SENATE AMENDED
PRIOR PRINTER'S NOS. 1895, 2375, 2860
PRINTER'S NO. 3917
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
SENATOR GREENLEAF, JUDICIARY, IN SENATE, AS AMENDED, SEPTEMBER
26, 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
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special litigation committees by business corporations and
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 Subchapters A, B, C, D, E, F, I
and K of Chapter 89 and replacing them with a new Chapter
88 relating to:
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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
BENEFIT COMPANIES;
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
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.
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(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
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.
* * *
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"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
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
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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
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
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Title 15 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.
(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
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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
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
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:
(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;
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(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:
(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
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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
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
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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
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
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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.
(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
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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
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
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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
by filed documents).
Section 2.2. Sections 367(a)(2) and (6), 368(j) and 376(f)
of Title 15 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
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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
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.
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§ 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:
§ 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
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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.
(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
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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:
§ 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
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(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:
(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
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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.
(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:
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(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
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
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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
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):
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(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.
(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
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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
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
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(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):
(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
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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 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,
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
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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,"
"BENEFIT DIRECTOR," "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:
"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].
"BENEFIT DIRECTOR." [EITHER:
(1) THE] THE DIRECTOR DESIGNATED AS THE BENEFIT DIRECTOR
OF A BENEFIT CORPORATION AS PROVIDED IN SECTION 3322
(RELATING TO BENEFIT DIRECTOR).[; OR
(2) A PERSON WITH ONE OR MORE OF THE POWERS, DUTIES OR
RIGHTS OF A BENEFIT DIRECTOR TO THE EXTENT PROVIDED IN THE
BYLAWS UNDER SECTION 3322.]
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* * *
"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:
(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
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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
exercised.
* * *
Section 7. Sections 3321(c), 3322(e), 3323(c), 3325(b),
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3331(A)(8) 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
other than the directors under section 1721(a) (relating
to board of directors).
(ii) The bylaws of a statutory close corporation
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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)
unless the action constitutes self-dealing, willful
misconduct or a knowing violation of law.
(2) An officer shall not be personally liable for
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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.
* * *
§ 3331. ANNUAL BENEFIT REPORT.
(A) CONTENTS.--A BENEFIT CORPORATION MUST DELIVER TO EACH
SHAREHOLDER AN ANNUAL BENEFIT REPORT INCLUDING:
* * *
[(8) IF THE BENEFIT CORPORATION HAS DISPENSED WITH, OR
RESTRICTED THE DISCRETION OR POWERS OF, THE BOARD OF
DIRECTORS, A DESCRIPTION OF:
(I) THE PERSONS THAT EXERCISE THE POWERS, DUTIES AND
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RIGHTS AND WHO HAVE THE IMMUNITIES OF THE BOARD OF
DIRECTORS; AND
(II) THE BENEFIT DIRECTOR, AS REQUIRED BY SECTION
3322(E).]
* * *
§ 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
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).
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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:
* * *
["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
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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
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).
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(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
(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
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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 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):
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(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
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 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 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
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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
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,
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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) 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
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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:
§ 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
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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.
(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
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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
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
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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
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
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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
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
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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
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
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[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
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
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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 DIRECT OR INDIRECT transfer of money or
other property from OR INCURRENCE OF INDEBTEDNESS BY 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:
(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) a governance or transferable interest; or
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(B) options, rights or warrants to acquire a
governance or transferable interest.
["Foreign registered limited liability partnership." A
partnership that has registered under a law of any jurisdiction
other than this Commonwealth similar to this subchapter, whether
or not the partnership is required to register under section
8211 (relating to foreign registered limited liability
partnerships).]
"Partner." Includes a person who is or was a partner in a
[registered] limited liability partnership or a general partner
in a limited liability limited partnership at any time while the
registration of the partnership under this subchapter is or was
in effect.
["Registered limited liability partnership" or "domestic
registered limited liability partnership." A partnership as to
which a registration under section 8201(a) (relating to scope)
is in effect.]
Section 18. Section 8204 of Title 15 is amended to read:
§ 8204. Limitation on liability of partners.
(a) General rule.--Except as provided in subsection (b), a
partner in a [registered] limited liability partnership or
limited liability limited partnership shall not be
[individually] liable directly or indirectly, whether by way of
indemnification, contribution or otherwise, [for debts and
obligations] under an order of court or in any other manner for
any debts, obligations or other liabilities of, or chargeable
to, the partnership, whether sounding in contract or tort or
otherwise, that arise [from any negligent or wrongful acts or
misconduct committed by another partner or other representative
of the partnership] while the registration of the partnership
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under this subchapter is in effect.
(b) Exceptions.--
(2) Subsection (a) shall not affect the liability of a
partner:
(i) Individually for any negligent or wrongful acts
or misconduct committed by [him or by any person under
his direct supervision and control] the partner.
(ii) For any debts [or], obligations or other
liabilities of the partnership:
[(A) arising from any cause other than those
specified in subsection (a); or]
(B) as to which the partner has agreed in
[writing] record form to be liable[.]; or
(C) that:
(I) arose before [the Legislative Reference
Bureau shall insert here the effective date of
this clause]; and
(II) did not arise from any negligent or
wrongful acts or misconduct committed by a
partner or other representative of the
partnership.
(iii) To the extent expressly undertaken in the
partnership agreement or the certificate of limited
partnership.
(3) Subsection (a) shall not affect in any way:
(i) the liability of the partnership itself for all
its debts [and obligations], obligations and other
liabilities;
(ii) the availability of the entire assets of the
partnership to satisfy its debts [and obligations],
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obligations and other liabilities; or
(iii) any obligation undertaken by a partner in
[writing] record form to individually indemnify another
partner of the partnership or to individually contribute
toward a liability of another partner.
(c) Continuation of limited liability.--Neither the
termination of the registration of a partnership under this
subchapter nor the dissolution, winding up or termination of the
partnership shall affect the limitation on the liability of a
partner in the partnership under this section with respect to
[negligent or wrongful acts or misconduct occurring] debts,
obligations and other liabilities that arose while the
registration under this subchapter was in effect.
(d) Proper parties.--A partner in a limited liability
partnership or limited liability limited partnership is not a
proper party to an action or proceeding by or against the
partnership, the object of which is to recover damages or
enforce debts, obligations or other liabilities for which the
partner is not liable.
(e) Cross reference.--See section 103 (relating to
subordination of title to regulatory laws).
Section 19. Section 8205 of Title 15 is repealed:
[§ 8205. Liability of withdrawing partner.
(a) General rule.--Except as provided in subsection (b), if
the business of a registered limited liability partnership is
continued without liquidation of the partnership affairs
following the dissolution of the partnership as a result of the
withdrawal for any reason of a partner, the withdrawing partner
shall not be individually liable directly or indirectly, whether
by way of indemnification, contribution or otherwise, for the
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debts and obligations of either the dissolved partnership or any
partnership continuing the business if a statement of withdrawal
is filed as provided in this section.
(b) Exceptions.--Subsection (a) shall not affect the
liability of a partner:
(1) Individually for any negligent or wrongful acts or
misconduct committed by him or by any person under his direct
supervision and control.
(2) For any debts or obligations of the partnership as
to which the withdrawing partner has agreed in writing to be
liable.
(3) To the partnership for damages if the partnership
agreement prohibits the withdrawal of the partner or the
withdrawal otherwise violates the partnership agreement.
(4) Under section 8334 (relating to partner accountable
as fiduciary).
(5) To the extent a debt or obligation of the
partnership has been expressly undertaken by the partner in
the partnership agreement or the certificate of limited
partnership.
(6) If the partnership subsequently dissolves within one
year after the date of withdrawal of the partner and the
business of the partnership is not continued following such
subsequent dissolution. This paragraph shall not be
applicable in the case of a withdrawal caused by:
(i) the death of the partner; or
(ii) the retirement of the partner pursuant to a
retirement policy of the dissolved partnership that has
been in effect prior to the retirement of the partner for
the shorter of one year or the period that the
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partnership has been in existence.
(7) For any obligation undertaken by a partner in
writing to individually indemnify another partner of the
partnership or to individually contribute toward a liability
of another partner.
(c) Statement of withdrawal.--A statement of withdrawal
shall be executed by the withdrawing partner or his personal
representative and shall set forth:
(1) The name of the registered limited liability
partnership.
(2) The name of the withdrawing partner.
(d) Filing and effectiveness.--The statement of withdrawal
shall be filed in the Department of State and shall be effective
upon filing. The withdrawing partner shall send a copy of the
filed statement of withdrawal to the registered limited
liability partnership.
(e) Permissive filing.--Filing under this section is
permissive, and failure to make a filing under this section by a
partner entitled to do so shall not affect the right of that
partner to the limitation on liability provided by section 8204
(relating to limitation on liability of partners).
(f) Constructive notice.--Filing under this section shall
constitute constructive notice that the partner has withdrawn
from the partnership and is entitled to the protection from
liability provided by this section.
(g) Variation of section.--A written provision of the
partnership agreement may restrict or condition the application
of this section to some or all of the partners of the
partnership.
(h) Application of section.--A partner in a foreign
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registered limited liability partnership, regardless of whether
or not it has registered to do business in this Commonwealth
under section 8211 (relating to foreign registered limited
liability partnerships), shall not be entitled to make a filing
under this section with regard to that partnership.
(i) Cross references.--See sections 134 (relating to
docketing statement) and 135 (relating to requirements to be met
by filed documents).]
Section 20. Section 8207 of Title 15 is amended to read:
§ 8207. Extraterritorial application of subchapter.
[(a) Legislative intent.--It is the intent of the General
Assembly in enacting this subchapter that the legal existence of
registered limited liability partnerships organized in this
Commonwealth be recognized outside the boundaries of this
Commonwealth and that, subject to any reasonable requirement of
registration, a domestic registered limited liability
partnership transacting business outside this Commonwealth be
granted protection of full faith and credit under the
Constitution of the United States.]
(b) Basis for determining liability of partners.--The
liability of partners in a [registered] domestic limited
liability partnership or domestic limited liability limited
partnership shall at all times be determined under Chapters [83]
84 (relating to general partnerships) and [85] 86 (relating to
limited partnerships) as modified by the provisions of this
subchapter.
(c) Conflict of laws.--The personal liability of a partner
of a [registered] domestic limited liability partnership or
domestic limited liability limited partnership to any person or
in any action or proceeding for the debts, obligations or other
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liabilities of the partnership or for the acts or omissions of
other partners or representatives of the partnership shall be
governed solely and exclusively by the laws of this
Commonwealth. Whenever a conflict arises between the laws of
this Commonwealth and the laws of any other state with regard to
the liability of partners of a [registered] domestic limited
liability partnership [registered under this subchapter] or
domestic limited liability limited partnership for the debts,
obligations and other liabilities of the partnership or for the
acts or omissions of the other partners or representatives of
the partnership, the laws of this Commonwealth shall govern in
determining such liability.
Section 21. Subchapter B of Chapter 82 of Title 15 is
repealed:
[SUBCHAPTER B
FOREIGN REGISTERED
LIMITED LIABILITY PARTNERSHIPS
§ 8211. Foreign registered limited liability partnerships.
(a) Governing law.--Subject to the Constitution of
Pennsylvania:
(1) The laws of the jurisdiction under which a foreign
registered limited liability partnership is organized govern
its organization and internal affairs and the liability of
its partners except as provided in subsection (c).
(2) A foreign registered limited liability partnership
may not be denied registration by reason of any difference
between those laws and the laws of this Commonwealth.
(c) Exception.--The liability of the partners in a foreign
registered limited liability partnership shall be governed by
the laws of the jurisdiction under which it is organized, except
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that the partners shall not be entitled to greater protection
from liability than is available to the partners in a domestic
registered limited liability partnership.]
Section 22. Section 8221 of Title 15 is amended to read:
§ 8221. Annual registration.
(a) General rule.--Every domestic [registered] limited
liability partnership or limited liability limited partnership
in existence on December 31 of any year and every foreign
[registered] limited liability partnership or limited liability
limited partnership that is registered to do business in this
Commonwealth on December 31 of any year shall [file in] deliver
to the Department of State for filing with respect to that year,
and on or before April 15 of the following year, a certificate
of annual registration on a form provided by the department,
signed by a general partner and accompanied by the annual
registration fee prescribed by subsection (b). The department
shall not charge a fee other than the annual registration fee
for filing the certificate of annual registration.
(b) Annual registration fee.--
(1) The annual registration fee to be paid when filing a
certificate of annual registration shall be equal to a base
fee of $200 times the number of persons who were general
partners of the partnership on December 31 of the year with
respect to which the certificate of annual registration is
being filed and who:
(i) in the case of a natural person, had his
principal residence on that date in this Commonwealth; or
(ii) in the case of any other person, was
incorporated or otherwise organized or existing on that
date under the laws of this Commonwealth.
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(2) The base fee of $200 shall be increased on December
31, 1997, and December 31 of every third year thereafter by
the percentage increase in the Consumer Price Index for Urban
Workers during the most recent three calendar years for which
that index is available on the date of adjustment. Each
adjustment under this paragraph shall be rounded up to the
nearest $10.
(c) Notice of annual registration.--Not later than February
1 of each year, the department shall give notice to every
partnership required to file a certificate of annual
registration with respect to the preceding year of the
requirement to file the certificate. The notice shall state the
amount of the base fee payable under subsection (b)(1), as
adjusted pursuant to subsection (b)(2), if applicable, and shall
be accompanied by the form of certificate of annual registration
to be filed. Failure by the department to give notice to any
party, or failure by any party to receive notice, of the annual
registration requirement shall not relieve the party of the
obligation to file the certificate of annual registration.
(d) Credit to Corporation Bureau Restricted Account.--The
annual registration fee shall not be deemed to be an amount
received by the department under Subchapter C of Chapter 1 for
purposes of section 155 (relating to disposition of funds),
except that $25 of the fee shall be credited to the Corporation
Bureau Restricted Account.
(e) Failure to file or pay annual fee.--
(1) Failure to file the certificate of annual
registration required by this section for five consecutive
years shall result in the automatic termination of:
(i) the status of the [registered] limited liability
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partnership [as such.] or limited liability limited
partnership as such, if it is a domestic partnership; or
(ii) the registration of the limited liability
partnership or limited liability limited partnership, if
it is a foreign partnership.
(1.1) [In addition, any] Any annual registration fee
that is not paid when due shall be a lien in the manner
provided in this subsection from the time the annual
registration fee is due and payable. If a certificate of
annual registration is not filed within 30 days after the
date on which it is due, the department shall assess a
penalty of $500 against the partnership, which shall also be
a lien in the manner provided in this subsection. The
imposition of that penalty shall not be construed to relieve
the partnership from liability for any other penalty or
interest provided for under other applicable law.
(2) If the annual registration fee paid by a [registered
limited liability] partnership is subsequently determined to
be less than should have been paid because it was based on an
incorrect number of general partners or was otherwise
incorrectly computed, that fact shall not affect the
existence [or status of the registered limited liability
partnership as such], status or foreign registration of the
partnership, but the amount of the additional annual
registration fee that should have been paid shall be a lien
in the manner provided in this subsection from the time the
incorrect payment is discovered by the department.
(3) The annual registration fee shall bear simple
interest from the date that it becomes due and payable until
paid. The interest rate shall be that provided for in section
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806 of the act of April 9, 1929 (P.L.343, No.176), known as
The Fiscal Code, with respect to unpaid taxes. The penalty
provided for in paragraph (1) shall not bear interest. The
payment of interest shall not relieve the [registered limited
liability] partnership from liability for any other penalty
or interest provided for under other applicable law.
(4) The lien created by this subsection shall attach to
all of the property and proceeds thereof of the [registered
limited liability] partnership in which a security interest
can be perfected in whole or in part by filing in the
department under 13 Pa.C.S. Div. 9 (relating to secured
transactions; sales of accounts, contract rights and chattel
paper), whether the property and proceeds are owned by the
partnership at the time the annual registration fee or any
penalty or interest becomes due and payable or whether the
property and proceeds are acquired thereafter. Except as
otherwise provided by statute, the lien created by this
subsection shall have priority over all other liens, security
interests or other charges, except liens for taxes or other
charges due the Commonwealth. The lien created by this
subsection shall be entered on the records of the department
and indexed in the same manner as a financing statement filed
under 13 Pa.C.S. Div. 9. At the time an annual registration
fee, penalty or interest that has resulted in the creation of
a lien under this subsection is paid, the department shall
terminate the lien with respect to that annual registration
fee, penalty or interest without requiring a separate filing
by the partnership for that purpose.
(5) If the annual registration fee paid by a [registered
limited liability] partnership is subsequently determined to
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be more than should have been paid for any reason, no refund
of the additional fee shall be made.
(6) Termination of the status [of a registered limited
liability partnership as such] or foreign registration of a
partnership under this section, whether voluntarily or
involuntarily, shall not release it from the obligation to
pay any accrued fees, penalties and interest and shall not
release the lien created by this subsection.
(f) Exception for bankrupt partnerships.--A partnership that
would otherwise be required to pay the annual registration fee
set forth in subsection (b) shall not be required to pay that
fee with respect to any year during any part of which the
partnership is a [bankrupt as defined in section 8903 (relating
to definitions and index of definitions)] debtor in bankruptcy.
The partnership shall, instead, indicate on its certificate of
annual registration for that year that it is exempt from payment
of the annual registration fee pursuant to this subsection. If
the partnership fails to file timely a certificate of annual
registration, a lien shall be entered on the records of the
department pursuant to subsection (e) which shall not be removed
until the partnership files a certificate of annual registration
indicating its entitlement to an exemption from payment of the
annual registration fee as provided in this subsection. See
section 8201(e) (relating to scope).
Section 23. Chapter 82 of Title 15 is amended by adding
subchapters to read:
SUBCHAPTER D
DISTRIBUTIONS
Sec.
8231. Limitations on distributions by limited liability
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partnership.
8232. Liability for improper distributions by limited liability
partnership.
§ 8231. Limitations on distributions by limited liability
partnership.
(a) General rule.--A domestic limited liability partnership
may not make a distribution, including a distribution under
section 8486 (relating to disposition of assets in winding up
and required contributions), if after the distribution:
(1) the partnership would not be able to pay its debts
as they become due in the ordinary course of the
partnership's business; or
(2) the partnership's total assets would be less than
the sum of its total liabilities plus the amount that would
be needed, if the partnership were to be dissolved and wound
up at the time of the distribution, to satisfy the
preferential rights upon dissolution and winding up of
partners and transferees whose preferential rights are
superior to the rights of persons receiving the distribution.
(b) Valuation.--A domestic limited liability partnership may
base a determination that a distribution is not prohibited under
subsection (a)(2) on:
(1) the book values of the assets and liabilities of the
partnership, as reflected on its books and records;
(2) a valuation that takes into consideration unrealized
appreciation and depreciation or other changes in value of
the assets and liabilities of the partnership;
(3) the current value of the assets and liabilities of
the partnership, either valued separately or valued in
segments or as an entirety as a going concern; or
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(4) any other method that is reasonable in the
circumstances.
(c) Excluded liabilities.--In determining whether a
distribution is prohibited under subsection (a)(2), the
partnership need not consider obligations and liabilities unless
they are required to be reflected on a balance sheet, not
including the notes to the balance sheet, prepared on the basis
of generally accepted accounting principles, or other such
accounting practices and principles as are used generally by the
partnership in the maintenance of its books and records and as
are reasonable in the circumstances.
(d) Measuring date of distribution.--Except as provided in
subsection (e), the effect of a distribution under subsection
(a) is measured:
(1) as of the date specified by the partnership when it
authorizes the distribution if the distribution occurs within
125 days of the earlier of the date so specified or the date
of authorization; or
(2) as of the date of distribution in all other cases.
(e) Date of redemption.--In the case of a distribution as
described in paragraph (1) of the definition of "distribution"
in section 8202 (relating to definitions), the distribution is
deemed to occur as of the earlier of the date money or other
property is transferred or debt is incurred by the partnership,
or the date the person entitled to the distribution ceases to
own the interest or right being acquired by the partnership in
return for the distribution.
(f) Status of distribution debt.--The indebtedness of a
domestic limited liability partnership to a partner or
transferee incurred by reason of a distribution made in
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accordance with this section shall be at least on a parity with
the partnership's indebtedness to its general, unsecured
creditors, except to the extent subordinated by agreement.
(g) Certain subordinated debt.--The indebtedness of a
domestic limited liability partnership, including indebtedness
issued as a distribution, is not a liability for purposes of
subsection (a) if the terms of the indebtedness provide that
payment of principal and interest is made only if and to the
extent that a payment of a distribution could then be made under
this section. If the indebtedness is issued as a distribution,
each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the
payment is made.
(h) Distributions in winding up.--In measuring the effect of
a distribution under section 8486, the liabilities of a
dissolved domestic limited liability partnership do not include
any claim that has been barred under section 8241 (relating to
known claims against dissolved limited liability partnership) or
8242 (relating to other claims against dissolved limited
liability partnership) or for which security has been provided
under section 8243 (relating to court proceedings).
(i) Cross references.--See sections 8415(d)(1) (relating to
contents of partnership agreement) and 8447 (relating to
standards of conduct for partners).
§ 8232. Liability for improper distributions by limited
liability partnership.
(a) General rule.-- If a partner of a limited liability
partnership consents to a distribution made in violation of
section 8231 (relating to limitations on distributions by
limited liability partnership) and in consenting to the
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distribution fails to comply with section 8447 (relating to
standards of conduct for partners), the partner is personally
liable to the partnership for the amount of the distribution
which exceeds the amount that could have been distributed
without the violation of section 8231.
(b) Recipients.--A person that receives a distribution
knowing that the distribution violated section 8231 is
personally liable to the limited liability partnership, but only
to the extent that the distribution received by the person
exceeded the amount that could have been properly paid under
section 8231.
(c) Contribution.--A person against which an action is
commenced because the person is liable under subsection (a) may:
(1) join any other person that is liable under
subsection (a) and seek to enforce a right of contribution
from the person; and
(2) join any person that received a distribution in
violation of subsection (b) and seek to enforce a right of
contribution from the person in the amount the person
received in violation of subsection (b) .
(d) Statute of repose.--An action under this section is
barred unless commenced within two years after the distribution.
SUBCHAPTER E
DISSOLUTION
Sec.
8241. Known claims against dissolved limited liability
partnership.
8242. Other claims against dissolved limited liability
partnership.
8243. Court proceedings.
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8244. Liability of partner when claim against partnership
barred.
§ 8241. Known claims against dissolved limited liability
partnership.
(a) General rule.--Except as provided in subsection (d), a
dissolved limited liability partnership may give notice of a
known claim under subsection (b), which has the effect provided
in subsection (c).
(b) Notice .--A dissolved limited liability partnership may
notify in record form its known claimants of the dissolution.
The notice must:
(1) specify the information required to be included in a
claim;
(2) state that a claim must be in writing and provide a
mailing address to which the claim is to be sent;
(3) state the deadline for receipt of a claim, which may
not be less than 120 days after the date the notice is
received by the claimant;
(4) state that the claim will be barred if not received
by the deadline; and
(5) unless the partnership has been throughout its
existence a limited liability partnership, state that the
barring of a claim against the partnership will also bar any
corresponding claim against any partner or person dissociated
as a partner which is based on section 8436 (relating to
partner's liability).
(c) Claims barred.--A claim against a dissolved limited
liability partnership is barred if the requirements of
subsection (b) are met and:
(1) the claim is not received by the specified deadline;
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or
(2) if the claim is timely received but rejected by the
partnership:
(i) the partnership causes the claimant to receive a
notice in record form stating that the claim is rejected
and will be barred unless the claimant commences an
action against the partnership to enforce the claim
within 90 days after the claimant receives the notice;
and
(ii) the claimant does not commence the required
action within 90 days after the claimant receives the
notice.
(d) Later arising claims.--This section shall not apply to a
claim based on an event occurring after the date of dissolution
or a liability that on that date is contingent.
§ 8242. Other claims against dissolved limited liability
partnership.
(a) Permissive notice.--A dissolved limited liability
partnership may publish notice of its dissolution and request
persons having claims against the partnership to present them in
accordance with the notice.
(b) Notice procedure.--A notice under subsection (a) must:
(1) be officially published one time;
(2) describe the information required to be contained in
a claim, state that the claim must be in writing and provide
a mailing address to which the claim is to be sent;
(3) state that a claim against the partnership is barred
unless an action to enforce the claim is commenced within two
years after publication of the notice; and
(4) unless the partnership has been throughout its
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existence a limited liability partnership, state that the
barring of a claim against the partnership will also bar any
corresponding claim against any partner or person dissociated
as a partner which is based on section 8436 (relating to
partner's liability).
(c) Claims barred.--If a dissolved limited liability
partnership publishes a notice in accordance with subsection
(b), the claim of each of the following claimants is barred
unless the claimant commences an action to enforce the claim
against the partnership within two years after the publication
date of the notice:
(1) a claimant that did not receive notice in record
form under section 8241 (relating to known claims against
dissolved limited liability partnership);
(2) a claimant whose claim was timely sent to the
partnership but not acted on; and
(3) a claimant whose claim is contingent at, or based on
an event occurring after, the date of dissolution.
(d) Claims not barred.--A claim not barred under this
section or section 8241 may be enforced:
(1) against a dissolved limited liability partnership,
to the extent of its undistributed assets;
(2) except as provided in section 8243 (relating to
court proceedings), if assets of the partnership have been
distributed after dissolution, against a partner or
transferee to the extent of that person's proportionate share
of the claim or of the partnership's assets distributed to
the partner or transferee after dissolution, whichever is
less, except that a person's total liability for all claims
under this paragraph may not exceed the total amount of
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assets distributed to the person after dissolution; and
(3) against any person liable on the claim under
sections 8436, 8473 (relating to liability of person
dissociated as partner to other persons) and 8485 (relating
to liability after dissolution).
§ 8243. Court proceedings.
(a) Determination of security.--A dissolved limited
liability partnership that has published a notice under section
8242 (relating to other claims against dissolved limited
liability partnership) may file an application with the court of
common pleas embracing the county where the partnership's
principal office is located or, if the principal office is not
located in this Commonwealth, where its registered office is or
was last located, for a determination of the amount and form of
security to be provided for payment of claims that are
reasonably expected to arise after the date of dissolution based
on facts known to the partnership and:
(1) at the time of the application:
(i) are contingent; or
(ii) have not been made known to the partnership; or
(2) are based on an event occurring after the date of
dissolution.
(b) When security not required.--Security is not required
for any claim that is or is reasonably anticipated to be barred
under section 8241 (relating to known claims against dissolved
limited liability partnership).
(c) Notice.--Within 10 days after the filing of an
application under subsection (a), the dissolved limited
liability partnership shall give notice of the proceeding to
each claimant holding a contingent claim known to the
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partnership.
(d) Guardian ad litem.--In any proceeding under this
section, the court may appoint a guardian ad litem to represent
all claimants whose identities are unknown. The reasonable fees
and expenses of the guardian, including all reasonable expert
witness fees, must be paid by the dissolved limited liability
partnership.
(e) Effect on contingent claims.--A dissolved limited
liability partnership that provides security in the amount and
form ordered by the court under subsection (a) satisfies the
partnership's obligations with respect to claims that are
contingent, have not been made known to the partnership or are
based on an event occurring after the date of dissolution. The
claims may not be enforced against a partner or transferee on
account of assets received in liquidation.
§ 8244. Liability of partner when claim against partnership
barred.
If a claim against a dissolved limited liability partnership
is barred under this subchapter, any corresponding claim under
sections 8436 (relating to partner's liability), 8473 (relating
to liability of person dissociated as partner to other person)
and 8485 (relating to liability after dissolution) is also
barred.
Section 24. Repeals are as follows:
(1) The General Assembly finds and declares as follows:
(i) Over the last 25 years, there have been
significant changes in the business model for
partnerships; and statutory law must be updated to deal
with the new business model.
(ii) Statutory law on general partnerships has not
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been addressed by the General Assembly since 1988.
(iii) Section 18 of this act adds a new chapter on
general partnerships. The new chapter extensively revises
existing statutory law to the degree that identification
of individual changes or reproduction of voluminous text
to be eliminated would inhibit rather than enhance
serious legal analysis.
(iv) The repeal under paragraph (2) is necessary to
carry out this paragraph.
(2) Chapter 83 of Title 15 is repealed.
Section 25. Title 15 is amended by adding a chapter to read:
CHAPTER 84
GENERAL PARTNERSHIPS
Subchapter
A. General Provisions
B. Nature of Partnership
C. Relations of Partners to Persons Dealing with Partnership
D. Relations of Partners to Each Other and to Partnership
E. Transferable Interests and Rights of Transferees and
Creditors
F. Dissociation
G. Dissociation as Partner if Business Not Wound Up
H. Dissolution and Winding Up
SUBCHAPTER A
GENERAL PROVISIONS
Sec.
8411. Short title and application of chapter.
8412. Definitions.
8413. Knowledge and notice.
8414. Governing law.
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8415. Contents of partnership agreement.
8416. Application of partnership agreement.
8417. Amendment and effect of partnership agreement.
8418. Signing of filed documents.
8419. Liability of general partner or other person for false or
missing information in filed document.
§ 8411. Short title and application of chapter.
(a) Short title.--This chapter shall be known and may be
cited as the Pennsylvania Uniform Partnership Act of 2016 .
(b) Initial application.--Before April 1, 2017 , this chapter
governs only:
(1) a partnership formed on or after [the Legislative
Reference Bureau shall insert here the effective date of this
chapter]; and
(2) except as provided in subsection (d), a partnership
formed before [the Legislative Reference Bureau shall insert
here the effective date of this chapter] which elects, in the
manner provided in its partnership agreement or by law for
amending the partnership agreement, to be subject to this
chapter.
(c) Full effective date.--Except as provided under
subsection (d), on and after April 1, 2017 , this chapter governs
all partnerships.
(d) Liabilities to third parties.--With respect to a
partnership that elects under subsection (b)(2) to be subject to
this chapter, after the election takes effect the provisions of
this chapter relating to the liability of the partnership's
partners to third parties apply:
(1) before April 1, 2017 , to:
(i) a third party that had not done business with
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the partnership in the year before the election took
effect; and
(ii) a third party that had done business with the
partnership in the year before the election took effect
only if the third party knows or has been notified of the
election; and
(2) on and after April 1, 2017 , to all third parties,
except that those provisions remain inapplicable to any
obligation incurred while those provisions were inapplicable
under paragraph (1)(ii).
(e) Cross reference.--See section 8415(c)(5) (relating to
contents of partnership agreement).
§ 8412. Definitions.
(a) General definitions.-- The following words and phrases
when used in this chapter shall have the meanings given to them
in this subsection unless the context clearly indicates
otherwise:
"Business." Includes every trade, occupation and profession.
"Contribution." Property or a benefit described in section
8443 (relating to form of contribution) which is provided by a
person to a partnership to become a partner or in the person's
capacity as a partner.
"Distribution." A transfer of money or other property from a
partnership to a person on account of a transferable interest or
in a person's capacity as a partner. The term:
(1) includes:
(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
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partner in the management or conduct of the partnership's
business or have access to records or other information
concerning the partnership's business; and
(2) does 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) a governance or transferable interest; or
(B) options, rights or warrants to acquire a
governance or transferable interest.
"Partner." A person that:
(1) has become a partner in a partnership under section
8442 (relating to becoming partner) or was a partner in a
partnership when the partnership became subject to this
chapter under section 8411 (relating to short title and
application of chapter); and
(2) has not dissociated as a partner under section 8461
(relating to events causing dissociation).
"Partnership." An association of two or more persons to
carry on as co-owners a business for profit formed under this
chapter or that becomes subject to this chapter under Chapter 3
(relating to entity transactions) or section 8411. The term
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includes a limited liability partnership or an electing
partnership that is not also a limited partnership.
"Partnership agreement." The agreement, whether or not
referred to as a partnership agreement and whether oral,
implied, in record form or in any combination thereof, of all
the partners of a partnership concerning the matters described
in section 8415(a) (relating to contents of partnership
agreement). The term includes the agreement as amended or
restated.
"Partnership at will." A partnership in which the partners
have not agreed to remain partners until the expiration of a
definite term or the completion of a particular undertaking.
"Transferable interest." The right, as initially owned by a
person in the person's capacity as a partner, to receive
distributions from a partnership, whether or not the person
remains a partner or continues to own any part of the right. The
term applies to any fraction of the interest, by whomever owned.
"Transferee." A person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a partner.
(b) Index of definitions.--The following is a nonexclusive
list of definitions in section 102 (relating to definitions)
that apply to this chapter :
"Act" or "action."
"Court."
"Debtor in bankruptcy."
"Department."
"Jurisdiction."
"Jurisdiction of formation."
"Obligation."
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"Principal office."
"Professional services."
"Property."
"Record form."
"Sign."
"Transfer."
§ 8413. Knowledge and notice.
(a) Knowledge.--A person knows a fact if the person:
(1) has actual knowledge of it; or
(2) is deemed to know it under subsection (d)(1) or law
other than this chapter.
(b) Notice.--A person has notice of a fact if the person:
(1) has reason to know the fact from all the facts known
to the person at the time in question; or
(2) is deemed to have notice of the fact under
subsection (d)(2).
(c) Notification.--Except as provided under section 113(b)
(relating to delivery of document), a person notifies another
person of a fact by taking steps reasonably required to inform
the other person in ordinary course, whether or not those steps
cause the other person to know the fact.
(d) Constructive knowledge or notice.--A person not a
partner is deemed:
(1) to know of a limitation on authority to transfer
real property as provided in section 8433(g) (relating to
certificate of partnership authority); and
(2) to have notice of:
(i) a person's dissociation as a partner 90 days
after a certificate of dissociation under section 8474
(relating to certificate of dissociation) becomes
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effective;
(ii) the dissolution of the partnership 90 days
after a certificate of dissolution under section 8482(b)
(2)(i) (relating to winding up and filing of
certificates) is effective;
(iii) the termination of the partnership 90 days
after a certificate of termination under section 8482(b)
(2)(vi) is effective; and
(iv) participation in a merger, interest exchange,
conversion, division or domestication, 90 days after a
statement of merger, interest exchange, conversion,
division or domestication under Chapter 3 (relating to
entity transactions) is effective.
(e) Effect of partner's knowledge or notice.--A partner's
knowledge or notice of a fact relating to the partnership is
effective immediately as knowledge of or notice to the
partnership, except in the case of a fraud on the partnership
committed by or with the consent of that partner.
§ 8414. Governing law.
(a) General rule.--The internal affairs of a partnership and
the liability of a partner as a partner for the debts,
obligations or other liabilities of the partnership are governed
by:
(1) in the case of a limited liability partnership, the
laws of this Commonwealth; and
(2) in the case of a partnership that is not a limited
liability partnership, the laws of:
(i) the jurisdiction chosen by a provision of the
partnership agreement in record form; or
(ii) the jurisdiction in which the partnership has
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its principal office if there is no choice of law under
subparagraph (i).
(b) Enforceability of chosen law.--A choice of law under
subsection (a)(2)(i) is enforceable even though:
(1) The chosen jurisdiction has no substantial
relationship to the partners or the partnership and there is
no other reasonable basis for the parties' choice.
(2) Application of the chosen law would be contrary to a
fundamental policy of a jurisdiction that has a materially
greater interest in the determination of the particular issue
than does the jurisdiction whose law has been chosen.
(c) Cross reference.--See section 8415(c)(6) (relating to
contents of partnership agreement).
§ 8415. Contents of partnership agreement.
(a) Scope of partnership agreement.--Except as provided in
subsections (c) and (d), the partnership agreement governs:
(1) relations among the partners as partners and between
the partners and the partnership;
(2) the rights and duties under this title of a person
in the capacity of a partner;
(3) the business of the partnership and the conduct of
that business;
(4) the means and conditions for amending the
partnership agreement; and
(5) the means and conditions for approving a transaction
under Chapter 3 (relating to entity transactions).
(b) Title applies generally.--To the extent the partnership
agreement does not provide for a matter described in subsection
(a), this title governs the matter.
(c) Limitations.--A partnership agreement may not do any of
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the following:
(1) Vary a provision of Chapter 1 (relating to general
provisions) or Subchapter A of Chapter 2 (relating to names).
(2) Vary the right of a partner to approve a merger,
interest exchange, conversion, division or domestication
under section 333(a)(2) (relating to approval of merger),
343(a)(2) (relating to approval of interest exchange), 353(a)
(3) (relating to approval of conversion), 363(a)(2) (relating
to approval of division) or 373(a)(2) (relating to approval
of domestication).
(3) Vary the required contents of a plan of merger under
section 332(a) (relating to plan of merger), plan of interest
exchange under section 342(a) (relating to plan of interest
exchange), plan of conversion under section 352(a) (relating
to plan of conversion), plan of division under section 362(a)
(relating to plan of division) or plan of domestication under
section 372(a) (relating to plan of domestication).
(4) Vary a provision of Chapter 81 (relating to general
provisions) or 82 (relating to limited liability partnerships
and limited liability limited partnerships), except as
provided in subsection (d).
(5) Vary the provisions of section 8411(b), (c) and (d)
(relating to short title and application of chapter).
(6) Vary the law applicable under section 8414(a) (1)
(relating to governing law).
(7) Vary any requirement, procedure or other provision
of this title pertaining to:
(i) registered offices; or
(ii) the department, including provisions pertaining
to documents authorized or required to be delivered to
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the department for filing under this title.
(8) Vary the provisions of section 8437 (relating to
actions by and against partnership and partners).
(9) Unreasonably restrict the duties and rights under
section 8446 (relating to rights to information), except as
provided in subsection (d).
(10) Eliminate the duty of loyalty provided for under
section 8447(b)(1)(i) or (ii) or (2) (relating to standards
of conduct for partners) or the duty of care, except as
provided in subsection (d).
(11) Vary the contractual obligation of good faith and
fair dealing under section 8447(d), except as provided under
subsection (d).
(12) Unreasonably restrict the right of a person to
maintain an action under section 8448(b) (relating to actions
by partnership and partners).
(13) Provide indemnification or exoneration in violation
of the limitations in sections 8441(m) (relating to partner's
rights and duties) and 8447(i).
(14) Vary the power of a person to dissociate as a
partner under section 8462(a) (relating to power to
dissociate as partner and wrongful dissociation), except to
require that the notice under section 8461(1) (relating to
events causing dissociation) be in record form.
( 15 ) Vary the causes of dissolution specified in section
8481(a)(4) or (5) (relating to events causing dissolution).
( 16 ) Vary the requirement to wind up the partnership's
business as specified in section 8482(a), (b)(1) and (d)
(relating to winding up and filing of certificates).
(17) Except as provided in section 8417(b) (relating to
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amendment and effect of partnership agreement), restrict the
rights under this title of a person other than a partner.
(d) Permitted terms.--Subject to subsection (c)(13), the
following rules apply:
(1) The partnership agreement may:
(i) specify the method by which a specific act or
transaction that would otherwise violate the duty of
loyalty may be authorized or ratified by one or more
disinterested and independent persons after full
disclosure of all material facts;
(ii) alter the prohibition in section 8231(a)(2)
(relating to limitations on distributions by limited
liability partnership ) so that the prohibition requires
only that the partnership's total assets not be less than
the sum of its total liabilities; and
(iii) impose reasonable restrictions on the
availability and use of information obtained under
section 8446 and may define appropriate remedies,
including liquidated damages, for a breach of any
reasonable restriction on use.
