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PRIOR PRINTER'S NOS. 2364, 2424
PRINTER'S NO. 3299
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
2057
Session of
2021
INTRODUCED BY ROAE, KNOWLES, BRIGGS, SCHEMEL, BERNSTINE, COX,
GALLOWAY, KLUNK, BIZZARRO, JOZWIAK, LONGIETTI, SAINATO AND
WARREN, NOVEMBER 5, 2021
AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES,
JUNE 22, 2022
AN ACT
Amending Titles 15 (Corporations and Unincorporated
Associations) and 54 (Names) of the Pennsylvania Consolidated
Statutes,
in general provisions, further providing for definitions, for
form of records, for delivery of document, for functions of
Department of State, for processing of documents by
Department of State, for court to pass upon rejection of
documents by Department of State, for statement of correction
and for tax clearance of certain fundamental transactions,
providing for annual report and further providing for short
title and application of subchapter and for fee schedule;
in entities generally, further providing for requirements for
names generally, for required name changes by senior
associations and for registration of name of nonregistered
foreign association and providing for ratification of
defective entity actions;
in entity transactions, further providing for definitions, for
relationship of chapter to other provisions of law, for
nature of transactions, for excluded entities and
transactions, for approval by business corporation, for
interest exchange authorized, for statement of conversion and
effectiveness, for approval of division, for division without
interest holder approval, for effect of division, for
allocation of liabilities in division and for domestication
authorized and providing for administrative dissolution or
cancellation;
in foreign associations, further providing for governing law,
for activities not constituting doing business, for
noncomplying name of foreign association, for required
withdrawal on certain transactions and for termination of
registration;
in corporations, further providing for application and effect of
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subchapter, for standard of care and justifiable reliance,
for personal liability of directors, for notation of dissent,
for exercise of powers generally, for alternative standard,
for limitation on standing and for actions by shareholders or
members to enforce a secondary right and providing for
renunciation of business opportunities;
in general provisions relating to business corporations, further
providing for application of subpart and for definitions and
repealing provisions relating to annual report information;
in incorporation, further providing for articles of
incorporation;
in corporate powers, duties and safeguards, further providing
for general powers, for adoption, amendment and contents of
bylaws, for persons bound by bylaws, for registered office,
for corporate records and inspection by members, for bylaws
and other powers in emergency and for informational rights of
a director, providing for forum selection provisions and
further providing for authorized shares, for stock rights and
options, for transfer of securities and restrictions, for
power of corporation to acquire its own shares, for liability
for unlawful dividends and other distributions and for
application and effect of subchapter;
in officers, directors and shareholders, further providing for
manner of giving notice, for place and notice of meetings of
shareholders, for use of conference telephone or other
electronic technology, for conduct of shareholders meeting,
for alternative provisions, for standard of care and
justifiable reliance, for personal liability of directors,
for notation of dissent, for exercise of powers generally,
for alternative standard, for limitation on standing and for
inconsistent articles ineffective, providing for renunciation
of business opportunities, further providing for board of
directors, for qualifications of directors, for term of
office of directors, for selection of directors, for quorum
of and action by directors, for interested directors or
officers and quorum, for compensation of directors, for
executive and other committees of the board and for officers,
providing for officer's standard of care and justifiable
reliance and for personal liability of officers and further
providing for mandatory indemnification, for duration and
extent of coverage, for time of holding meetings of
shareholders, for quorum, for voting rights of shareholders,
for determination of shareholders of record, for voting
lists, for consent of members in lieu of meeting, for
derivative action, for eligible shareholder plaintiffs and
security for costs and for special litigation committee;
in fundamental changes, further providing for proposal of
fundamental transactions, for amendment of articles
authorized, for proposal of amendments for adoption of
amendments, for voluntary transfer of corporate assets and
for survival of remedies and rights after dissolution;
in nonstock corporations, further providing for election of an
existing business corporation to become a nonstock
corporation and for termination of nonstock corporation
status;
in registered corporations, further providing for call of
special meetings of shareholders, for adjournment of meetings
of shareholders, for consent of shareholders in lieu of
meeting, and for notice of shareholder meetings, providing
for qualifications of directors, and further providing for
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application and effect of subchapter, for definitions, for
business combination, for application and effect of
