THE ACTION CONSTITUTES SELF-DEALING, WILLFUL
MISCONDUCT OR A KNOWING VIOLATION OF LAW.
(2) AN OFFICER SHALL NOT BE PERSONALLY LIABLE FOR
MONETARY DAMAGES FOR FAILURE OF THE BENEFIT CORPORATION TO
PURSUE OR CREATE GENERAL PUBLIC BENEFIT OR A SPECIFIC PUBLIC
BENEFIT.
* * *
§ 3325. RIGHT OF ACTION.
* * *
(B) PARTIES WITH STANDING.--A BENEFIT ENFORCEMENT PROCEEDING
MAY BE COMMENCED OR MAINTAINED ONLY:
(1) DIRECTLY BY THE BENEFIT CORPORATION; OR
(2) DERIVATIVELY BY:
(I) A SHAREHOLDER THAT OWNED AT LEAST 2% OF THE
TOTAL NUMBER OF SHARES OF A CLASS OR SERIES OUTSTANDING
AT THE TIME OF THE ACT COMPLAINED OF;
(II) A DIRECTOR;
(III) A PERSON OR GROUP OF PERSONS THAT OWNS
BENEFICIALLY OR OF RECORD 5% OR MORE OF THE [EQUITY]
INTERESTS IN AN ASSOCIATION OF WHICH THE BENEFIT
CORPORATION IS A SUBSIDIARY AT THE TIME OF THE ACT
COMPLAINED OF; OR
(IV) SUCH OTHER PERSONS AS MAY BE SPECIFIED IN THE
ARTICLES OR BYLAWS OF THE BENEFIT CORPORATION.
* * *
§ 4146. Provisions applicable to all foreign corporations.
The following provisions of this subpart shall, except as
otherwise provided in this section, be applicable to every
foreign corporation for profit, whether or not required to
[procure a certificate of authority under this chapter] register
20150HB1398PN2860 - 32 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
under Chapter 4 (relating to foreign associations):
Section 1503 (relating to defense of ultra vires), as to
contracts and conveyances governed by the laws of this
Commonwealth and conveyances affecting real property situated in
this Commonwealth.
Section 1506 (relating to form of execution of instruments),
as to instruments or other documents governed by the laws of
this Commonwealth or affecting real property situated in this
Commonwealth.
Section 1510 (relating to certain specifically authorized
debt terms), as to obligations (as defined in the section)
governed by the laws of this Commonwealth or affecting real
property situated in this Commonwealth.
Section 1782 (relating to [actions against directors and
officers] eligible shareholder plaintiffs and security for
costs), as to any derivative action [or proceeding] brought in a
court of this Commonwealth.
Subchapter F of Chapter 25 (relating to business
combinations), to the extent provided in section 2551(c)
(relating to continuing applicability).
Section 8. The definition of "charitable purposes" in
section 5103(a) of Title 15 is amended to read:
§ 5103. Definitions.
(a) General definitions.--Subject to additional definitions
contained in subsequent provisions of this subpart that are
applicable to specific provisions of this subpart, the following
words and phrases when used in this subpart shall have the
meanings given to them in this section unless the context
clearly indicates otherwise:
* * *
20150HB1398PN2860 - 33 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
["Charitable purposes." The relief of poverty, the
advancement and provision of education, including postsecondary
education, the advancement of religion, the prevention and
treatment of disease or injury, including mental retardation and
mental disorders, governmental or municipal purposes, and any
other purpose the accomplishment of which is recognized as
important and beneficial to the public.]
* * *
Section 9. Title 15 is amended by adding a section to read:
§ 5781. Derivative action.
(a) General rule.--Subject to section 5782 (relating to
eligible member plaintiffs and security for costs) and
subsection (b), a plaintiff may maintain a derivative action to
enforce a right of a nonprofit corporation only if:
(1) the plaintiff first makes a demand on the
corporation or the board of directors, requesting that it
cause the corporation to bring an action to enforce the
right, and:
(i) if a special litigation committee is not
appointed under section 5783 (relating to special
litigation committee), the corporation does not bring the
action within a reasonable time; or
(ii) if a special litigation committee is appointed
under section 5783, a determination is made:
(A) under section 5783(e)(1) that the
corporation not object to the action; or
(B) under section 5783(e)(5)(i) that the
plaintiff continue the action;
(2) demand is excused under subsection (b);
(3) the action is maintained for the limited purpose of
20150HB1398PN2860 - 34 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
seeking court review under section 5783(f); or
(4) the court has allowed the action to continue under
the control of the plaintiff under section 5783(f)(3)(ii).