(2) To the extent the partnership agreement expressly
relieves a partner of a responsibility that the partner would
otherwise have under this title and imposes the
responsibility on one or more other partners, the agreement
also may eliminate or limit any fiduciary duty of the partner
relieved of the responsibility which would have pertained to
the responsibility.
(3) If not manifestly unreasonable, the partnership
agreement may:
(i) alter the aspects of the duty of loyalty stated
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in section 8447(b)(1)(i) or (ii) or (2);
(ii) prescribe the standards by which the
performance of the contractual obligation of good faith
and fair dealing under section 8447(d) is to be measured;
(iii) identify specific types or categories of
activities that do not violate the duty of loyalty;
(iv) alter the duty of care; and
(v) alter or eliminate any other fiduciary duty.
(e) Determination of manifest unreasonableness.--The court
shall decide as a matter of law whether a term of a partnership
agreement is manifestly unreasonable under subsection (d)(3).
The court:
(1) shall make its determination as of the time the
challenged term became part of the partnership agreement and
by considering only circumstances existing at that time; and
(2) may invalidate the term only if, in light of the
purposes and business of the partnership, it is readily
apparent that:
(i) the objective of the term is unreasonable; or
(ii) the term is an unreasonable means to achieve
the term's objective.
§ 8416. Application of partnership agreement.
(a) Partnership bound.--A partnership is bound by and may
enforce the partnership agreement, whether or not the
partnership has itself manifested assent to the agreement.
(b) Deemed assent.--A person that becomes a partner is
deemed to assent to the partnership agreement.
(c) Preformation agreement.--Two or more persons intending
to become the initial partners of a partnership may make an
agreement providing that upon the formation of the partnership
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the agreement will become the partnership agreement.
(d) Cross reference.--See section 8422(a) (relating to
formation of partnership).
§ 8417. Amendment and effect of partnership agreement.
(a) Approval of amendments.--A partnership agreement may
specify that its amendment requires the approval of a person
that is not a party to the agreement or the satisfaction of a
condition. An amendment is ineffective if its adoption does not
include the required approval or satisfy the specified
condition. See section 8441(j) (relating to partner's rights and
duties).
(b) Obligations to nonpartners.--The obligations of a
partnership and its partners to a person in the person's
capacity as a transferee or person dissociated as a partner are
governed by the partnership agreement. Except as provided in
section 8445(d) (relating to sharing of and right to
distribution before dissolution) or in a court order issued
under section 8454(b)(2) (relating to charging order) to
effectuate a charging order, an amendment to the partnership
agreement made after a person becomes a transferee or is
dissociated as a partner:
(1) is effective with regard to any debt, obligation or
other liability of the partnership or its partners to the
person in the person's capacity as a transferee or person
dissociated as a partner; and
(2) is not effective to the extent the amendment:
(i) imposes a new debt, obligation or other
liability on the transferee or person dissociated as a
partner; or
(ii) prejudices the rights under section 8471
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(relating to purchase of interest of person dissociated
as partner) of a person that dissociated as a partner
before the amendment was made.
(c) Provisions in filed documents.--If a document delivered
by a partnership to the department for filing becomes effective
and contains a provision that would be ineffective under section
8415(c) or (d)(3) (relating to contents of partnership
agreement) if contained in the partnership agreement, the
provision is ineffective in the document.
(d) Conflicts with partnership agreement.--Subject to
subsection (c), if a document delivered by a partnership to the
department for filing becomes effective and conflicts with a
provision of the partnership agreement:
(1) the agreement prevails as to partners, persons
dissociated as partners and transferees; and
(2) the document prevails as to other persons to the
extent they reasonably rely on the document.
(e) Prohibition of oral amendments.--If a provision of a
partnership agreement in record form provides that the
partnership agreement cannot be amended, modified or rescinded
except in record form, an oral agreement, amendment,
modification or rescission shall not be enforceable.
§ 8418. Signing of filed documents.
(a) Required signatures.-- Except as provided in this title,
a document delivered to the department for filing under this
title relating to a partnership must be signed as follows:
(1) Except as provided under paragraphs (2) and (3), a
document signed on behalf of a partnership must be signed by
a person authorized by the partnership.
(2) A document filed on behalf of a dissolved
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partnership that has no partner must be signed by the person
winding up the partnership's business under section 8482(c)
(relating to winding up and filing of certificates) or a
person appointed under section 8482(d) to wind up the
business.
(3) A certificate of denial by a person under section
8434 (relating to certificate of denial) must be signed by
that person.
(4) Any other document delivered on behalf of a person
to the department for filing must be signed by that person.
(b) Cross reference.--See section 142 (relating to effect of
signing filings).
§ 8419. Liability of general partner or other person for false
or missing information in filed document.
(a) General rule.--If a document delivered to the department
for filing under this title and filed by the department contains
a materially false statement or fails to state a material fact
required to be stated, a person that suffers loss by reasonable
reliance on the statement or failure to state a material fact
may recover damages for the loss from:
(1) a person that signed the document or caused another
to sign it on the person's behalf and knew there was false or
missing information in the document at the time it was
signed; and
(2) subject to subsection (b), a partner if:
(i) the document was delivered for filing on behalf
of the partnership; and
(ii) the partner knew or had notice there was false
or missing information for a reasonably sufficient time
before the document was relied upon so that, before the
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reliance, the partner reasonably could have:
(A) filed a petition under section 144 (relating
to signing and filing pursuant to judicial order); or
(B) delivered to the department for filing a
statement of correction under section 138 (relating
to statement of correction) or a statement of
abandonment under section 141 (relating to
abandonment of filing before effectiveness).
(b) Partner relieved of responsibility.--To the extent the
partnership agreement expressly relieves a partner of
responsibility for maintaining the accuracy of information
contained in records delivered on behalf of the partnership to
the department for filing under this title and imposes that
responsibility on one or more other partners, the liability
stated in subsection (a)(2) applies to those other partners and
not to the partner that the partnership agreement relieves of
the responsibility.
(c) Cross reference.--See section 143 (relating to liability
for inaccurate information in filing).
SUBCHAPTER B
NATURE OF PARTNERSHIP
Sec.
8421. Partnership as entity.
8422. Formation of partnership.
8423. Partnership property.
8424. When property is partnership property.
§ 8421. Partnership as entity.
(a) General rule.--A partnership is an entity distinct from
its partners.
(b) Limited liability partnership.--A partnership is the
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same entity regardless of whether the partnership has a
statement of registration in effect under section 8201 (relating
to scope).
§ 8422. Formation of partnership.
(a) General rule.--Except as provided in subsection (b), the
association of two or more persons to carry on as co-owners a
business for profit forms a partnership, whether or not the
persons intend to form a partnership.
(b) Excluded associations.--An association formed under a
statute other than this chapter, a predecessor statute or a
comparable statute of another jurisdiction is not a partnership
under this chapter.
(c) Rules for determining formation of partnership.--In
determining whether a partnership is formed, the following rules
apply:
(1) Joint tenancy, tenancy in common, tenancy by the
entireties, joint property, common property or part ownership
does not by itself establish a partnership, even if the co-
owners share profits made by the use of the property.
(2) The sharing of gross returns does not by itself
establish a partnership, even if the persons sharing them
have a joint or common right or interest in property from
which the returns are derived.
(3) A person who receives a share of the profits of a
business is presumed to be a partner in the business, unless
the profits were received in payment:
(i) of a debt by installments or otherwise;
(ii) for services as an independent contractor or of
wages or other compensation to an employee;
(iii) of rent;
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(iv) of an annuity or other retirement or health
benefit to a deceased or retired partner or a
beneficiary, representative or designee of a deceased or
retired partner;
(v) of interest or other charge on a loan, even if
the amount of payment varies with the profits of the
business, including a direct or indirect present or
future ownership of the collateral, rights to income,
proceeds or increase in value derived from the
collateral; or
(vi) for the sale of the goodwill of a business or
other property by installments or otherwise.
(d) Cross reference.--See section 8416(c) (relating to
application of partnership agreement).
§ 8423. Partnership property.
Property owned by a partnership is partnership property and
is not owned by the partners individually.
§ 8424. When property is partnership property.
(a) General rule.--Property is owned by a partnership and
not by the partners individually if the property is acquired in
the name of:
(1) the partnership by a transfer to:
(i) the partnership in its name; or
(ii) one or more partners in their capacity as
partners in the partnership, if the name of the
partnership is indicated in the instrument transferring
title to the property; or
(2) one or more partners with an indication in the
instrument transferring title to the property of the person's
capacity as a partner or of the existence of a partnership
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but without an indication of the name of the partnership.
(b) Property purchased with partnership assets.--Property is
presumed to be partnership property if purchased with
partnership assets, even if not acquired in the name of the
partnership or of one or more partners with an indication in the
instrument transferring title to the property of the person's
capacity as a partner or of the existence of a partnership.
(c) Property acquired in name of partner.--Property acquired
in the name of one or more of the partners is presumed to be
separate property owned by the individual partner or partners,
even if used for partnership purposes, if the property is
acquired without:
(1) an indication in the instrument transferring title
to the property of the person's capacity as a partner or of
the existence of a partnership; and
(2) use of partnership assets.
SUBCHAPTER C
RELATIONS OF PARTNERS TO PERSONS
DEALING WITH PARTNERSHIP
Sec.
8431. Partner agent of partnership.
8432. Transfer of partnership property.
8433. Certificate of partnership authority.
8434. Certificate of denial.
8435. Partnership liable for partner's actionable conduct.
8436. Partner's liability.
8437. Actions by and against partnership and partners.
8438. Liability of purported partner.
§ 8431. Partner agent of partnership.
Subject to the effect of a certificate of partnership
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authority under section 8433 (relating to certificate of
partnership authority), the following rules apply:
(1) Each partner is an agent of the partnership for the
purpose of its business. An act of a partner, including the
signing of an instrument in the partnership name, for
apparently carrying on in the ordinary course the partnership
business or business of the kind carried on by the
partnership binds the partnership, unless the partner did not
have authority to act for the partnership in the particular
matter and the person with which the partner was dealing knew
or had notice that the partner lacked authority.
(2) An act of a partner which is not apparently for
carrying on in the ordinary course the partnership's business
or business of the kind carried on by the partnership binds
the partnership only if the partner had actual authority to
take the action.
§ 8432. Transfer of partnership property.
(a) General rule.--Partnership property may be transferred
as follows:
(1) Subject to the effect of a certificate of
partnership authority under section 8433 (relating to
certificate of partnership authority), partnership property
held in the name of the partnership may be transferred by an
instrument of transfer signed by a partner in the partnership
name.
(2) Partnership property held in the name of one or more
partners with an indication in the instrument transferring
the property to them of their capacity as partners or of the
existence of a partnership, but without an indication of the
name of the partnership, may be transferred by an instrument
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of transfer signed by the persons in whose name the property
is held.
(3) Partnership property held in the name of one or more
persons other than the partnership, without an indication in
the instrument transferring the property to them of their
capacity as partners or of the existence of a partnership,
may be transferred by an instrument of transfer signed by the
persons in whose name the property is held.
(b) Recovery of property by partnership.--A partnership may
recover partnership property from a transferee only if it proves
that the signing of the instrument of initial transfer did not
bind the partnership under section 8431 (relating to partner
agent of partnership) and:
(1) as to a subsequent transferee who gave value for
property transferred under subsection (a)(1) or (2), proves
that the subsequent transferee knew or had notice that the
person who signed the instrument of initial transfer lacked
authority to bind the partnership; or
(2) as to a transferee who gave value for property
transferred under subsection (a)(3), proves that the
transferee knew or had notice that the property was
partnership property and that the person who signed the
instrument of initial transfer lacked authority to bind the
partnership.
(c) Subsequent transferees.--A partnership may not recover
partnership property from a subsequent transferee if the
partnership would not have been entitled to recover the property
under subsection (b) from any earlier transferee of the
property.
(d) Sole partner.--If one person holds all the interests in
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a partnership, all the partnership property vests in that
person. The person may sign a document in the name of the
partnership to evidence vesting of the property in that person
and may file or record the document.
§ 8433. Certificate of partnership authority.
(a) General rule.--A partnership may deliver to the
department for filing a certificate of partnership authority.
The certificate:
(1) must include the name of the partnership and:
(i) if the partnership is not a registered foreign
limited liability partnership, the street and mailing
addresses of its principal office; or
(ii) if the partnership is a registered foreign
limited liability partnership, subject to section 109
(relating to name of commercial registered office
provider in lieu of registered address), the address,
including street and number, if any, of its registered
office;
(2) with respect to any position that exists in or with
respect to the partnership, may state the authority, or
limitations on the authority, of all persons holding the
position to:
(i) sign an instrument transferring real property
held in the name of the partnership; or
(ii) enter into other transactions on behalf of, or
otherwise act for or bind, the partnership; and
(3) may state the authority, or limitations on the
authority, of a specific person to:
(i) sign an instrument transferring real property
held in the name of the partnership; or
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(ii) enter into other transactions on behalf of, or
otherwise act for or bind, the partnership.
(b) Amendment or cancellation.--To amend or cancel a
certificate of authority filed by the department, a partnership
must deliver to the department for filing an amendment or
cancellation stating:
(1) the name of the partnership;
(2) if the partnership is not a registered foreign
limited liability partnership, the street and mailing
addresses of the partnership's principal office;
(3) if the partnership is a registered foreign limited
liability partnership, subject to section 109, the address,
including street and number, if any, of its registered
office;
(4) the date the certificate being affected became
effective; and
(5) the contents of the amendment or a statement that
the certificate is canceled.
(c) Effect of certificate.--A certificate of authority:
(1) affects only the power of a person to bind a
partnership to persons that are not partners; and
(2) is not binding on the department for purposes of the
administration of this title or any other provision of law.
(d) Effect of limitation on authority.--Subject to
subsection (c) and section 8413(d)(1) (relating to knowledge and
notice), and except as provided in subsections (f), (g) and (h),
a limitation on the authority of a person or a position
contained in an effective certificate of authority is not by
itself evidence of any person's knowledge or notice of the
limitation.
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(e) Authority not relating to real property.--A grant of
authority not pertaining to transfers of real property and
contained in an effective certificate of authority is conclusive
in favor of a person that gives value in reliance on the grant,
unless when the person gives value:
(1) the person has knowledge to the contrary;
(2) the certificate has been canceled or restrictively
amended under subsection (b); or
(3) a limitation on the grant is contained in another
certificate of authority that became effective after the
certificate containing the grant became effective.
(f) Authority relating to real property.--An effective
certificate of authority that grants authority to transfer real
property held in the name of the partnership, a certified copy
of which certificate is recorded in the office of the recorder
of deeds for the county in which the real property is located,
is conclusive in favor of a person that gives value in reliance
on the grant without knowledge to the contrary, except to the
extent that when the person gives value:
(1) the certificate has been canceled or restrictively
amended under subsection (b), and a certified copy of the
cancellation or restrictive amendment has been recorded in
the office of the recorder of deeds for the county in which
the real property is located; or
(2) a limitation on the grant is contained in another
certificate of authority that became effective after the
certificate containing the grant became effective and a
certified copy of the later-effective certificate is recorded
in the office of the recorder of deeds for the county in
which the real property is located.
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(g) Constructive knowledge of limitation.--Subject to
subsection (c), if a certified copy of an effective certificate
containing a limitation on the authority to transfer real
property held in the name of a partnership is recorded in the
office of the recorder of deeds for the county in which real
property is located, all persons are deemed to know of the
limitation.
(h) Effect of certificate of dissolution.--Subject to
subsection (i), an effective certificate of dissolution is a
cancellation of any filed certificate of authority for the
purposes of subsection (f) and is a limitation on authority for
purposes of subsection (g).
(i) Post-dissolution certificate of authority.--After a
certificate of dissolution becomes effective, a partnership may
deliver to the department for filing and, if appropriate, may
record a certificate of authority that is designated as a post-
dissolution certificate of authority. The certificate operates
as provided in subsections (f) and (g).
(j) Cancellation by operation of law.--Unless canceled
earlier, an effective certificate of authority is canceled by
operation of law five years after the date on which the
certificate, or its most recent amendment, becomes effective.
The cancellation is effective without recording under subsection
(f) or (g).
(k) Effect of certificate of denial.--An effective
certificate of denial under section 8434 (relating to
certificate of denial):
(1) operates as a restrictive amendment under this
section and a certified copy may be recorded as provided in
subsection (f)(1) by the partnership or the person that
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delivered the certificate of denial to the department for
filing; and
(2) affects only the authority of a person to bind a
partnership with respect to persons that are not partners.
(l) Foreign partnerships.--A foreign partnership, regardless
of whether it is registered to do business in this Commonwealth,
may deliver a certificate of authority to the department for
filing and may record a copy as provided in this section in the
same manner and with the same effect is if it were a domestic
partnership.
(m) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8418 (relating to signing of filed documents).
Section 8482 (relating to winding up and filing of
certificates).
§ 8434. Certificate of denial.
(a) General rule.--A person named in a filed certificate of
authority granting that person authority may deliver to the
department for filing a certificate of denial that:
(1) provides the name of the partnership and:
(i) if the partnership is not a registered foreign
limited liability partnership, the street and mailing
addresses of its principal office; or
(ii) if the partnership is a registered foreign
limited liability partnership, subject to section 109
(relating to name of commercial registered office
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provider in lieu of registered address), the address,
including street and number, if any, of its registered
office;
(2) states the caption of the certificate of authority
to which the certificate of denial pertains; and
(3) denies the grant of authority.
(b) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8418 (relating to signing of filed documents).
§ 8435. Partnership liable for partner's actionable conduct.
(a) General rule.--A partnership is liable for loss or
injury caused to a person, or for a penalty incurred, as a
result of a wrongful act or other actionable conduct, of a
partner acting in the ordinary course of business of the
partnership or with the actual or apparent authority of the
partnership.
(b) Misapplication of property.--If, in the course of the
partnership's business or while acting with actual or apparent
authority of the partnership, a partner receives or causes the
partnership to receive money or property of a person not a
partner and the money or property is misapplied by a partner,
the partnership is liable for the loss.
§ 8436. Partner's liability.
(a) General rule.--Except as provided in subsection (b) or
section 8204 (relating to limitation on liability of partners),
all partners are jointly and severally liable for all debts,
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obligations and other liabilities of the partnership unless
otherwise agreed by the claimant or provided by law.
(b) Preexisting liabilities.--A person that becomes a
partner is not personally liable for a debt, obligation or other
liability of the partnership incurred before the person became a
partner.
§ 8437. Actions by and against partnership and partners.
(a) Partnership as party.--A partnership may sue and be sued
in the name of the partnership.
(b) Partner as party.--To the extent not inconsistent with
section 8436 (relating to partner's liability), a partner may be
joined in an action against the partnership or named in a
separate action.
(c) Judgment against partnership only.--A judgment against a
partnership:
(1) is not by itself a judgment against a partner; and
(2) except as provided in subsection (d), may not be
satisfied from a partner's assets.
(d) Judgment against partnership and partner.--If there is a
judgment against a partnership and a partner on the same claim,
the judgment creditor may levy execution against the assets of
the partner if both of the following apply:
(1) The partner is personally liable for the claim under
section 8436.
(2) One of the following subparagraphs applies:
(i) A writ of execution on the judgment against the
partnership has been returned unsatisfied in whole or in
part.
(ii) The partnership is a debtor in bankruptcy.
(iii) The partner has agreed that the creditor need
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not exhaust partnership assets.
(iv) A court grants permission to levy execution
based on a finding that:
(A) partnership assets subject to execution are
clearly insufficient to satisfy the judgment;
(B) exhaustion of partnership assets is
excessively burdensome; or
(C) the grant of permission is an appropriate
exercise of the court's equitable powers.
(v) Liability is imposed on the partner by law or
contract independent of the existence of the partnership.
(e) Liability for representations.--This section also
applies to any debt, liability or other obligation of a
partnership which results from a representation by a partner or
purported partner under section 8438 (relating to liability of
purported partner).
(f) Cross reference.--See section 8415(c)(8) (relating to
contents of partnership agreement).
§ 8438. Liability of purported partner.
(a) General rule.--If a person, by words or conduct,
purports to be a partner, or consents to being represented by
another as a partner, in a partnership or with one or more
persons not partners, the purported partner is liable to a
person to whom the representation is made, if that person,
relying on the representation, enters into a transaction with
the actual or purported partnership. If the representation,
either by the purported partner or by a person with the
purported partner's consent, is made in a public manner, the
purported partner is liable to a person who relies upon the
purported partnership even if the purported partner is not aware
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of being held out as a partner to the claimant. If partnership
liability results, the purported partner is liable with respect
to that liability as if the purported partner were a partner. If
no partnership liability results, the purported partner is
jointly and severally liable, with any other person consenting
to the representation, with respect to that liability.
(b) Authority of purported partner.--If a person is
represented in the manner described in subsection (a) to be a
partner in an existing partnership, or with one or more persons
not partners, the purported partner is an agent of persons
consenting to the representation to bind them to the same extent
and in the same manner as if the purported partner were a
partner with respect to persons who enter into transactions in
reliance upon the representation. If all the partners of the
existing partnership consent to the representation, a
partnership act or obligation results. If fewer than all the
partners of the existing partnership consent to the
representation, the person acting and the partners consenting to
the representation are jointly and severally liable.
(c) Effect of certificate of partnership authority.--A
person is not liable as a partner merely because the person is
named by another as a partner in a certificate of partnership
authority.
(d) No effect of failure to disclaim authority.--A person
does not continue to be liable as a partner merely because of a
failure to file a certificate of dissociation or to amend a
certificate of partnership authority to indicate the person's
dissociation as a partner.
(e) Nonliability of persons not partners.--Except as
provided in subsections (a) and (b), persons who are not
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partners as to each other are not liable as partners to other
persons.
SUBCHAPTER D
RELATIONS OF PARTNERS TO EACH OTHER
AND TO PARTNERSHIP
Sec.
8441. Partner's rights and duties.
8442. Becoming a partner.
8443. Form of contribution.
8444. Liability for contribution.
8445. Sharing of and right to distribution before dissolution.
8446. Rights to information.
8447. Standards of conduct for partners.
8448. Actions by partnership and partners.
8449. Continuation of partnership beyond definite term or
particular undertaking.
§ 8441. Partner's rights and duties.
(a) Distributions and losses.--Each partner is entitled to
share in distributions as provided in section 8445 (relating to
sharing of and right to distribution before dissolution).
(b) Reimbursement.--A partnership shall reimburse a partner
for:
(1) Any payment made by the partner in the course of
the partner's activities on behalf of the partnership, if the
partner complied with this section and section 8447 (relating
to standards of conduct for partners) in making the payment.
(2) An advance to the partnership beyond the amount of
capital the partner agreed to contribute.
(c) Indemnification.--A partnership shall indemnify and hold
harmless a person with respect to any claim or demand against
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the person and any debt, obligation or other liability incurred
by the person by reason of the person ' s former or present
capacity as partner, if the claim, demand, debt, obligation or
other liability does not arise from the person's breach of this
section or section 823 2 (relating to liability for improper
distributions by limited liability partnership) or 8447.
(d) Advances.--In the ordinary course of its business, a
partnership may advance reasonable expenses, including attorney
fees and costs, incurred by a person in connection with a claim
or demand against the person by reason of the person's former or
present capacity as a partner, if the person promises to repay
the partnership if the person ultimately is determined not to be
entitled to be indemnified under subsection (c).
(e) Insurance.--A partnership may purchase and maintain
insurance on behalf of a partner against liability asserted
against or incurred by the partner in that capacity or arising
from that status even if, under subsection (m) , the partnership
agreement could not eliminate or limit the person's liability to
the partnership for the conduct giving rise to the liability.
(f) Loan to partnership.--A payment or advance made by a
partner which gives rise to a partnership obligation under
subsection (b) constitutes a loan to the partnership which
accrues interest from the date of the payment or advance.
(g) Management rights.--Each partner has equal rights in the
management and conduct of the partnership's business.
(h) Rights to property.--A partner may use or possess
partnership property only on behalf of the partnership.
(i) Compensation for services.--A partner is not entitled to
remuneration for services performed for the partnership, except
for reasonable compensation for services rendered in winding up
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the business of the partnership.
(j) Required approvals by partners.--A difference arising as
to a matter in the ordinary course of business of a partnership
may be decided by a majority of the partners. An act outside the
ordinary course of business of a partnership and an amendment to
the partnership agreement may be undertaken only with the
affirmative vote or consent of all the partners.
(k) Nonexclusivity.--The rights provided by subsections (b),
(c), (d) and (e) shall not be deemed exclusive of any other
rights to which a person seeking reimbursement, indemnification,
advancement of expenses or insurance may be entitled under the
partnership agreement, vote of partners, contract or otherwise,
both as to action in his official capacity and as to action in
another capacity while holding that position. Section 8447(f)
shall be applicable to a vote, contract or other action under
this subsection. A partnership may create a fund of any nature,
which may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner its indemnification
obligations, whether arising under this section or otherwise.
(l) Grounds.--Indemnification under subsection (k) may be
granted for any action taken and may be made whether or not the
partnership would have the power to indemnify the person under
any other provision of law except as provided in this section
and whether or not the indemnified liability arises or arose
from any threatened, pending or completed action by or in the
right of the partnership. Indemnification under subsection (k)
is declared to be consistent with the public policy of this
Commonwealth.
(m) Limitation.--Indemnification under this section shall
not be made in any case where the act giving rise to the claim
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for indemnification is determined by a court to constitute
recklessness, willful misconduct or a knowing violation of law.
§ 8442. Becoming a partner.
(a) Upon formation .--Upon formation of a partnership, a
person becomes a partner under section 8422(a) (relating to
formation of partnership).
(b) After formation.--After formation of a partnership, a
person becomes a partner:
(1) as provided in the partnership agreement;
(2) as a result of a transaction effective under Chapter
3 (relating to entity transactions); or
(3) with the affirmative vote or consent of all the
partners.
(c) Noneconomic partners.--A person may become a partner
without:
(1) acquiring a transferable interest; or
(2) making or being obligated to make a contribution to
the partnership.
(d) Nature of interest.--The interest of a partner in a
partnership is personal property.
§ 8443. Form of contribution.
A contribution may consist of:
(1) property transferred to, services performed for or
another benefit provided to the partnership;
(2) an agreement to transfer property to, perform
services for or provide another benefit to the partnership;
or
(3) any combination of items listed in paragraphs (1)
and (2).
§ 8444. Liability for contribution.
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(a) Obligation not excused.--A person's obligation to make a
contribution to a partnership is not excused by the person's
death, disability, termination or other inability to perform
personally.
(b) Substitute payment.--If a person does not fulfill an
obligation to make a contribution other than money, the person
is obligated, at the option of the partnership, to contribute
money equal to the value, as stated in the records of the
partnership, of the part of the contribution which has not been
made.
(c) Compromise of obligation.--The obligation of a person to
make a contribution may be compromised only by the affirmative
vote or consent of all the partners. If a creditor of a limited
liability partnership extends credit or otherwise acts in
reliance on an obligation described under subsection (a) without
knowledge or notice of a compromise under this subsection, the
creditor may enforce the obligation.
§ 8445. Sharing of and right to distribution before
dissolution.
(a) Distributions before dissolution.--Any distribution made
by a partnership before its dissolution and winding up shall be
in equal shares among partners and persons dissociated as
partners whose interests in the partnership have not been
purchased under section 8471 (relating to purchase of interest
of person dissociated as partner), except as provided in section
8453(b) (relating to transfer of transferable interest) or to
the extent necessary to comply with a charging order in effect
under section 8454 (relating to charging order).
(b) No right to distribution.--Subject to section 8471, a
person has a right to a distribution before the dissolution and
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winding up of a partnership only if the partnership decides to
make an interim distribution.
(c) Form of distribution.--A person does not have a right to
demand or receive a distribution from a partnership in any form
other than money. Except as provided in section 8486 (relating
to disposition of assets in winding up and required
contributions), a partnership may distribute an asset in kind
only if each part of the asset is fungible with each other part
and each person receives a percentage of the asset equal in
value to the person's share of distributions.
(d) Status as creditor.--If a partner or transferee becomes
entitled to receive a distribution, the partner or transferee
has the status of, and is entitled to all remedies available to,
a creditor of the partnership with respect to the distribution.
The partnership's obligation to make a distribution is subject
to offset for any amount owed to the partnership by the partner
or a person dissociated as partner on whose account the
distribution is made.
§ 8446. Rights to information.
(a) Location of records.--A partnership shall keep its books
and records, if any, at its principal office.
(b) Right to inspection.--On reasonable notice, a partner
may inspect and copy during regular business hours, at a
reasonable location specified by the partnership, any record
maintained by the partnership regarding the partnership's
business, financial condition and other circumstances.
(c) Material information.--The partnership shall furnish to
each partner , without demand, any information concerning the
partnership's business, financial condition and other
circumstances which the partnership knows and is material to the
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proper exercise of the partner's rights and duties under the
partnership agreement or this title, except to the extent the
partnership can establish that it reasonably believes the member
already knows the information .
(d) Duty of partners.--The duty to furnish information under
subsection (c) also applies to each partner to the extent the
partner knows any of the information described in subsection
(c).
(e) Rights after dissociation.--Subject to subsection (j),
within 10 days after receipt by a partnership of a demand made
in record form, a person dissociated as a partner may have
access to information to which the person was entitled while a
partner if:
(1) the information pertains to the period during which
the person was a partner;
(2) the person seeks the information in good faith; and
(3) the information is material to the person's rights
and duties under the partnership agreement or this title.
(f) Partnership response to demand.--Within 10 days after
receiving a demand under subsection (e), the partnership shall,
in record form, inform the person that made the demand of:
(1) the information that the partnership will provide in
response to the demand and when and where the partnership
will provide the information; and
(2) the partnership's reasons for declining, if the
partnership declines to provide any demanded information.
(g) Costs of copying.--A partnership may charge a person
that makes a demand under this section the reasonable costs of
copying.
(h) Exercise of rights.--A partner or person dissociated as
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a partner may exercise the rights under this section through an
agent or, in the case of an incapacitated person, a guardian.
Any restriction or condition imposed by the partnership
agreement or under subsection (j) applies both to the agent or
guardian and to the partner or person dissociated as a partner.
(i) No rights of transferee.--Subject to section 8455
(relating to power of personal representative of deceased
partner), the rights under this section do not extend to a
person as transferee.
(j) Reasonable restrictions permitted.--In addition to any
restriction or condition stated in its partnership agreement, a
partnership, as a matter within the ordinary course of its
business, may impose reasonable restrictions and conditions on
access to and use of information to be furnished under this
section, including designating information confidential and
imposing nondisclosure and safeguarding obligations on the
recipient. In a dispute concerning the reasonableness of a
restriction under this subsection, the partnership has the
burden of proving reasonableness.
(k) Cross reference.--See section 8415 (relating to contents
of partnership agreement).
§ 8447. Standards of conduct for partners.
(a) General rule.--A partner owes to the partnership and the
other partners the duties of loyalty and care stated in
subsections (b) and (c).
(b) Duty of loyalty.--The fiduciary duty of loyalty of a
partner includes the duties:
(1) to account to the partnership and hold as trustee
for it any property, profit or benefit derived by the
partner:
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(i) in the conduct or winding up of the
partnership's business;
(ii) from a use by the partner of the partnership's
property; or
(iii) from the appropriation of a partnership
opportunity;
(2) to refrain from dealing with the partnership in the
conduct or winding up of the partnership business as or on
behalf of a person having an interest adverse to the
partnership; and
(3) to refrain from competing with the partnership in
the conduct of the partnership's business before the
dissolution of the partnership.
(c) Duty of care.--The duty of care of a partner in the
conduct or winding up of the partnership business is to refrain
from engaging in gross negligence, recklessness, willful
misconduct or a knowing violation of law.
(d) Good faith and fair dealing.--A partner shall discharge
the duties and obligations under this title or under the
partnership agreement and exercise any rights consistent with
the contractual obligation of good faith and fair dealing.
(e) Self-serving conduct.--A partner does not violate a duty
or obligation under this title or under the partnership
agreement solely because the partner's conduct furthers the
partner's own interest.
(f) Authorization or ratification.--All the partners may
authorize or ratify, after disclosure of all material facts, a
specific act or transaction that otherwise would violate the
duty of loyalty of a partner.
(g) Fairness as a defense.--It is a defense to a claim under
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subsection (b)(2) and any comparable claim in equity or at
common law that the transaction was fair to the partnership at
the time it was authorized or ratified under subsection (f).
(h) Rights and obligations in approved transaction.--If a
partner enters into a transaction with the partnership which
otherwise would be prohibited under subsection (b)(2), but the
transaction is authorized or ratified as provided under
subsection (f) or the partnership agreement, the partner's
rights and obligations arising from the transaction are the same
as those of a person that is not a partner.
(i) Exoneration.--The partnership agreement may provide that
a partner shall not be personally liable for monetary damages to
the partnership or the other partners for a breach of subsection
(c), except that a partner may not be exonerated for an act that
constitutes recklessness, willful misconduct or a knowing
violation of law.
(j) Cross reference.--See section 8415 (relating to contents
of partnership agreement).
§ 8448. Actions by partnership and partners.
(a) Action by partnership.--A partnership may maintain an
action against a partner for either of the following that causes
or threatens harm to the partnership:
(1) a breach of the partnership agreement; or
(2) the violation of a duty to the partnership.
(b) Action by partner.--A partner may maintain an action
against the partnership or another partner, with or without an
accounting as to partnership business, to enforce the partner's
rights and protect the partner's interests, including rights and
interests under the partnership agreement or this title or
arising independently of the partnership relationship.
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(c) Claims not revived.--A right to an accounting on
dissolution and winding up does not revive a claim barred by
law.
(d) Cross reference.--See section 8415(c)(12)(relating to
contents of partnership agreement).
§ 8449. Continuation of partnership beyond definite term or
particular undertaking.
(a) Effect of continuation.--If a partnership for a definite
term or particular undertaking is continued, without an express
agreement, after the expiration of the term or completion of the
undertaking, the rights and duties of the partners remain the
same as they were at the expiration or completion, so far as is
consistent with a partnership at will.
(b) Presumed agreement to continue partnership.--If the
partners, or those partners who habitually acted in the business
during the term or undertaking, continue the business without
any settlement or liquidation of the partnership, they are
presumed to have agreed that the partnership will continue.
SUBCHAPTER E
TRANSFERABLE INTERESTS AND RIGHTS
OF TRANSFEREES AND CREDITORS
Sec.
8451. Partner not co-owner of partnership property.
8452. Nature of transferable interest.
8453. Transfer of transferable interest.
8454. Charging order.
8455. Power of personal representative of deceased partner.
§ 8451. Partner not co-owner of partnership property.
A partner is not a co-owner of partnership property and has
no interest in partnership property which can be transferred,
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either voluntarily or involuntarily.
§ 8452. Nature of transferable interest.
(a) Personal property.--A transferable interest is personal
property.
(b) Only right that may be transferred.--A person may not
transfer to a person not a partner any rights in a partnership
other than a transferable interest.
§ 8453. Transfer of transferable interest.
(a) General rule.--A transfer, in whole or in part, of a
transferable interest:
(1) is permissible;
(2) does not by itself cause the dissociation of the
transferor as a partner or a dissolution and winding up of
the partnership's business; and
(3) subject to section 8455 (relating to power of
personal representative of deceased partner), does not
entitle the transferee to:
(i) participate in the management or conduct of the
partnership's business; or
(ii) except as provided in subsection (c), have
access to records or other information concerning the
partnership's business.
(b) Rights of transferee.--A transferee has the right to:
(1) receive, in accordance with the terms of the
transfer:
(i) distributions to which the transferor would
otherwise be entitled; and
(ii) allocations of income, gain, loss, deduction or
credit or similar item which would otherwise be made to
the transferor; and
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(2) seek under section 8481(a)(5) (relating to events
causing dissolution) a judicial determination that it is
equitable to wind up the partnership business.
(c) Right to account on dissolution.--In a dissolution and
winding up of a partnership, a transferee is entitled to an
account of the partnership's transactions only from the date of
dissolution.
(d) Recognition of transferee's rights.--A partnership need
not give effect to a transferee's rights under this section
until the partnership knows or has notice of the transfer.
(e) Transfer restrictions.--A transfer of a transferable
interest in violation of a restriction on transfer contained in
the partnership agreement is ineffective if the intended
transferee has knowledge or notice of the restriction at the
time of transfer.
(f) Rights retained by transferor.--Except as provided in
section 8461(4)(ii) (relating to events causing dissociation),
if a partner transfers a transferable interest, the transferor
retains the rights of a partner other than the transferable
interest transferred and retains all the duties and obligations
of a partner.
§ 8454. Charging order.
(a) General rule.--On application by a judgment creditor of
a partner or transferee, a court may enter a charging order
against the transferable interest of the judgment debtor for the
unsatisfied amount of the judgment. A charging order constitutes
a lien on a judgment debtor's transferable interest and requires
the partnership to pay over to the person to which the charging
order was issued any distribution that otherwise would be paid
to the judgment debtor.
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(b) Available relief.--To the extent necessary to effectuate
the collection of distributions pursuant to a charging order in
effect under subsection (a), the court may:
(1) appoint a receiver of the distributions subject to
the charging order, with the power to make all inquiries the
judgment debtor might have made; and
(2) make all other orders necessary to give effect to
the charging order.
(c) Foreclosure.--Upon a showing that distributions under a
charging order will not pay the judgment debt within a
reasonable time, the court may foreclose the lien and order the
sale of the transferable interest. The purchaser at the
foreclosure sale obtains only the transferable interest, does
not thereby become a partner and is subject to section 8453
(relating to transfer of transferable interest).
(d) Satisfaction of judgment.--At any time before
foreclosure under subsection (c), the partner or transferee
whose transferable interest is subject to a charging order under
subsection (a) may extinguish the charging order by satisfying
the judgment and filing a certified copy of the satisfaction
with the court that issued the charging order.
(e) Purchase of rights.--At any time before foreclosure
under subsection (c), a partnership or one or more partners
whose transferable interests are not subject to the charging
order may pay to the judgment creditor the full amount due under
the judgment and thereby succeed to the rights of the judgment
creditor, including the charging order.
(f) Exemption laws preserved.--This chapter shall not
deprive any partner or transferee of the benefit of any
exemption law applicable to the transferable interest of the
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partner or transferee.
(g) Exclusive remedy.--This section provides the exclusive
remedy by which a person seeking, in the capacity of a judgment
creditor, to enforce a judgment against a partner or transferee
may satisfy the judgment from the judgment debtor's transferable
interest.
§ 8455. Power of personal representative of deceased partner.
If a partner dies, the deceased partner's personal
representative may exercise:
(1) the rights of a transferee provided in section
8453(c) (relating to transfer of transferable interest); and
(2) for purposes of settling the estate, the rights the
deceased partner had under section 8446 (relating to rights
to information).
SUBCHAPTER F
DISSOCIATION
Sec.