subchapter, for definitions, for voting rights of shares
acquired in a control-share, for procedure for establishing
voting rights of control shares, for application and effect
of subchapter and for definitions;
in benefit corporations, further providing for standard of
conduct for directors, for benefit director and for standard
of conduct for officers;
in general provisions relating to nonprofit corporations,
further providing for definitions and repealing provisions
relating to annual report;
in incorporation, further providing for articles of
incorporation;
in corporate powers duties and safeguards, further providing for
adoption, amendment and contents of bylaws, for persons bound
by bylaws, for registered office, for corporate records and
inspection by members, for bylaws and other powers in
emergency and for informational rights of a director,
providing for forum selection provisions, and further
providing for authority to take and hold trust property;
in officers, directors and members, further providing for manner
of giving notice, for place and notice of meetings of
members, for use of conference telephone or other electronic
technology, for conduct of members meeting, for alternative
provisions, for standard of care and justifiable reliance,
for personal liability of directors, for notation of dissent,
for exercise of powers generally, for alternative standard
and for limitation on standing, providing for renunciation of
corporate opportunities, further providing for board of
directors, for term of office of directors, for selection of
directors, for quorum of and action by directors, for
interested directors or officers and quorum, for compensation
of directors, for executive and other committees of the board
and for officers, providing for officer's standard of care
and justifiable reliance and for personal liability of
officers and further providing for mandatory indemnification,
for duration and extent of coverage, for time of holding
meetings of members, for quorum, for voting rights of
members, for determination of members of record, for consent
of members in lieu of meeting, for derivative action, for
eligible member plaintiffs and security for costs and for
special litigation committee;
in amendments, sale of assets and dissolution, further providing
for amendment of articles authorized, for proposal of
amendments and for survival of remedies and rights after
dissolution;
in electric cooperative corporations, further providing for
merger, consolidation, division or sale of assets;
in general partnerships, further providing for short title and
application of chapter, for partner's rights and duties and
for rights to information;
in limited partnerships, further providing for short title and
application of chapter, for signing of filed documents, for
registered office, for limited partner rights to information,
for general partner rights to information, for derivative
action, for security for costs and for special litigation
committee;
in limited liability companies, further providing for formation
of limited liability company and certificate of organization,
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for registered office, for rights to information, for
derivative action, for security for costs, for special
litigation committee, for standard of conduct for members and
for standard of conduct for managers and officers;
in limited liability companies, further providing for
application and effect of subchapter;
in business trusts, further providing for registered office;
in general provisions, further providing for definitions and for
execution of documents;
in fictitious names, further providing for definitions, for
registration, for contracts entered into by entity using
unregistered fictitious name and for effect of registration;
in corporate and other association names, repealing provisions
relating to register established, to certain additions to
register, to decennial filings required, to effect of failure
to make filings, to late filings and to voluntary termination
of registration by corporations and other associations;
and making editorial changes.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. The definition of "court" in section 102(a) of
Title 15 of the Pennsylvania Consolidated Statutes is amended,
the subsection is amended by adding definitions and the section
is amended by adding a subsection to read:
§ 102. Definitions.
(a) Defined terms.--Subject to additional or inconsistent
definitions contained in subsequent provisions of this title
that are applicable to specific provisions of this title, the
following words and phrases when used in this title shall have,
unless the context clearly indicates otherwise, the meanings
given to them in this section:
* * *
"Affiliate." A person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is
under common control with a specified person.
"Associate." When used to indicate a relationship with any
person:
(1) a corporation or other association of which the
person is a governor or officer, or is, directly or
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indirectly, the beneficial owner of interests entitling the
person to cast at least 10% of the votes that all interest
holders would be entitled to cast in an election of governors
of the corporation or other association;
(2) a trust or other estate in which the person has a
substantial beneficial interest or as to which the person
serves as trustee or in a similar fiduciary capacity; and
(3) a relative or spouse of the person, or a relative of
the spouse, who has the same home as the person.
* * *
"Conversion." A transaction authorized by Subchapter E of
Chapter 3 (relating to conversion).