(b) Prior demand excused.--
(1) A demand under subsection (a)(1) is excused only if
the member makes a specific showing that immediate and
irreparable harm to the nonprofit corporation would otherwise
result.
(2) If demand is excused under paragraph (1), demand
shall be made promptly after commencement of the action.
(c) Contents of demand.--A demand under this section must be
in record form and give notice with reasonable specificity of
the essential facts relied upon to support each of the claims
made in the demand.
(d) Additional claims.--If a derivative action is commenced
after a demand has been made under this section and includes a
claim that was not fairly subsumed under the demand, a new
demand must be made with respect to that claim. The new demand
shall not relate back to the date of the original demand for
purposes of subsection (e).
(e) Statute of limitations.--The making of a demand tolls
any applicable statute of limitations with respect to a claim
asserted in the demand until the earlier of the date:
(1) the plaintiff making the demand is notified either:
(i) that the board of directors has decided not to
bring an action and not to appoint a special litigation
committee; or
(ii) of a determination under section 5783(e) after
the appointment of a special litigation committee under
section 5783; or
20150HB1398PN2860 - 35 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(2) the plaintiff commences an action asserting the
claim.
Section 10. Section 5782 heading and (c) of Title 15 ARE
amended to read:
§ 5782. [Actions against directors, members of an other body
and officers] Eligible member plaintiffs and
security for costs.
* * *
(c) Security for costs.--In any action or proceeding
instituted or maintained by less than the smaller of 50 members
of any class or 5% of the members of any class of the
corporation, the corporation in whose right the action or
proceeding is brought shall be entitled at any stage of the
proceedings to require the plaintiffs to give security for the
reasonable expenses, including attorney fees, that may be
incurred by [it] the corporation in connection therewith or for
which it may become liable pursuant to section 5743 (relating to
mandatory indemnification), but only insofar as relates to
actions by or in the right of the corporation, to which security
the corporation shall have recourse in such amount as the court
determines upon the termination of the action or proceeding. The
amount of security may from time to time be increased or
decreased in the discretion of the court upon showing that the
security provided has or [may] is likely to become inadequate or
excessive. The security may be denied or limited [in the
discretion of] by the court [upon preliminary showing to the
court, by application and upon such verified statements and
depositions as may be required by the court, establishing prima
facie that the requirement of full or partial security would
impose] if the court finds after an evidentiary hearing that
20150HB1398PN2860 - 36 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
undue hardship on plaintiffs and serious injustice would result.
* * *
Section 11. Title 15 is amended by adding sections to read:
§ 5783. Special litigation committee.
(a) General rule.--If a nonprofit corporation or the board
of directors receives a demand to bring an action to enforce a
right of the corporation, or if a derivative action is commenced
before demand has been made on the corporation or the board, the
board may appoint a special litigation committee to investigate
the claims asserted in the demand or action and to determine on
behalf of the corporation or recommend to the board whether
pursuing any of the claims asserted is in the best interests of
the corporation. The corporation shall send a notice in record
form to the plaintiff promptly after the appointment of a
committee under this section notifying the plaintiff that a
committee has been appointed and identifying by name the members
of the committee.
(b) Discovery stay.--If the board of directors appoints a
special litigation committee and an action is commenced before a
determination has been made under subsection (e):
(1) On motion by the committee made in the name of the
nonprofit corporation, the court shall stay discovery for the
time reasonably necessary to permit the committee to complete
its investigation, except for good cause shown.
(2) The time for the defendants to plead shall be tolled
until the process provided for under subsection (f) has been
completed.
(c) Composition of committee.--A special litigation
committee shall be composed of two or more individuals who:
(1) are not interested in the claims asserted in the
20150HB1398PN2860 - 37 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
demand or action;
(2) are capable as a group of objective judgment in the
circumstances; and
(3) may, but need not, be members, directors or members
of another AN OTHER body.
(d) Appointment of committee.--A special litigation
committee may be appointed:
(1) by a majority of the directors not named as actual
or potential parties in the demand or action; or
(2) if all the directors are named as actual or
potential parties in the demand or action, by a majority of:
(i) the members of another AN OTHER body not named
as parties in the proceeding if the other body has the
authority to appoint a special litigation committee; or
(ii) the directors so named.