8461. Events causing dissociation.
8462. Power to dissociate as partner and wrongful dissociation.
8463. Effects of dissociation.
§ 8461. Events causing dissociation.
A person is dissociated as a partner when any of the
following occurs:
(1) The partnership knows or has notice of the person's
express will to withdraw as a partner, except that, if the
person has specified a withdrawal date later than the date
the partnership knew or had notice, on that later date.
(2) An event stated in the partnership agreement as
causing the person's dissociation occurs.
(3) The person is expelled as a partner pursuant to the
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partnership agreement.
(4) The person is expelled as a partner by the
affirmative vote or consent of all the other partners if:
(i) it is unlawful to carry on the partnership
business with the person as a partner;
(ii) there has been a transfer of all of the
person's transferable interest in the partnership, other
than:
(A) a transfer for security purposes; or
(B) a charging order in effect under section
8454 (relating to charging order) which has not been
foreclosed;
(iii) the person is an association and:
(A) the partnership notifies the person that the
person will be expelled as a partner because:
(I) the person has filed a certificate of
dissolution or the equivalent;
(II) the person has been administratively
dissolved;
(III) the person's charter or the equivalent
has been revoked; or
(IV) the person's right to conduct business
has been suspended by the person's jurisdiction
of formation; and
(B) within 90 days after the notification:
(I) the certificate of dissolution or the
equivalent has not been withdrawn, rescinded or
revoked;
(II) the person has not been reinstated;
(III) the person's charter or the equivalent
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has not been reinstated; or
(IV) the person's right to conduct business
has not been reinstated; or
(iv) the person is an unincorporated association
that has been dissolved and whose activities and affairs
are being wound up.
(5) On application by the partnership or another
partner, the person is expelled as a partner by judicial
order because the person:
(i) has engaged or is engaging in wrongful conduct
that has affected adversely and materially, or will
affect adversely and materially, the partnership's
business;
(ii) has committed willfully or persistently, or is
committing willfully or persistently, a material breach
of the partnership agreement or a duty or obligation
under section 8447 (relating to standards of conduct for
partners); or
(iii) has engaged or is engaging in conduct relating
to the partnership's business which makes it not
reasonably practicable to carry on the business with the
person as a partner.
(6) The person:
(i) becomes a debtor in bankruptcy;
(ii) makes an assignment for the benefit of
creditors; or
(iii) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the
person or of all or substantially all the person's
property.
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(7) In the case of an individual:
(i) the individual dies;
(ii) a guardian for the individual is appointed; or
(iii) a court orders that the individual has
otherwise become incapable of performing the individual's
duties as a partner under this title or the partnership
agreement.
(8) In the case of a person that is a testamentary or
inter vivos trust or is acting as a partner by virtue of
being a trustee of such a trust, the trust's entire
transferable interest in the partnership is distributed.
(9) In the case of a person that is an estate or is
acting as a partner by virtue of being a personal
representative of an estate, the estate's entire transferable
interest in the partnership is distributed.
(10) In the case of a person that is not an individual,
the existence of the person terminates.
(11) The partnership participates in a merger under
Chapter 3 (relating to entity transactions) and:
(i) the partnership is not the surviving entity; or
(ii) otherwise as a result of the merger, the person
ceases to be a partner.
(12) The partnership participates in an interest
exchange under Chapter 3 and, as a result of the interest
exchange, the person ceases to be a partner.
(13) The partnership participates in a conversion under
Chapter 3.
(14) The partnership participates in a division under
Chapter 3 and:
(i) the partnership is not a resulting association;
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or
(ii) as a result of the division, the person ceases
to be a partner.
(15) The partnership participates in a domestication
under Chapter 3 and, as a result of the domestication, the
person ceases to be a partner.
(16) The partnership dissolves and completes winding up.
§ 8462. Power to dissociate as partner and wrongful
dissociation.
(a) Power to dissociate.--A person has the power to
dissociate as a partner at any time, rightfully or wrongfully,
by withdrawing as a partner by express will under section
8461(1) (relating to events causing dissociation).
(b) Wrongful dissociation.--A person's dissociation as a
partner is wrongful only if the dissociation:
(1) is in breach of an express provision of the
partnership agreement; or
(2) in the case of a partnership for a definite term or
particular undertaking, occurs before the expiration of the
term or the completion of the undertaking and:
(i) the person withdraws as a partner by express
will, unless the withdrawal follows within 90 days after
another person's dissociation by death or otherwise under
section 8461(6), (7), (8), (9) or (10) or wrongful
dissociation under this subsection;
(ii) the person is expelled as a partner by judicial
order under section 8461(5);
(iii) the person is dissociated under section
8461(6); or
(iv) in the case of a person that is not a trust
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other than a business or statutory trust, an estate or an
individual, the person is expelled or otherwise
dissociated because it willfully dissolved or terminated.
(c) Damages for wrongful dissociation.--A person that
wrongfully dissociates as a partner is liable to the partnership
and to the other partners for damages caused by the
dissociation. The liability is in addition to any debt,
obligation or other liability of the partner to the partnership
or the other partners.
(d) Cross reference.--See section 8415(c)(14) (relating to
contents of partnership agreement).
§ 8463. Effects of dissociation.
(a) Effects on partnership.--If a person's dissociation
results in a dissolution and winding up of the partnership
business, Subchapter H (relating to dissolution and winding up)
applies; otherwise, Subchapter G (relating to dissociation as
partner if business not wound up) applies.
(b) Effects on person dissociated as partner.--If a person
is dissociated as a partner:
(1) The person's right to participate in the management
and conduct of the partnership's business terminates, except
as provided under section 8482(c) (relating to winding up and
filing of certificates).
(2) The person's duties and obligations under section
8447 (relating to standards of conduct for partners) end with
regard to matters arising and events occurring after the
person's dissociation, except to the extent the partner
participates in winding up the partnership's business under
section 8482.
(3) Any transferable interest owned by the person in the
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person's capacity as a general partner immediately before
dissociation that is not subsequently purchased from the
person or canceled or exchanged in a transaction under
Chapter 3 (relating to entity transactions) is owned by the
person solely as a transferee.
(c) Existing obligations not discharged.--A person's
dissociation does not of itself discharge the person from any
debt, obligation or other liability to the partnership or the
other partners which the person incurred while a partner.
SUBCHAPTER G
DISSOCIATION AS PARTNER
IF BUSINESS NOT WOUND UP
Sec.
8471. Purchase of interest of person dissociated as partner.
8472. Power to bind and liability of person dissociated as
partner.
8473. Liability of person dissociated as partner to other
persons.
8474. Certificate of dissociation.
8475. Continued use of partnership name.
§ 8471. Purchase of interest of person dissociated as partner.
(a) Right to buyout.--If a person is dissociated as a
partner without the dissociation resulting in a dissolution and
winding up of the partnership business under section 8481
(relating to events causing dissolution), the partnership shall
cause the person's interest in the partnership to be purchased
for a buyout price determined under subsection (b).
(b) Buyout price.--The buyout price of the interest of a
person dissociated as a partner is the amount that would have
been distributable to the person under section 8486(b) (relating
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to disposition of assets in winding up and required
contributions) if, on the date of dissociation, the assets of
the partnership were sold and the partnership were wound up,
with the sale price equal to the greater of:
(1) the liquidation value; or
(2) the value based on a sale of the entire business as
a going concern without the person.
(c) Interest and offsets.--Interest accrues on the buyout
price from the date of dissociation to the date of payment,
except that damages for wrongful dissociation under section
8462(b) (relating to power to dissociate as partner and wrongful
dissociation) and all other amounts owing, whether or not
presently due, from the person dissociated as a partner to the
partnership must be offset against the buyout price.
(d) Indemnification.--A partnership shall defend, indemnify
and hold harmless a person dissociated as a partner whose
interest is being purchased against all partnership liabilities,
whether incurred before or after the dissociation, except
liabilities incurred by an act of the person under section 8472
(relating to power to bind and liability of person dissociated
as partner).
(e) Payment of partnership's estimate.--If an agreement for
the purchase of the interest of a person dissociated as a
partner is not reached within 120 days after a demand in record
form for payment, the partnership shall pay, or cause to be
paid, in money to the person the amount the partnership
estimates to be the buyout price and accrued interest, reduced
by any offsets and accrued interest under subsection (c).
(f) Buyout of deferred payment.--If a deferred payment is
authorized under subsection (h), the partnership may tender an
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offer in record form to pay the amount it estimates to be the
buyout price and accrued interest, reduced by any offsets under
subsection (c), stating the time of payment, the amount and type
of security for payment and the other terms and conditions of
the obligation.
(g) Information accompanying payment.--The payment or tender
required by subsection (e) or (f) must be accompanied by the
following:
(1) a statement of partnership assets and liabilities as
of the date of dissociation;
(2) the latest available partnership balance sheet and
income statement, if any;
(3) an explanation of how the estimated amount of the
payment was calculated; and
(4) notice in record form that the payment is in full
satisfaction of the obligation to purchase unless, within 120
days after the notice, the person dissociated as a partner
commences an action to determine the buyout price, any
offsets under subsection (c) or other terms of the obligation
to purchase.
(h) Deferred payment on wrongful dissociation.--A person
that wrongfully dissociates as a partner before the expiration
of a definite term or the completion of a particular undertaking
is not entitled to payment of any part of the buyout price until
the expiration of the term or completion of the undertaking,
unless the person establishes to the satisfaction of the court
that earlier payment will not cause undue hardship to the
business of the partnership. A deferred payment must be
adequately secured and bear interest.
(i) Right to bring action.--A person dissociated as a
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partner may maintain an action against the partnership, under
section 8448(b) (relating to actions by partnership and
partners), to determine the buyout price of that person's
interest, any offsets under subsection (c) or other terms of the
obligation to purchase. The action must be commenced within 120
days after the partnership has tendered payment or an offer to
pay or within one year after demand in record form for payment
if no payment or offer to pay is tendered. The court shall
determine the buyout price of the person's interest, any offset
due under subsection (c), and accrued interest, and enter
judgment for any additional payment or refund. If deferred
payment is authorized under subsection (h), the court shall also
determine the security for payment and other terms of the
obligation to purchase. The court may assess reasonable attorney
fees and the fees and expenses of appraisers or other experts
for a party to the action, in amounts the court finds equitable,
against a party that the court finds acted arbitrarily,
vexatiously or not in good faith. The finding may be based on
the partnership's failure to tender payment or an offer to pay
or to comply with subsection (g).
§ 8472. Power to bind and liability of person dissociated as
partner.
(a) When partnership bound.--After a person is dissociated
as a partner without the dissociation resulting in a dissolution
and winding up of the partnership business and before the
partnership is merged or divided out of existence, converted or
domesticated under Chapter 3 (relating to entity transaction),
or dissolved, the partnership is bound by an act of the person
only if:
(1) the act would have bound the partnership under
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section 8431 (relating to partner agent of partnership)
before dissociation; and
(2) at the time the other party enters into the
transaction:
(i) less than two years have passed since the
dissociation; and
(ii) the other party does not know or have notice of
the dissociation and reasonably believes that the person
is a partner.
(b) Liability of person dissociated as partner.--If a
partnership is bound under subsection (a), the person
dissociated as a partner which caused the partnership to be
bound is liable:
(1) to the partnership for any damage caused to the
partnership arising from the obligation incurred under
subsection (a); and
(2) if a partner or another person dissociated as a
partner is liable for the obligation, to the partner or other
person for any damage caused to the partner or other person
arising from the liability.
§ 8473. Liability of person dissociated as partner to other
persons.
(a) General rule.--Except as provided in subsection (b), a
person dissociated as a partner is not liable for a partnership
obligation incurred after dissociation.
(b) Exception.--A person that is dissociated as a partner is
liable on a transaction entered into by the partnership after
the dissociation only if:
(1) a partner would be liable on the transaction; and
(2) at the time the other party enters into the
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transaction:
(i) less than two years have passed since the
dissociation; and
(ii) the other party does not have knowledge or
notice of the dissociation and reasonably believes that
the person is a partner.
(c) Constructive release by creditor.--A person dissociated
as a partner is released from liability for a debt, obligation
or other liability of the partnership if the partnership's
creditor, with knowledge or notice of the person's dissociation
but without the person's consent, agrees to a material
alteration in the nature or time of payment of the debt,
obligation or other liability. The release from liability under
this subsection applies whether the liability arises directly or
indirectly, by way of contribution or otherwise, but only if the
liability arises solely by reason of having been a partner.
§ 8474. Certificate of dissociation.
(a) Right to file certificate.--A person dissociated as a
partner or the partnership may deliver to the department for
filing a certificate of dissociation stating:
(1) the name of the partnership;
(2) if the partnership is a limited liability
partnership, subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of its registered office; and
(3) the name of the person and that the person has
dissociated from the partnership.
(b) Effect of certificate.--A certificate of dissociation is
a limitation on the authority of a person dissociated as a
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partner for the purposes of section 8433 (relating to
certificate of partnership authority).
(c) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8413(d)(2) (relating to knowledge and notice).
Section 8418 (relating to signing of filed documents).
§ 8475. Continued use of partnership name.
Continued use of a partnership name, or the name of a person
dissociated as a partner as part of the partnership name, by
partners continuing the business does not of itself make the
person dissociated as a partner liable for an obligation of the
partners or the partnership continuing the business.
SUBCHAPTER H
DISSOLUTION AND WINDING UP
Sec.
8481. Events causing dissolution.
8482. Winding up and filing of certificates.
8483. (Reserved) .
8484. Power to bind partnership after dissolution.
8485. Liability after dissolution.
8486. Disposition of assets in winding up and required
contributions.
§ 8481. Events causing dissolution.
(a) General rule.--A partnership is dissolved, and its
business shall be wound up, upon the occurrence of any of the
following:
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(1) In a partnership at will, the partnership knows or
has notice of a person's express will to withdraw as a
partner, other than a partner that has dissociated under
section 8461(2), (3), (4), (5), (6), (7), (8), (9) or (10)
(relating to events causing dissociation), except that, if
the person has specified a withdrawal date later than the
date the partnership knew or had notice, on the later date.
(2) In a partnership for a definite term or particular
undertaking:
(i) within 90 days after a person's dissociation by
death or otherwise under section 8461(6), (7), (8), (9)
or (10) or wrongful dissociation under section 8462(b)
(relating to power to dissociate as partner and wrongful
dissociation), the affirmative vote or consent of at
least half of the remaining partners to wind up the
partnership business, for which purpose a person's
rightful dissociation under section 8462(b)(2)(i)
constitutes that partner's consent to wind up the
partnership business;
(ii) the affirmative vote or consent of all the
partners to wind up the partnership business; or
(iii) the expiration of the term or the completion
of the undertaking.
(3) An event or circumstance that the partnership
agreement states causes dissolution.
(4) On application by a partner, the entry by the court
of an order dissolving the partnership on the grounds that:
(i) the conduct of all or substantially all the
partnership's business is unlawful;
(ii) the economic purpose of the partnership is
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likely to be unreasonably frustrated;
(iii) another partner has engaged in conduct
relating to the partnership business which makes it not
reasonably practicable to carry on the business in
partnership with that partner; or
(iv) it is otherwise not reasonably practicable to
carry on the partnership business in conformity with the
partnership agreement.
(5) On application by a transferee, the entry by the
court of an order dissolving the partnership on the grounds
that it is equitable to wind up the partnership business:
(i) after the expiration of the term or completion
of the undertaking, if the partnership was for a definite
term or particular undertaking at the time of the
transfer or entry of the charging order that gave rise to
the transfer; or
(ii) at any time, if the partnership was a
partnership at will at the time of the transfer or entry
of the charging order that gave rise to the transfer.
(6) The passage of 90 consecutive days during which the
partnership does not have at least two partners.
(b) Cross reference.--See section 8415(c)(15) (relating to
contents of partnership agreement).
§ 8482. Winding up and filing of certificates.
(a) General rule.--A dissolved partnership shall wind up its
business and the partnership continues after dissolution only
for the purpose of winding up.
(b) Conduct of winding up.--In winding up its business, the
partnership:
(1) shall discharge the partnership's debts, obligations
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and other liabilities, settle and close the partnership's
business, and marshal and distribute the assets of the
partnership; and
(2) may:
(i) deliver to the department for filing a
certificate of dissolution stating:
(A) the name of the partnership;
(B) if the partnership is a limited liability
partnership, subject to section 109 (relating to name
of commercial registered office provider in lieu of
registered address), the address, including street
and number, if any, of its registered office; and
(C) that the partnership is dissolved;
(ii) preserve the partnership business and property
as a going concern for a reasonable time;
(iii) prosecute and defend actions and proceedings,
whether civil, criminal or administrative;
(iv) transfer the partnership's property;
(v) settle disputes by mediation or arbitration;
(vi) deliver to the department for filing the
certificates, if any, required by section 139 (relating
to tax clearance of certain fundamental transactions) and
a certificate of termination stating:
(A) the name of the partnership;
(B) if the partnership is a limited liability
partnership, subject to section 109, the address,
including street and number, if any, of its
registered office; and
(C) that the partnership is terminated; and
(vii) perform other acts necessary or appropriate to
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the winding up.
(c) Participation after dissociation.--A person whose
dissociation as a partner resulted in dissolution may
participate in winding up as if still a partner, unless the
dissociation was wrongful.
(d) Conduct of winding up when no partner.--If a dissolved
partnership does not have a partner and no person has the right
to participate in winding up under subsection (c), the personal
representative or guardian of the last person to have been a
partner may wind up the partnership's business. If the personal
representative or guardian does not exercise that right, a
person to wind up the partnership's business may be appointed by
the affirmative vote or consent of transferees owning a majority
of the rights to receive distributions at the time the consent
is to be effective. A person appointed under this subsection has
the powers of a partner under section 8484 (relating to power to
bind partnership after dissolution) but is not liable for the
debts, obligations and other liabilities of the partnership
solely by reason of having or exercising those powers or
otherwise acting to wind up the partnership's business.
(e) Judicial supervision.--On the application of any partner
or person entitled under subsection (c) to participate in
winding up, a court may order judicial supervision of the
winding up of a dissolved partnership, including the appointment
of a person to wind up the partnership's business, if:
(1) the partnership does not have a partner and within a
reasonable time following the dissolution no person has been
appointed under subsection (d); or
(2) the applicant establishes other good cause.
(f) Cross references.--See:
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Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8415(c)(16) (relating to contents of partnership
agreement).
Section 8418 (relating to signing of filed documents).
§ 8483. (Reserved).
§ 8484. Power to bind partnership after dissolution.
(a) Power of partner.--A partnership is bound by a partner's
act after dissolution which:
(1) is appropriate for winding up the partnership
business; or
(2) would have bound the partnership under section 8431
(relating to partner agent of partnership) before dissolution
if, at the time the other party enters into the transaction,
the other party does not know or have notice of the
dissolution.
(b) Power of person dissociated as partner.--A person
dissociated as a partner binds a partnership through an act
occurring after dissolution if:
(1) at the time the other party enters into the
transaction:
(i) less than two years have passed since the
dissociation; and
(ii) the other party does not know or have notice of
the dissociation and reasonably believes that the person
is a partner; and
(2) the act:
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(i) is appropriate for winding up the partnership's
business; or
(ii) would have bound the partnership under section
8431 before dissolution and the other party does not know
or have notice of the dissolution at the time the other
party enters into the transaction.
§ 8485. Liability after dissolution.
(a) Liability of partner.--If a partner having knowledge of
the dissolution causes a partnership to incur an obligation
under section 8484(a)(2) (relating to power to bind partnership
after dissolution) by an act that is not appropriate for winding
up the partnership business, the partner is liable:
(1) to the partnership for any damage caused to the
partnership arising from the obligation; and
(2) if another partner or person dissociated as a
partner is liable for the obligation, to that other partner
or person for any damage caused to that other partner or
person arising from the liability.
(b) Liability of person dissociated as partner.--Except as
provided under subsection (c), if a person dissociated as a
partner causes a partnership to incur an obligation under
section 8484(b), the person is liable:
(1) to the partnership for any damage caused to the
partnership arising from the obligation; and
(2) if a partner or another person dissociated as a
partner is liable for the obligation, to the partner or other
person for any damage caused to the partner or other person
arising from the obligation.
(c) Exception in winding up.--A person dissociated as a
partner is not liable under subsection (b) if:
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(1) section 8482(c) (relating to winding up and filing
of certificates) permits the person to participate in winding
up; and
(2) the act that causes the partnership to be bound
under section 8484(b) is appropriate for winding up the
partnership's business.
§ 8486. Disposition of assets in winding up and required
contributions.
(a) Creditors.--In winding up its business, a partnership
shall apply its assets, including the contributions required by
this section, to discharge the partnership's obligations to
creditors, including partners that are creditors.
(b) Surplus.--After a partnership complies with subsection
(a), any surplus shall be distributed in the following order,
subject to any charging order in effect under section 8454
(relating to charging order):
(1) to each owner of a transferable interest that
reflects contributions made and not previously returned, an
amount equal to the value of the unreturned contributions;
and
(2) among owners of transferable interests in proportion
to their respective rights to share in distributions
immediately before the dissolution of the partnership.
(c) Insufficient assets.--If a partnership's assets are
insufficient to satisfy all its obligations under subsection
(a), with respect to each unsatisfied obligation incurred when
the partnership was not a limited liability partnership, the
following rules apply:
(1) Each person that was a partner when the obligation
was incurred and that has not been released from the
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obligation under section 8473(c) (relating to liability of
person dissociated as partner to other persons) shall
contribute to the partnership for the purpose of enabling the
partnership to satisfy the obligation. The contribution due
from each of those persons is in proportion to the right to
receive distributions when the obligation was incurred.
(2) If a person does not contribute the full amount
required under paragraph (1) with respect to an unsatisfied
obligation of the partnership, the other persons required to
contribute under paragraph (1) on account of the obligation
shall contribute the additional amount necessary to discharge
the obligation. The additional contribution due from each of
those other persons is in proportion to the right to receive
distributions when the obligation was incurred.
(3) If a person does not make the additional
contribution required under paragraph (2), further additional
contributions are determined and due in the same manner as
provided in that paragraph.
(d) Recovery of additional contributions.--A person that
makes an additional contribution under subsection (c)(2) or (3)
may recover from any person whose failure to contribute under
subsection (c)(1) or (2) necessitated the additional
contribution. A person may not recover under this subsection
more than the amount additionally contributed. A person's
liability under this subsection shall not exceed the amount the
person failed to contribute.
(e) Distributions when surplus insufficient.--If a
partnership does not have sufficient surplus to comply with
subsection (b)(1), the following shall apply:
(1) If the partnership has been a limited liability
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partnership at any time during its existence, any surplus
must be distributed among the owners of transferable
interests in proportion to the value of the respective
unreturned contributions.
(2) If the partnership has never been a limited
liability partnership, the partners and any person whose
dissociation resulted in dissolution shall contribute to the
partnership funds sufficient to cause the insufficiency under
subsection (b)(1) to be allocated consistently with section
8441(a) (relating to partner's rights and duties).
(f) Form of payment.--All distributions made under
subsections (b) and (c) must be paid in money.
Section 26. Repeals are as follows:
(1) The General Assembly finds and declares as follows:
(i) Over the last 25 years, there have been
significant changes in the business model for
partnerships; and statutory law must be updated to deal
with the new business model.
(ii) Existing statutory law on limited partnerships
was enacted in 1988. Discrete amendments were enacted in
1990, 1992, 1994, 1996 and 2001. A more comprehensive
legislative approach was taken in sections 48 through 53
of the act of October 22, 2014 (P.L.2640, No.172), known
as the Associations Transactions Act.
(iii) Section 20 of this act adds a new chapter on
limited partnerships. The new chapter, continuing the
approach under the Associations Transactions Act,
extensively revises existing statutory law to the degree
that identification of individual changes or reproduction
of voluminous text to be eliminated would inhibit rather
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than enhance serious legal analysis.
(iv) The repeal under paragraph (2) is necessary to
carry out this paragraph.
(2) Chapter 85 of Title 15 is repealed.
Section 27. Title 15 is amended by adding a chapter to read:
CHAPTER 86
LIMITED PARTNERSHIPS
Subchapter
A. General Provisions
B. Formation and Filings
C. Limited Partners
D. General Partners
E. Contributions and Distributions
F. Dissociation
G. Transferable Interests and Rights of Transferees and
Creditors
H. Dissolution and Winding Up
I. Actions by Partners
SUBCHAPTER A
GENERAL PROVISIONS
Sec.
8611. Short title and application of chapter.
8612. Definitions.
8613. Knowledge and notice.
8614. Governing law.
8615. Contents of partnership agreement.
8616. Application of partnership agreement.
8617. Amendment and effect of partnership agreement.
8618. Required information.
8619. Dual capacity.
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8620. Characteristics of limited partnership.
§ 8611. Short title and application of chapter.
(a) Short title.--This chapter may be cited as the
Pennsylvania Uniform Limited Partnership Act of 2016 .
(b) Initial application.--Before April 1, 2017 , this chapter
governs only:
(1) a limited partnership formed on or after [the
Legislative Reference Bureau shall insert here the effective
date of this chapter]; and
(2) except as provided under subsections (c) and (d), a
limited partnership formed before [the Legislative Reference
Bureau shall insert here the effective date of this chapter]
which elects, in the manner provided in its partnership
agreement or by law for amending the partnership agreement,
to be subject to this chapter.
(c) Full effective date.--Except as provided in subsections
(d) and (e), on and after April 1, 2017 , this chapter governs
all limited partnerships.
(d) Transitional provisions.--With respect to a limited
partnership formed before [the Legislative Reference Bureau
shall insert here the effective date of this chapter], the
following rules apply except as the partners otherwise elect in
the manner provided in the partnership agreement or by law for
amending the partnership agreement:
(1) Section 8620(c) (relating to characteristics of
limited partnership) does not apply and the limited
partnership has whatever duration it had under the law
applicable immediately before [the Legislative Reference
Bureau shall insert here the effective date of this chapter].
(2) Sections 8661 (relating to dissociation as limited
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partner) and 8662 (relating to effects of dissociation as
limited partner) do not apply and a limited partner has the
same right and power to dissociate from the limited
partnership, with the same consequences, as existed
immediately before [the Legislative Reference Bureau shall
insert here the effective date of this chapter].
(3) Section 8663(a)(4) (relating to dissociation as
general partner) shall not apply.
(4) Section 8663(a)(5) shall not apply and the court has
the same power to expel a general partner as the court had
immediately before [the Legislative Reference Bureau shall
insert here the effective date of this chapter].
(5) Section 8681(a)(3) (relating to events causing
dissolution) shall not apply and the connection between a
person's dissociation as a general partner and the
dissolution of the limited partnership is the same as existed
immediately before [the Legislative Reference Bureau shall
insert here the effective date of this chapter].
(e) Liabilities to third parties.--With respect to a limited
partnership that elects under subsection (b)(2) to be subject to
this chapter, after the election takes effect, the provisions of
this chapter relating to the liability of the limited
partnership's general partners to third parties apply:
(1) before April 1, 2017 , to:
(i) a third party that had not done business with
the limited partnership in the year before the election
took effect; and
(ii) a third party that had done business with the
limited partnership in the year before the election took
effect only if the third party knows or has been notified
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of the election; a nd
(2) on and after April 1, 2017 , to all third parties,
except that those provisions remain inapplicable to any
obligation incurred while those provisions were inapplicable
under paragraph (1)(ii).
(f) Cross reference.--See section 8615 (relating to contents
of partnership agreement).
§ 8612. Definitions.
(a) General 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:
"Certificate of limited partnership." The certificate
required by section 8621 (relating to formation of limited
partnership and certificate of limited partnership). The term
includes the certificate as amended or restated.
"Contribution." Property or a benefit described in section
8651 (relating to form of contribution) which is provided by a
person to a limited partnership to become a partner or in the
person's capacity as a partner.
"Distribution." A DIRECT OR INDIRECT transfer of money or
other property from OR INCURRENCE OF INDEBTEDNESS BY a limited
partnership to a person on account of a transferable interest or
in the person's capacity as a partner. The term:
(1) Includes:
(i) a redemption or other purchase by a limited
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
activities and affairs or to have access to records or
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other information concerning the partnership's activities
and affairs.
(2) Does 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 members; or
(iv) a direct or indirect transfer of:
(A) a governance or transferable interest; or
(B) options, rights or warrants to acquire a
governance or transferable interest.
"General partner." A person that:
(1) has become a general partner under section 8641
(relating to becoming a general partner) or was a general
partner in a partnership when the partnership became subject
to this chapter under section 8611 (relating to short title
and application of chapter); and
(2) has not dissociated as a general partner under
section 8663 (relating to dissociation as general partner).
"Limited partner." A person that:
(1) has become a limited partner under section 8631
(relating to becoming a limited partner) or was a limited
partner in a limited partnership when the partnership became
subject to this chapter under section 8611; and
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(2) has not dissociated as a limited partner under
section 8661 (relating to dissociation as limited partner).
"Limited partnership." An association formed under this
chapter or which becomes subject to this chapter under Chapter 3
or section 8611. The term includes a limited liability limited
partnership or an electing partnership that is also a limited
partnership.
"Partner." A limited partner or general partner.
"Partnership agreement." The agreement, whether or not
referred to as a partnership agreement and whether oral,
implied, in record form or in any combination thereof, of all
the partners of a limited partnership concerning the matters
described under section 8615(a) (relating to contents of
partnership agreement). The term includes the agreement as
amended or restated.
"Required information." The information that a limited
partnership is required to maintain under section 8618 (relating
to required information).
"Transferable interest." The right, as initially owned by a
person in the person's capacity as a partner, to receive
distributions from a limited partnership, whether or not the
person remains a partner or continues to own any part of the
right. The term applies to any fraction of the interest, by
whomever owned.
"Transferee." A person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a partner. The term includes a person that owns a
transferable interest under section 8662(a)(3) (relating to
effects of dissociation as limited partner) or 8665(a)(4)
(relating to effects of dissociation as general partner).
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(b) Index of definitions.--Following is a nonexclusive list
of definitions in section 102 (relating to definitions) that
apply to this chapter:
"Act" or "action."
"Court."
"Debtor in bankruptcy."
"Department."
"Jurisdiction."
"Jurisdiction of formation."
"Obligation."
"Professional services."
"Property."
"Record form."
"Sign."
"Transfer."
§ 8613. Knowledge and notice.
(a) Knowledge.--A person knows a fact if the person:
(1) has actual knowledge of it; or
(2) is deemed to know it under law other than this
chapter.
(b) Notice.--A person has notice of a fact if the person:
(1) has reason to know the fact from all the facts known
to the person at the time in question; or
(2) is deemed to have notice of the fact under
subsection (c) or (d).
(c) Effect of certificate.--A certificate of limited
partnership on file in the department is notice that the
partnership is a limited partnership and the persons designated
in the certificate as general partners are general partners.
Except as provided under subsection (d) and section 8201(g)
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(relating to scope), the certificate is not notice of any other
fact.
(d) Constructive notice.--A person not a partner is deemed
to have notice of:
(1) another person's dissociation as a general partner
90 days after an amendment to the certificate of limited
partnership which states that the other person has
dissociated becomes effective or 90 days after a certificate
of dissociation pertaining to the other person becomes
effective, whichever occurs first;
(2) a limited partnership's:
(i) dissolution 90 days after an amendment to the
certificate of limited partnership stating that the
limited partnership is dissolved is effective;
(ii) termination 90 days after a certificate of
termination under section 8682(e) (relating to winding up
and filing of certificates) is effective; and
(iii) participation in a merger, interest exchange,
conversion, division or domestication, 90 days after a
statement of merger, interest exchange, conversion,
division or domestication under Chapter 3 (relating to
entity transactions) is effective.
(e) Notification.--Except as provided in section 113(b)
(relating to delivery of document), a person notifies another
person of a fact by taking steps reasonably required to inform
the other person in ordinary course, whether or not those steps
cause the other person to know the fact.
(f) Effect of partner's knowledge or notice.--A general
partner's knowledge or notice of a fact relating to the limited
partnership is effective immediately as knowledge of or notice
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to the partnership, except in the case of a fraud on the
partnership committed by or with the consent of the general
partner. A limited partner's knowledge or notice of a fact
relating to the partnership is not effective as knowledge of or
notice to the partnership.
§ 8614. Governing law.
(a) General rule.--The laws of this Commonwealth govern:
(1) the internal affairs of a limited partnership; and
(2) the liability of a partner as partner for the debts,
obligations or other liabilities of a limited partnership.
(b) Cross reference.--See section 8615(c)(6) (relating to
contents of partnership agreement).
§ 8615. Contents of partnership agreement.
(a) Scope of partnership agreement.--Except as provided
under subsections (c) and (d), the partnership agreement
governs:
(1) relations among the partners as partners and between
the partners and the limited partnership;
(2) the rights and duties under this title of a person
in the capacity of a partner;
(3) the activities and affairs of the partnership and
the conduct of those activities and affairs;
(4) the means and conditions for amending the
partnership agreement; and
(5) the means and conditions for approving a transaction
under Chapter 3 (relating to entity transactions).
(b) Title applies generally.--To the extent the partnership
agreement does not provide for a matter described in subsection
(a), this title governs the matter.
(c) Limitations.--A partnership agreement may not do any of
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the following:
(1) Vary a provision of Chapter 1 (relating to general
provisions) or Subchapter A of Chapter 2 (relating to names ).
(2) Vary the right of a partner to approve a merger,
interest exchange, conversion, division or domestication
under section 333(a)(2) (relating to approval of merger),
343(a)(2) (relating to approval of interest exchange), 353(a)
(3) (relating to approval of conversion), 363(a)(2) (relating
to approval of division) or 373(a)(2) (relating to approval
of domestication).
(3) Vary the required contents of a plan of merger under
section 332(a) (relating to plan of merger), plan of interest
exchange under section 342(a) (relating to plan of interest
exchange), plan of conversion under section 352(a) (relating
to plan of conversion), plan of division under section 362(a)
(relating to plan of division) or plan of domestication under
section 372(a) (relating to plan of domestication).
(4) Vary a provision of Chapter 81 (relating to general
provisions) or 82 (relating to limited liability partnerships
and limited liability limited partnerships).
(5) Vary the provisions of section 8611(b), (c), (d) and
(e) (relating to short title and application of chapter).
(6) Vary the law applicable under section 8614 (relating
to governing law).
(7) Vary any requirement, procedure or other provision
of this title pertaining to:
(i) registered offices; or
(ii) the department, including provisions pertaining
to documents authorized or required to be delivered to
the department for filing under this title.
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(8) Vary a limited partnership's capacity under section
8620(d) (relating to characteristics of limited partnership)
to sue and be sued in its own name.
(9) Vary a provision of section 8620(e).
(10) Eliminate the duty of loyalty provided for in
section 8649(b)(1)(i) or (ii) or (2) (relating to standards
of conduct for general partners) or the duty of care, except
as provided in subsection (d).
(11) Vary the contractual obligation of good faith and
fair dealing under sections 8635(a) (relating to limited
duties of limited partners) and 8649(d), except as provided
in subsection (d).
(12) Provide indemnification or exoneration in violation
of the limitations in sections 8648(g) (relating to
reimbursement, indemnification, advancement and insurance)
and 8649(i) .
(13) Vary the information required under section 8618
(relating to required information) or unreasonably restrict
the duties and rights under section 8634 (relating to limited
partner rights to information) or 8647 (relating to general
partner rights to information), except as provided under
subsection (d).
(14) Vary the power of a person to dissociate as a
general partner under section 8664(a) (relating to power to
dissociate as general partner and wrongful dissociation),
except to require that the notice under section 8663(a)(1)
(relating to dissociation as general partner) be in record
form.
(15) Vary the causes of dissolution specified in section
8681(a)(6) (relating to events causing dissolution).
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(16) Vary the requirements to wind up the partnership's
activities and affairs specified in section 8682(a), (b)(1) ,
(d) and (e) (relating to winding up and filing of
certificates).
(17) Unreasonably restrict the right of a partner to
maintain an action under Subchapter I (relating to actions by
partners).
(18) Vary the provisions of section 8694 (relating to
special litigation committee), except that the partnership
agreement may provide that the partnership may not have a
special litigation committee.
(19) Except as provided in section 8617(b) (relating to
amendment and effect of partnership agreement), restrict the
rights under this title of a person other than a partner.
(d) Rules.--Subject to subsection (c)(12), the following
rules apply:
(1) The partnership agreement may:
(i) specify the method by which a specific act or
transaction that would otherwise violate the duty of
loyalty may be authorized or ratified by one or more
disinterested and independent persons after full
disclosure of all material facts;
(ii) alter the prohibition in section 8654(a)(2)
(relating to limitations on distributions) so that the
prohibition requires only that the partnership's total
assets not be less than the sum of its total liabilities;
and
(iii) impose reasonable restrictions on the
availability and use of information obtained under
section 8618, 8634 or 8647 and may define appropriate
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remedies, including liquidated damages, for a breach of
any reasonable restriction on use.
(2) To the extent the partnership agreement expressly
relieves a partner of a responsibility that the partner would
otherwise have under this title and imposes the
responsibility on one or more other partners, the agreement
also may eliminate or limit any fiduciary duty of the partner
relieved of the responsibility which would have pertained to
the responsibility.
(3) If not manifestly unreasonable, the partnership
agreement may:
(i) alter the aspects of the duty of loyalty stated
in section 8649(b)(1)(i) or (ii) or (2);
(ii) identify specific types or categories of
activities that do not violate the duty of loyalty;
(iii) alter the duty of care;
( iv ) alter or eliminate any other fiduciary duty ;
and
(v) prescribe the standards by which the performance
of the contractual obligation of good faith and fair
dealing is to be measured.
(e) Determination of manifest unreasonableness.--A court
shall decide as a matter of law whether a term of a partnership
agreement is manifestly unreasonable under subsection (d)(3).
The court:
(1) shall make its determination as of the time the
challenged term became part of the partnership agreement and
by considering only circumstances existing at that time; and
(2) may invalidate the term only if, in light of the
purposes, activities and affairs of the limited partnership,
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it is readily apparent that:
(i) the objective of the term is unreasonable; or
(ii) the term is an unreasonable means to achieve
the term's objective.
§ 8616. Application of partnership agreement.
(a) Partnership bound.--A limited partnership is bound by
and may enforce the partnership agreement, whether or not the
partnership has itself manifested assent to the agreement.
(b) Deemed assent.--A person that becomes a partner is
deemed to assent to the partnership agreement.
(c) Preformation agreement.--Two or more persons intending
to become the initial partners of a limited partnership may make
an agreement providing that upon the formation of the
partnership the agreement will become the partnership agreement.
(d) Cross reference.--See section 8621 (relating to
formation of limited partnership and certificate of limited
partnership).
§ 8617. Amendment and effect of partnership agreement.
(a) Approval of amendments.--A partnership agreement may
specify that its amendment requires the approval of a person
that is not a party to the agreement or the satisfaction of a
condition. An amendment is ineffective if its adoption does not
include the required approval or satisfy the specified
condition.
(b) Obligations to nonpartners.--The obligations of a
limited partnership and its partners to a person in the person's
capacity as a transferee or person dissociated as a partner are
governed by the partnership agreement. Except as provided in
section 8653(d) (relating to sharing of and right to
distributions before dissolution) or in a court order issued
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under section 8673(b)(2) (relating to charging order) to
effectuate a charging order, an amendment to the partnership
agreement made after a person becomes a transferee or is
dissociated as a partner:
(1) is effective with regard to any debt, obligation or
other liability of the partnership or its partners to the
person in the person's capacity as a transferee or person
dissociated as a partner; and
(2) is not effective to the extent the amendment imposes
a new debt, obligation or other liability on the transferee
or person dissociated as a partner.
(c) Provisions in filed documents.--If a document delivered
by a limited partnership to the department for filing becomes
effective and contains a provision that would be ineffective
under section 8615(c) or (d)(3) (relating to contents of
partnership agreement) if contained in the partnership
agreement, the provision is ineffective in the document.
(d) Conflicts with partnership agreement.--Subject to
subsection (c):
(1) If a provision of the certificate of limited
partnership conflicts with a provision of the partnership
agreement, the provision of the certificate prevails.
(2) If a document other than its certificate of limited
partnership that has been delivered by a limited partnership
to the department for filing becomes effective and conflicts
with a provision of the partnership agreement:
(i) the agreement prevails as to partners, persons
dissociated as partners and transferees; and
(ii) the document prevails as to other persons to
the extent they reasonably rely on the document.
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(e) Prohibition of oral amendments.--If a provision of a
partnership agreement in record form provides that the
partnership agreement cannot be amended, modified or rescinded
except in record form, an oral agreement, amendment,
modification or rescission shall not be enforceable.
(f) Voting requirements.--A partnership agreement may
provide in record form that, whenever a provision of this title
requires the vote or consent of a specified number or percentage
of partners or of a class of partners for the taking of any
action, a higher number or percentage of votes or consents shall
be required for the action. Except as otherwise provided in the
partnership agreement, whenever the partnership agreement
requires for the taking of any action by the partners or a class
of partners a specific number or percentage of votes or
consents, the provision of the partnership agreement setting
forth that requirement shall not be amended or repealed by any
lesser number or percentage of votes or consents of the partners
or the class of partners.
§ 8618. Required information.
(a) General rule.--A limited partnership shall maintain at
its principal office the following information:
(1) A current list showing the full name and last known
street and mailing address of each partner, separately
identifying the general partners, in alphabetical order, and
the limited partners, in alphabetical order.
(2) A copy of the initial certificate of limited
partnership and all amendments to and restatements of the
certificate, together with signed copies of any powers of
attorney under which any certificate, amendment or
restatement has been signed.
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(3) A copy of any filed certificate or statement of
merger, interest exchange, conversion, division or
domestication.
(4) A copy of the partnership's Federal, State and local
income tax returns and reports, if any, for the three most
recent years.
(5) A copy of any provisions of the partnership
agreement in record form and any amendment made in record
form to any partnership agreement.
(6) A copy of any financial statement of the partnership
for the three most recent years.
(7) A copy of any record made by the partnership during
the past three years of any consent given by or vote taken of
any partner under this title or the partnership agreement.
(8) Unless contained in a provision of the partnership
agreement in record form, a record stating:
(i) a description and statement of the agreed value
of contributions other than money made and agreed to be
made by each partner;
(ii) the times at which, or events on the happening
of which, any additional contributions agreed to be made
by each partner are to be made;
(iii) for any person that is both a general partner
and a limited partner, a specification of what
transferable interest the person owns in each capacity;
and
(iv) any events upon the happening of which the
partnership is to be dissolved and its activities and
affairs wound up.
(b) Cross reference.--See section 8615 (relating to contents
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of partnership agreement).
§ 8619. Dual capacity.
A person may be both a general partner and a limited
partner. A person that is both a general and limited partner has
the rights, powers, duties and obligations provided by this
title and the partnership agreement in each of those
capacities. When the person acts as a general partner, the
person is subject to the obligations, duties and restrictions
under this title and the partnership agreement for general
partners. When the person acts as a limited partner, the person
is subject to the obligations, duties and restrictions under
this title and the partnership agreement for limited partners.
§ 8620. Characteristics of limited partnership.
(a) Separate entity.--A limited partnership is an entity
distinct from its partners. A limited partnership is the same
entity regardless of whether:
(1) its certificate of limited partnership states that
the limited partnership is a limited liability limited
partnership; or
(2) it has a statement of registration in effect under
section 8201 (relating to scope).
(b) Purpose.--A limited partnership may have any lawful
purpose, other than acting as a banking institution, credit
union or insurer, regardless of whether the purpose is for
profit. See section 8102 (relating to interchangeability of
partnership, limited liability company and corporate forms of
organization).
(c) Duration.--A limited partnership has perpetual duration.
(d) Powers.--A limited partnership has the capacity to sue
and be sued in its own name and the power to do all things
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necessary or convenient to carry on its activities and affairs.
(e) Restrictions on nonprofit limited partnerships.--If a
limited partnership has a purpose that is not for profit:
(1) Its purpose must be stated in the certificate of
limited partnership.
(2) The partnership shall not distribute any part of its
income or profits to its partners, but it may pay
compensation in a reasonable amount to those persons for
services rendered.
(3) The partnership may confer benefits on partners or
nonpartners in conformity with its purposes, may repay
capital contributions and may redeem evidences of
indebtedness, except when the partnership is currently
insolvent or would thereby be made insolvent or rendered
unable to carry on its purposes, or when the fair value of
the assets of the partnership remaining after the conferring
of benefits, payment or redemption would be insufficient to
meet its liabilities. The partnership may make distributions
of money or property to partners upon dissolution or final
liquidation as permitted by this chapter.
(4) If the partnership is organized for a charitable
purpose, it may take, receive and hold real and personal
property as may be given, devised to, or otherwise vested in
the partnership, in trust, for the purpose or purposes set
forth in its certificate of limited partnership. The general
partners shall, as trustees of the property, be held to the
same degree of responsibility and accountability as other
trustees, unless:
(i) a lesser degree or a particular degree of
responsibility and accountability is prescribed in the
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trust instrument; or
(ii) the general partners are under the control of
the limited partners or third persons who retain the
right to direct, and do direct, the actions of the
general partners as to the use of the trust property from
time to time.
(5) Property of the partnership committed to charitable
purposes shall not, by any proceeding under Chapter 3
(relating to entity transactions) or otherwise, be diverted
from the objects to which it was donated, granted or devised,
unless and until the partnership obtains from the court an
order under 20 Pa.C.S. Ch. 77 (relating to trusts) specifying
the disposition of the property.
(f) Cross references.--See sections 8611(d) (relating to
short title and application of chapter) and 8615 (relating to
contents of partnership agreement).
SUBCHAPTER B
FORMATION AND FILINGS
Sec.
8621. Formation of limited partnership and certificate of
limited partnership.
8622. Amendment or restatement of certificate of limited
partnership.
8623. Signing of filed documents.
8624. Liability of general partner for false or missing
information in filed document.
8625. Registered office.
§ 8621. Formation of limited partnership and certificate of
limited partnership.
(a) Formation.--To form a limited partnership, a person must
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deliver a certificate of limited partnership to the department
for filing.
(b) Required contents of certificate.--A certificate of
limited partnership must state:
(1) the name of the limited partnership, which must
comply with Subchapter A of Chapter 2 (relating to names );
(2) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of the partnership's registered office; and
(3) the name and address of each general partner.
(c) Optional contents of certificate.--A certificate of
limited partnership may contain statements as to matters other
than those required under subsection (b), but may not vary or
otherwise affect the provisions specified in section 8615(c) and
(d) (relating to contents of partnership agreement) in a manner
inconsistent with that section.
(d) Time of formation.--A limited partnership is formed
when:
(1) the certificate of limited partnership becomes
effective ;
(2) at least two persons have become partners;
(3) at least one person has become a general partner;
and
(4) at least one person has become a limited partner.
(e) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
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Department of State).
Section 8620 (relating to characteristics of limited
partnership).
Section 8623 (relating to signing of filed documents).
§ 8622. Amendment or restatement of certificate of limited
partnership.
(a) General rule.--A certificate of limited partnership may
be amended or restated at any time.
(b) Required contents of certificate of amendment.--To amend
its certificate of limited partnership, a limited partnership
must deliver to the department for filing a certificate of
amendment that states:
(1) the name of the partnership;
(2) the date of filing of its initial certificate;
(3) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of its registered office; and
(4) the amendment.
(c) Restatement.--To restate its certificate of limited
partnership, a limited partnership must deliver to the
department for filing a certificate of amendment that:
(1) is designated as a restatement; and
(2) includes a statement that the restated certificate
supersedes the original certificate and all amendments.
(d) Required amendments.--A limited partnership shall
promptly deliver to the department for filing an amendment to
its certificate of limited partnership to reflect:
(1) the admission of a new general partner;
(2) the dissociation of a person as a general partner;
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or
(3) the appointment of a person to wind up the
partnership's activities and affairs under section 8682(c) or
(d) (relating to winding up and filing of certificates).
(e) Obligation to correct.--If a general partner knows that
any information in a filed certificate of limited partnership is
inaccurate, the general partner shall promptly:
(1) cause the certificate to be amended; or
(2) if appropriate, deliver to the department for
filing:
(i) a certificate of change of registered office
under section 8625 (relating to registered office);
(ii) a statement of correction under section 138
(relating to statement of correction); or
(iii) a statement of abandonment under section 141
(relating to abandonment of filing before effectiveness).
(f) Amendment of voting provisions.--Except as provided in
the certificate of limited partnership, whenever the certificate
requires for the taking of any action by the partners or a class
of partners a specific number or percentage of votes or
consents, the provision of the certificate setting forth that
requirement shall not be amended or repealed by any lesser
number or percentage of votes or consents of the partners or of
the class of partners.
(g) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
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Section 8623 (relating to signing of filed documents).
§ 8623. Signing of filed documents.
(a) Required signatures.-- Except as provided in this title,
a document delivered to the department for filing under this
title relating to a limited partnership must be signed as
follows:
(1) An initial certificate of limited partnership must
be signed by all general partners listed in the certificate.
(2) An amendment to the certificate of limited
partnership deleting a statement that the limited partnership
is a limited liability limited partnership must be signed by
all general partners listed in the certificate.
(3) An amendment to the certificate of limited
partnership designating as general partner a person admitted
under section 8681(a)(3)(ii) (relating to events causing
dissolution) following the dissociation of a limited
partnership's last general partner must be signed by that
person.
(4) An amendment to the certificate of limited
partnership required by section 8682(c) (relating to winding
up and filing of certificates) following the appointment of a
person to wind up the dissolved limited partnership's
activities and affairs must be signed by that person.
(5) Any other amendment to the certificate of limited
partnership must be signed by:
(i) at least one general partner listed in the
certificate;
(ii) each person designated in the amendment as a
new general partner; and
(iii) each person that the amendment indicates has
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dissociated as a general partner, unless:
(A) the person is deceased or a guardian has
been appointed for the person and the amendment so
states; or
(B) the person has previously delivered to the
department for filing a certificate of dissociation.
(6) A restated certificate of limited partnership must
be signed by at least one general partner listed in the
certificate, and, to the extent the restated certificate
effects a change under any other paragraph of this
subsection, the certificate must be signed in a manner that
satisfies that paragraph.
(7) A certificate of termination must be signed by all
general partners listed in the certificate of limited
partnership or, if the certificate of a dissolved limited
partnership lists no general partners, by the person
appointed under section 8682(c) or (d) to wind up the
dissolved limited partnership's activities and affairs.
(8) Any other document delivered by a limited
partnership to the department for filing must be signed by at
least one general partner listed in the certificate of
limited partnership.
(9) A statement by a person under section 8665(a)(3)
(relating to effects of dissociation as general partner)
stating that the person has dissociated as a general partner
must be signed by that person.
(10) A certificate of negation by a person under section
8636 (relating to person erroneously believing self to be
limited partner) must be signed by that person.
(11) Any other document delivered on behalf of a person
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to the department for filing must be signed by that person.
(b) Cross reference.--See section 142 (relating to effect of
signing filings).
§ 8624. Liability of general partner for false or missing
information in filed document.
(a) General rule.--If a document delivered to the department
for filing under this title and filed by the department contains
a materially false statement or fails to state a material fact
required to be stated, a person that suffers loss by reasonable
reliance on the statement or failure to state a material fact
may recover damages for the loss from a general partner if:
(1) the document was delivered for filing on behalf of
the limited partnership; and
(2) the general partner knew or had notice there was
false or missing information in the document for a reasonably
sufficient time before the document was relied upon so that,
before the reliance, the general partner reasonably could
have:
(i) effected an amendment under section 8622
(relating to amendment or restatement of certificate of
limited partnership);
(ii) filed a petition under section 144 (relating to
signing and filing pursuant to judicial order); or
(iii) delivered to the department for filing:
(A) a certificate of change of registered office
under section 8625 (relating to registered office);
(B) a statement of correction under section 138
(relating to statement of correction); or
(C) a statement of abandonment under section 141
(relating to abandonment of filing before
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effectiveness).
(b) Cross references.--See sections 142 (relating to effect
of signing filings) and 143 (relating to liability for
inaccurate information in filing).
§ 8625. Registered office.
(a) General rule.--Every limited partnership shall have and
continuously maintain in this Commonwealth a registered office
which may, but need not, be the same as its place of business.
(b) Change of registered office.--After formation, a change
in the location of the registered office may be effected at any
time by the limited partnership. Before the change becomes
effective, the limited partnership shall amend its certificate
of limited partnership under the provisions of this chapter to
reflect the change in location, or shall deliver to the
department for filing a certificate of change of registered
office setting forth:
(1) The name of the limited partnership.
(2) The address, including street and number, if any, of
its then registered office.
(3) The address, including street and number, if any, to
which the registered office is to be changed.
(c) Alternative procedure.--A limited partnership may
satisfy the requirements of this chapter concerning the
maintenance of a registered office in this Commonwealth by
setting forth in any document filed by the department under any
provision of this title that permits or requires the statement
of the address of its then registered office, in lieu of that
address, the statement authorized by section 109(a) (relating to
name of commercial registered office provider in lieu of
registered address).
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(d) Cross references.--See:
Section 108 (relating to change in location or status of
registered office provided by agent).
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8615(c)(6) (relating to contents of partnership
agreement).
Section 8623 (relating to signing of filed documents).
SUBCHAPTER C
LIMITED PARTNERS
Sec.
8631. Becoming a limited partner.
8632. No agency power of limited partner as limited partner.
8633. No liability as limited partner for limited partnership
obligations.
8634. Limited partner rights to information.
8635. Limited duties of limited partners.
8636. Person erroneously believing self to be limited partner.
§ 8631. Becoming a limited partner.
(a) Upon formation.--Upon formation of a limited
partnership, a person becomes a limited partner as agreed among
the persons that are to be the initial partners.
(b) After formation.--After formation, a person becomes a
limited partner:
(1) as provided in the partnership agreement;
(2) as the result of a transaction effective under
Chapter 3 (relating to entity transactions);
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(3) with the affirmative vote or consent of all the
partners; or
(4) as provided in section 8681(a)(4) or (5) (relating
to events causing dissolution).
(c) Noneconomic limited partners.--A person may become a
limited partner without:
(1) acquiring a transferable interest; or
(2) making or being obligated to make a contribution to
the limited partnership.
(d) Nature of interest.--The interest of a limited partner
in a limited partnership is personal property.
§ 8632. No agency power of limited partner as limited partner.
(a) General rule.--A limited partner is not an agent of a
limited partnership solely by reason of being a limited partner.
(b) Creation of partnership liability.--A person's status as
a limited partner does not prevent or restrict law other than
this chapter from imposing liability on a limited partnership
because of the person's conduct.
§ 8633. No liability as limited partner for limited partnership
obligations.
A debt, obligation or other liability of a limited
partnership is not the debt, obligation or other liability of a
limited partner. A limited partner is not personally liable,
directly or indirectly, by way of contribution or otherwise, for
a debt, obligation or other liability of the partnership solely
by reason of being or acting as a limited partner, even if the
limited partner participates in the management and control of
the partnership. This subsection applies regardless of the
dissolution, winding up or termination of the partnership.
§ 8634. Limited partner rights to information.
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(a) Right to required information.-- Within 10 days after
receipt by a limited partnership of a demand made in record
form, a limited partner may inspect and copy required
information during regular business hours in the partnership's
principal office. The limited partner need not have any
particular purpose for seeking the information.
(b) Right to other information.--During regular business
hours and at a reasonable location specified by the limited
partnership, a limited partner may inspect and copy information,
other than the required information, regarding the activities,
affairs, financial condition and other circumstances of the
partnership if:
(1) the limited partner seeks the information for a
purpose reasonably related to the partner's interest as a
limited partner;
(2) the limited partner makes a demand in record form
received by the partnership, describing with reasonable
particularity the information sought and the purpose for
seeking the information; and
(3) the information sought is directly connected to the
limited partner's purpose.
(c) Rights of person dissociated as limited partner.--
Subject to subsection (h), on demand made in record form
received by a limited partnership, a person dissociated as a
limited partner may have access to information to which the
person was entitled while a limited partner if:
(1) the information pertains to the period during which
the person was a limited partner;
(2) in seeking the information the person complies with
section 8635(a) (relating to limited duties of limited
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partners) as if still a limited partner; and
(3) the person satisfies the requirements imposed on a
limited partner by subsection (b).
(d) Required response to demand.--Within 10 days after
receiving a demand under subsection (b) or (c), the limited
partnership shall inform in record form the person that made the
demand of:
(1) what information the partnership will provide in
response to the demand and when and where the partnership
will provide the information; and
(2) the partnership's reasons for declining, if the
partnership declines to provide any demanded information.
(e) Copying costs.--A limited partnership may charge a
person that makes a demand under this section the reasonable
costs of copying.
(f) Rights of agent or guardian.--A limited partner or
person dissociated as a limited partner may exercise the rights
under this section through an agent or, in the case of an
individual under legal disability, a guardian. Any restriction
or condition imposed by the partnership agreement or under
subsection (h) applies both to the agent or guardian and to the
limited partner or person dissociated as a limited partner.
(g) No rights of transferee.--Subject to section 8674
(relating to power of personal representative of deceased
partner), the rights under this section do not extend to a
person as transferee.
(h) Limitations on access.--In addition to any restriction
or condition stated in its partnership agreement, a limited
partnership, as a matter within the ordinary course of its
activities and affairs, may impose reasonable restrictions and
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conditions on access to and use of information to be furnished
under this section, including designating information
confidential and imposing nondisclosure and safeguarding
obligations on the recipient. In a dispute concerning the
reasonableness of a restriction under this subsection, the
partnership has the burden of proving reasonableness.
(i) Cross reference.--See section 8615 (relating to contents
of partnership agreement).
§ 8635. Limited duties of limited partners.
(a) Good faith and fair dealing.--A limited partner shall
discharge any duties to the limited partnership and the other
partners under the partnership agreement and exercise any rights
under this title or the partnership agreement consistently with
the contractual obligation of good faith and fair dealing.
(b) No other duties.--Except as provided under subsection
(a), a limited partner does not have any duty to the limited
partnership or to any other partner solely by reason of acting
as a limited partner.
(c) Transactions with limited partnership.--If a limited
partner enters into a transaction with a limited partnership,
the limited partner's rights and obligations arising from the
transaction are the same as those of a person that is not a
partner.
(d) Cross reference.--See section 8615(c)(11) (relating to
contents of partnership agreement).
§ 8636. Person erroneously believing self to be limited
partner.
(a) Right to correct.--Except as provided in subsection (b),
a person that makes an investment in a business enterprise and
erroneously but in good faith believes that the person has
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become a limited partner in the enterprise is not liable for the
enterprise's obligations by reason of making the investment,
receiving distributions from the enterprise or exercising any
rights of or appropriate to a limited partner, if, on
ascertaining the mistake, the person:
(1) causes an appropriate certificate of limited
partnership, amendment or statement of correction to be
signed and delivered to the department for filing;
(2) if a certificate of limited partnership is on file
in the department, withdraws from future participation as an
owner in the enterprise by delivering to the department for
filing a certificate of negation under this section stating:
(i) the name of the limited partnership;
(ii) subject to section 109 (relating to name of
commercial registered office provider in lieu of
registered address), the address, including street and
number, if any, of the partnership's registered office;
(iii) the name of the person delivering the
certificate to the department for filing; and
(iv) that the person is not a general partner; or
(3) files a certificate of denial under section 8434
(relating to certificate of denial) as if the enterprise were
a general partnership.
(b) Liability before correction.--A person that makes an
investment described in subsection (a) is liable to the same
extent as a general partner to any third party that enters into
a transaction with the enterprise, believing in good faith that
the person is a general partner, before the department files a
certificate of negation, certificate of limited partnership,
amendment or statement of correction to show that the person is
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not a general partner.
(c) Right to withdraw.--If a person makes a diligent effort
in good faith to comply with subsection (a)(1) and is unable to
cause the appropriate certificate of limited partnership,
amendment or statement of correction to be signed and delivered
to the department for filing, the person has the right to
withdraw from the enterprise under subsection (a)(2) even if the
withdrawal would otherwise breach an agreement with others that
are or have agreed to become co-owners of the enterprise.
(d) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8623 (relating to signing of filed documents).
SUBCHAPTER D
GENERAL PARTNERS
Sec.
8641. Becoming a general partner.
8642. General partner agent of limited partnership.
8643. Limited partnership liable for general partner's
actionable conduct.
8644. General partner's liability.
8645. Actions by and against partnership and partners.
8646. Management rights.
8647. General partner rights to information.
8648. Reimbursement, indemnification, advancement and
insurance.
8649. Standards of conduct for general partners.
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§ 8641. Becoming a general partner.
(a) Admission on formation.--On formation of a limited
partnership, a person becomes a general partner as agreed among
the persons that are to be the initial partners.
(b) Admission after formation.--After formation of a limited
partnership, a person becomes a general partner:
(1) as provided in the partnership agreement;
(2) as the result of a transaction effective under
Chapter 3 (relating to entity transactions);
(3) with the affirmative vote or consent of all the
partners; or
(4) under section 8681(a)(3)(ii) or (5) (relating to
events causing dissolution) following the dissociation of a
limited partnership's last general partner.
(c) Noneconomic general partners.--A person may become a
general partner without:
(1) acquiring a transferable interest; or
(2) making or being obligated to make a contribution to
the partnership.
(d) Nature of interest.--The interest of a general partner
in a limited partnership is personal property.
§ 8642. General partner agent of limited partnership.
(a) General rule.--Each general partner is an agent of the
limited partnership for the purposes of its activities and
affairs. An act of a general partner, including the signing of a
document in record form in the partnership's name, for
apparently carrying on in the ordinary course the partnership's
activities and affairs, or activities and affairs of the kind
carried on by the partnership, binds the partnership, unless the
general partner did not have authority to act for the
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partnership in the particular matter and the person with which
the general partner was dealing knew or had notice that the
general partner lacked authority.
(b) Act outside of ordinary course.--An act of a general
partner which is not apparently for carrying on in the ordinary
course the limited partnership's activities and affairs, or
activities and affairs of the kind carried on by the
partnership, binds the partnership only if the partner had
actual authority to take the action.
§ 8643. Limited partnership liable for general partner's
actionable conduct.
(a) General rule.--A limited partnership is liable for loss
or injury caused to a person or for a penalty incurred as a
result of a wrongful act, or other actionable conduct, of a
general partner acting in the ordinary course of activities and
affairs of the partnership or with the actual or apparent
authority of the partnership.
(b) Misapplication of property.--If, in the course of a
limited partnership's activities and affairs or while acting
with actual or apparent authority of the partnership, a general
partner receives or causes the partnership to receive money or
property of a person not a partner, and the money or property is
misapplied by a general partner, the partnership is liable for
the loss.
§ 8644. General partner's liability.
(a) General rule.--Except as provided under subsection (b)
or section 8204 (relating to limitation on liability of
partners), all general partners are liable jointly and severally
for all debts, obligations and other liabilities of the limited
partnership unless otherwise agreed by the claimant or provided
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by law.
(b) Preexisting obligations.--A person that becomes a
general partner is not personally liable for a debt, obligation
or other liability of the limited partnership incurred before
the person became a general partner.
§ 8645. Actions by and against partnership and partners.
(a) General partner as party.--To the extent not
inconsistent with section 8644 (relating to general partner's
liability), a general partner may be joined in an action against
the limited partnership or named in a separate action.
(b) Judgment against partnership only.--A judgment against a
partnership:
(1) is not by itself a judgment against a partner; and
(2) except as set forth in subsection (c), may not be
satisfied from a partner's assets.
(c) Judgment against partnership and partner.--If there is a
judgment against a partnership and a partner on the same claim,
the judgment creditor may levy execution against the assets of
the partner if both of the following paragraphs apply:
(1) The partner is personally liable for the claim under
section 8644.
(2) One of the following subparagraphs applies:
(i) A writ of execution on the judgment against the
partnership has been returned unsatisfied in whole or in
part.
(ii) The partnership is a debtor in bankruptcy.
(iii) The partner has agreed that the creditor need
not exhaust partnership assets.
(iv) A court grants permission to levy execution
based on a finding that:
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(A) partnership assets subject to execution are
clearly insufficient to satisfy the judgment;
(B) exhaustion of partnership assets is
excessively burdensome; or
(C) the grant of permission is an appropriate
exercise of the court's equitable powers.
(v) Liability is imposed on the partner by law or
contract independent of the existence of the partnership.
§ 8646. Management rights.
(a) General rule.--Each general partner has equal rights in
the management and conduct of the limited partnership's
activities and affairs. Except as provided in this title, any
matter relating to the activities and affairs of the partnership
is decided exclusively by the general partner or, if there is
more than one general partner, by a majority of the general
partners.
(b) Actions requiring unanimous approval.--The affirmative
vote or consent of all the partners is required to:
(1) amend the partnership agreement; and
(2) amend the certificate of limited partnership to
delete a statement that the limited partnership is a limited
liability limited partnership.
(c) Reimbursement of advance.--A limited partnership shall
reimburse a general partner for an advance to the partnership
beyond the amount of capital the general partner agreed to
contribute.
(d) Status of advance.--A payment or advance made by a
general partner which gives rise to an obligation of the limited
partnership under subsection (c) or section 8648(a) (relating to
reimbursement, indemnification, advancement and insurance)
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constitutes a loan to the partnership which accrues interest
from the date of the payment or advance.
(e) No right to remuneration.--A general partner is not
entitled to remuneration for services performed for the limited
partnership.
(f) Sale of assets.--A sale, lease, exchange or other
disposition of all, or substantially all, the property and
assets of a limited partnership that is not made in the usual
and regular course of the business ACTIVITIES AND AFFAIRS of the
partnership must be approved by:
(1) all the general partners; and
(2) limited partners owning the rights to receive a
majority of the distributions as limited partners.
(g) Cross reference.--See section 324 (relating to approval
by limited partnership).
§ 8647. General partner rights to information.
(a) Right to required information.--A general partner may
inspect and copy required information during regular business
hours in the limited partnership's principal office.
(b) Right to other information.--On reasonable notice, a
general partner may inspect and copy during regular business
hours, at a reasonable location specified by the limited
partnership, any other records maintained by the partnership in
addition to the required information regarding the partnership's
activities, affairs, financial condition and other
circumstances.
(c) Obligation of limited partnership.--A limited
partnership shall furnish to each general partner , without
demand, any information concerning the partnership's activities,
affairs, financial condition and other circumstances which the
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partnership knows and is material to the proper exercise of the
general partner's rights and duties under the partnership
agreement or this title, except to the extent the partnership
can establish that it reasonably believes the general partner
already knows the information.
(d) Obligation of general partner.--The duty to furnish
information under subsection (c) also applies to each general
partner to the extent the general partner knows any of the
information described in subsection (b).
(e) Rights of person dissociated as general partner.--
Subject to subsection (j), within 10 days after receipt by a
limited partnership of a demand made in record form, a person
dissociated as a general partner may have access to the
information and records described under subsections (a) and (b)
at the locations specified under subsections (a) and (b) if:
(1) the information or record pertains to the period
during which the person was a general partner;
(2) in seeking the information or record the person
complies with section 8649(d) (relating to standards of
conduct for general partners) as if still a general partner;
and
(3) all of the following apply:
(i) the person seeks the information for a purpose
reasonably related to the partner's interest as a former
general partner;
(ii) the person makes a demand in record form
received by the partnership, describing with reasonable
particularity the information sought and the purpose for
seeking the information; and
(iii) the information sought is directly connected
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to the person's purpose.
(f) Required response to demand.--Within 10 days after
receiving a demand under subsection (e), the limited partnership
shall, in record form, inform the person that made the demand
of:
(1) what information the partnership will provide in
response to the demand and when and where the partnership
will provide the information; and
(2) the partnership's reasons for declining, if the
partnership declines to provide any demanded information.
(g) Copying costs.--A limited partnership may charge a
person that makes a demand under this section the reasonable
costs of copying.
(h) Rights of agent or guardian.--A general partner or
person dissociated as a general partner may exercise the rights
under this section through an agent or, in the case of an
individual under legal disability, a guardian. Any restriction
or condition imposed by the partnership agreement or under
subsection (j) applies both to the agent or guardian and to the
general partner or person dissociated as a general partner.
(i) No rights of transferee.--The rights under this section
do not extend to a person as transferee, except that if:
(1) a general partner dies, section 8674 (relating to
power of personal representative of deceased partner)
applies; and
(2) an individual dissociates as a general partner under
section 8663(a)(7)(ii) or (iii) (relating to dissociation as
general partner), the personal representative of the
individual may exercise the rights under subsection (d) of a
person dissociated as a general partner.
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(j) Limitations on access.--In addition to any restriction
or condition stated in its partnership agreement, a limited
partnership, as a matter within the ordinary course of its
activities and affairs, may impose reasonable restrictions and
conditions on access to and use of information to be furnished
under this section, including designating information
confidential and imposing nondisclosure and safeguarding
obligations on the recipient. In a dispute concerning the
reasonableness of a restriction under this subsection, the
partnership has the burden of proving reasonableness.
(k) Cross reference.--See section 8615 (relating to contents
of partnership agreement).
§ 8648. Reimbursement, indemnification, advancement and
insurance.
(a) Reimbursement.--A limited partnership shall reimburse a
general partner for any payment made by the general partner in
the course of the general partner's activities on behalf of the
partnership, if the general partner complied with sections 8646
(relating to management rights), 8649 (relating to standards of
conduct for general partners) and 8654 (relating to limitations
on distributions) in making the payment.
(b) Indemnification.--A limited partnership shall indemnify
and hold harmless a person with respect to any claim or demand
against the person and any debt, obligation or other liability
incurred by the person by reason of the person's former or
present capacity as a general partner, if the claim, demand,
debt, obligation or other liability does not arise from the
person's breach of section 8646, 8649 or 8654.
(c) Advancement.--In the ordinary course of its activities
and affairs, a limited partnership may advance reasonable
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expenses, including attorney fees and costs, incurred by a
person in connection with a claim or demand against the person
by reason of the person's former or present capacity as a
general partner, if the person promises to repay the partnership
if the person ultimately is determined not to be entitled to be
indemnified.
(d) Insurance.--A limited partnership may purchase and
maintain insurance on behalf of a general partner against
liability asserted against or incurred by the general partner in
that capacity or arising from that status even if, under
subsection (g) , the partnership agreement could not eliminate or
limit the person's liability to the partnership for the conduct
giving rise to the liability.
(e) Non-exclusivity.--The rights provided under subsections
(a), (b), (c) and (d) shall not be deemed exclusive of any other
rights to which a person seeking reimbursement, indemnification,
advancement of expenses or insurance may be entitled under the
partnership agreement, vote of partners, contract or otherwise,
both as to action in his official capacity and as to action in
another capacity while holding that position. Section 8649(f)
shall be applicable to a vote, contract or other action under
this subsection. A limited partnership may create a fund of any
nature, which may, but need not be, under the control of a
trustee, or otherwise secure or insure in any manner its
indemnification obligations, whether arising under this section
or otherwise.
(f) Grounds.--Indemnification under subsection (e) may be
granted for any action taken and may be made whether or not the
limited partnership would have the power to indemnify the person
under any other provision of law except as provided in this
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section and whether or not the indemnified liability arises or
arose from any threatened, pending or completed action by or in
the right of the partnership. Indemnification under subsection
(e) is declared to be consistent with the public policy of the
Commonwealth.
(g) Limitation.--Indemnification under this section shall
not be made in any case where the act giving rise to the claim
for indemnification is determined by a court to constitute
recklessness, willful misconduct or a knowing violation of law.
§ 8649. Standards of conduct for general partners.
(a) General rule.--A general partner owes to the limited
partnership and, subject to section 8691 (relating to direct
action by partner), the other partners the duties of loyalty and
care stated in subsections (b) and (c).
(b) Duty of loyalty.--The fiduciary duty of loyalty of a
general partner includes the duties:
(1) to account to the limited partnership and hold as
trustee for it any property, profit or benefit derived by the
general partner:
(i) in the conduct or winding up of the
partnership's activities and affairs;
(ii) from a use by the general partner of the
partnership's property; or
(iii) from the appropriation of a partnership
opportunity;
(2) to refrain from dealing with the partnership in the
conduct or winding up of the partnership's activities and
affairs as or on behalf of a person having an interest
adverse to the partnership; and
(3) to refrain from competing with the partnership in
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the conduct or winding up of the partnership's activities and
affairs.
(c) Duty of care.--The duty of care of a general partner in
the conduct or winding up of the limited partnership's
activities and affairs is to refrain from engaging in grossly
negligent or reckless conduct, willful or intentional misconduct
or knowing violation of law.
(d) Good faith and fair dealing.--A general partner shall
discharge the duties and obligations under this title or under
the partnership agreement and exercise any rights consistent
with the contractual obligation of good faith and fair dealing.
(e) Self-serving conduct.--A general partner does not
violate a duty or obligation under this title or under the
partnership agreement solely because the general partner's
conduct furthers the general partner's own interest.
(f) Authorization or ratification.--All the partners of a
limited partnership may authorize or ratify, after full
disclosure of all material facts, a specific act or transaction
that otherwise would violate the duty of loyalty of a general
partner.
(g) Fairness as a defense.--It is a defense to a claim under
subsection (b)(2) and any comparable claim in equity or at
common law that the transaction was fair to the limited
partnership at the time it is authorized or ratified under
subsection (f).
(h) Rights and obligations in approved transactions.--If a
general partner enters into a transaction with the limited
partnership which otherwise would be prohibited by subsection
(b)(2) and the transaction is authorized or ratified as provided
in subsection (f) or the partnership agreement, the general
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partner's rights and obligations arising from the transaction
are the same as those of a person that is not a general partner.
(i) Exoneration.--The partnership agreement may provide that
a general partner shall not be personally liable for monetary
damages to the partnership or the other partner for a breach of
subsection (c), except that a general partner may not be
exonerated for an act that constitutes recklessness, willful
misconduct or a knowing violation of law.
(j) Cross reference.--See section 8615 (relating to contents
of partnership agreement).
SUBCHAPTER E
CONTRIBUTIONS AND DISTRIBUTIONS
Sec.
8651. Form of contribution.
8652. Liability for contribution.
8653. Sharing of and right to distributions before dissolution.
8654. Limitations on distributions.
8655. Liability for improper distributions.
§ 8651. Form of contribution.
A contribution may consist of:
(1) property transferred to, services performed for or
another benefit provided to the limited partnership;
(2) an agreement to transfer property to, perform
services for or provide another benefit to the partnership;
or
(3) any combination of items listed in paragraphs (1)
and (2).
§ 8652. Liability for contribution.
(a) Obligation not excused.--A person's obligation to make a
contribution to a limited partnership is not excused by the
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person's death, disability, termination or other inability to
perform personally.
(b) Substitute payment.--If a person does not fulfill an
obligation to make a contribution other than money, the person
is obligated at the option of the limited partnership to
contribute money equal to the value, as stated in the required
information, of the part of the contribution which has not been
made.
(c) Compromise of obligation.--The obligation of a person to
make a contribution may be compromised only by the affirmative
vote or consent of all the partners. If a creditor of a limited
partnership extends credit or otherwise acts in reliance on an
obligation described in subsection (a) without knowledge or
notice of a compromise under this subsection, the creditor may
enforce the obligation.
§ 8653. Sharing of and right to distributions before
dissolution.
(a) General rule.--Any distribution made by a limited
partnership before its dissolution and winding up must be shared
among the partners and persons dissociated as partners on the
basis of the value, as stated in the required information when
the limited partnership decides to make the distribution, of the
contributions the limited partnership has received from each
partner, except as provided in section 8672(b) (relating to
transfer of transferable interest) or to the extent necessary to
comply with a charging order in effect under section 8673
(relating to charging order).
(b) No entitlement to distribution.--A person has a right to
a distribution before the dissolution and winding up of a
limited partnership only if the partnership decides to make an
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interim distribution. A person's dissociation does not entitle
the person to a distribution.
(c) Distribution in kind.--A person does not have a right to
demand or receive a distribution from a limited partnership in
any form other than money. Except as provided under section
8690(f) (relating to disposition of assets in winding up and
required contributions), a partnership may distribute an asset
in kind only if each part of the asset is fungible with each
other part and each person receives a percentage of the asset
equal in value to the person's share of distributions.
(d) Status as creditor.--If a partner or transferee becomes
entitled to receive a distribution, the partner or transferee
has the status of, and is entitled to all remedies available to,
a creditor of the limited partnership with respect to the
distribution, except that the partnership's obligation to make a
distribution is subject to offset for any amount owed to the
partnership by the partner or a person dissociated as a partner
on whose account the distribution is made.
§ 8654. Limitations on distributions.
(a) General rule.--A limited partnership may not make a
distribution, including a distribution under section 8690
(relating to disposition of assets in winding up and required
contributions), if after the distribution:
(1) the partnership would not be able to pay its debts
as they become due in the ordinary course of the
partnership's activities and affairs; or
(2) the partnership's total assets would be less than
the sum of its total liabilities plus the amount that would
be needed, if the partnership were to be dissolved and wound
up at the time of the distribution, to satisfy the
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preferential rights upon dissolution and winding up of
partners and transferees whose preferential rights are
superior to the rights of persons receiving the distribution.
(b) Valuation.--A limited partnership may base a
determination that a distribution is not prohibited under
subsection (a)(2) on:
(1) the book values of the assets and liabilities of the
partnership, as reflected on its books and records;
(2) a valuation that takes into consideration unrealized
appreciation and depreciation or other changes in value of
the assets and liabilities of the partnership;
(3) the current value of the assets and liabilities of
the partnership, either valued separately or valued in
segments or as an entirety as a going concern; or
(4) any other method that is reasonable in the
circumstances.
(c) Excluded liabilities.--In determining whether a
distribution is prohibited by subsection (a)(2), the limited
partnership need not consider obligations and liabilities unless
they are required to be reflected on a balance sheet, not
including the notes to the balance sheet, prepared on the basis
of generally accepted accounting principles or other such
accounting practices and principles as are used generally by the
partnership in the maintenance of its books and records and as
are reasonable in the circumstances.