(e) Determination.--After appropriate investigation by a
special litigation committee, the committee or the board of
directors may determine that it is in the best interests of the
nonprofit corporation that:
(1) an action based on some or all of the claims
asserted in the demand not be brought by the corporation but
that the corporation not object to an action being brought by
the party that made the demand;
(2) an action based on some or all of the claims
asserted in the demand be brought by the corporation;
(3) some or all of the claims asserted in the demand be
settled on terms approved by the committee;
(4) an action not be brought based on any of the claims
asserted in the demand;
(5) an action already commenced continue under the
20150HB1398PN2860 - 38 -
<--<--
<--<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
control of:
(i) the plaintiff;
(ii) the corporation; or
(iii) the committee;
(6) some or all the claims asserted in an action already
commenced be settled on terms approved by the committee; or
(7) an action already commenced be dismissed.
(f) Court review and action.--If a special litigation
committee is appointed and a derivative action is commenced
before or after a determination is made under subsection (e):
(1) The nonprofit corporation shall file with the court
after a determination is made under subsection (e) a
statement of the determination and a report supporting the
determination. The corporation shall serve each party with a
copy of the determination and report. If the corporation
moves to file the report under seal, the report shall be
served on the parties subject to an appropriate stipulation
agreed to by the parties or a protective order issued by the
court.
(2) The corporation shall file with the court a motion,
pleading or notice consistent with the determination under
subsection (e).
(3) If the determination is one described in subsection
(e)(2), (3), (4), (5)(ii), (6) or (7), the court shall
determine whether the members of the committee met the
qualifications required under subsection (c)(1) and (2) and
whether the committee conducted its investigation and made
its recommendation in good faith, independently and with
reasonable care. If the court finds that the members of the
committee met the qualifications required under subsection
20150HB1398PN2860 - 39 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(c)(1) and (2) and that the committee acted in good faith,
independently and with reasonable care, the court shall
enforce the determination of the committee. Otherwise, the
court shall:
(i) dissolve any stay of discovery entered under
subsection (b);
(ii) allow the action to continue under the control
of the plaintiff; and
(iii) permit the defendants to file preliminary
objections, other appropriate pleadings and motions.
(g) Attorney General.--Nothing in this section limits the
rights, powers and duties of the Attorney General under other
applicable law with respect to a nonprofit corporation.
§ 5784. Proceeds and expenses.
(a) Proceeds.--Except as provided in subsection (b):
(1) any proceeds or other benefits of a derivative
action, whether by judgment, compromise or settlement, belong
to the nonprofit corporation and not to the plaintiff; and
(2) if the plaintiff or its counsel receives any
proceeds, the proceeds shall be remitted IMMEDIATELY to the
corporation.
(b) Expenses.--If a derivative action is successful in whole
or in part, the court may award the plaintiff reasonable
expenses, including reasonable attorney fees and costs, from the
recovery of the nonprofit corporation , but in no event shall the
attorney fees awarded exceed a reasonable proportion of the
value of the relief, including nonpecuniary relief, obtained by
the plaintiff for the corporation.
Section 12. Sections 6146, 8102 and 8105 of Title 15 are
amended to read:
20150HB1398PN2860 - 40 -
<--
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
§ 6146. Provisions applicable to all foreign corporations.
The following provisions of this subpart shall, except as
otherwise provided in this section, be applicable to every
foreign corporation not-for-profit, whether or not required to
[procure a certificate of authority under this chapter] register
under Chapter 4 (relating to foreign associations):
Section 5503 (relating to defense of ultra vires) as to
contracts and conveyances governed by the laws of this
Commonwealth and conveyances affecting real property situated in
this Commonwealth.
Section 5506 (relating to form of execution of instruments)
as to instruments or other documents governed by the laws of
this Commonwealth or affecting real property situated in this
Commonwealth.
Section 5510 (relating to certain specifically authorized
debt terms) as to obligations (as defined in the section)
governed by the laws of this Commonwealth or affecting real
property situated in this Commonwealth.
Section 5782 (relating to [actions against directors, members
of an other body and officers] eligible member plaintiffs and
security for costs) as to any derivative action [or proceeding]
brought in a court of this Commonwealth.