(d) Measuring date of distribution.--Except as provided in
subsection (e), the effect of a distribution under subsection
(a) is measured:
(1) as of the date specified by the limited partnership
when it authorizes the distribution if the distribution
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occurs within 125 days of the earlier of the date so
specified or the date of authorization; or
(2) as of the date of distribution in all other cases.
(e) Date of redemption.--In the case of a distribution
described in paragraph (1) of the definition of "distribution"
in section 8612 (relating to definitions), the distribution is
deemed to occur as of the earlier of the date money or other
property is transferred or debt is incurred by the limited
partnership or the date the person entitled to the distribution
ceases to own the interest or right being acquired by the
partnership in return for the distribution.
(f) Status of distribution debt.--The indebtedness of a
limited partnership to a partner or transferee incurred by
reason of a distribution made in accordance with this section
shall be at least on a parity with the partnership's
indebtedness to its general, unsecured creditors, except to the
extent subordinated by agreement.
(g) Certain subordinated debt.--The indebtedness of a
limited partnership, including indebtedness issued as a
distribution, is not a liability for purposes of subsection (a)
if the terms of the indebtedness provide that payment of
principal and interest is made only if and to the extent that
payment of a distribution could then be made under this
section. If the indebtedness is issued as a distribution, each
payment of principal or interest is treated as a distribution,
the effect of which is measured on the date the payment is made.
(h) Distributions in winding up.--In measuring the effect of
a distribution under section 8690, the liabilities of a
dissolved limited partnership do not include any claim that has
been barred under section 8686 (relating to known claims against
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dissolved limited partnership) or 8687 (relating to other claims
against dissolved limited partnership), or for which security
has been provided under section 8688 (relating to court
proceedings).
(i) Cross references.--See sections 8615(d)(1)(ii) (relating
to contents of partnership agreement) and 8649 (relating to
standards of conduct for general partners).
§ 8655. Liability for improper distributions.
(a) General rule.--If a general partner consents to a
distribution made in violation of section 8654 (relating to
limitations on distributions) and in consenting to the
distribution fails to comply with section 8649 (relating to
standards of conduct for general partners), the general partner
is personally liable to the limited partnership for the amount
of the distribution which exceeds the amount that could have
been distributed without the violation of section 8654.
(b) Recipients.--A person that receives a distribution
knowing that the distribution violated section 8654 is
personally liable to the limited partnership but only to the
extent that the distribution received by the person exceeded the
amount that could have been properly paid under section 8654.
(c) Contribution.--A general partner against which an action
is commenced because the general partner is liable under
subsection (a) may:
(1) join any other person that is liable under
subsection (a) or otherwise seek to enforce a right of
contribution from the person; and
(2) join any person that received a distribution in
violation of subsection (b) or otherwise seek to enforce a
right of contribution from the person in the amount the
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person received in violation of subsection (b).
(d) Statute of repose.--An action under this section is
barred unless commenced within two years after the distribution.
SUBCHAPTER F
DISSOCIATION
Sec.
8661. Dissociation as limited partner.
8662. Effects of dissociation as limited partner.
8663. Dissociation as general partner.
8664. Power to dissociate as general partner and wrongful
dissociation.
8665. Effects of dissociation as general partner.
8666. Power to bind and liability of person dissociated as
general partner.
8667. Liability of person dissociated as general partner to
other persons.
§ 8661. Dissociation as limited partner.
(a) No right to dissociate.--A person does not have a right
to dissociate as a limited partner before the completion of the
winding up of the limited partnership.
(b) Events causing dissociation.--A person is dissociated as
a limited partner when any of the following apply:
(1) The limited partnership knows or has notice of the
person's express will to withdraw as a limited partner
rightfully or wrongfully, except that, if the person has
specified a withdrawal date later than the date the
partnership knew or had notice, on that later date.
(2) An event stated in the partnership agreement as
causing the person's dissociation as a limited partner
occurs.
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(3) The person is expelled as a limited partner pursuant
to the partnership agreement.
(4) The person is expelled as a limited partner by the
affirmative vote or consent of all the other partners if:
(i) it is unlawful to carry on the partnership's
activities and affairs with the person as a limited
partner;
(ii) there has been a transfer of all the person's
transferable interest in the partnership, other than:
(A) a transfer for security purposes; or
(B) a charging order in effect under section
8673 (relating to charging order) which has not been
foreclosed;
(iii) the person is an entity and:
(A) the partnership notifies the person that it
will be expelled as a limited partner because:
(I) the person has filed a certificate of
dissolution or the equivalent;
(II) the person has been administratively
dissolved;
(III) the person's charter or the equivalent
has been revoked; or
(IV) the person's right to conduct business
has been suspended by the person's jurisdiction
of formation; and
(B) within 90 days after the notification:
(I) the certificate of dissolution or the
equivalent has not been withdrawn, rescinded or
revoked;
(II) the person has not been reinstated;
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(III) the person's charter or the equivalent
has not been reinstated; or
(IV) the person's right to conduct business
has not been reinstated; or
(iv) the person is an unincorporated entity that has
been dissolved and whose activities and affairs are being
wound up.
(5) On application by the partnership or a partner in a
direct action under section 8691 (relating to direct action
by partner), the person is expelled as a limited partner by
judicial order because the person:
(i) has engaged or is engaging in wrongful conduct
that has affected adversely and materially, or will
affect adversely and materially, the partnership's
activities and affairs;
(ii) has committed willfully or persistently, or is
committing willfully or persistently, a material breach
of the partnership agreement or the contractual
obligation of good faith and fair dealing under section
8635(a) (relating to limited duties of limited partners);
or
(iii) has engaged or is engaging in conduct relating
to the partnership's activities and affairs which makes
it not reasonably practicable to carry on the activities
and affairs with the person as a limited partner.
(6) In the case of an individual, the individual dies.
(7) In the case of a person that is a testamentary or
inter vivos trust or is acting as a limited partner by virtue
of being a trustee of such a trust, the trust's entire
transferable interest in the limited partnership is
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distributed.
(8) In the case of a person that is an estate or is
acting as a limited partner by virtue of being a personal
representative of an estate, the estate's entire transferable
interest in the limited partnership is distributed.
(9) In the case of a person that is not an individual,
the existence of the person terminates.
(10) The partnership participates in a merger under
Chapter 3 (relating to entity transactions) and:
(i) the partnership is not the surviving entity; or
(ii) otherwise as a result of the merger, the person
ceases to be a limited partner.
(11) The partnership participates in an interest
exchange under Chapter 3 and, as a result of the interest
exchange, the person ceases to be a limited partner.
(12) The partnership participates in a conversion under
Chapter 3.
(13) The partnership participates in a division under
Chapter 3 and:
(i) the partnership is not a resulting association;
or
(ii) as a result of the division, the person ceases
to be a partner.
(14) The partnership participates in a domestication
under Chapter 3 and, as a result of the domestication, the
person ceases to be a limited partner.
(15) The partnership dissolves and completes winding up.
(c) Cross reference.--See section 8611(d) (relating to short
title and application of chapter).
§ 8662. Effects of dissociation as limited partner.
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(a) General rule.--If a person is dissociated as a limited
partner:
(1) subject to section 8674 (relating to power of
personal representative of deceased partner), the person does
not have further rights as a limited partner;
(2) the person's contractual obligation of good faith
and fair dealing as a limited partner under section 8635(a)
(relating to limited duties of limited partners) ends with
regard to matters arising and events occurring after the
person's dissociation except as provided in section 8634(c)
(relating to limited partner rights to information); and
(3) subject to section 8674 and Chapter 3 (relating to
entity transactions), any transferable interest owned by the
person in the person's capacity as a limited partner
immediately before dissociation is owned by the person solely
as a transferee.
(b) Existing obligations not discharged.--A person's
dissociation as a limited partner does not of itself discharge
the person from any debt, obligation or other liability to the
limited partnership or the other partners which the person
incurred while a limited partner.
(c) Cross reference.--See section 8611(d) (relating to short
title and application of chapter).
§ 8663. Dissociation as general partner.
(a) General rule.--A person is dissociated as a general
partner when any of the following occurs:
(1) The limited partnership knows or has notice of the
person's express will to withdraw as a general partner
rightfully or wrongfully, except that, if the person has
specified a withdrawal date later than the date the
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partnership knew or had notice, on that later date.
(2) An event stated in the partnership agreement as
causing the person's dissociation as a general partner
occurs.
(3) The person is expelled as a general partner pursuant
to the partnership agreement.
(4) The person is expelled as a general partner by the
affirmative vote or consent of all the other partners if:
(i) it is unlawful to carry on the partnership's
activities and affairs with the person as a general
partner;
(ii) there has been a transfer of all the person's
transferable interest in the partnership, other than:
(A) a transfer for security purposes; or
(B) a charging order in effect under section
8673 (relating to charging order) which has not been
foreclosed;
(iii) the person is an entity and:
(A) the partnership notifies the person that it
will be expelled as a general partner because:
(I) the person has filed a certificate of
dissolution or the equivalent;
(II) the person has been administratively
dissolved;
(III) the person's charter or the equivalent
has been revoked; or
(IV) the person's right to conduct business
has been suspended by the person's jurisdiction
of formation; and
(B) within 90 days after the notification:
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(I) the certificate of dissolution or the
equivalent has not been withdrawn, rescinded or
revoked;
(II) the person has not been reinstated;
(III) the person's charter or the equivalent
has not been reinstated; or
(IV) the person's right to conduct business
has not been reinstated; or
(iv) the person is an unincorporated entity that has
been dissolved and whose activities and affairs are being
wound up.
(5) On application by the partnership or a partner in a
direct action under section 8691 (relating to direct action
by partner), the person is expelled as a general partner by
judicial order because the person:
(i) has engaged or is engaging in wrongful conduct
that has affected adversely and materially, or will
affect adversely and materially, the partnership's
activities and affairs;
(ii) has committed willfully or persistently, or is
committing willfully or persistently, a material breach
of the partnership agreement or a duty or obligation
under section 8649 (relating to standards of conduct for
general partners); or
(iii) has engaged or is engaging in conduct relating
to the partnership's activities and affairs which makes
it not reasonably practicable to carry on the activities
and affairs of the partnership with the person as a
general partner.
(6) The person:
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(i) becomes a debtor in bankruptcy;
(ii) executes an assignment for the benefit of
creditors; or
(iii) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the
person or of all or substantially all the person's
property.
(7) In the case of an individual:
(i) the individual dies;
(ii) a guardian for the individual is appointed; or
(iii) a court orders that the individual has
otherwise become incapable of performing the individual's
duties as a general partner under this title or the
partnership agreement.
(8) In the case of a person that is a testamentary or
inter vivos trust or is acting as a general partner by virtue
of being a trustee of the trust, the trust's entire
transferable interest in the limited partnership is
distributed.
(9) In the case of a person that is an estate or is
acting as a general partner by virtue of being a personal
representative of an estate, the estate's entire transferable
interest in the limited partnership is distributed.
(10) In the case of a person that is not an individual,
the existence of the person terminates.
(11) The partnership participates in a merger under
Chapter 3 (relating to entity transactions) and:
(i) the partnership is not the surviving entity; or
(ii) otherwise as a result of the merger, the person
ceases to be a general partner.
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(12) The partnership participates in an interest
exchange under Chapter 3 and, as a result of the interest
exchange, the person ceases to be a general partner.
(13) The partnership participates in a conversion under
Chapter 3.
(14) The partnership participates in a division under
Chapter 3 and:
(i) the partnership is not a resulting association;
or
(ii) as a result of the division, the person ceases
to be a partner.
(15) The partnership participates in a domestication
under Chapter 3 and, as a result of the domestication, the
person ceases to be a general partner.
(16) The partnership dissolves and completes winding up.
(b) Cross reference.--See section 8611(d) (relating to short
title and application of chapter).
§ 8664. Power to dissociate as general partner and wrongful
dissociation.
(a) Power to dissociate.--A person has the power to
dissociate as a general partner at any time, rightfully or
wrongfully, by withdrawing as a general partner by express will
under section 8663(a)(1) (relating to dissociation as general
partner).
(b) Wrongful dissociation.--A person's dissociation as a
general partner is wrongful only if the dissociation:
(1) is in breach of an express provision of the
partnership agreement; or
(2) occurs before the completion of the winding up of
the limited partnership, and:
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(i) the person withdraws as a general partner by
express will;
(ii) the person is expelled as a general partner by
judicial order under section 8663(a)(5) ;
(iii) the person is dissociated as a general partner
under section 8663(a)(6) ; or
(iv) the person is expelled or otherwise dissociated
as a general partner because its existence terminated,
except that this subparagraph does not apply to a person
that is:
(A) a trust that is not a business or statutory
trust;
(B) an estate; or
(C) an individual.
(c) Damages for wrongful dissociation.--A person that
wrongfully dissociates as a general partner is liable to the
limited partnership and, subject to section 8691 (relating to
direct action by partner), to the other partners for damages
caused by the dissociation. The liability is in addition to any
debt, obligation or other liability of the general partner to
the partnership or the other partners.
(d) Cross reference.--See section 8615 (relating to contents
of partnership agreement).
§ 8665. Effects of dissociation as general partner.
(a) General rule.--If a person is dissociated as a general
partner:
(1) The person's right to participate as a general
partner in the management and conduct of the limited
partnership's activities and affairs terminates.
(2) The person's duties and obligations as a general
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partner under section 8649 (relating to standards of conduct
for general partners) end with regard to matters arising and
events occurring after the person's dissociation except as
provided in section 8647(e)(2) (relating to general partner
rights to information).
(3) The person may deliver to the department for filing
a certificate of dissociation stating:
(i) the name of the partnership;
(ii) subject to section 109 (relating to name of
commercial registered office provider in lieu of
registered address), the address, including street and
number, if any, of the registered office of the
partnership; and
(iii) the name of the person and that the person has
dissociated as a general partner.
(4) At the request of the limited partnership, the
person shall sign an amendment to the certificate of limited
partnership which states that the person has dissociated as a
general partner.
(5) Subject to section 8674 (relating to power of
personal representative of deceased partner) and Chapter 3
(relating to entity transactions), any transferable interest
owned by the person in the person's capacity as a general
partner immediately before dissociation is owned by the
person solely as a transferee.
(b) Existing obligations not discharged.--A person's
dissociation as a general partner does not of itself discharge
the person from any debt, obligation or other liability to the
limited partnership or the other partners which the person
incurred while a general partner.
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(c) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8623 (relating to signing of filed documents).
§ 8666. Power to bind and liability of person dissociated as
general partner.
(a) Power to bind.--After a person is dissociated as a
general partner and before the limited partnership is merged or
divided out of existence, converted or domesticated under
Chapter 3 (relating to entity transactions) or dissolved, the
partnership is bound by an act of the person only if:
(1) the act would have bound the partnership under
section 8642 (relating to general partner agent of limited
partnership) before the dissociation; and
(2) at the time the other party enters into the
transaction:
(i) less than two years have passed since the
dissociation; and
(ii) the other party does not know or have notice of
the dissociation and reasonably believes that the person
is a general partner.
(b) Liability.--If a limited partnership is bound under
subsection (a), the person dissociated as a general partner
which caused the partnership to be bound is liable:
(1) to the partnership for any damage caused to the
partnership arising from the obligation incurred under
subsection (a); and
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(2) if a general partner or another person dissociated
as a general partner is liable for the obligation, to the
general partner or other person for any damage caused to the
general partner or other person arising from the liability.
§ 8667. Liability of person dissociated as general partner to
other persons.
(a) General rule.--A person's dissociation as a general
partner does not of itself discharge the person's liability as a
general partner for a debt, obligation or other liability of the
limited partnership incurred before dissociation. Except as
provided in subsections (b) and (c), the person is not liable
for a partnership obligation incurred after dissociation.
(b) Obligations incurred after dissolution.--A person whose
dissociation as a general partner results in a dissolution and
winding up of the limited partnership's activities and affairs
is liable on an obligation incurred by the partnership under
section 8685 (relating to general partner liability after
dissolution) to the same extent as a general partner under
section 8644 (relating to general partner's liability).
(c) When partnership not dissolved.--A person that is
dissociated as a general partner without the dissociation
resulting in a dissolution and winding up of the limited
partnership's activities and affairs is liable on a transaction
entered into by the partnership after the dissociation only if a
general partner would be liable on the transaction, but at the
time the other party enters into the transaction:
(1) less than two years have passed since the
dissociation; and
(2) the other party does not have knowledge or notice of
the dissociation and reasonably believes that the person is a
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general partner.
(d) Constructive release by creditor.--A person dissociated
as a general partner is released from liability for a debt,
obligation or other liability of the limited partnership if the
partnership's creditor, with knowledge or notice of the person's
dissociation as a general partner and without the person's
consent, agrees to a material alteration in the nature or time
of payment of the debt, obligation or other liability. The
release from liability under this subsection applies whether the
liability arises directly or indirectly, by way of contribution
or otherwise, but only if the liability arises solely by reason
of having been a general partner.
SUBCHAPTER G
TRANSFERABLE INTERESTS AND RIGHTS
OF TRANSFEREES AND CREDITORS
Sec.
8671. Nature of transferable interest.
8672. Transfer of transferable interest.
8673. Charging order.
8674. Power of personal representative of deceased partner.
§ 8671. Nature of transferable interest.
(a) Personal property.--A transferable interest is personal
property.
(b) Only right that may be transferred.--A person may not
transfer to a person not a partner any rights in a limited
partnership other than a transferable interest.
§ 8672. Transfer of transferable interest.
(a) General rule.--A transfer, in whole or in part, of a
transferable interest:
(1) is permissible;
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(2) does not by itself cause the dissociation of the
transferor as a partner or a dissolution and winding up of
the limited partnership's activities and affairs; and
(3) subject to section 8674 (relating to power of
personal representative of deceased partner), does not
entitle the transferee to:
(i) participate in the management or conduct of the
partnership's activities and affairs; or
(ii) except as provided under subsection (c), have
access to required information, records or other
information concerning the partnership's activities and
affairs.
(b) Right to distributions.--A transferee has the right to
receive, in accordance with the transfer, distributions to which
the transferor would otherwise be entitled.
(c) Right to account on dissolution.--In a dissolution and
winding up of a limited partnership, a transferee is entitled to
an account of the partnership's transactions only from the date
of dissolution.
(d) Certificate of interest.--A transferable interest may be
evidenced by a certificate of the interest issued by a limited
partnership in record form, and, subject to this section, the
interest represented by the certificate may be transferred by a
transfer of the certificate.
(e) Recognition of transferee's rights.--A limited
partnership need not give effect to a transferee's rights under
this section until the partnership knows or has notice of the
transfer.
(f) Transfer restrictions.--A transfer of a transferable
interest in violation of a restriction on transfer contained in
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the partnership agreement is ineffective if the intended
transferee has knowledge or notice of the restriction at the
time of transfer.
(g) Rights retained by transferor.--Except as provided under
sections 8661(b)(4)(ii) (relating to dissociation as limited
partner) and 8663(a)(4)(ii) (relating to dissociation as general
partner), if a general or limited partner transfers a
transferable interest, the transferor retains the rights of a
general or limited partner other than the transferable interest
transferred and retains all the duties and obligations of a
general or limited partner.
§ 8673. Charging order.
(a) General rule.--On application by a judgment creditor of
a partner or transferee, a court may enter a charging order
against the transferable interest of the judgment debtor for the
unsatisfied amount of the judgment. A charging order constitutes
a lien on a judgment debtor's transferable interest and requires
the limited partnership to pay over to the person to which the
charging order was issued any distribution that otherwise would
be paid to the judgment debtor.
(b) Available relief.--To the extent necessary to effectuate
the collection of distributions pursuant to a charging order in
effect under subsection (a), the court may:
(1) appoint a receiver of the distributions subject to
the charging order, with the power to make all inquiries the
judgment debtor might have made; and
(2) make all other orders necessary to give effect to
the charging order.
(c) Foreclosure.--Upon a showing that distributions under a
charging order will not pay the judgment debt within a
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reasonable time, the court may foreclose the lien and order the
sale of the transferable interest. The purchaser at the
foreclosure sale obtains only the transferable interest, does
not thereby become a partner and is subject to section 8672
(relating to transfer of transferable interest).
(d) Satisfaction of judgment.--At any time before
foreclosure under subsection (c), the partner or transferee
whose transferable interest is subject to a charging order under
subsection (a) may extinguish the charging order by satisfying
the judgment and filing a certified copy of the satisfaction
with the court that issued the charging order.
(e) Purchase of rights.--At any time before foreclosure
under subsection (c), a limited partnership or one or more
partners whose transferable interests are not subject to the
charging order may pay to the judgment creditor the full amount
due under the judgment and thereby succeed to the rights of the
judgment creditor, including the charging order.
(f) Exemption laws preserved.--This chapter shall not
deprive any partner or transferee of the benefit of any
exemption law applicable to the transferable interest of the
partner or transferee.
(g) Exclusive remedy.--This section provides the exclusive
remedy by which a person seeking, in the capacity of a judgment
creditor, to enforce a judgment against a partner or transferee
may satisfy the judgment from the judgment debtor's transferable
interest.
§ 8674. Power of personal representative of deceased partner.
If a partner dies, the personal representative of the
deceased partner may exercise:
(1) the rights of a transferee provided in section
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8672(c) (relating to transfer of transferable interest); and
(2) for the purposes of settling the estate, the rights
of a current limited partner under section 8634 (relating to
limited partner rights to information).
SUBCHAPTER H
DISSOLUTION AND WINDING UP
Sec.
8681. Events causing dissolution.
8681.1. Voluntary termination by partners.
8682. Winding up and filing of certificates.
8683. (Reserved) .
8684. Power to bind partnership after dissolution.
8685. General partner liability after dissolution.
8686. Known claims against dissolved limited partnership.
8687. Other claims against dissolved limited partnership.
8688. Court proceedings.
8689. General partner liability when claim against limited
partnership barred.
8690. Disposition of assets in winding up and required
contributions.
§ 8681. Events causing dissolution.
(a) General rule.--A limited partnership is dissolved, and
its activities and affairs must be wound up, upon the occurrence
of any of the following:
(1) an event or circumstance that the partnership
agreement states causes dissolution;
(2) the affirmative vote or consent of:
(i) all general partners; and
(ii) limited partners owning the rights to receive a
majority of the distributions as limited partners at the
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time the vote or consent is to be effective;
(3) after the dissociation of a person as a general
partner:
(i) if the partnership has at least one remaining
general partner, the affirmative vote or consent to
dissolve the partnership within 90 days after the
dissociation by partners owning a majority of the rights
to receive distributions as partners at the time the vote
or consent is to be effective; or
(ii) if the partnership does not have a remaining
general partner, the passage of 180 days after the
dissociation, unless before the end of the period:
(A) consent to continue the activities and
affairs of the partnership and admit at least one
general partner is given by limited partners owning a
majority of the rights to receive distributions as
limited partners at the time the consent is to be
effective; and
(B) at least one person is admitted as a general
partner in accordance with the consent;
(4) the passage of 180 consecutive days after the
dissociation of the partnership's last limited partner,
unless before the end of the period the partnership admits at
least one limited partner;
(5) the passage of 180 consecutive days during which the
partnership has only one partner, unless before the end of
the period:
(i) the partnership admits at least one person as a
partner;
(ii) if the previously sole remaining partner is
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only a general partner, the partnership admits a person
as a limited partner; and
(iii) if the previously sole remaining partner is
only a limited partner, the partnership admits a person
as a general partner; or
(6) on application by a partner, the entry by the court
of an order dissolving the partnership on the grounds that:
(i) the conduct of all or substantially all the
partnership's activities and affairs is unlawful;
(ii) it is not reasonably practicable to carry on
the partnership's activities and affairs in conformity
with the certificate of limited partnership and
partnership agreement; or
(iii) the general partners have acted, are acting or
will act in a manner that is illegal or fraudulent.
(b) Multiple deadlines.--If an event occurs that imposes a
deadline on a limited partnership under subsection (a) and
before the partnership has met the requirements of the deadline,
another event occurs that imposes a different deadline on the
partnership under subsection (a):
(1) the occurrence of the second event does not affect
the deadline caused by the first event; and
(2) the partnership's meeting of the requirements of the
first deadline does not extend the second deadline.
(c) Cross references.--See sections 8611(d) (relating to
short title and application of chapter) and 8615(c)(15)
(relating to contents of partnership agreement).
§ 8681.1. Voluntary termination by partners.
(a) General rule.--The general partners of a limited
partnership that has never transacted business or held assets
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other than money received as capital contributions may effect
the termination of the partnership by delivering to the
department for filing a certificate of termination stating:
(1) the name of the partnership;
(2) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of the registered office of the partnership;
(3) that the partnership has never transacted business
or held assets other than money received as capital
contributions ;
(4) that the amounts, if any, actually paid in as
contributions, less any part disbursed for necessary
expenses, have been returned to those entitled to the return
of the amounts;
(5) that all liabilities of the partnership have been
discharged or that adequate provision has been made for those
liabilities; and
(6) that a majority of the general partners elect that
the partnership be terminated.
(b) Effect.--Upon the filing of the certificate of
termination, the existence of the limited partnership shall
cease.
(c) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8623 (relating to signing of filed documents).
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§ 8682. Winding up and filing of certificates.
(a) General rule.--A dissolved limited partnership shall
wind up its activities and affairs and the partnership continues
after dissolution only for the purpose of winding up.
(b) Conduct of winding up.--In winding up its activities and
affairs, the limited partnership:
(1) shall discharge the partnership's debts, obligations
and other liabilities, settle and close the partnership's
activities and affairs, and marshal and distribute the assets
of the partnership; and
(2) may:
(i) amend its certificate of limited partnership to
state that the partnership is dissolved;
(ii) preserve the partnership activities, affairs
and property as a going concern for a reasonable time;
(iii) prosecute, defend and settle actions and
proceedings, whether civil, criminal or administrative;
(iv) transfer the partnership's property;
(v) participate in, agree to participate in and
settle disputes by mediation, arbitration or alternative
dispute resolution proceedings; and
(vi) perform other acts necessary or appropriate to
the winding up.
(c) Conduct of winding up when no general partner.--If a
dissolved limited partnership does not have a general partner, a
person to wind up the dissolved partnership's activities and
affairs may be appointed by the affirmative vote or consent of
limited partners owning the rights to receive a majority of the
distributions as limited partners at the time the vote or
consent is to be effective. A person appointed under this
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subsection:
(1) has the powers of a general partner under section
8684 (relating to power to bind partnership after
dissolution) but is not liable for the debts, obligations and
other liabilities of the partnership solely by reason of
having or exercising those powers or otherwise acting to wind
up the dissolved partnership's activities and affairs; and
(2) shall deliver promptly to the department for filing
an amendment to the partnership's certificate of limited
partnership stating:
(i) that the partnership does not have a general
partner;
(ii) the name and address of the person; and
(iii) that the person has been appointed under this
subsection to wind up the partnership.
(d) Judicial supervision.--On the application of a partner
or person entitled under subsection (c) to participate in
winding up, the court may order judicial supervision of the
winding up of a dissolved limited partnership, including the
appointment of a person to wind up the partnership's activities
and affairs, if:
(1) the partnership does not have a general partner and
within a reasonable time following the dissolution no person
has been appointed under subsection (c); or
(2) the applicant establishes other good cause.
(e) Certificate of termination.--When all debts, obligations
and other liabilities of the limited partnership have been paid
and discharged or adequate provision has been made therefor and
all of the remaining property and assets of the partnership have
been distributed to the partners, a certificate of termination
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shall be delivered to the department for filing along with the
certificates required by section 139 (relating to tax clearance
of certain fundamental transactions). The certificate of
termination shall set forth:
(1) The name of the limited partnership.
(2) Subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of the registered office of the partnership.
(3) That all debts, obligations and other liabilities of
the partnership have been paid and discharged or that
adequate provision has been made therefor.
(4) That all the remaining property and assets of the
partnership have been distributed among its partners in
accordance with their respective rights and interests.
(5) That there are no actions pending against the
partnership in any court or that adequate provision has been
made for the satisfaction of any judgment that may be entered
against it in any pending action.
(6) That the partnership is terminated.
(f) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8615(c)(16) (relating to contents of partnership
agreement).
Section 8623 (relating to signing of filed documents).
§ 8683. (Reserved).
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§ 8684. Power to bind partnership after dissolution.
(a) Power of general partner.--A limited partnership is
bound by a general partner's act after dissolution which:
(1) is appropriate for winding up the partnership's
activities and affairs; or
(2) would have bound the partnership under section 8642
(relating to general partner agent of limited partnership)
before dissolution if, at the time the other party enters
into the transaction, the other party does not know or have
notice of the dissolution.
(b) Power of person dissociated as general partner.--A
person dissociated as a general partner binds a limited
partnership through an act occurring after dissolution if:
(1) at the time the other party enters into the
transaction:
(i) less than two years have passed since the
dissociation; and
(ii) the other party does not know or have notice of
the dissociation and reasonably believes that the person
is a general partner; and
(2) the act:
(i) is appropriate for winding up the partnership's
activities and affairs; or
(ii) would have bound the partnership under section
8642 before dissolution and at the time the other party
enters into the transaction, the other party does not
know or have notice of the dissolution.
§ 8685. General partner liability after dissolution.
(a) Liability of general partner.--If a general partner
having knowledge of the dissolution causes a limited partnership
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to incur an obligation under section 8684(a) (relating to power
to bind partnership after dissolution) by an act that is not
appropriate for winding up the partnership's activities and
affairs, the general partner is liable:
(1) to the partnership for any damage caused to the
partnership arising from the obligation; and
(2) if another general partner or a person dissociated
as a general partner is liable for the obligation, to that
other general partner or person for any damage caused to that
other general partner or person arising from the liability.
(b) Liability of person dissociated as general partner.--If
a person dissociated as a general partner causes a limited
partnership to incur an obligation under section 8684(b), the
person is liable:
(1) to the partnership for any damage caused to the
partnership arising from the obligation; and
(2) if a general partner or another person dissociated
as a general partner is liable for the obligation, to the
general partner or other person for any damage caused to the
general partner or other person arising from the obligation.
§ 8686. Known claims against dissolved limited partnership.
(a) General rule.--Except as provided under subsection (d),
a dissolved limited partnership may give notice of a known claim
under subsection (b), which has the effect provided in
subsection (c).
(b) Required notice.--A dissolved limited partnership may
notify in record form its known claimants of the dissolution.
The notice must:
(1) specify the information required to be included in a
claim;
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(2) state that a claim must be in writing and provide a
mailing address to which the claim is to be sent;
(3) state the deadline for receipt of a claim, which may
not be less than 120 days after the date the notice is
received by the claimant;
(4) state that the claim will be barred if not received
by the deadline; and
(5) unless the partnership has been throughout its
existence a limited liability limited partnership, state that
the barring of a claim against the partnership will also bar
any corresponding claim against any general partner or person
dissociated as a general partner which is based on section
8644 (relating to general partner's liability).
(c) Claims barred.--A claim against a dissolved limited
partnership is barred if the requirements of subsection (b) are
met and:
(1) the claim is not received by the specified deadline;
or
(2) if the claim is timely received but rejected by the
partnership:
(i) the partnership causes the claimant to receive a
notice in record form stating that the claim is rejected
and will be barred unless the claimant commences an
action against the partnership to enforce the claim
within 90 days after the claimant receives the notice;
and
(ii) the claimant fails to commence the required
action no later than 90 days after the claimant receives
the notice.
(d) Later arising claims.--This section shall not apply to a
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claim based on an event occurring after the date of dissolution
or a liability that on that date is contingent.
§ 8687. Other claims against dissolved limited partnership.
(a) Permissive notice.--A dissolved limited partnership may
publish notice of its dissolution and request persons having
claims against the partnership to present them in accordance
with the notice.
(b) Notice procedure.--A notice under subsection (a) must:
(1) be officially published one time;
(2) describe the information required to be contained in
a claim, state that the claim must be in writing and provide
a mailing address to which the claim is to be sent;
(3) state that a claim against the partnership is barred
unless an action to enforce the claim is commenced within two
years after publication of the notice; and
(4) unless the partnership has been throughout its
existence a limited liability limited partnership, state that
the barring of a claim against the partnership will also bar
any corresponding claim against any general partner or person
dissociated as a general partner which is based on section
8644 (relating to general partner's liability).
(c) Claims barred.--If a dissolved limited partnership
publishes a notice in accordance with subsection (b), the claim
of each of the following claimants is barred unless the claimant
commences an action to enforce the claim against the partnership
within two years after the publication date of the notice:
(1) a claimant that did not receive notice in record
form under section 8686 (relating to known claims against
dissolved limited partnership);
(2) a claimant whose claim was timely sent to the
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partnership but not acted on; and
(3) a claimant whose claim is contingent at, or based on
an event occurring after, the date of dissolution.
(d) Claims not barred.--A claim not barred under this
section or section 8686 may be enforced:
(1) against the dissolved limited partnership, to the
extent of its undistributed assets;
(2) except as provided under section 8688 (relating to
court proceedings), if assets of the partnership have been
distributed after dissolution, against a partner or
transferee to the extent of that person's proportionate share
of the claim or of the partnership's assets distributed to
the partner or transferee after dissolution, whichever is
less, except that a person's total liability for all claims
under this paragraph may not exceed the total amount of
assets distributed to the person after dissolution; and
(3) against any person liable on the claim under
sections 8644 and 8667 (relating to liability of person
dissociated as general partner to other persons).
§ 8688. Court proceedings.
(a) Determination of security.--A dissolved limited
partnership that has officially published a notice under section
8687 (relating to other claims against dissolved limited
partnership) may file an application with the court of common
pleas embracing the county where the partnership's principal
office is located or, if the principal office is not located in
this Commonwealth, where its registered office is or was last
located, for a determination of the amount and form of security
to be provided for payment of claims that are reasonably
expected to arise after the date of dissolution based on facts
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known to the partnership and:
(1) at the time of the application:
(i) are contingent; or
(ii) have not been made known to the partnership; or
(2) are based on an event occurring after the date of
dissolution.
(b) When security not required.--Security is not required
for any claim that is or is reasonably anticipated to be barred
under section 8687.
(c) Notice.--Within 10 days after the filing of an
application under subsection (a), the dissolved limited
partnership shall give notice of the proceeding to each claimant
holding a contingent claim known to the partnership.
(d) Guardian ad litem.--In a proceeding brought under this
section, the court may appoint a guardian ad litem to represent
all claimants whose identities are unknown. The reasonable fees
and expenses of the guardian, including all reasonable expert
witness fees, must be paid by the dissolved limited partnership.
(e) Effect on contingent claims.--A dissolved limited
partnership that provides security in the amount and form
ordered by the court under subsection (a) satisfies the
partnership's obligations with respect to claims that are
contingent, have not been made known to the partnership or are
based on an event occurring after the date of dissolution. The
claims may not be enforced against a partner or transferee on
account of assets received in liquidation.
§ 8689. General partner liability when claim against limited
partnership barred.
If a claim against a dissolved limited partnership is barred
under section 8686 (relating to known claims against dissolved
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limited partnership), 8687 (relating to other claims against
dissolved limited partnership) or 8688 (relating to court
proceedings), any corresponding claim under section 8644
(relating to general partner's liability) or 8667 (relating to
liability of person dissociated as general partner to other
persons) is also barred.
§ 8690. Disposition of assets in winding up and required
contributions.
(a) Creditors.--In winding up its activities and affairs, a
limited partnership shall apply its assets, including the
contributions required by this section, to discharge the
partnership's obligations to creditors, including partners that
are creditors.
(b) Surplus.--After a limited partnership complies with
subsection (a), any surplus shall be distributed in the
following order, subject to any charging order in effect under
section 8673 (relating to charging order):
(1) to each owner of a transferable interest that
reflects contributions made and not previously returned, an
amount equal to the value of the unreturned contributions;
and
(2) among owners of transferable interests in proportion
to their respective rights to share in distributions
immediately before the dissolution of the partnership.
(c) Insufficient assets.--If a limited partnership's assets
are insufficient to satisfy all of its obligations under
subsection (a), with respect to each unsatisfied obligation
incurred when the partnership was not a limited liability
limited partnership, the following rules apply:
(1) Each person that was a general partner when the
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obligation was incurred and that has not been released from
the obligation under section 8667 (relating to liability of
person dissociated as general partner to other persons) shall
contribute to the partnership for the purpose of enabling the
partnership to satisfy the obligation. The contribution due
from each of those persons is in proportion to the right to
receive distributions in the capacity of a general partner in
effect for each of those persons when the obligation was
incurred.
(2) If a person does not contribute the full amount
required under paragraph (1) with respect to an unsatisfied
obligation of the partnership, the other persons required to
contribute by paragraph (1) on account of the obligation
shall contribute the additional amount necessary to discharge
the obligation. The additional contribution due from each of
those other persons is in proportion to the right to receive
distributions in the capacity of a general partner in effect
for each of those other persons when the obligation was
incurred.
(3) If a person does not make the additional
contribution required by paragraph (2), further additional
contributions are determined and due in the same manner as
provided in that paragraph.
(d) Recovery of additional contributions.--A person that
makes an additional contribution under subsection (c)(2) or (3)
may recover from any person whose failure to contribute under
subsection (c)(1) or (2) necessitated the additional
contribution. A person may not recover under this subsection
more than the amount additionally contributed. A person's
liability under this subsection may not exceed the amount the
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person failed to contribute.
(e) Distribution when surplus insufficient.--If a limited
partnership does not have sufficient surplus to comply with
subsection (b)(1), any surplus must be distributed among the
owners of transferable interests in proportion to the value of
the respective unreturned contributions.
(f) Form of payment.--All distributions made under
subsections (b) and (c) must be paid in money.
SUBCHAPTER I
ACTIONS BY PARTNERS
Sec.
8691. Direct action by partner.
8692. Derivative action.
8693. Security for costs.
8694. Special litigation committee.
8695 . Proceeds and expenses.
§ 8691. Direct action by partner.
(a) General rule.--Subject to subsection (b), a partner may
maintain a direct action against another partner or the limited
partnership, with or without an accounting as to the
partnership's activities and affairs, to enforce the partner's
rights and protect the partner's interests, including rights and
interests under the partnership agreement or this title or
arising independently of the partnership relationship.
(b) Required injury.--A partner maintaining a direct action
under this section must plead and prove an actual or threatened
injury that is not solely the result of an injury suffered or
threatened to be suffered by the limited partnership.
(c) Claims not revived.--A right to an accounting on a
dissolution and winding up does not revive a claim barred by
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law.
(d) Cross reference.--See section 8615(c)(17) (relating to
contents of partnership agreement).
§ 8692. Derivative action.
(a) General rule.--Subject to subsection (b), a partner may
maintain a derivative action to enforce a right of a limited
partnership only if:
(1) the partner first makes a demand on the general
partners requesting that they cause the partnership to bring
an action to enforce the right, and:
(i) if a special litigation committee is not
appointed under section 8694 (relating to special
litigation committee), the partnership does not bring the
action within a reasonable time; or
(ii) if a special litigation committee is appointed
under section 8694, a determination is made:
(A) under section 8694(e)(1) that the
partnership not object to the action; or
(B) under section 8694(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 8694(f); or
(4) the court has allowed the action to continue under
the control of the plaintiff under section 8694(f)(3)(ii).
(b) Prior demand excused.--
(1) A demand under subsection (a)(1) is excused only if
the partner makes a specific showing that immediate and
irreparable harm to the limited partnership would otherwise
result.
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(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 partner making the demand is notified either:
(i) that the general partners have decided not to
bring an action and not to appoint a special litigation
committee; or
(ii) of a determination under section 8694(e) after
the appointment of a special litigation committee under
section 8694; or
(2) the plaintiff commences an action asserting the
claim.
(f) Cross reference.--See section 8615(c)(17) (relating to
contents of partnership agreement).
§ 8693. Security for costs.
In any action or proceeding instituted or maintained by
partners holding transferable interests entitled to receive less
than 5% of any distribution by a limited partnership, unless the
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transferable interests held by the partners have an aggregate
fair market value in excess of $200,000, the partnership 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 attorneys' fees, that may be incurred by the
partnership in connection therewith or for which it may become
liable pursuant to section 8468(b) (relating to reimbursement,
indemnification, advancement and insurance) to which security
the partnership 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 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.
§ 8694 . Special litigation committee.
(a) General rule.--If a limited partnership or the general
partners receive a demand to bring an action to enforce a right
of the partnership, or if a derivative action is commenced
before demand has been made on the partnership or the general
partners, the general partners may appoint a special litigation
committee to investigate the claims asserted in the demand or
action and to determine on behalf of the limited partnership or
recommend to the general partners whether pursuing any of the
claims asserted is in the best interests of the partnership. The
partnership shall send a notice in record form to the plaintiff
promptly after the appointment of the committee under this
section notifying the plaintiff that a committee has been
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appointed and identifying by name the members of the committee.
(b) Discovery stay.--If the general partners appoint 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
partnership , the court shall stay discovery for the time
reasonably necessary to permit the committee to make 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 general or limited partners.
(d) Appointment of committee.--A special litigation
committee may be appointed:
(1) by a majority of the general partners not named as
actual or potential parties in the demand or action; or
(2) if all general partners are named as actual or
potential parties in the demand or action, by a majority of
the general partners so named.
(e) Determination.--After appropriate investigation by a
special litigation committee, the committee or the general
partners may determine that it is in the best interests of the
limited partnership that:
(1) an action based on some or all of the claims
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asserted in the demand not be brought by the partnership but
that the partnership 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 partnership;
(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 limited partnership; or
(iii) the committee;
(6) some or all of 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 an action is commenced before a
determination is made under subsection (e):
(1) The limited partnership shall file with the court
after a determination is made under subsection (e) a
statement of the determination and a report of the committee .
The partnership shall serve each party with a copy of the
determination and report. If the partnership 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 partnership shall file with the court a motion,
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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 and other appropriate motions and pleadings.
(g) Attorney General.--Nothing in this section shall limit
the rights, powers and duties of the Attorney General under
other applicable law with respect to a limited partnership
organized for a charitable purpose.
(h) Cross reference.--See section 8615(c)(18) (relating to
contents of partnership agreement).
§ 8695 . 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
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to the limited partnership and not to the plaintiff; and
(2) if the plaintiff or its counsel receives any
proceeds, the proceeds shall be remitted immediately to the
partnership.
(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 limited partnership , 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 limited partnership.
(c) Cross reference.--See section 8615(c)(7) (relating to
contents of partnership agreement).
Section 28. Sections 8701, 8702 and 8705 of Title 15 are
amended to read:
§ 8701. Scope and definition.
(a) Application of chapter.--This chapter applies to a
general or limited partnership formed under the laws of this
Commonwealth that elects to be governed by this chapter. Any
partnership that desires to elect to be governed by this
chapter, or to amend or terminate the election, shall [file in]
deliver to the Department of State for filing a statement of
election, 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) The location of the principal place of business.
(3) The name of each general partner of the partnership
as of the date of the statement.
(4) A statement that the partnership elects to be
governed by this chapter or that the election to be governed
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by this chapter shall be amended or terminated, as the case
may be.
(5) If the election is to be made or terminated, a
statement that the election or termination has been
authorized by at least a majority in interest of the
partners.
(a.1) Effective date and time.--Subject to section 136(c)
(relating to processing of documents by Department of State),
[Upon] upon the filing of the statement of election, amendment
or termination in the department, the election to be governed by
this chapter shall be effective, amended or terminated, as the
case may be.
(b) Effect of election.--As long as an election under
subsection (a) is in effect, the partnership shall be governed
by the provisions of this chapter and, to the extent not
inconsistent with this chapter, Chapter [83] 84 (relating to
general partnerships) [and] or, if a limited partnership,
Chapter [85] 86 (relating to limited partnerships).
(c) Definition.--As used in this chapter, the term "electing
partnership" means a partnership as to which an election under
subsection (a) is in effect.
(d) Cross [reference.--See section] references.--See
sections 134 (relating to docketing statement) and 135 (relating
to requirements to be met by filed documents).
§ 8702. Centralized management.
The business and affairs of every electing partnership shall
be managed by one-third or less, but not less than one, of the
partners selected for that purpose in the manner provided by any
agreement between the partners, and no other partner shall have
a right to participate in the management of the partnership. A
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partner of an electing partnership shall be an agent of the
partnership only to the extent that an employee of the
partnership would be under like circumstances. In making such a
determination, the court may consider among other things whether
a person dealing with the partnership has knowledge, as defined
in section [8303(a) (relating to knowledge)] 8413(a) (relating
to knowledge and notice), that this section is applicable to the
partnership.
§ 8705. Limited liability in certain cases.
(a) General rule.--The liability of a partner of an electing
partnership for the debts and obligations of the partnership
shall be satisfied out of partnership assets alone if[:
(1)] the debt or obligation arises from a transaction or
occurrence in which the person dealing with the partnership
has notice, as defined in section [8303(b) (relating to
notice)] 8413(b) (relating to knowledge and notice), that
this section is applicable to the partnership.[; or
(2) the fact that this section is applicable to the
partnership has been advertised in the manner provided by
section 8357(a)(2)(ii) (relating to power of partner to bind
partnership to third persons).]
(b) Exceptions.--Subsection (a) does not apply:
(1) Unless otherwise agreed by the obligee, to a debt or
obligation arising prior to the time a partnership becomes an
electing partnership [and complies with subsection (a)(1) or
(2)].
(2) To a transaction or occurrence involving the
furnishing or sale of any goods or services by the
partnership.
(c) Professional relationship unaffected.--Subsection (a)
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shall not afford the partners of an electing partnership
providing professional services with greater immunity than is
available to the officers, shareholders, employees or agents of
a professional corporation. See section 2925 (relating to
professional relationship retained).
Section 29. Title 15 is amended by adding a chapter to read:
CHAPTER 88
LIMITED LIABILITY COMPANIES
Subchapter
A. General Provisions
B. Formation and Filings
C. Relations of Members and Managers to Persons Dealing with
Limited Liability Company
D. Relations of Members to Each Other and to Limited
Liability Company
E. Transferable Interests and Rights of Transferees and
Creditors
F. Dissociation
G. Dissolution and Winding Up
H. Actions by Members
I. Benefit Companies
SUBCHAPTER A
GENERAL PROVISIONS
Sec.
8811. Short title and application of chapter.
8812. Definitions.
8813. Knowledge and notice.
8814. Governing law.
8815. Contents of operating agreement.
8816. Application of operating agreement.
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8817. Amendment and effect of operating agreement.
8818. Characteristics of limited liability company.
8819. Powers.
§ 8811. Short title and application of chapter.
(a) Short title.--This chapter may be cited as the
Pennsylvania Uniform Limited Liability Company Act of 2016 .
(b) Initial application.--Before April 1, 2017 , this chapter
governs only:
(1) a limited liability company formed on or after [the
Legislative Reference Bureau shall insert here the effective
date of this chapter]; and
(2) except as provided in subsection (c), a limited
liability company formed before [the Legislative Reference
Bureau shall insert here the effective date of this chapter]
which elects, in the manner provided in its operating
agreement or by law for amending the operating agreement, to
be subject to this chapter.
(c) Full effective date.--Except as provided in subsection
(d), on and after April 1, 2017 , this chapter governs all
limited liability companies.
(d) Certificates of membership interest.--For purposes of
applying this chapter to a limited liability company formed
before [the Legislative Reference Bureau shall insert here the
effective date of this chapter], language in the company's
certificate of organization authorizing the issuance of
certificates of membership interest operates as if that language
were in the operating agreement.
(e) Cross reference.--See section 8815(c)(5) (relating to
contents of operating agreement).
§ 8812. Definitions.
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(a) General 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:
"Certificate of organization." The certificate required by
section 8821 (relating to formation of limited liability company
and certificate of organization). The term includes the
certificate as amended or restated.
"Contribution." Property or a benefit described under
section 8842 (relating to form of contribution) which is
provided by a person to a limited liability company to become a
member or in the capacity of a person as a member.
"Distribution." A direct or indirect transfer of money or
other property from OR INCURRENCE OF INDEBTEDNESS BY a limited
liability company to a person on account of a transferable
interest or in the person's capacity as a member. The term:
(1) includes:
(i) a redemption or other purchase by a limited
liability company of a transferable interest; and
(ii) a transfer to a member in return for the
member's relinquishment of any right to participate as a
member in the management or conduct of the company's
activities and affairs or to have access to records or
other information concerning the company's activities and
affairs; and
(2) does 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
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guaranty or similar arrangement by a company for the
benefit of any or all of its members;
(iii) a direct or indirect allocation or transfer
effected under Chapter 3 (relating to entity
transactions) with the approval of the members; or
(iv) a direct or indirect transfer of:
(A) a governance or transferable interest; or
(B) options, rights or warrants to acquire a
governance or transferable interest.
"Limited liability company." An association formed under
this chapter or which becomes subject to this chapter under
Chapter 3 or section 8811 (relating to short title and
application of chapter).
"Manager." A person that under the operating agreement of a
manager-managed limited liability company is responsible, alone
or in concert with others, for performing the management
functions stated under section 8847(c) (relating to management
of limited liability company).
"Manager-managed limited liability company." A limited
liability company that qualifies as such under section 8847(a).
"Member." A person that:
(1) has become a member of a limited liability company
under section 8841 (relating to becoming a member) or was a
member in a company when the company became subject to this
chapter under section 8811(b); and
(2) has not dissociated as a member under section 8861
(relating to events causing dissociation).
"Member-managed limited liability company." A limited
liability company that is not a manager-managed limited
liability company.
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"Operating agreement." The agreement, whether or not
referred to as an operating agreement and whether oral, implied,
in record form or in any combination thereof, of all the members
of a limited liability company, including a sole member,
concerning matters described in section 8815(a) (relating to
contents of operating agreement). The term includes the
agreement as amended or restated.
"Organizer." A person that acts under section 8821 to form a
limited liability company.
"Professional company." A limited liability company that
renders one or more professional services.
"Transferable interest." The right, as initially owned by a
person in the person's capacity as a member, to receive
distributions from a limited liability company, whether or not
the person remains a member or continues to own any part of the
right. The term applies to any fraction of the interest, by
whomever owned.
"Transferee." A person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a member. The term includes a person that owns a
transferable interest under section 8863(a)(3) (relating to
effect of dissociation).
(b) Index of other definitions.--Following is a nonexclusive
list of definitions in section 102 (relating to definitions)
that apply to this chapter:
"Act" or "action."
"Debtor in bankruptcy."
"Department."
"Jurisdiction of formation."
"Principal office."
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"Professional services."
"Property."
"Record form."
"Sign."
"Transfer."
§ 8813. Knowledge and notice.
(a) Knowledge.--A person knows a fact if the person:
(1) has actual knowledge of it; or
(2) is deemed to know it under subsection (d) or law
other than this chapter.
(b) Notice.--A person has notice of a fact if the person has
reason to know the fact from all the facts known to the person
at the time in question.
(c) Constructive notice.--A person not a member or manager
is deemed to have notice of:
(1) the dissolution of a limited liability company 90
days after a certificate of dissolution under section 8872(b)
(2)(i) (relating to winding up and filing of certificates) is
effective;
(2) the termination of a company 90 days after a
certificate of termination under section 8872(f) is
effective; and
(3) the participation of a company in a merger, interest
exchange, conversion, division or domestication, 90 days
after a statement of merger, interest exchange, conversion,
division or domestication under Chapter 3 (relating to entity
transactions) becomes effective.
(d) Notification.--Except as provided under section 113(b)
(relating to delivery of document), a person notifies another
person of a fact by taking steps reasonably required to inform
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the other person in ordinary course, whether or not those steps
cause the other person to know the fact.
(e) Transfer of real property.--A person not a member or
manager is deemed to know of a limitation on authority to
transfer real property as provided under section 8832(g)
(relating to certificate of authority).
(f) Effect of manager's knowledge or notice.--If the
certificate of organization of a limited liability company
provides that it is manager-managed, a manager's knowledge or
notice of a fact relating to the company is effective
immediately as knowledge of or notice to the company, except in
the case of a fraud on the company committed by or with the
consent of the manager.
§ 8814. Governing law.
(a) General rule.--The law of this Commonwealth governs:
(1) the internal affairs of a limited liability company;
and
(2) the liability of a member as member and of a manager
as manager for the debts, obligations or other liabilities of
a limited liability company.
(b) Cross reference.--See section 8815(c)(6) (relating to
contents of operating agreement).
§ 8815. Contents of operating agreement.
(a) Scope of operating agreement.--Except as provided under
subsections (c) and (d), the operating agreement governs:
(1) relations among the members as members and between
the members and the limited liability company;
(2) the rights and duties under this title of a person
in the capacity of a member or manager;
(3) the activities and affairs of the company and the
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conduct of those activities and affairs;
(4) the means and conditions for amending the operating
agreement; and
(5) the means and conditions for approving a transaction
under Chapter 3 (relating to entity transactions).
(b) Title applies generally.--To the extent the operating
agreement does not provide for a matter described in subsection
(a), this title governs the matter.
(c) Limitations.--An operating agreement may not do any of
the following:
(1) Vary a provision of Chapter 1 (relating to general
provisions) or Subchapter A of Chapter 2 (relating to names ).
(2) Vary the right of a member to approve a merger,
interest exchange, conversion, division or domestication
under section 333(a)(2) (relating to approval of merger),
343(a)(2) (relating to approval of interest exchange), 353(a)
(3) (relating to approval of conversion), 363(a)(2) (relating
to approval of division) or 373(a)(2) (relating to approval
of domestication).
(3) Vary the required contents of a plan of merger under
section 332(a) (relating to plan of merger), plan of interest
exchange under section 342(a) (relating to plan of interest
exchange), plan of conversion under section 352(a) (relating
to plan of conversion), plan of division under section 362(a)
(relating to plan of division) or plan of domestication under
section 372(a) (relating to plan of domestication).
(4) Vary a provision of Chapter 81 (relating to general
provisions).
(5) Vary the provisions of section 8811(b), (c) and (d)
(relating to short title and application of chapter).
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(6) Vary the law applicable under section 8814 (relating
to governing law).
(7) Vary a provision of section 8818(d) (relating to
characteristics of limited liability company).
(8) Vary a provision of section 8819 (relating to
powers).
(9) Vary any requirement, procedure or other provision
of this title pertaining to:
(i) registered offices; or
(ii) the department, including provisions pertaining
to documents authorized or required to be delivered to
the department for filing under this title.
(10) Provide indemnification or exoneration in violation
of the limitations in sections 8848(g) (relating to
reimbursement, indemnification, advancement and insurance),
8849.1(j) (relating to standards of conduct for members) and
8849.2(h) (relating to standards of conduct for managers).
(11) Eliminate the duty of loyalty provided for in
section 8849.1(b)(1)(i) or (ii) or (2) or the duty of care of
a member in a member-managed company, except as provided in
subsection (d).
(12) Eliminate the duty of loyalty provided for in
section 8849.2(b)(1)(i) or (ii) or (2) or the duty of care of
a manager, except as provided in subsection (d).
(13) Vary the contractual obligation of good faith and
fair dealing under section 8849.1(d) or 8849.2(d), except as
provided in subsection (d).
(14) Restrict the duties and rights under section 8850
(relating to rights to information), except as provided in
subsection (d).
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(15) Vary the causes of dissolution specified in section
8871(a)(4) (relating to events causing dissolution).
(16) Vary the requirements to wind up the company's
activities and affairs specified in section 8872(a), (b)(1),
(e) and (f) (relating to winding up and filing of
certificates).
(17) Unreasonably restrict the right of a member to
maintain an action under Subchapter H (relating to actions by
members).
(18) Vary the provisions of section 8884 (relating to
special litigation committee), except that the operating
agreement may provide that the company may not have a special
litigation committee.
(19) Vary a provision of Subchapter I (relating to
benefit companies).
(20) Except as provided in section 8817(b) (relating to
amendment and effect of operating agreement), restrict the
rights under this title of a person other than a member or
manager.
(d) Permitted terms.--Subject to subsection (c)(10), the
following rules apply:
(1) The operating agreement may:
(i) specify the method by which a specific act or
transaction that would otherwise violate the duty of
loyalty may be authorized or ratified by one or more
disinterested and independent persons after full
disclosure of all material facts;
(ii) alter the prohibition stated in section 8845(a)
(2) (relating to limitations on distributions) so that
the prohibition requires only that the company's total
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assets not be less than the sum of its total liabilities;
and
(iii) impose reasonable restrictions on the
availability and use of information obtained under
section 8850 and may define appropriate remedies,
including liquidated damages, for a breach of any
reasonable restriction on use.
(2) To the extent the operating agreement of a member-
managed limited liability company expressly relieves a member
of a responsibility that the member would otherwise have
under this title and imposes the responsibility on one or
more other members, the operating agreement also may
eliminate or limit any fiduciary duty of the member relieved
of the responsibility that would have pertained to the
responsibility.
(3) If not manifestly unreasonable, the operating
agreement may:
(i) alter the aspects of the duty of loyalty stated
under section 8849.1(b)(1)(i) or (ii) or (2) or 8849.2(b)
(1)(i) or (ii) or (2);
(ii) prescribe the standards, if not manifestly
unreasonable, by which the performance of the contractual
obligation of good faith and fair dealing under section
8849.1(d) or 8849.2(d) is to be measured;
(iii) identify specific types or categories of
activities that do not violate the duty of loyalty;
(iv) alter the duty of care; and
(v) alter or eliminate any other fiduciary duty.
(e) Determination of manifest unreasonableness.--The court
shall decide as a matter of law whether a term of an operating
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agreement is manifestly unreasonable under subsection (d)(3).
The court:
(1) shall make its determination as of the time the
challenged term became part of the operating agreement and by
considering only circumstances existing at that time; and
(2) may invalidate the term only if, in light of the
purposes, activities and affairs of the limited liability
company, it is readily apparent that:
(i) the objective of the term is unreasonable; or
(ii) the term is an unreasonable means to achieve
the term's objective.
§ 8816. Application of operating agreement.
(a) Company bound.--A limited liability company is bound by
and may enforce the operating agreement, whether or not the
company has itself manifested assent to the agreement.
(b) Deemed assent.--A person that becomes a member of a
limited liability company is deemed to assent to the operating
agreement.
(c) Preformation agreement.--Two or more persons intending
to become the initial members of a limited liability company may
make an agreement providing that upon the formation of the
company the agreement will become the operating agreement. One
person intending to become the initial member of a limited
liability company may assent to terms providing that upon the
formation of the company the terms will become the operating
agreement.
§ 8817. Amendment and effect of operating agreement.
(a) Approval of amendments.--An operating agreement may
specify that its amendment requires the approval of a person
that is not a party to the agreement or the satisfaction of a
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condition. An amendment is ineffective if its adoption does not
include the required approval or satisfy the specified
condition. See section 8847(b)(6) and (c)(3)(iii) (relating to
management of limited liability company).
(b) Obligations to nonmembers.--The obligations of a limited
liability company and its members to a person in the person's
capacity as a transferee or a person dissociated as a member are
governed by the operating agreement. Except as provided in
section 8844(d) (relating to sharing of and right to
distributions before dissolution) or in a court order issued
under section 8853(b)(2) (relating to charging order) to
effectuate a charging order, an amendment to the operating
agreement made after a person becomes a transferee or is
dissociated as a member:
(1) is effective with regard to any debt, obligation or
other liability of the limited liability company or its
members to the person in the person's capacity as a
transferee or person dissociated as a member; and
(2) is not effective to the extent the amendment imposes
a new debt, obligation or other liability on the transferee
or person dissociated as a member.
(c) Provisions in filed documents.--If a document delivered
by a limited liability company to the department for filing
contains a provision that would be ineffective under section
8815(c) or (d)(3) (relating to contents of operating agreement)
if contained in the operating agreement, the provision is
ineffective in the document.
(d) Conflicts with operating agreement.--Subject to
subsection (c):
(1) If a provision of the certificate of organization
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conflicts with a provision of the operating agreement, the
provision of the certificate prevails.
(2) If a document other than its certificate of
organization has been delivered by the company to the
department for filing and conflicts with a provision of the
operating agreement:
(i) the operating agreement prevails as to members,
dissociated members, transferees and managers; and
(ii) the document prevails as to other persons to
the extent they reasonably rely on the document.
(e) Prohibition of oral amendments.--If a provision of an
operating agreement in record form provides that the operating
agreement cannot be amended, modified or rescinded except in
record form, an oral agreement, amendment, modification or
rescission shall not be enforceable.
§ 8818. Characteristics of limited liability company.
(a) Separate entity.--A limited liability company is an
entity distinct from its member or members.
(b) Purpose.--A limited liability company may have any
lawful purpose other than acting as an insurer, regardless of
whether the purpose is for profit. Nothing under this section
shall prohibit the organization of an insurance agency licensed
in this Commonwealth as a limited liability company. See section
8102 (relating to interchangeability of partnership, limited
liability company and corporate forms of organization).
(c) Duration.--A limited liability company has perpetual
duration.
(d) Restrictions on nonprofit companies.--If a limited
liability company has a purpose that is not for profit:
(1) Its purpose must be stated in the certificate of
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organization.
(2) The company shall not distribute any part of its
income or profits to its members, managers or officers,
except that it may pay compensation in a reasonable amount to
those persons for services rendered.
(3) The company may confer benefits on members or
nonmembers in conformity with its purposes, may repay capital
contributions and may redeem evidences of indebtedness,
except when the company is currently insolvent or would
thereby be made insolvent or rendered unable to carry on its
purposes, or when the fair value of the assets of the company
remaining after the conferring of benefits, payment or
redemption would be insufficient to meet its liabilities. The
company may make distributions of money or property to
members upon dissolution or final liquidation as permitted by
this chapter.
(4) If the company is organized for a charitable
purpose , it may take, receive and hold real and personal
property as may be given, devised to or otherwise vested in
the company, in trust, for the purpose or purposes set forth
in its certificate of organization. The members, if it is
member-managed, or the managers, if it is manager-managed,
shall, as trustees of the property, be held to the same
degree of responsibility and accountability as other
trustees, unless:
(i) a lesser degree or a particular degree of
responsibility and accountability is prescribed in the
trust instrument;
(ii) if the company is member-managed, the members
remain under the control of third persons who retain the
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right to direct, and do direct, the actions of the
members as to the use of the trust property from time to
time; or
(iii) if the company is manager-managed, the
managers remain under the control of the members or third
persons who retain the right to direct, and do direct,
the actions of the managers as to the use of the trust
property from time to time.
(5) Property of the company committed to charitable
purposes shall not, by any proceeding under Chapter 3
(relating to entity transactions) or otherwise, be diverted
from the objects to which it was donated, granted or devised,
unless and until the company obtains from the court an order
under 20 Pa.C.S. Ch. 77 (relating to trusts) specifying the
disposition of the property.
(e) Cross reference.--See section 8815(c)(7) (relating to
contents of operating agreement).
§ 8819. Powers.
(a) General rule.--A limited liability company has the power
to do all things necessary or convenient to carry on its
activities and affairs.
(b) Capacity to sue and be sued.--A limited liability
company has the capacity to sue and be sued in its own name.
(c) Certain specifically authorized debt terms.--A limited
liability company shall be subject to section 1510 (relating to
certain specifically authorized debt terms) to the same extent
as if it were a business corporation.
(d) Cross references.--See sections 8102 (relating to
interchangeability of partnership, limited liability company and
corporate forms of organization) and 8815(c)(8) (relating to
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contents of operating agreement).
SUBCHAPTER B
FORMATION AND FILINGS
Sec.
8821. Formation of limited liability company and certificate of
organization.
8822. Amendment or restatement of certificate of organization.
8823. Signing of filed documents.
8824. Liability of member, manager or other person for false or
missing information in filed document.
8825. Registered office.
§ 8821. Formation of limited liability company and certificate
of organization.
(a) Formation.--One or more persons may act as organizers to
form a limited liability company by delivering to the department
for filing a certificate of organization.
(b) Required contents of certificate.--A certificate of
organization must state:
(1) the name of the limited liability company, which
must comply with Subchapter A of Chapter 2 (relating to
names ); and
(2) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of the company's registered office.
(c) Optional contents of certificate.--A certificate of
organization may contain statements as to matters other than
those required by subsection (b), but may not vary or otherwise
affect the provisions specified under section 8815(c) and (d)
(relating to contents of operating agreement) in a manner
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inconsistent with that section.
(d) Substitute certificate of authority.--A statement in a
certificate of organization with respect to a matter described
in section 8832(a)(2) or (3) (relating to certificate of
authority) is effective as a certificate of authority and the
statement is subject to the provisions of section 8832 in the
same manner as a certificate of authority.
(e) Effect of certificate of organization.--A provision of
the certificate of organization shall be deemed to be a
provision of the operating agreement for purposes of any
provision of this title that refers to a rule as set forth in
the operating agreement.
(f) Time of formation.--A limited liability company is
formed when its certificate of organization becomes effective.
(g) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8818(d)(1) (relating to characteristics of
limited liability company).
Section 8823 (relating to signing of filed documents).
§ 8822. Amendment or restatement of certificate of
organization.
(a) General rule.--A certificate of organization may be
amended or restated at any time.
(b) Required contents of certificate of amendment.--To amend
its certificate of organization, a limited liability company
must deliver to the department for filing a certificate of
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amendment that states:
(1) the name of the company;
(2) the date of filing of its initial certificate of
organization;
(3) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of its registered office; and
(4) the amendment.
(c) Restatement.--To restate its certificate of
organization, a limited liability company must deliver to the
department for filing a certificate of amendment that:
(1) is designated as a restatement; and
(2) includes a statement that the restated certificate
supersedes the original certificate and all previous
amendments.
(d) Obligation to correct.--If a member of a member-managed
limited liability company, or a manager of a manager-managed
limited liability company, knows that any information in a filed
certificate of organization is inaccurate, the member or manager
shall promptly:
(1) cause the certificate to be amended; or
(2) if appropriate, deliver to the department for filing
a statement of correction under section 138 (relating to
statement of correction) or a statement of abandonment under
section 141 (relating to abandonment of filing before
effectiveness).
(e) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
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documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8823 (relating to signing of filed documents).
§ 8823. Signing of filed documents.
(a) Required signatures.-- Except as provided in this title,
a document delivered to the department for filing under this
title relating to a limited liability company must be signed as
follows:
(1) Except as provided in paragraphs (2) and (3), a
document signed on behalf of a limited liability company must
be signed by a person authorized by the company.
(2) A company's initial certificate of organization must
be signed by each organizer.
(3) A document delivered on behalf of a dissolved
company that has no member must be signed by the person
winding up the company's activities and affairs under section
8872(c) (relating to winding up and filing of certificates)
or a person appointed under section 8872(d) to wind up the
activities and affairs.
(4) A certificate of denial by a person under section
8833 (relating to certificate of denial) must be signed by
that person.
(5) Any other document delivered on behalf of a person
to the department for filing must be signed by that person.
(b) Cross reference.--See section 142 (relating to effect of
signing filings).
§ 8824. Liability of member, manager or other person for false
or missing information in filed document.
(a) General rule.--If a document delivered to the department
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for filing under this title and filed by the department contains
a materially false statement or fails to state a material fact
required to be stated, a person that suffers loss by reasonable
reliance on the statement or failure to state a material fact
may recover damages for the loss from:
(1) a person that signed the document or caused another
to sign it on the person's behalf and knew there was false or
missing information in the document at the time it was
signed; and
(2) subject to subsection (b), a member of a member-
managed limited liability company or a manager of a manager-
managed limited liability company if:
(i) the document was delivered for filing on behalf
of the company; and
(ii) the member or manager knew or had notice there
was false or missing information for a reasonably
sufficient time before the document was relied upon so
that, before the reliance, the member or manager
reasonably could have:
(A) effected an amendment under section 8822
(relating to amendment or restatement of certificate
of organization);
(B) filed a petition under section 144 (relating
to signing and filing pursuant to judicial order); or
(C) delivered to the department for filing a
statement of correction under section 138 (relating
to statement of correction) or a statement of
withdrawal under section 141 (relating to abandonment
of filing before effectiveness).
(b) Substitute responsibility.--To the extent the operating
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agreement of a member-managed limited liability company
expressly relieves a member of responsibility for maintaining
the accuracy of information contained in documents delivered on
behalf of the company to the department for filing under this
chapter and imposes that responsibility on one or more other
members, the liability stated under subsection (a)(2) applies to
those other members and not to the member that the operating
agreement relieves of the responsibility.
§ 8825. Registered office.
(a) General rule.--Every limited liability company shall
have and continuously maintain in this Commonwealth a registered
office which may, but need not, be the same as its place of
business.
(b) Change of registered office.--After organization, a
change in the location of the registered office may be effected
at any time by the company. Before the change becomes effective,
the company shall amend its certificate of organization under
the provisions of this chapter to reflect the change in location
or shall file with the department a certificate of change of
registered office setting forth:
(1) The name of the company.
(2) The address, including street and number, if any, of
its then registered office.
(3) The address, including street and number, if any, to
which the registered office is to be changed.
(c) Alternative procedure.--A limited liability company may
satisfy the requirements of this chapter concerning the
maintenance of a registered office in this Commonwealth by
setting forth in any document filed in the department under any
provision of this chapter that permits or requires the statement
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of the address of its then registered office, in lieu of that
address, the statement authorized under section 109(a) (relating
to name of commercial registered office provider in lieu of
registered address).
(d) Cross references.--See:
Section 108 (relating to change in location or status of
registered office provided by agent).
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8815(c)(7) (relating to contents of operating
agreement).
Section 8823 (relating to signing of filed documents).
SUBCHAPTER C
RELATIONS OF MEMBERS AND MANAGERS
TO PERSONS DEALING WITH LIMITED LIABILITY COMPANY
Sec.
8831. Status of member or manager as agent.
8832. Certificate of authority.
8833. Certificate of denial.
8834. Liability of members and managers.
8835. Taxation of limited liability companies.
§ 8831. Status of member or manager as agent.
(a) No agency power of member as member.--A member is not an
agent of a limited liability company solely by reason of being a
member.
(b) Agency power of manager.--If the certificate of
organization states that the company is manager-managed, the act
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of a manager for apparently carrying on in the usual way the
business of the company binds the company unless the manager so
acting has in fact no authority to act for the company in the
particular matter and the person with whom the manager is
dealing has knowledge of the fact that the manager does not have
that authority.
(c) Liability of company under other law.--A person's status
as a member or manager does not prevent or restrict law other
than this chapter from imposing liability on a limited liability
company because of the person's conduct.
§ 8832. Certificate of authority.
(a) General rule.--A limited liability company may deliver
to the department for filing a certificate of authority signed
by the company. The certificate:
(1) must include the name of the company and, subject to
section 109 (relating to name of commercial registered office
provider in lieu of registered address), the address,
including street and number, if any, of its registered
office;
(2) with respect to any position that exists in or with
respect to the company, may state the authority, or
limitations on the authority, of all persons holding the
position to:
(i) transfer real property held in the name of the
company, including signing an instrument of transfer; or
(ii) enter into other transactions on behalf of, or
otherwise act for or bind, the company; and
(3) may state the authority, or limitations on the
authority, of a specific person to:
(i) transfer real property held in the name of the
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company, including signing an instrument of transfer; or
(ii) enter into other transactions on behalf of, or
otherwise act for or bind, the company.
(b) Amendment or cancellation.--To amend or cancel a
certificate of authority filed by the department, a limited
liability company must deliver to the department for filing an
amendment or cancellation that states:
(1) the name of the company;
(2) subject to section 109, the address, including
street and number, if any, of the company's registered
office;
(3) the date the certificate being affected became
effective; and
(4) the contents of the amendment or a statement that
the certificate is canceled.
(c) Effect.--A certificate of authority:
(1) supersedes any inconsistent provision of the
certificate of organization in effect at the time the
certificate of authority becomes effective;
(2) affects only the power of a person to bind a limited
liability company with respect to persons that are not
members; and
(3) is not binding on the department for purposes of the
administration of this title or any other provision of law.
(d) Certificate not evidence of knowledge or notice.--Except
as provided in subsections (e), (f), (g) and (h), a limitation
on the authority of a person or a position contained in an
effective certificate of authority is not by itself evidence of
knowledge or notice of the limitation by any person.
(e) Authority not pertaining to real property.--A grant of
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authority not pertaining to transfers of real property and
contained in an effective certificate of authority is conclusive
in favor of a person that gives value in reliance on the grant,
except to the extent that when the person gives value:
(1) the person has knowledge to the contrary;
(2) the certificate has been canceled or restrictively
amended under subsection (b); or
(3) a limitation on the grant is contained in another
certificate of authority that became effective after the
certificate containing the grant became effective.
(f) Authority to transfer real property.--An effective
certificate of authority or certificate of organization that
grants authority to transfer real property held in the name of a
limited liability company, a certified copy of which certificate
is recorded in the office of the recorder of deeds for the
county in which the property is located, is conclusive in favor
of a person that gives value in reliance on the grant without
knowledge to the contrary, except to the extent that when the
person gives value:
(1) the certificate has been canceled or restrictively
amended under subsection (b), and a certified copy of the
cancellation or restrictive amendment has been recorded in
the office of the recorder of deeds; or
(2) a limitation on the grant is contained in another
certificate of authority that became effective after the
certificate containing the grant became effective, and a
certified copy of the later-effective certificate is recorded
in the office of the recorder of deeds.
(g) Effect of recorded certificate.--If a certified copy of
an effective certificate containing a limitation on the
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authority to transfer real property held in the name of a
limited liability company is recorded in the office of the
recorder of deeds for the county in which the real property is
located, all persons are deemed to know of the limitation.
(h) Effect of dissolution or termination of company.--An
effective certificate of dissolution does not cancel a filed
certificate of authority for the purposes of subsection (f) and
is a limitation on authority for the purposes of subsection
(g). An effective certificate of termination cancels a filed
certificate of authority.
(i) Automatic cancellation.--Unless earlier canceled, an
effective certificate of authority that names an individual as
having authority is canceled by operation of law five years
after the date on which the certificate, or its most recent
amendment, becomes effective. The cancellation operates without
need for any recording under subsection (f) or (g).
(j) Effect of certificate of denial.--An effective
certificate of denial:
(1) operates as a restrictive amendment under this
section and a certified copy may be recorded as provided in
subsection (f)(1) by the limited liability company or the
person that delivered the certificate of denial to the
department for filing;
(2) affects only the authority of a person to bind the
company with respect to persons that are not members; and
(3) supersedes any inconsistent provision of the
certificate of organization in effect at the time the
certificate of denial becomes effective.
(k) Foreign companies.--A foreign limited liability company
may deliver a certificate of authority to the department for
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filing and may record a copy as provided in this section in the
same manner and with the same effect as if it were a domestic
company and regardless of whether the foreign company is
registered to do business in this Commonwealth under Chapter 4
(relating to foreign associations).
(l) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8823 (relating to signing of filed documents).
§ 8833. Certificate of denial.
(a) General rule.--A person named in a filed certificate of
authority granting that person authority may deliver to the
department for filing a certificate of denial that:
(1) states:
(i) the name of the limited liability company;
(ii) subject to section 109 (relating to name of
commercial registered office provider in lieu of
registered address), the address, including street and
number, if any, of the registered office of the company;
and
(iii) the date the certificate of authority to which
the certificate of denial pertains was filed; and
(2) denies the grant of authority.
(b) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (relating to requirements to be met by filed
documents).
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Section 136(c) (relating to processing of documents by
Department of State).
Section 8823 (relating to signing of filed documents).
Section 8832(j) (relating to certificate of authority).
§ 8834. Liability of members and managers.
(a) General rule.--A debt, obligation or other liability of
a limited liability company is solely the debt, obligation or
other liability of the company. A member or manager is not
personally liable, directly or indirectly, by way of
contribution or otherwise, for a debt, obligation or other
liability of the company solely by reason of being or acting as
a member or manager. This subsection applies regardless of:
(1) whether the company has a single member or multiple
members; and
(2) the dissolution, winding up or termination of the
company.
(b) Professional relationship unaffected.--Subsection (a)
shall not afford members of a professional company with greater
immunity than is available to the officers, shareholders,
employees or agents of a professional corporation. See section
2925 (relating to professional relationship retained).
(c) Disciplinary jurisdiction unaffected.--A professional
company shall be subject to the applicable rules and regulations
adopted by, and all the disciplinary powers of, the court,
department, board, commission or other government unit
regulating the profession in which the company is engaged. The
court, department, board or other government unit may require
that a company include in its certificate of organization or
operating agreement provisions that conform to any rule or
regulation promulgated before, on or after the effective date of
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this section for the purpose of enforcing the ethics of a
profession. This chapter shall not affect or impair the
disciplinary powers of the court, department, board, commission
or other government unit over licensed persons or any law, rule
or regulation pertaining to the standards for professional
conduct of licensed persons or to the professional relationship
between any licensed person rendering professional services and
the person receiving professional services.
(d) Rendering professional services.--
(1) Except as provided by a statute, rule or regulation
applicable to a particular profession, a professional company
may lawfully render professional services only through
licensed persons. The company may employ persons not so
licensed except that those persons shall not render any
professional services rendered or to be rendered by it.
(2) Paragraph (1) shall not be interpreted to preclude
the use of clerks, secretaries, nurses, administrators,
bookkeepers, technicians and other assistants or
paraprofessionals who are not usually and ordinarily
considered by law, custom and practice to be rendering the
professional service or services for which the professional
company was organized nor to preclude the use of any other
person who performs all of the person's employment under the
direct supervision and control of a licensed person. A person
shall not under the guise of employment render professional
services unless duly licensed or admitted to practice as
required by law.
(3) Notwithstanding any other provision of law, a
professional company may charge for the professional services
rendered by it, may collect those charges and may compensate
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those who render the professional services.
(e) Medical professional liability.--A professional company
shall be deemed to be a partnership for purposes of section 744
of the act of March 20, 2002 (P.L.154, No.13), known as the
Medical Care Availability and Reduction of Error (Mcare) Act .
(f) Cross reference.--See section 8105 (relating to
ownership of certain professional partnerships).
§ 8835. Taxation of limited liability companies.