§ 8102. Interchangeability of partnership, limited liability
company and corporate forms of organization.
(a) General rule.--Subject to any restrictions on a specific
line of business made applicable by section 103 (relating to
subordination of title to regulatory laws):
(1) Any business that may be conducted in a corporate
form may also be conducted as a partnership or a limited
liability company.
20150HB1398PN2860 - 41 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(2) A domestic or foreign partnership or limited
liability company may exercise any right, power, franchise or
privilege that a domestic or foreign corporation engaged in
the same line of business might exercise under the laws of
this Commonwealth, including powers conferred by section 1511
(relating to additional powers of certain public utility
corporations) or other provisions of law granting the right
to a duly authorized corporation to take or occupy property
and make compensation therefor.
(b) Exceptions.--Subsection (a) shall not:
(1) Affect any law relating to the taxation of
partnerships, limited liability companies or corporations.
(2) [Apply to a banking institution, credit union,
insurance corporation or savings association,] Authorize
acting as a banking institution, credit union or insurer
unless the laws relating thereto or this part expressly
[contemplate] permit the conduct of the regulated business in
partnership or limited liability company form. See [section
8911 (relating to purposes).] sections 8620(b) (relating to
characteristics of limited partnership) and 8818(b) (relating
to characteristics of limited liability company).
(3) Except as otherwise provided by law, permit a
partnership to provide full limited liability for all of the
investors therein or otherwise fail to preserve the intrinsic
differences between the partnership and corporate forms.
§ 8105. Ownership of certain professional partnerships and
limited liability companies.
(a) General rule.--Except as otherwise provided by statute,
rule or regulation applicable to a particular profession, all of
the ultimate beneficial owners of the [partnership] interests in
20150HB1398PN2860 - 42 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
a [partnership that renders one or more restricted professional
services shall] general partnership, limited partnership,
electing partnership or limited liability company, and all of
the governors of the entity, must be licensed persons[. As used
in this section, the term "restricted professional services"
shall have the meaning specified in section 8903 (relating to
definitions and index of definitions).] in the profession the
entity practices if the entity renders any of the following
professional services:
(1) chiropractic;
(2) dentistry;
(3) law;
(4) medicine and surgery;
(5) optometry;
(6) osteopathic medicine and surgery;
(7) podiatric medicine;
(8) public accounting;
(9) psychology; or
(10) veterinary medicine.
(b) Transitional provision.--Subsection (a) shall not apply
to a person that holds only a transferable interest that was
acquired before [the Legislative Reference Bureau shall insert
here the effective date of this act].
Section 13. Title 15 is amended by adding a section to read:
§ 8106. Failure to observe formalities.
The failure of a limited liability partnership, limited
partnership, limited liability limited partnership, electing
partnership or limited liability company to observe formalities
relating to the exercise of its powers or management of its
activities and affairs is not a ground for imposing liability on
20150HB1398PN2860 - 43 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
a partner, member or manager of the entity for a debt,
obligation or other liability of the entity.
Section 14. Chapter 82 heading of Title 15 is amended to
read:
CHAPTER 82
[REGISTERED] LIMITED LIABILITY PARTNERSHIPS AND
LIMITED LIABILITY LIMITED PARTNERSHIPS
Section 15. Chapter 82 Subchapter A heading of Title 15 is
amended to read:
SUBCHAPTER A
DOMESTIC [REGISTERED]
LIMITED LIABILITY PARTNERSHIPS AND
LIMITED LIABILITY LIMITED PARTNERSHIPS
Section 16. Section 8201 of Title 15 is amended to read:
§ 8201. Scope.
(a) Application of subchapter.--This subchapter applies to a
general or limited partnership whose internal affairs are
governed by or that is formed under the laws of this
Commonwealth and that registers under this section. Any
partnership that desires to register under this subchapter or to
amend or terminate its registration shall [file in] deliver to
the Department of State for filing a statement of registration,
amendment or termination, as the case may be, which shall be
signed by a general partner and shall set forth:
(1) The name of the partnership.
(2) Either:
(i) the address of the principal place of business
of the partnership, in the case of a general partnership;
or
(ii) subject to section 109 (relating to name of
20150HB1398PN2860 - 44 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
commercial registered office provider in lieu of
registered address), the address, including street and
number, if any, of the registered office of the
partnership, in the case of a limited partnership.