(a) General rule.--For the purposes of the imposition by the
Commonwealth of any tax or license fee on or with respect to any
income, property, privilege, transaction, subject or occupation,
other than the corporate net income tax, capital stock and
foreign franchise tax and personal income tax, a domestic or
foreign limited liability company shall be deemed to be a
corporation organized and existing under Part II (relating to
corporations), and a member of the company, as such, shall be
deemed to be a shareholder of a corporation.
(b) Financial institutions.--For purposes of the bank shares
tax and the mutual thrift institutions tax, a bank, bank and
trust company, trust company, savings bank, building and loan
association, savings and loan association or savings institution
that is a domestic or foreign limited liability company shall be
considered an "institution" as defined by Article VII or Article
XV of the Tax Reform Code of 1971.
(c) Political subdivisions.--Nothing in this section shall
impair or preempt the ability of a political subdivision to
levy, assess or collect any applicable taxes or license fees
authorized under the act of December 31, 1965 (P.L.1257,
No.511), known as The Local Tax Enabling Act, on any limited
liability company.
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SUBCHAPTER D
RELATIONS OF MEMBERS TO EACH OTHER
AND TO LIMITED LIABILITY COMPANY
Sec.
8841. Becoming a member.
8842. Form of contribution.
8843. Liability for contributions.
8844. Sharing of and right to distributions before dissolution.
8845. Limitations on distributions.
8846. Liability for improper distributions.
8847. Management of limited liability company.
8848. Reimbursement, indemnification, advancement and
insurance.
8849. (Reserved).
8849.1. Standards of conduct for members.
8849.2. Standards of conduct for managers.
8850. Rights to information.
§ 8841. Becoming a member.
(a) Single initial member.--If a limited liability company
is initially to have only one member, the person becomes a
member as agreed by that person and the organizer of the
company. That person and the organizer may be, but need not be,
different persons. If the initial member and the organizer are
different persons, the organizer acts on behalf of the initial
member.
(b) Multiple initial members.--If a limited liability
company is initially to have more than one member, those persons
become members as agreed by those persons and the organizer
before the formation of the company. The organizer acts on
behalf of the persons in forming the company and may be, but
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need not be, one of the persons.
(c) Powers and authority of organizer.--Until a limited
liability company has its first member, the organizer is deemed
to be a manager of the company.
(d) Admission after formation.--After formation of a limited
liability company, a person becomes a member:
(1) by action of the organizer if the company does not
have any members;
(2) as provided in the operating agreement;
(3) as the result of a transaction effective under
Chapter 3 (relating to entity transactions);
(4) with the affirmative vote or consent of all the
members; or
(5) as provided in section 8871(a)(3) (relating to
events causing dissolution).
(e) Noneconomic members.--A person may become a member
without:
(1) acquiring a transferable interest; or
(2) making or being obligated to make a contribution to
the limited liability company.
(f) Nature of interest.--The interest of a member in a
limited liability company is personal property.
§ 8842. Form of contribution.
A contribution may consist of:
(1) property transferred to, services performed for or
another benefit provided to the limited liability company;
(2) an agreement to transfer property to, perform
services for or provide another benefit to the company; or
(3) any combination of items listed in paragraphs (1)
and (2).
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§ 8843. Liability for contributions.
(a) Obligation not excused.--A person's obligation to make a
contribution to a limited liability company is not excused by
the person's death, disability, termination or other inability
to perform personally.
(b) Substitute payment.--If a person does not fulfill an
obligation to make a contribution other than money, the person
is obligated at the option of the limited liability company to
contribute money equal to the value, as stated in the records of
the company, of the part of the contribution which has not been
made.
(c) Compromise of obligation.--The obligation of a person to
make a contribution may be compromised only by the affirmative
vote or consent of all the members. If a creditor of a limited
liability company extends credit or otherwise acts in reliance
on an obligation described under subsection (a) without
knowledge or notice of a compromise under this subsection, the
creditor may enforce the obligation.
§ 8844. Sharing of and right to distributions before
dissolution.
(a) General rule.--Any distribution made by a limited
liability company before its dissolution and winding up shall be
in equal shares among members and persons dissociated as
members, except as provided in section 8852(b) (relating to
transfer of transferable interest) or to the extent necessary to
comply with a charging order in effect under section 8853
(relating to charging order).
(b) No entitlement to distribution.--Except as provided
under subsection (e), a person has a right to a distribution
before the dissolution and winding up of a limited liability
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company only if the company decides to make an interim
distribution.
(c) Distribution in kind.--A person does not have a right to
demand or receive a distribution from a limited liability
company in any form other than money. Except as provided in
section 8877(d) (relating to disposition of assets in winding
up), a limited liability company may distribute an asset in kind
only if each part of the asset is fungible with each other part
and each person receives a percentage of the asset equal in
value to the person's share of distributions.
(d) Status as creditor.--If a member or transferee becomes
entitled to receive a distribution, the member or transferee has
the status of, and is entitled to all remedies available to, a
creditor of the limited liability company with respect to the
distribution, except that the company's obligation to make a
distribution is subject to offset for any amount owed to the
company by the member or transferee on whose account the
distribution is made.
(e) Distribution upon an event of dissociation.--Upon the
effectiveness of a transaction under Chapter 3 (relating to
entity transactions) or an amendment of the certificate of
organization or operating agreement that results in either case
in an event of dissociation but does not result in the
dissolution of the limited liability company, the dissociating
member may elect in record form to receive in lieu of the
property that the person would be entitled to receive pursuant
to the terms of the transaction or amendment:
(1) any distribution to which the member is entitled
under the operating agreement on the terms provided in the
operating agreement; and
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(2) within a reasonable time after dissociation, the
fair value of the interest of the member in the company as of
the date of dissociation based upon the right of the member
to share in distributions from the company.
§ 8845. Limitations on distributions.
(a) General rule.--A limited liability company may not make
a distribution, including a distribution under section 8877
(relating to disposition of assets in winding up), if after the
distribution:
(1) the company would not be able to pay its debts as
they become due in the ordinary course of the company's
activities and affairs; or
(2) the company's total assets would be less than the
sum of its total liabilities plus the amount that would be
needed, if the company were to be dissolved and wound up at
the time of the distribution, to satisfy the preferential
rights upon dissolution and winding up of members and
transferees whose preferential rights are superior to the
rights of persons receiving the distribution.
(b) Valuation.--A limited liability company may base a
determination that a distribution is not prohibited under
subsection (a)(2) on:
(1) the book values of the assets and liabilities of the
company, as reflected on its books and records;
(2) a valuation that takes into consideration unrealized
appreciation and depreciation or other changes in value of
the assets and liabilities of the company;
(3) the current value of the assets and liabilities of
the company, either valued separately or valued in segments
or as an entirety as a going concern; or
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(4) any other method that is reasonable in the
circumstances.
(c) Excluded liabilities.--In determining whether a
distribution is prohibited under subsection (a)(2), the company
need not consider obligations and liabilities unless they are
required to be reflected on a balance sheet, not including the
notes to the balance sheet , prepared on the basis of generally
accepted accounting principles, or such other accounting
practices and principles as are used generally by the company in
the maintenance of its books and records and as are reasonable
in the circumstances.
(d) Measuring date of distribution.--Except as provided in
subsection (e), the effect of a distribution under subsection
(a) is measured:
(1) as of the date specified by the company when it
authorizes the distribution if the distribution occurs within
125 days of the earlier of the date so specified or the date
of authorization; or
(2) as of the date of distribution in all other cases.
(e) Date of redemption.--In the case of a distribution
described under paragraph (1) of the definition of
"distribution" in section 8812 (relating to definitions), the
distribution is deemed to occur as of the earlier of the date
money or other property is transferred or debt is incurred by
the company or the date the person entitled to the distribution
ceases to own the interest or right being acquired by the
company in return for the distribution.
(f) Status of distribution debt.--The indebtedness of a
limited liability company to a member or transferee incurred by
reason of a distribution made in accordance with this section
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shall be at least on a parity with the company's indebtedness to
its general, unsecured creditors, except to the extent
subordinated by agreement.
(g) Certain subordinated debt.--The indebtedness of a
limited liability company, including indebtedness issued as a
distribution, is not a liability for purposes of subsection (a)
if the terms of the indebtedness provide that payment of
principal and interest is made only if and to the extent that
payment of a distribution could then be made under this
section. If the indebtedness is issued as a distribution, each
payment of principal or interest is treated as a distribution,
the effect of which is measured on the date the payment is made.
(h) Distributions in winding up.--In measuring the effect of
a distribution under section 8877, the liabilities of a
dissolved limited liability company do not include any claim
that has been barred under section 8874 (relating to known
claims against dissolved limited liability company) or 8875
(relating to other claims against dissolved limited liability
company), or for which security has been provided under section
8876 (relating to court proceedings).
(i) Cross references.--See:
Section 8815(d)(1)(ii) (relating to contents of operating
agreement).
Section 8849.1 (relating to standards of conduct for
members).
Section 8849.2 (relating to standards of conduct for
managers).
§ 8846. Liability for improper distributions.
(a) General rule.--Except as provided in subsection (b), if
a member of a member-managed limited liability company or
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manager of a manager-managed limited liability company consents
to a distribution made in violation of section 8845 (relating to
limitations on distributions) and in consenting to the
distribution fails to comply with section 8849.1 (relating to
standards of conduct for members) or 8849.2 (relating to
standards of conduct for managers), the member or manager is
personally liable to the company for the amount of the
distribution which exceeds the amount that could have been
distributed without the violation of section 8845.
(b) Members without authority.--To the extent the operating
agreement of a member-managed limited liability company relieves
a member of the authority and responsibility to consent to
distributions and imposes that authority and responsibility on
one or more other members, the liability stated in subsection
(a) applies to the other members and not the member that the
operating agreement relieves of authority and responsibility.
(c) Recipients.--A person that receives a distribution
knowing that the distribution violated section 8845 is
personally liable to the limited liability company but only to
the extent that the distribution received by the person exceeded
the amount that could have been properly paid under section
8845.
(d) Contribution.--A person against which an action is
commenced because the person is liable under subsection (a) may:
(1) join any other person that is liable under
subsection (a) or otherwise seek to enforce a right of
contribution from the person; and
(2) join any person that is liable under subsection (c)
or otherwise seek to enforce a right of contribution from the
person in the amount the person is liable for under
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subsection (c).
(e) Statute of repose.--An action under this section is
barred unless commenced within two years after the distribution.
§ 8847. Management of limited liability company.
(a) Determination of management of company.--A limited
liability company is a member-managed limited liability company
unless the operating agreement:
(1) expressly provides that:
(i) the company is or will be manager-managed;
(ii) the company is or will be managed by managers;
or
(iii) management of the company is or will be vested
in managers; or
(2) includes words of similar import.
(b) Member-managed company.--In a member-managed limited
liability company, the following rules apply:
(1) Except as expressly provided in this title, the
management and conduct of the company are vested in the
members.
(2) Each member has equal rights in the management and
conduct of the company's activities and affairs.
(3) A difference arising among members as to a matter in
the ordinary course of the activities and affairs of the
company may be decided by a majority of the members.
(4) Except as provided under section 325 (relating to
approval by limited liability company) with respect to a
transaction under Chapter 3 (relating to entity
transactions), an act outside the ordinary course of the
activities and affairs of the company may be undertaken only
with the affirmative vote or consent of all members.
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(5) Except as provided under section 8822(d) (relating
to amendment or restatement of certificate of organization),
the certificate of organization may be amended only with the
affirmative vote or consent of all members.
(6) The operating agreement may be amended only with the
affirmative vote or consent of all members.
(c) Manager-managed company.--In a manager-managed limited
liability company, the following rules apply:
(1) Except as expressly provided in this title, any
matter relating to the activities and affairs of the company
is decided exclusively by the manager, or, if there is more
than one manager, by a majority of the managers.
(2) Each manager has equal rights in the management and
conduct of the company's activities and affairs.
(3) The affirmative vote or consent of all members is
required:
(i) except as provided under section 325 with
respect to a transaction under Chapter 3, to undertake
any act outside the ordinary course of the company's
activities and affairs;
(ii) except as provided under section 8822(d), to
amend the certificate of organization; or
(iii) to amend the operating agreement.
(4) A manager may be chosen at any time by the
affirmative vote or consent of a majority of the members and
remains a manager until a successor has been chosen, unless
the manager at an earlier time resigns, is removed or dies,
or, in the case of a manager that is not an individual,
terminates. A manager may be removed at any time by the
affirmative vote or consent of a majority of the members
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without notice or cause.
(5) A person need not be a member to be a manager,
except that the dissociation of a member that is also a
manager removes the person as a manager. If a person that is
both a manager and a member ceases to be a manager, that
cessation does not by itself dissociate the person as a
member.
(6) A person's ceasing to be a manager does not
discharge any debt, obligation or other liability to the
limited liability company or members which the person
incurred while a manager.
(d) Action by consent or proxy.--An action requiring the
vote or consent of members under this title may be taken without
a meeting and a member may appoint a proxy or other agent to
vote, consent or otherwise act for the member by signing an
appointing document in record form, personally or by the
member's agent.
(e) Effect of dissolution.--The dissolution of a limited
liability company does not affect the applicability of this
section, except that a person that wrongfully causes dissolution
of the company loses the right to participate in management as a
member and a manager.
(f) Reimbursement of advances.--A limited liability company
shall reimburse a member for an advance to the company beyond
the amount of capital the member agreed to contribute.
(g) Interest on advance.--A payment or advance made by a
member which gives rise to an obligation of the limited
liability company under subsection (f) or section 8848(a)
(relating to reimbursement, indemnification, advancement and
insurance) constitutes a loan to the company which accrues
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interest from the date of the payment or advance.
(h) No remuneration for services.--A member is not entitled
to remuneration for services performed for a member-managed
limited liability company, except for reasonable compensation
for services rendered in winding up the activities of the
company.
(i) Increased vote requirements.--Whenever the certificate
of organization or operating agreement requires for the taking
of any action by the members or a class of members a specific
number or percentage of votes or consents, the provision of the
certificate or agreement setting forth that requirement shall
not be amended or repealed by any lesser number or percentage of
votes or consents of the members or the class of members. This
subsection does not apply to a provision setting forth the right
of members to act by unanimous consent in lieu of a meeting.
(j) Exception.--None of the following shall be considered an
amendment of the certificate of organization for purposes of the
voting rules in subsections (b)(6) and (c)(3)(iii):
(1) a restatement of all the operative provisions of the
certificate of organization without change;
(2) a change in the name or registered office of the
limited liability company; or
(3) any combination of the foregoing purposes.
(k) Approval of minor amendments.--Unless otherwise provided
in record form in the operating agreement, an amendment
described in subsection (j) may be made by the affirmative vote
or consent of a majority of the managers or, in the case of a
member-managed limited liability company, of a majority of the
members.
§ 8848. Reimbursement, indemnification, advancement and
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insurance.
(a) Reimbursement.--A limited liability company shall
reimburse a member of a member-managed company or manager of a
manager-managed company for any payment made by the member or in
the course of the member's or manager's activities on behalf of
the company, if the member or manager complied with the
applicable provisions of sections 8847 (relating to management
of limited liability company), 8849.1 (relating to standards of
conduct for members) and 8849.2 (relating to standards of
conduct for managers) in making the payment.
(b) Indemnification.--A limited liability company shall
indemnify and hold harmless a person with respect to any claim
or demand against the person and any debt, obligation or other
liability incurred by the person by reason of the person's
former or present capacity as a member or manager, if the claim,
demand, debt, obligation or other liability does not arise from
the person's breach of section 8845 (relating to limitations on
distributions), 8847, 8849.1 or 8849.2.
(c) Advancement.--In the ordinary course of its activities
and affairs, a limited liability company may advance reasonable
expenses, including attorney fees and costs, incurred by a
person in connection with a claim or demand against the person
by reason of the person's former or present capacity as a member
or manager, if the person promises to repay the company if the
person ultimately is determined not to be entitled to be
indemnified.
(d) Insurance.--A limited liability company may purchase and
maintain insurance on behalf of a member or manager of the
company against liability asserted against or incurred by the
member or manager in that capacity or arising from that status
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even if, under subsection (g) , the operating agreement could not
provide indemnification against the liability or eliminate or
limit the person's liability to the company for the conduct
giving rise to the liability.
(e) Nonexclusivity.--The rights provided by subsections (a),
(b), (c) and (d) shall not be deemed exclusive of any other
rights to which a person seeking reimbursement, indemnification,
advancement of expenses or insurance may be entitled under the
operating agreement, vote of members or disinterested managers,
contract or otherwise, both as to action in his official
capacity and as to action in another capacity while holding that
position. Sections 8849.1(f) and 8849.2(e) shall be applicable
to a vote, contract or other action under this subsection. A
limited liability company may create a fund of any nature, which
may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner its indemnification
obligations, whether arising under this section or otherwise.
(f) Grounds.--Indemnification under subsection (e) may be
granted for any action taken and may be made whether or not the
limited liability company would have the power to indemnify the
person under any other provision of law except as provided in
this section and whether or not the indemnified liability arises
or arose from any threatened, pending or completed action by or
in the right of the company. Indemnification under subsection
(e) is declared to be consistent with the public policy of the
Commonwealth.
(g) Limitation.--Indemnification under this section shall
not be made in any case where the act giving rise to the claim
for indemnification is determined by a court to constitute
recklessness, willful misconduct or a knowing violation of law.
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§ 8849. (Reserved).
§ 8849.1. Standards of conduct for members.
(a) General rule.--A member of a member-managed limited
liability company owes to the company and, subject to section
8881(b) (relating to direct action by member), the other members
the duties of loyalty and care stated under subsections (b) and
(c).
(b) Duty of loyalty.--The fiduciary duty of loyalty of a
member in a member-managed limited liability company includes
the duties:
(1) to account to the company and to hold as trustee for
it any property, profit or benefit derived by the member:
(i) in the conduct or winding up of the company's
activities and affairs;
(ii) from a use by the member of the company's
property; or
(iii) from the appropriation of a company
opportunity;
(2) to refrain from dealing with the company in the
conduct or winding up of the company's activities and affairs
as or on behalf of a person having an interest adverse to the
company; and
(3) to refrain from competing with the company in the
conduct of the company's activities and affairs before the
dissolution of the company.
(c) Duty of care.--The duty of care of a member of a member-
managed limited liability company in the conduct or winding up
of the company's activities and affairs is to refrain from
engaging in gross negligence, recklessness, willful misconduct
or knowing violation of law.
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(d) Good faith and fair dealing.--A member shall discharge
the duties and obligations under this title or under the
operating agreement and exercise any rights consistent with the
contractual obligation of good faith and fair dealing.
(e) Self-serving conduct.--A member does not violate a duty
or obligation under this title or under the operating agreement
solely because the member's conduct furthers the member's own
interest.
(f) Authorization or ratification.--All the members of a
member-managed limited liability company may authorize or
ratify, after disclosure of all material facts, a specific act
or transaction that otherwise would violate the duty of loyalty
of a member.
(g) Fairness as a defense.--It is a defense to a claim under
subsection (b)(2) and any comparable claim in equity or at
common law that the transaction was fair to the limited
liability company at the time it is authorized or ratified under
subsection (f).
(h) Rights and obligations in approved transaction.--If a
member enters into a transaction with the limited liability
company which otherwise would be prohibited under subsection (b)
(2), and the transaction is authorized or ratified as provided
under subsection (f) or the operating agreement, the member's
rights and obligations arising from the transaction are the same
as those of a person that is not a member.
(i) Duties of members in manager-managed company.--Subject
to subsection (d), a member does not have any duty to a manager-
managed limited liability company or to any other member of the
company solely by reason of being or acting as a member.
(j) Exoneration.--The operating agreement may provide that a
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member in a member-managed limited liability company shall not
be personally liable for monetary damages to the company or the
other members for a breach of subsection (c), except that a
member may not be exonerated for an act that constitutes
recklessness, willful misconduct or a knowing violation of law.
(k) Cross reference.--See section 8815 (relating to contents
of operating agreement).
§ 8849.2. Standards of conduct for managers.
(a) General rule.--A manager of a manager-managed limited
liability company owes to the company and, subject to section
8881(b) (relating to direct action by member), the members the
duties of loyalty and care stated under subsections (b) and (c).
(b) Duty of loyalty.--The fiduciary duty of loyalty of a
manager in a manager-managed limited liability company includes
the duties:
(1) to account to the company and to hold as trustee for
it any property, profit or benefit derived by the manager:
(i) in the conduct or winding up of the company's
activities and affairs;
(ii) from a use by the manager of the company's
property; or
(iii) from the appropriation of a company
opportunity;
(2) to refrain from dealing with the company in the
conduct or winding up of the company's activities and affairs
as or on behalf of a person having an interest adverse to the
company; and
(3) to refrain from competing with the company in the
conduct of the company's activities and affairs until
completion of the winding up of the company.
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(c) Duty of care.--The duty of care of a manager of a
manager-managed limited liability company in the conduct or
winding up of the company's activities and affairs is to refrain
from engaging in gross negligence, recklessness, willful
misconduct or knowing violation of law.
(d) Good faith and fair dealing.--A manager of a manager-
managed limited liability company shall discharge the duties and
obligations under this title or under the operating agreement
and exercise any rights consistently with the contractual
obligation of good faith and fair dealing.
(e) Ratification of breach of duty of loyalty.--All the
members, or a majority of disinterested managers, of a manager-
managed limited liability company may authorize or ratify, after
disclosure of all material facts, a specific act or transaction
by a manager that otherwise would violate the duty of loyalty.
(f) Fairness as a defense.--It is a defense to a claim under
subsection (b)(2) and any comparable claim in equity or at
common law that the transaction was fair to the limited
liability company.
(g) Manager's rights in approved transaction.--If a manager
enters into a transaction with the limited liability company
which otherwise would be prohibited by subsection (b)(2), and
the transaction is approved or ratified as provided by
subsection (e) or the operating agreement, the manager's rights
and obligations arising from the transaction are the same as
those of a person that is not a manager.
(h) Exoneration.--The operating agreement may provide that a
manager in a manager-managed limited liability company shall not
be personally liable for monetary damages to the company or the
members for a breach of subsection (c), except that a manager
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may not be exonerated for an act that constitutes recklessness,
willful misconduct or a knowing violation of law.
(i) Cross reference.--See section 8815 (relating to contents
of operating agreement).
§ 8850. Rights to information.
(a) In member-managed company.--In a member-managed limited
liability company, the following rules apply:
(1) On reasonable notice, a member may inspect and copy
during regular business hours, at a reasonable location
specified by the company, any record maintained by the
company regarding the company's activities, affairs,
financial condition and other circumstances.
(2) The company shall furnish to each member , without
demand, any information concerning the company's activities,
affairs, financial condition and other circumstances which
the company knows and is material to the proper exercise of
the member's rights and duties under the operating agreement
or this title, except to the extent the company can establish
that it reasonably believes the member already knows the
information.
(3) The duty to furnish information under paragraph (2)
also applies to each member to the extent the member knows
any of the information described in paragraph (2).
(b) In manager-managed company.--In a manager-managed
limited liability company, the following rules apply:
(1) The informational rights stated in subsection (a)
and the duty stated in subsection (a)(3) apply to the
managers and not the members.
(2) During regular business hours and at a reasonable
location specified by the company, a member may inspect and
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copy full information regarding the activities, affairs,
financial condition and other circumstances of the company as
is just and reasonable if:
(i) the member seeks the information for a purpose
reasonably related to the member's interest as a member;
(ii) the member makes a demand in record form
received by the company, describing with reasonable
particularity the information sought and the purpose for
seeking the information; and
(iii) the information sought is directly connected
to the member's purpose.
(3) Within 10 days after receiving a demand under
paragraph (2)(ii), the company shall, in record form, inform
the member that made the demand of:
(i) the information that the company will provide in
response to the demand and when and where the company
will provide the information; and
(ii) the company's reasons for declining, if the
company declines to provide any demanded information.
(c) Rights of person dissociated as member.--Subject to
subsection (h), within 10 days after receipt by a limited
liability company of a demand made in record form, a person
dissociated as a member may have access to information to which
the person was entitled while a member if:
(1) the information pertains to the period during which
the person was a member;
(2) the person seeks the information in good faith; and
(3) the person satisfies the requirements imposed on a
member under subsection (b)(2).
(d) Response of company.--A limited liability company shall
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respond to a demand made under subsection (c) in the manner
provided in subsection (b)(3).
(e) Copying costs.--A limited liability company may charge a
person that makes a demand under this section the reasonable
costs of copying.
(f) Rights of agent or guardian.--A member or person
dissociated as a member may exercise rights under this section
through an agent or, in the case of an individual under legal
disability, a guardian. Any restriction or condition imposed by
the operating agreement or under subsection (h) applies both to
the agent or guardian and the member or person dissociated as a
member.
(g) No rights of transferee.--Subject to section 8854
(relating to power of personal representative of deceased
member), the rights under this section do not extend to a person
as transferee.
(h) Limitations on access.--In addition to any restriction
or condition stated in the operating agreement, a limited
liability company, as a matter within the ordinary course of its
activities and affairs, may impose reasonable restrictions and
conditions on access to and use of information to be furnished
under this section, including designating information
confidential and imposing nondisclosure and safeguarding
obligations on the recipient. In a dispute concerning the
reasonableness of a restriction under this subsection, the
company has the burden of proving reasonableness.
(i) Cross reference.--See section 8815 (relating to contents
of operating agreement).
SUBCHAPTER E
TRANSFERABLE INTERESTS AND RIGHTS
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OF TRANSFEREES AND CREDITORS
Sec.
8851. Nature of transferable interest.
8852. Transfer of transferable interest.
8853. Charging order.
8854. Power of personal representative of deceased member.
§ 8851. Nature of transferable interest.
(a) Personal property.--A transferable interest is personal
property.
(b) Only right that may be transferred.--A person may not
transfer to a person not a member any rights in a limited
liability company other than a transferable interest.
§ 8852. Transfer of transferable interest.
(a) General rule.--Subject to section 8853(f) (relating to
charging order), a transfer, in whole or in part, of a
transferable interest:
(1) is permissible;
(2) does not by itself cause the dissociation of the
transferor as a member or a dissolution and winding up of the
limited liability company's activities and affairs; and
(3) subject to section 8854 (relating to power of
personal representative of deceased member), does not entitle
the transferee to:
(i) participate in the management or conduct of the
company's activities and affairs; or
(ii) except as provided in subsection (c), have
access to records or other information concerning the
company's activities and affairs.
(b) Right to distributions.--A transferee has the right to
receive, in accordance with the transfer, distributions to which
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the transferor would otherwise be entitled.
(c) Right to account on dissolution.--In a dissolution and
winding up of a limited liability company, a transferee is
entitled to an account of the company's transactions only from
the date of dissolution.
(d) Certificate of interest.--A transferable interest may be
evidenced by a certificate of the interest issued by the limited
liability company in record form and, subject to this section,
the interest represented by the certificate may be transferred
by a transfer of the certificate.
(e) Recognition of transferee's rights.--A limited liability
company need not give effect to a transferee's rights under this
section until the company knows or has notice of the transfer.
(f) Transfer restrictions.--A transfer of a transferable
interest in violation of a restriction on transfer contained in
the operating agreement is ineffective if the intended
transferee has knowledge or notice of the restriction at the
time of transfer.
(g) Rights retained by transferor.--Except as provided in
section 8861(5)(ii) (relating to events causing dissociation),
if a member transfers a transferable interest, the transferor
retains the rights of a member other than the transferable
interest transferred and retains all the duties and obligations
of a member.
§ 8853. Charging order.
(a) General rule.--On application by a judgment creditor of
a member or transferee, a court may enter a charging order
against the transferable interest of the judgment debtor for the
unsatisfied amount of the judgment. Except as provided in
subsection (f), a charging order constitutes a lien on a
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judgment debtor's transferable interest and requires the limited
liability company to pay over to the person to which the
charging order was issued any distribution that otherwise would
be paid to the judgment debtor.
(b) Available relief.--To the extent necessary to effectuate
the collection of distributions pursuant to a charging order in
effect under subsection (a), the court may:
(1) appoint a receiver of the distributions subject to
the charging order, with the power to make all inquiries the
judgment debtor might have made; and
(2) make all other orders necessary to give effect to
the charging order.
(c) Foreclosure.--Upon a showing that distributions under a
charging order will not pay the judgment debt within a
reasonable time, the court may foreclose the lien and order the
sale of the transferable interest. Except as provided in
subsection (f), the purchaser at the foreclosure sale only
obtains the transferable interest, does not thereby become a
member, and is subject to section 8852 (relating to transfer of
transferable interest).
(d) Satisfaction of judgment.--At any time before
foreclosure under subsection (c), the member or transferee whose
transferable interest is subject to a charging order under
subsection (a) may extinguish the charging order by satisfying
the judgment and filing a certified copy of the satisfaction
with the court that issued the charging order.
(e) Purchase of rights.--At any time before foreclosure
under subsection (c), a limited liability company or one or more
members whose transferable interests are not subject to the
charging order may pay to the judgment creditor the full amount
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due under the judgment and thereby succeed to the rights of the
judgment creditor, including the charging order.
(f) Foreclosure against sole member.--If a court orders
foreclosure of a charging order lien against the sole member of
a limited liability company:
(1) the court shall confirm the sale;
(2) the purchaser at the sale obtains the member's
entire interest, not only the member's transferable interest;
(3) the purchaser thereby becomes a member; and
(4) the person whose interest was subject to the
foreclosed charging order is dissociated as a member.
(g) Exemption laws preserved.--This chapter shall not
deprive any member or transferee of the benefit of any exemption
laws applicable to the transferable interest of the member or
transferee.
(h) Exclusive remedy.--This section provides the exclusive
remedy by which a person seeking to enforce a judgment against a
member or transferee may, in the capacity of judgment creditor,
satisfy the judgment from the judgment debtor's transferable
interest.
§ 8854. Power of personal representative of deceased member.
If a member dies, the deceased member's personal
representative may exercise:
(1) the rights of a transferee provided in section
8852(c) (relating to transfer of transferable interest); and
(2) for the purposes of settling the estate, the rights
the deceased member had under section 8850 (relating to
rights to information).
SUBCHAPTER F
DISSOCIATION
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Sec.
8861. Events causing dissociation.
8862. Power to dissociate and wrongful dissociation.
8863. Effects of dissociation.
§ 8861. Events causing dissociation.
A person is dissociated as a member when any of the following
occurs:
(1) The limited liability company knows or has notice of
the person's express will to withdraw as a member, except
that, if the person specified a withdrawal date later than
the date the company knew or had notice, on that later date.
(2) An event stated in the operating agreement as
causing the person's dissociation occurs.
(3) The person's entire interest is transferred in a
foreclosure sale under section 8853(f) (relating to charging
order).
(4) The person is expelled as a member pursuant to the
operating agreement.
(5) The person is expelled as a member by the
affirmative vote or consent of all the other members if:
(i) it is unlawful to carry on the company's
activities and affairs with the person as a member;
(ii) there has been a transfer of all the person's
transferable interest in the company, other than:
(A) a transfer for security purposes; or
(B) a charging order in effect under section
8853 which has not been foreclosed;
(iii) the person is an entity and:
(A) the company notifies the person that it will
be expelled as a member because:
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(I) the person has filed a certificate of
dissolution or the equivalent;
(II) the person has been administratively
dissolved;
(III) the person's charter or its equivalent
has been revoked; or
(IV) the person's right to conduct business
has been suspended by the person's jurisdiction
of formation; and
(B) within 90 days after the notification:
(I) the certificate of dissolution or the
equivalent has not been withdrawn, rescinded or
revoked;
(II) the person has not been reinstated;
(III) the person's charter or the equivalent
has not been reinstated; or
(IV) the person's right to conduct business
has not been reinstated; or
(iv) the person is an unincorporated entity that has
been dissolved and whose activities and affairs are being
wound up.
(6) On application by the company or a member in a
direct action under section 8881 (relating to direct action
by member), the person is expelled as a member by judicial
order because the person:
(i) has engaged or is engaging in wrongful conduct
that has affected adversely and materially, or will
affect adversely and materially, the company's activities
and affairs;
(ii) has committed willfully or persistently, or is
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committing willfully or persistently, a material breach
of the operating agreement or a duty or obligation under
section 8849.1 (relating to standards of conduct for
members); or
(iii) has engaged or is engaging in conduct relating
to the company's activities and affairs which makes it
not reasonably practicable to carry on the activities and
affairs with the person as a member.
(7) In the case of an individual:
(i) the individual dies; or
(ii) in a member-managed limited liability company:
(A) a guardian for the individual is appointed;
or
(B) a court orders that the individual has
otherwise become incapable of performing the
individual's duties as a member under this title or
the operating agreement.
(8) In a member-managed limited liability company, the
person:
(i) becomes a debtor in bankruptcy;
(ii) executes an assignment for the benefit of
creditors; or
(iii) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the
person or of all or substantially all the person's
property.
(9) In the case of a person that is a testamentary or
inter vivos trust or is acting as a member by virtue of being
a trustee of such a trust, the trust's entire transferable
interest in the company is distributed.
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(10) In the case of a person that is an estate or is
acting as a member by virtue of being a personal
representative of an estate, the estate's entire transferable
interest in the company is distributed.
(11) In the case of a person that is not an individual,
the existence of the person terminates.
(12) The company participates in a merger under Chapter
3 (relating to entity transactions) and:
(i) the company is not the surviving entity; or
(ii) otherwise as a result of the merger, the person
ceases to be a member.
(13) The company participates in an interest exchange
under Chapter 3 and, as a result of the interest exchange,
the person ceases to be a member.
(14) The company participates in a conversion under
Chapter 3.
(15) The company participates in a division under
Chapter 3 and:
(i) the company is not a resulting association; or
(ii) as a result of the division, the person ceases
to be a member.
(16) The company participates in a domestication under
Chapter 3 and, as a result of the domestication, the person
ceases to be a member.
(17) The company dissolves and completes winding up.
§ 8862. Power to dissociate and wrongful dissociation.
(a) Power to dissociate.--A person has the power to
dissociate as a member at any time, rightfully or wrongfully, by
withdrawing as a member by express will under section 8861(1)
(relating to events causing dissociation).
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(b) Wrongful dissociation.--A person's dissociation as a
member is wrongful only if the dissociation:
(1) is in breach of an express provision of the
operating agreement; or
(2) occurs before the completion of the winding up of
the limited liability company and:
(i) the person withdraws as a member by express
will;
(ii) the person is expelled as a member by judicial
order under section 8861(6);
(iii) the person is dissociated under section
8861(8); or
(iv) the person is expelled or otherwise dissociated
as a member because it willfully dissolved or terminated,
except that this subparagraph does not apply to a person
that is:
(A) a trust that is not a business or statutory
trust;
(B) an estate; or
(C) an individual.
(c) Damages for wrongful dissociation.--A person that
wrongfully dissociates as a member is liable to the limited
liability company and, subject to section 8881 (relating to
direct action by member), to the other members for damages
caused by the dissociation. The liability is in addition to any
debt, obligation or other liability of the member to the company
or the other members.
§ 8863. Effects of dissociation.
(a) General rule.--If a person is dissociated as a member:
(1) the person's rights as a member terminate;
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(2) if the company is member-managed, the person's
duties and obligations under section 8849.1 (relating to
standards of conduct for members) as a member end with regard
to matters arising and events occurring after the person's
dissociation; and
(3) subject to sections 8844(e) (relating to sharing of
and right to distributions before dissolution) and 8854
(relating to power of personal representative of deceased
member) and Chapter 3 (relating to entity transactions), any
transferable interest owned by the person in the person's
capacity as a member immediately before dissociation as a
member is owned by the person solely as a transferee.
(b) Existing obligations not discharged.--A person's
dissociation as a member does not of itself discharge the person
from any debt, obligation or other liability to the company or
the other members which the person incurred while a member.
SUBCHAPTER G
DISSOLUTION AND WINDING UP
Sec.
8871. Events causing dissolution.
8872. Winding up and filing of certificates.
8873. (Reserved) .
8874. Known claims against dissolved limited liability company.
8875. Other claims against dissolved limited liability company.
8876. Court proceedings.
8877. Disposition of assets in winding up.
8878. Voluntary termination by members or organizers.
§ 8871. Events causing dissolution.
(a) General rule.--A limited liability company is dissolved,
and its activities and affairs shall be wound up, upon the
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occurrence of any of the following:
(1) An event or circumstance that the operating
agreement states causes dissolution.
(2) The consent of all the members.
(3) The passage of 180 consecutive days after the
company ceases to have any members unless before the end of
the period:
(i) consent to admit at least one specified person
as a member is given by transferees owning the rights to
receive a majority of distributions as transferees at the
time the consent is to be effective; and
(ii) at least one person becomes a member in
accordance with the consent.
(4) On application by a member, the entry by the court
of an order dissolving the company on the grounds that:
(i) the conduct of all or substantially all the
company's activities and affairs is unlawful;
(ii) it is not reasonably practicable to carry on
the company's activities and affairs in conformity with
the certificate of organization and the operating
agreement; or
(iii) the managers or those members in control of
the company:
(A) have acted, are acting, or will act in a
manner that is illegal or fraudulent; or
(B) have acted or are acting in a manner that is
oppressive and was, is or will be directly harmful to
the applicant.
(b) Other remedies.--In a proceeding brought under
subsection (a)(4)(iii)(B), the court may order a remedy other
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than dissolution.
(c) Cross reference.--See section 8815(c)(15) (relating to
contents of operating agreement).
§ 8872. Winding up and filing of certificates.
(a) General rule.--A dissolved limited liability company
shall wind up its activities and affairs and the company
continues after dissolution only for the purpose of winding up.
(b) Conduct of winding up.--In winding up its activities and
affairs, a limited liability company:
(1) shall discharge the company's debts, obligations and
other liabilities, settle and close the company's activities
and affairs, and marshal and distribute the assets of the
company; and
(2) may:
(i) deliver to the department for filing a
certificate of dissolution stating:
(A) the name of the company;
(B) subject to section 109 (relating to name of
commercial registered office provider in lieu of
registered address), the address, including street
and number, if any, of the registered office of the
company; and
(C) that the company is dissolved;
(ii) preserve the company's activities, affairs and
property as a going concern for a reasonable time;
(iii) prosecute and defend actions and proceedings,
whether civil, criminal or administrative;
(iv) transfer the company's property;
(v) settle disputes by mediation or arbitration; and
(vi) perform other acts necessary or appropriate to
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the winding up.
(c) Conduct of winding up when no members.--If a dissolved
limited liability company has no members, the personal
representative, guardian or other person authorized to act on
behalf of the last person to have been a member may wind up the
activities and affairs of the company. If the person does so,
the person has the powers of a sole manager under section
8847(c) (relating to management of limited liability company)
and is deemed to be a manager for the purposes of section
8834(a) (relating to liability of members and managers).
(d) Action by transferees.--If the personal representative,
guardian or other person authorized to act under subsection (c)
declines or fails to wind up the company's activities and
affairs, a person may be appointed to do so by the consent of
transferees owning a majority of the rights to receive
distributions as transferees at the time the consent is to be
effective. A person appointed under this subsection:
(1) has the powers of a sole manager under section
8847(c) and is deemed to be a manager for the purposes of
section 8834(a); and
(2) shall promptly deliver to the department for filing
an amendment to the company's certificate of organization
stating:
(i) that the company has no members;
(ii) the name and street and mailing addresses of
the person; and
(iii) that the person has been appointed under this
subsection to wind up the company.
(e) Judicial supervision.--The court may order judicial
supervision of the winding up of a dissolved limited liability
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company, including the appointment of a person to wind up the
company's activities and affairs:
(1) on the application of a member, if the applicant
establishes good cause;
(2) on the application of a transferee, if:
(i) the company does not have any members;
(ii) the legal representative of the last person to
have been a member declines or fails to wind up the
company's activities; and
(iii) within a reasonable time following the
dissolution a person has not been appointed under
subsection (c); or
(3) in connection with a proceeding under section
8871(a)(4) (relating to events causing dissolution).
(f) Certificate of termination.--When all debts, obligations
and other liabilities of the limited liability company have been
paid and discharged or adequate provision has been made therefor
and all of the remaining property and assets of the company have
been distributed to the members, a certificate of termination
shall be delivered to the department for filing along with the
certificates required by section 139 (relating to tax clearance
of certain fundamental transactions). The certificate of
termination shall set forth:
(1) The name of the limited liability company.
(2) Subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of the registered office of the company.
(3) That all debts, obligations and other liabilities of
the company have been paid and discharged or that adequate
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provision has been made therefor.
(4) That all the remaining property and assets of the
company have been distributed among its members in accordance
with their respective rights and interests.
(5) That there are no actions pending against the
company in any court or that adequate provision has been made
for the satisfaction of any judgment that may be entered
against it in any pending action.
(6) That the company is terminated.
(g) Cross references.--See:
Section 134 (relating to docketing statement).
Section 135 (requirements to be met by filed documents).
Section 136(c) (relating to processing of documents by
Department of State).
Section 8815(c)(16) (relating to contents of operating
agreement).
Section 8823 (relating to signing of filed documents).
§ 8873. (Reserved).
§ 8874. Known claims against dissolved limited liability
company.
(a) General rule.--Except as provided in subsection (d), a
dissolved limited liability company may give notice of a known
claim under subsection (b), which has the effect provided in
subsection (c).
(b) Required notice.--A dissolved limited liability company
may notify in record form its known claimants of the
dissolution. The notice must:
(1) specify the information required to be included in a
claim;
(2) state that a claim must be in writing and provide a
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mailing address to which the claim is to be sent;
(3) state the deadline for receipt of a claim, which may
not be less than 120 days after the date the notice is
received by the claimant; and
(4) state that the claim will be barred if not received
by the deadline.
(c) Claims barred.--A claim against a dissolved limited
liability company is barred if the requirements of subsection
(b) are met and:
(1) the claim is not received by the specified deadline;
or
(2) if the claim is timely received but rejected by the
company:
(i) the company causes the claimant to receive a
notice in record form stating that the claim is rejected
and will be barred unless the claimant commences an
action against the company to enforce the claim within 90
days after the claimant receives the notice; and
(ii) the claimant does not commence the required
action within 90 days after the complainant receives the
notice.
(d) Later arising claims.--This section shall not apply to a
claim based on an event occurring after the effective date of
dissolution or a liability that on that date is contingent.
§ 8875. Other claims against dissolved limited liability
company.
(a) Permissive notice.--A dissolved limited liability
company may publish notice of its dissolution and request
persons having claims against the company to present them in
accordance with the notice.
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(b) Notice procedure.--A notice under subsection (a) must:
(1) be officially published one time;
(2) describe the information required to be contained in
a claim, state that the claim must be in writing and provide
a mailing address to which the claim is to be sent; and
(3) state that a claim against the limited liability
company is barred unless an action to enforce the claim is
commenced within two years after publication of the notice.
(c) Claims barred.--If a dissolved limited liability company
publishes a notice in accordance with subsection (b), the claim
of each of the following claimants is barred unless the claimant
commences an action to enforce the claim against the company
within two years after the publication date of the notice:
(1) a claimant that did not receive notice in record
form under section 8874 (relating to known claims against
dissolved limited liability company);
(2) a claimant whose claim was timely sent to the
company but not acted on; and
(3) a claimant whose claim is contingent at, or based on
an event occurring after, the effective date of dissolution.
(d) Claims not barred.--A claim not barred under this
section or section 8874 may be enforced:
(1) against a dissolved limited liability company, to
the extent of its undistributed assets; and
(2) except as provided in section 8876 (relating to
court proceedings), if assets of the company have been
distributed after dissolution, against a member or transferee
to the extent of that person's proportionate share of the
claim or of the company's assets distributed to the member or
transferee after dissolution, whichever is less, except that
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a person's total liability for all claims under this
paragraph may not exceed the total amount of assets
distributed to the person after dissolution.
§ 8876. Court proceedings.
(a) Determination of security.--A dissolved limited
liability company that has officially published a notice under
section 8875 (relating to other claims against dissolved limited
liability company) may file an application with the court for a
determination of the amount and form of security to be provided
for payment of claims that are reasonably expected to arise
after the date of dissolution based on facts known to the
company and:
(1) at the time of application:
(i) are contingent; or
(ii) have not been made known to the company; or
(2) are based on an event occurring after the effective
date of dissolution.
(b) When security not required.--Security is not required
for any claim that is or is reasonably anticipated to be barred
under section 8875(c).
(c) Notice.--Within 10 days after the filing of an
application under subsection (a), the dissolved limited
liability company shall give notice of the proceeding to each
claimant holding a contingent claim known to the company.
(d) Guardian ad litem.--In any proceeding under this
section, the court may appoint a guardian ad litem to represent
all claimants whose identities are unknown. The reasonable fees
and expenses of the guardian, including all reasonable expert
witness fees, must be paid by the dissolved limited liability
company.
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(e) Effect on contingent claims.--A dissolved limited
liability company that provides security in the amount and form
ordered by the court under subsection (a) satisfies the
company's obligations with respect to claims that are
contingent, have not been made known to the company or are based
on an event occurring after the effective date of dissolution.
The claims may not be enforced against a member or transferee
that received assets in liquidation.
§ 8877. Disposition of assets in winding up.
(a) Creditors.--In winding up its activities and affairs, a
limited liability company shall apply its assets to discharge
its obligations to creditors, including members that are
creditors.
(b) Surplus.--After a limited liability company complies
with subsection (a), any surplus shall be distributed in the
following order, subject to any charging order in effect under
section 8853 (relating to charging order):
(1) to each owner of a transferable interest that
reflects contributions made and not previously returned, an
amount equal to the value of the unreturned contributions;
and
(2) among owners of transferable interests in proportion
to their respective rights to share in distributions
immediately before the dissolution of the company.
(c) Insufficient assets.--If a limited liability company
does not have sufficient surplus to comply with subsection (b)
(1), any surplus must be distributed among the owners of
transferable interests in proportion to the value of the
respective unreturned contributions.
(d) Form of payment.--All distributions made under
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subsections (b) and (c) must be paid in money.
§ 8878. Voluntary termination by members or organizers.
(a) General rule.--The members or organizers of a limited
liability company that has never transacted business or held
assets other than money received as capital contributions may
effect the termination of the company by delivering to the
department for filing a certificate of termination signed by an
organizer or a member and stating:
(1) the name of the company;
(2) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address, including street and number, if any,
of the registered office of the company;
(3) that the company has never transacted business or
held assets other than money received as capital
contributions ;
(4) that the amounts, if any, actually paid in as
capital contributions, less any part disbursed for necessary
expenses, have been returned to those entitled to the return
of the amounts;
(5) that all liabilities of the company have been
discharged or that adequate provision has been made for those
liabilities; and
(6) that a majority of the organizers or a majority in
interest of the members elect that the company be terminated.
(b) Effect.--Upon the filing of the certificate of
termination, the existence of the limited liability company
shall cease.
(c) Cross references.--See:
Section 134 (relating to docketing statement).
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Section 135 (relating to requirements to be met by filed
documents).
Section 136(c) (relating to processing of documents by
Department of State).
SUBCHAPTER H
ACTIONS BY MEMBERS
Sec.
8881. Direct action by member.
8882. Derivative action.
8883. Security for costs.
8884. Special litigation committee.
8885 . Proceeds and expenses.
§ 8881. Direct action by member.
(a) General rule.--Subject to subsection (b), a member may
maintain a direct action against another member, a manager or
the limited liability company to enforce the member's rights and
protect the member's interests, including rights and interests
under the operating agreement or this title or arising
independently of the membership relationship.
(b) Required injury.--A member maintaining a direct action
under this section must plead and prove an actual or threatened
injury that is not solely the result of an injury suffered or
threatened to be suffered by the limited liability company.
(c) Cross reference.--See section 8815(c)(17) (relating to
contents of operating agreement).
§ 8882. Derivative action.
(a) General rule.--Subject to subsection (b), a member or
manager may maintain a derivative action to enforce a right of a
limited liability company only if:
(1) the plaintiff first makes a demand on the other
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members in a member-managed limited liability company, or the
managers of a manager-managed limited liability company,
requesting that they cause the company to bring an action to
e nforce the right and:
(i) if a special litigation committee is not
appointed under section 8884 (relating to special
litigation committee ), the company does not bring the
action within a reasonable time; or
(ii) if a special litigation committee is appointed
under section 8884, a determination is made:
(A) under section 8884(e)(1) that the company
not object to the action; or
(B) under section 8884(e)(5)(i) that the
plaintiff continue the action;
(2) demand is excuse under subsection (b);
(3) the action is maintained for the limited purpose of
seeking court review under section 8884(f); or
(4) the court has allowed the action to continue
under the control of the plaintiff under section 8884(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 irreparable harm
to the limited liability company would otherwise result.
(2) If demand is excused under paragraph (1), demand
should 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.
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(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 managers or members have decided not to
bring an action and not to appoint a special litigation
committee; or
(ii) of a determination under section 8884(e) after
the appointment of a special litigation committee under
section 8884 ; or
(2) the plaintiff commences an action asserting the
claim.
(f) Cross reference.--See section 8815(c)(17) (relating to
contents of operating agreement).
§ 8883. Security for costs.
In any action or proceeding instituted or maintained by
members holding transferable interests entitled to receive less
than 5% of any distribution by a limited liability company,
unless the transferable interests held by the members have an
aggregate fair market value in excess of $200,000, the company
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 the company in
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connection therewith or for which it may become liable pursuant
to section 8848(b) (relating to reimbursement, indemnification,
advancement and insurance) to which security the company 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 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.
§ 8884 . Special litigation committee.
(a) General rule.--If a limited liability company or its
members or managers receive a demand to bring an action to
enforce a right of the company , or if a derivative action is
commenced before demand has been made on the company or its
members or managers, the members in a member-managed limited
liability company, or the managers in a manager-managed limited
liability company, may appoint a special litigation committee to
investigate the claims asserted in the demand or action and to
determine on behalf of the company or recommend to the managers
or members whether pursuing any of the claims asserted is in the
best interests of the company. The company 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. A committee may not be appointed under this
section if:
(1) every member of the company is also a manager of the
company; or
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(2) the company is member-managed and every member is
actively involved in the management of the company.
(b) Discovery stay.--If the members or managers appoint 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
limited liability company, the court shall stay discovery for
the time reasonably necessary to permit the committee to make
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 ;
(2) are capable as a group of objective judgment in the
circumstances; and
(3) may, but need not, be members or managers.
(d) Appointment of committee.--A special litigation
committee may be appointed:
(1) in a member-managed limited liability company:
(i) by a majority of the members not named as actual
or potential parties in the demand or action; and
(ii) if all members are named as actual or potential
parties in the demand or action, by a majority of the
members so named; or
(2) in a manager-managed limited liability company:
(i) by a majority of the managers not named as
actual or potential parties in the demand or action; and
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(ii) if all managers are named as actual or
potential parties in the demand or action, by a majority
of the managers so named.
(e) Determination.--After appropriate investigation by a
special litigation committee, the committee or the managers or
members may determine that it is in the best interests of the
limited liability company that:
(1) an action based on some or all of the claims
asserted in the demand not be brought by the company but that
the company 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 company;
(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 company; or
(iii) the committee;
(6) some or all of 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):
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(1) The limited liability company shall file with the
court after a determination is made under subsection (e) a
statement of the determination and a report of the committee .
The company shall serve each party with a copy of the
determination and report. If the company 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 company 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 and other appropriate motions and pleadings.
(g) Attorney General.--Nothing in this section shall limit
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the rights, powers and duties of the Attorney General under
other applicable law with respect to a limited liability company
organized for a charitable purpose.
(h) Cross reference.--See section 8815(c)(18) (relating to
contents of operating agreement).
§ 8885 . 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 limited liability company and not to the plaintiff;
and
(2) if the plaintiff or its counsel receives any
proceeds, the proceeds shall be remitted immediately to the
company.
(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 limited liability company , 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 company.
(c) Cross reference.--See section 8815(c)(13) (relating to
contents of operating agreement).
SUBCHAPTER I
BENEFIT COMPANIES
Sec.
8891. Application and effect of subchapter.
8892. Definitions.
8893. Benefit company status.
8894. Purposes.
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8895. Standard of conduct for members.
8896. Standard of conduct for managers and officers.
8897. Right of action.
8898. Annual benefit report.
§ 8891. Application and effect of subchapter.
(a) General rule.--This subchapter shall apply to all
benefit companies.
(b) Limited application of subchapter.--The existence of a
provision of this subchapter shall not of itself create any
implication that a contrary or different rule of law is or would
be applicable to a limited liability company that is not a
benefit company. This subchapter shall not affect any statute or
rule of law that is or would be applicable to a limited
liability company that is not a benefit company.
(c) Laws applicable to benefit companies.--Except as
otherwise provided in this subchapter, the provisions of Part I
(relating to preliminary provisions) and this chapter shall
apply generally to benefit companies. The provisions of this
subchapter shall control over inconsistent provisions of this
title.
(d) Organic rules may not be inconsistent.--See section
8815(c)(19) (relating to contents of operating agreement).
§ 8892. 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:
"Benefit company." A limited liability company that is
subject to this subchapter.
"Benefit enforcement proceeding." A claim or action for:
(1) failure to pursue or create the general public
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benefit purpose of the benefit company or any specific public
benefit purpose set forth in its certificate of organization;
or
(2) violation of any obligation, duty or standard of
conduct under this subchapter.
"General public benefit." A material positive impact on
society and the environment, taken as a whole and assessed
against a third-party standard, from the business and operations
of a benefit company.
"Independent." When a person has no material relationship
with a benefit company or any of its subsidiaries. A material
relationship between an individual and a benefit company 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 company or any of its
subsidiaries;
(2) an immediate family member of the person is or has
been within the last three years an executive officer of the
benefit company or any of its subsidiaries; or
(3) the person, or an association of which the person is
a governor or officer or in which the person owns
beneficially or of record 5% or more of the outstanding
interests, owns beneficially or of record 5% or more of the
outstanding interests of the benefit company. The percentage
of ownership in an association shall be calculated as if all
outstanding rights to acquire interests in the association
had been exercised.
"Minimum status vote." As follows:
(1) In the case of a limited liability company, in
addition to any other required approval or vote, the
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satisfaction of the following conditions:
(i) The members of every class or series must be
entitled, as a class, to vote on the action regardless of
a limitation stated in the certificate of organization or
operating agreement on the voting rights of any class or
series.
(ii) The action must be approved by a vote of the
members of each class or series entitled to cast at least
two-thirds of the votes that all members of the class or
series are entitled to cast on the action.
(2) In the case of a domestic association other than a
limited liability company, 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 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.
"Specific public benefit." The term shall have the meaning
specified in section 3302 (relating to definitions).
"Subsidiary." The term shall have the meaning specified in
section 3302.
"Third-party standard." A standard for defining, reporting
and assessing overall social and environmental performance which
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is:
(1) Comprehensive in that it assesses the effect of the
business and its operations upon the interests listed in
section 8895(a)(1)(ii), (iii), (iv) and (v) (relating to
standard of conduct for members).
(2) Developed by an organization that is independent of
the benefit company and satisfies the following requirements:
(i) Not more than one-third of the members of the
governing body of the organization are representatives of
any of the following:
(A) An association of businesses operating in a
specific industry the performance of whose members is
measured by the standard.
(B) Businesses from a specific industry or an
association of businesses in that industry.
(C) Businesses whose performance is assessed
against the standard.
(ii) The organization is not materially financed by
an association or business described in subparagraph (i).
(3) Credible because the standard is developed by a
person that both:
(i) Has access to necessary expertise to assess
overall social and environmental performance.
(ii) Uses a balanced multistakeholder approach,
including a public comment period of at least 30 days to
develop the standard.
(4) Transparent because the following information is
publicly available:
(i) About the standard:
(A) The criteria considered when measuring the
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overall social and environmental performance of a
business.
(B) The relative weightings, if any, of those
criteria.
(ii) About the development and revision of the
standard:
(A) The identity of the directors, officers,
material owners and the governing body of the
organization that developed and controls revisions to
the standard.
(B) The process by which revisions to the
standard and changes to the membership of the
governing body are made.
(C) An accounting of the sources of financial
support for the organization, with sufficient detail
to disclose any relationships that could reasonably
be considered to present a potential conflict of
interest.
§ 8893. Benefit company status.
(a) Formation of benefit company.--A benefit company shall
be formed in accordance with section 8821 (relating to formation
of limited liability company and certificate of organization)
except that its certificate of organization shall also state
that it is a benefit company.
(b) Election of benefit company status.--An existing limited
liability company may elect to become a benefit company by
amending its certificate of organization so that it contains, in
addition to the requirements of section 8821, a statement that
the company is a benefit company. The amendment shall not be
effective unless it is adopted by at least the minimum status
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vote.
(c) Election of status in a fundamental transaction.--If an
association that is not a benefit company is a party to a merger
or division or is the exchanging association in an interest
exchange, and the surviving, new or any resulting association in
the merger, division or interest exchange is to be a benefit
company, then the plan of merger, division or interest exchange
shall not be effective unless it is adopted by the association
by at least the minimum status vote.
(d) Termination of benefit company status.--A benefit
company may terminate its status as a benefit company and cease
to be subject to this subchapter by amending its certificate of
organization to delete the provision required by subsection (a)
or (b) to be stated in the certificate of organization of a
benefit company. The amendment shall not be effective unless it
is adopted by at least the minimum status vote.
(e) Termination of status in a fundamental transaction.--If
a plan would have the effect of terminating the status of a
limited liability company as a benefit company, the plan shall
not be effective unless it is adopted by at least the minimum
status vote. Any sale, lease, exchange or other disposition of
all or substantially all of the assets of a benefit company,
unless the transaction is in the usual and regular course of
business, shall not be effective unless the transaction is
approved by at least the minimum status vote.
§ 8894. Purposes.
(a) General public benefit purpose.--A benefit company shall
have a purpose of creating general public benefit. This purpose
is in addition to its purpose under section 8818(b) (relating to
characteristics of limited liability company).
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(b) Optional specific public benefit purpose.--The
certificate of organization of a benefit company may identify
one or more specific public benefits that it is the purpose of
the benefit company to create in addition to its purposes under
subsection (a) and section 8818(b). The identification of a
specific public benefit does not limit the obligation of a
benefit company to create general public benefit.
(c) Effect of purposes.--The creation of general and
specific public benefit as provided in subsections (a) and (b)
is in the best interests of the benefit company.
(d) Amendment.--A benefit company may amend its certificate
of organization to add, amend or delete the identification of a
specific public benefit that it is the purpose of the benefit
company to create. The amendment shall not be effective unless
it is adopted by at least the minimum status vote.
(e) Professional companies.--A professional company that is
a benefit company does not violate a restriction on its
permissible purposes or activities by having the purpose to
create general public benefit or a specific public benefit.
§ 8895. Standard of conduct for members.
(a) Consideration of interests.--The members of a member-
managed limited liability company that is a benefit company,
when discharging their duties under this title or under the
operating agreement:
(1) shall consider the effects of any action upon:
(i) the members of the benefit company;
(ii) the employees and work force of the benefit
company and its subsidiaries and suppliers;
(iii) the interests of customers as beneficiaries of
the general or specific public benefit purposes of the
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benefit company;
(iv) community and societal considerations,
including those of any community in which offices or
facilities of the benefit company or its subsidiaries or
suppliers are located;
(v) the local and global environment;
(vi) the short-term and long-term interests of the
benefit company, including benefits that may accrue to
the benefit company from its long-term plans and the
possibility that these interests may be best served by
the continued independence of the benefit company; and
(vii) the ability of the benefit company to
accomplish its general public benefit purpose and any
specific public benefit purpose; and
(2) may consider any other pertinent factors or the
interests of any other group that they deem appropriate; but
(3) shall not be required to give priority to the
interests of any person or group referred to in paragraph (1)
or (2) over the interests of any other person or group unless
the benefit company has stated in its certificate of
organization its intention to give priority to certain
interests related to its accomplishment of its general public
benefit purpose or of a specific public benefit purpose
identified in the certificate.
(b) Coordination with other provisions of law.--The
consideration of interests and factors in the manner required
under subsection (a) shall not constitute a violation of section
8849.1 (relating to standards of conduct for members).
(c) Exoneration from personal liability.--
(1) A member shall not be personally liable for monetary
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damages for any action taken as a member of a member-managed
limited liability company 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 member shall not be personally liable for monetary
damages for failure of the benefit company to pursue or
create general public benefit or a specific public benefit.
(d) Limitation on standing.--A member of a member-managed
limited liability company that is a benefit company does not
have a duty to a person that is a beneficiary of the general
public benefit purpose or a specific public benefit purpose of
the benefit company arising from the status of the person as a
beneficiary.
§ 8896. Standard of conduct for managers and officers.
(a) Managers.--Each manager of a manager-managed limited
liability company that is a benefit company shall consider the
interests and factors described in section 8895(a) (relating to
standard of conduct for members) when discharging his or her
duties under this title and under the operating agreement.
(b) Officers.--If a benefit company has a person serving in
the capacity of an officer, the person shall consider the
interests and factors described in section 8895(a) when
discharging the person's duties under this title and under the
operating agreement if:
(1) the officer has discretion to act with respect to a
matter; and
(2) it reasonably appears to the officer that the matter
may have a material effect on the creation by the benefit
company of general public benefit or a specific public
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benefit identified in the certificate of organization of the
benefit company.
(c) Coordination with other provisions of law.--The
consideration of interests and factors by a manager in the
manner described in subsection (a) shall not constitute a
violation of section 8849.2 (relating to standards of conduct
for managers).
(d) Exoneration from personal liability.--
(1) A manager or officer shall not be personally liable,
as such, for monetary damages for any action taken as a
manager or officer in the course of performing the duties
specified in subsection (a) or (b) unless the action
constitutes self-dealing, willful misconduct or a knowing
violation of law.
(2) A manager or officer shall not be personally liable
for monetary damages for failure of the benefit company to
pursue or create general public benefit or a specific public
benefit.
(e) Limitation on standing.--A manager or officer does not
have a duty to a person that is a beneficiary of the general
public benefit purpose or a specific public benefit purpose of a
benefit company arising from the status of the person as a
beneficiary.
§ 8897. Right of action.
(a) Limitations.--
(1) Except in a benefit enforcement proceeding, no
person may bring an action or assert a claim against a
benefit company or its members, managers or officers with
respect to:
(i) failure to pursue or create general public
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benefit or a specific public benefit set forth in its
certificate of organization; or
(ii) violation of a duty or standard of conduct
under this chapter SUBCHAPTER .
(2) A benefit company shall not be liable for monetary
damages under this chapter SUBCHAPTER for any failure of the
benefit company to pursue or create general public benefit or
a specific public benefit.
(b) Parties with standing.--A benefit enforcement proceeding
may be commenced or maintained only:
(1) directly by the benefit company; or
(2) derivatively by:
(i) a member that owned at least 2% of the total
number of interests of a class or series outstanding at
the time of the act complained of;
(ii) a manager of a manager-managed limited
liability company;
(iii) a person or group of persons that owns
beneficially or of record 5% or more of the interests in
an association of which the benefit company is a
subsidiary at the time of the act complained of; or
(iv) such other persons as may be specified in the
certificate of organization or operating agreement of the
benefit company.
(c) Cross reference.--The provisions of Subchapter H
(relating to actions by members) shall apply to derivative
actions under this section.
§ 8898. Annual benefit report.
(a) Contents.--A benefit company must deliver to each member
an annual benefit report, including:
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(1) A narrative description of:
(i) the ways in which the benefit company pursued
general public benefit during the year and the extent to
which general public benefit was created;
(ii) the ways in which the benefit company pursued
any specific public benefit that the certificate of
organization states is the purpose of the benefit company
to create and the extent to which that specific public
benefit was created;
(iii) any circumstances that have hindered the
creation by the benefit company of general or specific
public benefit; and
(iv) the process and rationale for selecting or
changing the third-party standard used to prepare the
benefit report.
(2) An assessment of the overall social and
environmental performance of the benefit company against a
third-party standard applied consistently with any
application of that standard in prior benefit reports or
accompanied by an explanation of the reasons for any
inconsistent application. The assessment does not need to be
audited or certified by a third-party standards provider.
(3) A statement of any connection between the
organization that established the third-party standard, or
its directors, officers or any holder of 5% or more of the
governance interests in the organization, and the benefit
company or its members, managers or officers or any holder of
5% or more of the outstanding interests in the benefit
company, including any financial or governance relationship
which might materially affect the credibility of the use of
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the third-party standard.
(b) Timing of report.--A benefit company shall annually send
a benefit report to each member either:
(1) within 120 days following the end of the fiscal year
of the benefit company; or
(2) at the same time that the benefit company delivers
any other annual report to its members.
(c) Internet website posting.--A benefit company must post
all of its benefit reports on the public portion of its Internet
website, if any, except that any financial or proprietary
information included in the benefit report may be omitted from
the benefit report as posted.
(d) Availability of copies.--If a benefit company does not
have an Internet website, the benefit company shall provide a
copy of its most recent benefit report, without charge, to any
person that requests a copy, but any financial or proprietary
information included in the benefit report may be omitted from
the copy of the benefit report provided.
(e) Filing of report.--Concurrently with the delivery of the
benefit report to members pursuant to subsection (b), the
benefit company must deliver a copy of the benefit report to the
department for filing, except that any financial or proprietary
information included in the benefit report may be omitted from
the benefit report as filed under this section. The department
shall charge a fee of $70 for filing a benefit report.
Section 30. Repeals are as follows:
(1) The General Assembly finds and declares as follows:
(i) The limited liability company has been evolving
as a legal entity over the last 25 years, and statutory
law must be updated to deal with the evolving entity.
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(ii) Existing statutory law on limited liability
companies was enacted in 1994. Discrete amendments were
enacted in 1997, 1998, 2006, 2013 and 2014; and
significant amendments were made by section 2 of the act
of June 22, 2001 (P.L.418, No.34), known as the GAA
Amendments Act of 2001. A more comprehensive legislative
approach was taken in sections 54 and 55 of the act of
October 22, 2014 (P.L.2640, No.172), known as the
Associations Transactions Act.
(iii) Section 22 of this act adds a new chapter on
limited liability companies. The new chapter continues
the approach under the GAA Amendments Act of 2001 and the
Associations Transactions Act and extensively revises
existing statutory law to the degree that identification
of individual changes or reproduction of voluminous text
to be eliminated would inhibit rather than enhance
serious legal analysis.
(iv) The repeal under paragraph (2) is necessary to
carry out this paragraph.
(2) Subchapters A, B, C, D, E, F, I and K of Chapter 89
of Title 15 are repealed.
Section 31. Sections 8995(c), (d) and (e), 8997, 8998(g) and
9115 of Title 15 are amended to read:
§ 8995. Application and effect of subchapter.
* * *
(c) Laws applicable to restricted professional companies.--
Except as otherwise provided in this subchapter, [this chapter]
Chapter 88 (relating to limited liability companies) shall be
generally applicable to all restricted professional companies.
The specific provisions of this subchapter shall control over
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the general provisions of [this chapter] Chapter 88.
(d) Election of restricted professional company status.--At
the time an existing limited liability company that has
previously conducted a business not involving the rendering of a
restricted professional service begins to render one or more
restricted professional services, the company shall amend its
certificate of organization to include [the statement required
by section 8913(7) (relating to certificate of organization)] a
statement that it is a restricted professional company. For
purposes of sections [8925] 8835 (relating to taxation of
limited liability companies) and 8997, the company shall be
deemed to have become a restricted professional company on the
first day of the taxable year of the company following the
taxable year in which the amendment of its certificate of
organization required by this subsection is filed.
(e) Termination of restricted professional company status.--
Except as provided in this subsection, the status of a
restricted professional company as such shall terminate, and the
company shall cease to be subject to this subchapter, at such
time as it ceases to render any restricted professional
services. Upon ceasing to render any restricted professional
services, the company shall amend its certificate of
organization to delete the statement required by [section
8913(7)] subsection (d). For purposes of sections [8925] 8835
and 8997, the company shall be deemed to have ceased being a
restricted professional company on the first day of the taxable
year of the company following the taxable year in which it
ceased to render any restricted professional services.
§ 8997. Taxation of restricted professional companies.
(a) General rule.--Except as provided in subsection (b) [and
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in section 8925(b) (relating to taxation of limited liability
companies)], for the purposes of 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, a domestic or [qualified]
REGISTERED foreign restricted professional company shall be
deemed to be a limited partnership organized and existing under
Chapter [85] 86 (relating to limited partnerships), and a member
of such a company, as such, shall be deemed a limited partner of
a limited partnership.
(b) Exception.--A domestic or qualified foreign restricted
professional company shall be subject to section [8925(a)]
8835(a), instead of subsection (a), for the whole of any taxable
year of the company during any part of which the company has:
(1) engaged in any business not permitted by section
8996(a) (relating to purposes of restricted professional
companies);
(3) been a member of a limited liability company.
§ 8998. Annual registration.
* * *
(g) Cross [references.--See section 8907 (relating to
execution of documents) and] reference.--See 18 Pa.C.S. § 4904
(relating to unsworn falsification to authorities).
§ 9115. Ownership and transfer of property.
(a) General rule.--A nonprofit association may acquire, hold
or transfer, in its name, an interest in property.
(b) Testamentary and fiduciary dispositions.--A nonprofit
association may be a beneficiary of a trust or contract, a
legatee or a devisee.
(c) Authority to take and hold trust property.--Every
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nonprofit association organized for a charitable purpose or
purposes may take, receive and hold real and personal property
as may be given, devised to or otherwise vested in the nonprofit
association, in trust, for the purpose or purposes set forth in
its governing principles. The managers of the nonprofit
association shall, as trustees of the property, be held to the
same degree of responsibility and accountability as other
trustees, unless a lesser degree or a particular degree of
responsibility and accountability is prescribed in the trust
instrument, or unless the managers remain under the control of
the members of the nonprofit association or third persons who
retain the right to direct, and do direct, the actions of the
managers as to the use of the trust property from time to time.
(d) Nondiversion of certain property.--Property of a
nonprofit association committed to charitable purposes shall
not, by any proceeding under Chapter 3 (relating to entity
transactions) or otherwise, be diverted from the objects to
which it was donated, granted or devised, unless and until the
nonprofit association obtains from the court an order under 20
Pa.C.S. Ch. 77 (relating to trusts) specifying the disposition
of the property.
Section 32. Section 9302 of Title 15, amended October 22,
2014 (P.L.2640, No.172), is amended to read:
§ 9302. Application of chapter.
(a) General rule.--This chapter shall apply to and the word
"association" in this chapter shall mean a professional
association organized under the act of August 7, 1961 (P.L.941,
No.416), known as the Professional Association Act, which has
not:
(1) Reorganized as an electing partnership under Chapter
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87 (relating to electing partnerships).
(2) Elected to become a professional corporation in the
manner provided by section 2905 (relating to election of
professional associations to become professional
corporations).
(3) Converted to a limited liability company under
Subchapter E of Chapter 3 (relating to conversion).
(b) No new associations.--An association may not be
originally organized under this chapter.
Section 33. Sections 9501 and 9506 of Title 15 are amended
to read:
§ 9501. Application and effect of chapter.
(a) General rule.--
(1) Unless the context clearly indicates otherwise, this
chapter shall apply to and the words "business trust" in this
chapter shall mean an association organized as a trust:
(i) [Hereafter established under the laws of this
Commonwealth.] Whose deed of trust or other organic
document has been filed in the department and is in
effect under this chapter.
(ii) Whose deed of trust or other organic document
states, by amendment or otherwise, that the trust exists
subject to the provisions of this chapter, in the case of
a business trust heretofore established under the laws of
this Commonwealth or heretofore or hereafter established
under the laws of any other jurisdiction.
(2) The words "business trust" in this chapter shall not
include:
(i) A trust contemplated by section 1768 (relating
to voting trusts and other agreements among shareholders)
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or any similar provision of law.
(ii) A trust for creditors.
(iii) A mortgage, deed of trust or other indenture
or similar instrument or agreement under which debt
securities are outstanding or to be issued.
(iv) A trust for the benefit of one or more
investors with respect to a lease of real or personal
property, unless the instrument creating the trust is
filed under this chapter.
(b) No franchise.--This chapter shall not confer on a
business trust the power to engage in any activity that may be
undertaken only in corporate form.
(c) Effect on taxation.--This chapter is enacted to codify
and clarify certain common law principles applicable to business
trusts and is not intended to affect the liability of any
business trust to any tax. A trust that is subject to this
chapter shall not be deemed to be organized or created by or
under this or any other statute or to have the benefit of any
state franchise for the purpose of existing law relating to
taxation.
(d) Multistate application.--It is the intent of the General
Assembly in enacting this chapter that the legal existence of
business trusts organized in this Commonwealth be recognized
outside the boundaries of this Commonwealth and that, subject to
any reasonable requirement of registration, a domestic business
trust transacting business outside this Commonwealth be granted
protection of full faith and credit under the Constitution of
the United States.
§ 9506. Liability of trustees and beneficiaries.
(a) General rule.--
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(1) Except as otherwise provided in the instrument, the
beneficiaries of a business trust shall be entitled to the
same limitation of personal liability as is extended to
shareholders in a domestic business corporation.
(2) Except as otherwise provided in the instrument, the
trustees of a trust, as such, shall not be personally liable
to any person for any act or obligation of the trust or any
other trustee.
(3) An obligation of a trust based upon a writing may be
limited to a specific fund or other identified pool or group
of assets of the trust.
(b) Standards and immunities.--Except as otherwise provided
in the instrument governing the trust, the provisions of
Subchapters B (relating to fiduciary duty) and D (relating to
indemnification) of Chapter 17 shall be applicable to
representatives of a business trust.
(c) Certain specifically authorized debt terms.--A business
trust shall be subject to section 1510 (relating to certain
specifically authorized debt terms) to the same extent as if it
were a business corporation.
(d) Professional relationship unaffected.--Subsection (a)
shall not afford trustees or beneficiaries of a business trust
providing professional services with greater immunity than is
available to the officers, shareholders, employees or agents of
a professional corporation. See section 2925 (relating to
professional relationship retained).
(e) Disciplinary jurisdiction unaffected.--A business trust
providing professional services shall be subject to the
applicable rules and regulations adopted by, and all the
disciplinary powers of, the court, department, board, commission
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or other government unit regulating the profession in which the
business trust is engaged. The court, department, board or other
government unit may require that a business trust include in its
instrument provisions that conform to any rule or regulation
heretofore or hereafter promulgated for the purpose of enforcing
the ethics of a profession. This chapter shall not affect or
impair the disciplinary powers of the court, department, board,
commission or other government unit over licensed persons or any
law, rule or regulation pertaining to the standards for
professional conduct of licensed persons or to the professional
relationship between any licensed person rendering professional
services and the person receiving professional services.
(f) Permissible beneficiaries.--Except as otherwise provided
by a statute, rule or regulation applicable to a particular
profession, all of the ultimate beneficial owners of interests
in a business trust that renders one or more restricted
professional services shall be licensed persons[. As used in
this subsection, the term "restricted professional services"
shall have the meaning specified in section 8903 (relating to
definitions and index of definitions).] in the profession the
trust practices if the trust renders any of the following
professional services: chiropractic, dentistry, law, medicine
and surgery, optometry, osteopathic medicine and surgery,
podiatric medicine, public accounting, psychology or veterinary
medicine.
(g) Conflict of laws.--The personal liability of a trustee
or beneficiary of a business trust to any person or in any
action or proceeding for the debts, obligations or liabilities
of the trust or for the acts or omissions of other trustees,
beneficiaries, employees or agents of the trust shall be
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governed solely and exclusively by this chapter and the laws of
this Commonwealth. Whenever a conflict arises between the laws
of this Commonwealth and the laws of any other state with
respect to the liability of trustees or beneficiaries of a trust
organized and existing under this chapter for the debts,
obligations and liabilities of the trust or for the acts or
omissions of the other trustees, beneficiaries, employees or
agents of the trust, the laws of this Commonwealth shall govern
in determining such liability.
(h) Medical professional liability.--A business trust shall
be deemed to be a professional corporation for purposes of
section [811 of the act of October 15, 1975 (P.L.390, No.111),
known as the Health Care Services Malpractice Act.] 744 of the
act of March 20, 2002 (P.L.154, No.13), known as the Medical
Care Availability and Reduction of Error (Mcare) Act .
(i) Failure to observe formalities.--The failure of a
business trust 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 a beneficiary or trustee of
the trust for a debt, obligation or other liability of the
trust.
Section 34. Section SECTIONS 501(a)(6) and (8) AND 502(D) of
Title 54, amended October 22, 2014 (P.L.2640, No.172), are
amended to read:
§ 501. Register established.
(a) General rule.--A register is established by this chapter
which shall consist of such of the following names as are not
deleted therefrom by operation of section 504 (relating to
effect of failure to make filings) or 506 (relating to voluntary
termination of registration by corporations and other
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associations):
* * *
(6) In the case of a limited partnership or limited
liability company subject to 15 Pa.C.S. Ch. [85] 86 (relating
to limited partnerships) or [89] 88 (relating to limited
liability companies), the name of the partnership or company
as set forth in the certificate of limited partnership,
certificate of organization or statement of registration as a
[registered] foreign association.
(8) In the case of a [registered] limited liability
partnership subject to 15 Pa.C.S. Ch. 82 (relating to
[registered] limited liability partnerships and limited
liability limited partnerships) that is not also a limited
partnership, the name of the partnership as set forth in the
statement of registration as a [registered] foreign
association.
* * *
§ 502. CERTAIN ADDITIONS TO REGISTER.
* * *
(D) ANNUAL RENEWAL.--A PERSON WHO HAS IN EFFECT A
REGISTRATION OF A [CORPORATE] NAME MAY RENEW THE REGISTRATION
FROM YEAR TO YEAR BY ANNUALLY FILING AN APPLICATION FOR RENEWAL
SETTING FORTH THE FACTS REQUIRED TO BE SET FORTH IN AN ORIGINAL
APPLICATION FOR REGISTRATION. A RENEWAL APPLICATION MAY BE FILED
BETWEEN OCTOBER 1 AND DECEMBER 31 IN EACH YEAR AND SHALL EXTEND
THE REGISTRATION FOR THE FOLLOWING CALENDAR YEAR.
* * *
Section 35. This act shall take effect in 90 days.
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