(3) A statement that the partnership registers under
this subchapter or that the registration of the partnership
under this subchapter shall be amended or terminated, as the
case may be. If the statement relates to an amendment, the
amendment shall restate in full the statement of
registration.
(4) A statement that:
(i) the registration, amendment or termination has
been authorized by at least a majority in interest of the
partners[.]; and
(ii) in the case of a termination, the termination
has also been authorized by all of the general partners.
(b) Effect of filing.--Upon the filing of the statement of
registration, amendment or termination in the department, the
registration under this subchapter shall be effective, amended
or terminated, as the case may be. The effectiveness, amendment
or termination of the registration of a partnership under this
subchapter shall not be deemed to cause a dissolution of the
partnership.
(c) Effect of registration.--As long as the registration
under this subchapter is in effect, the partnership shall be
governed by the provisions of this subchapter and, to the extent
not inconsistent with this subchapter, Chapter [83] 84 (relating
to general partnerships) [and, if a limited partnership, in
addition, Chapter 85] or 86 (relating to limited partnerships).
Without limiting the generality of the foregoing, a domestic or
20150HB1398PN2860 - 45 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
foreign [registered] limited liability partnership or limited
liability limited partnership shall be treated the same as if it
were not registered under this subchapter for purposes of:
(1) determining whether it is a permissible form of
entity in which to conduct the practice of a profession; or
(2) the imposition by the Commonwealth or any political
subdivision of any tax or license fee on or with respect to
any income, property, privilege, transaction, subject or
occupation.
(d) Continuation of registration.--If a [registered] limited
liability partnership or limited liability limited partnership
is dissolved and its business is continued without liquidation
of the partnership affairs, the registration under this
subchapter of the dissolved partnership shall continue to be
applicable to the partnership continuing the business, and it
shall not be necessary to make a new filing under this section
until such time, if any, as the registration is to be amended or
terminated.
(e) Prohibited termination.--A registration under this
subchapter may not be terminated while the partnership is a
[bankrupt as that term is defined in section 8903 (relating to
definitions and index of definitions)] debtor in bankruptcy. See
section 8221(f) (relating to annual registration).
(f) Alternative procedure.--In lieu of filing a statement of
registration as provided in subsection (a), a limited
partnership may register as a [registered] limited liability
limited partnership by including in its certificate of limited
partnership, either originally or by amendment, the statements
required by subsection (a)(3) and (4). To terminate its
registration, a limited partnership that uses the procedure
20150HB1398PN2860 - 46 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
authorized by this subsection shall amend its certificate of
limited partnership to delete the statements required by this
subsection.
(g) Constructive notice.--[Filing] Registration under this
section shall constitute constructive notice that the
partnership is a [registered] limited liability partnership or
limited liability limited partnership and that the partners are
entitled to the protections from liability provided by this
subchapter.
(h) Approval of termination.--In addition to any required
approvals under the partnership agreement, the termination of a
statement of registration must be approved by the affirmative
vote or consent of all the general partners.
(i) Cross references.--See sections 134 (relating to
docketing statement) and 135 (relating to requirements to be met
by filed documents).
Section 17. The definitions of "foreign registered limited
liability partnership," "partner" and "registered limited
liability partnership" or "domestic registered limited liability
partnership" in section 8202 are amended and the section is
amended by adding a definition to read:
§ 8202. Definitions.
The following words and phrases when used in this chapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Distribution." A transfer of money or other property from a
limited liability partnership to a person on account of a
transferable interest or in a person's capacity as a partner.
The term:
(1) includes:
20150HB1398PN2860 - 47 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(i) a redemption or other purchase by a partnership
of a transferable interest; and
(ii) a transfer to a partner in return for the
partner's relinquishment of any right to participate as a
partner in the management or conduct of the partnership's
business or to have access to records or other
information concerning the partnership's business ; and
(2) d oes not include:
(i) amounts constituting reasonable compensation for
present or past service or payments made in the ordinary
course of business under a bona fide retirement plan or
other bona fide benefits program;
(ii) the making of, or payment or performance on, a
guaranty or similar arrangement by a partnership for the
benefit of any or all of its partners;
(iii) a direct or indirect allocation or transfer
effected under Chapter 3 (relating to entity
transactions) with the approval of the partners ; or
(iv) a direct or indirect transfer of:
(A)