* * *
"Court." [Subject] Either:
(1) the court or courts specified in a bylaw of a
domestic business corporation or domestic nonprofit
corporation under section 1513 (relating to forum selection
provisions) or section 5513 (relating to forum selection
provisions) with respect to an internal corporate claim as
defined in that section; or
(2) subject to any inconsistent general rule prescribed
by the Supreme Court of Pennsylvania:
[(1)] (i) the court of common pleas of the judicial
district embracing the county where the registered office
of the corporation or other association is or is to be
located; or
[(2)] (ii) where an association results from a
merger, division or other transaction without
establishing a registered office in this Commonwealth or
withdraws as a foreign corporation or association, the
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court of common pleas in which venue would have been laid
immediately prior to the transaction or withdrawal.
* * *
"Division." A transaction authorized by Subchapter F of
Chapter 3 (relating to division).
* * *
"Domestication." A transaction authorized by Subchapter G of
Chapter 3 (relating to domestication).
* * *
"Interest exchange." A transaction authorized by Subchapter
D of Chapter 3 (relating to interest exchange).
* * *
"Merger." A transaction in which two or more merging
associations are combined into a surviving association pursuant
to a document filed by the department or similar office in
another jurisdiction.
* * *
"Recklessness." Conduct that involves a conscious disregard
of a substantial and unjustifiable risk. The risk must be of
such a nature and degree that, considering the nature and intent
of the actor's conduct and the circumstances known to the actor,
its conscious disregard involves a gross deviation from the
standard of conduct that a reasonable person would observe in
the actor's situation.
* * *
"Restricted professional services." The following
professional services: chiropractic, dentistry, law, medicine
and surgery, optometry, osteopathic medicine and surgery,
podiatric medicine, public accounting, psychology or veterinary
medicine.
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* * *
(c) Similar laws of other jurisdictions.--The terms
"conversion," "division," "domestication," "interest exchange"
or "merger," when used in this title, shall include a
transaction that has substantively the same effect, however
denominated under the law of a foreign jurisdiction.
Section 2. Sections 107(a), 113 and 132(d) of Title 15 are
amended to read:
§ 107. Form of records.
(a) General rule.--Information maintained [by] or
administered by or on behalf of a corporation or other
association in the regular course of its business or activities,
including shareholder or membership records, books of account
and minute books, may be kept in record form.
* * *
§ 113. Delivery of document.
(a) Permissible means.--Permissible means of delivery of a
document in record form include:
(1) personal delivery;
(2) mail;
(3) conventional commercial practice; and
(4) electronic transmission.
(b) Delivery to department.--Delivery to the department of a
document in record form is effective only on receipt by the
department.
(c) Delivery by department.--Except as provided by law other
than this title, the department may deliver a document in record
form to a person by delivering it:
(1) in person to the person that submitted it for
filing;
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(2) to the address of the person's registered office;
(3) to the principal office address of the person; or
(4) to another address the person provides to the
department for delivery.
(d) Delivery by electronic communication.--The department
may deliver documents in record form to an address for email or
other electronic communications supplied to the department by a
person until the person notifies the department in record form
that the person no longer wishes to have documents delivered to
that address.
§ 132. Functions of Department of State.
* * *
[(d) Notice of decennial filings.--Whenever a decennial
filing is required by Title 54 to be made in the department, the
department shall, not earlier than the November 1 prior to the
commencement of the decennial year wherever practicable, give
notice by mail to the registrant or other party of the decennial
filing requirement, which notice shall be accompanied by
appropriate application blanks or forms. Failure by the
department to give notice to any party, or failure by any party
to receive notice, of a decennial filing requirement shall not
relieve any party of the obligation to make the decennial
filing.]
Section 3. Section 136(a) of Title 15 is amended and the
section is amended by adding a subsection to read:
§ 136. Processing of documents by Department of State.
(a) Filing of documents.--[If] Except as provided in
subsection (f), if a document conforms to section 135 (relating
to requirements to be met by filed documents) the Department of
State shall forthwith file the document, certify that the
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document has been filed by endorsing upon the document the fact
and date of filing, make and retain a copy thereof and return
the document or a copy thereof so endorsed to or upon the order
of the person who delivered the document to the department.
* * *
(f) Rejection of document.--The department may reject a
document for filing if the department reasonably believes the
document:
(1) is being filed fraudulently; or
(2) may be used to accomplish a fraudulent, criminal or
unlawful purpose.
Section 4. Sections 137(a), 138(a) and (b) and 139(c)(2) of
Title 15 are amended to read:
§ 137. Court to pass upon rejection of documents by Department
of State.
(a) General rule.--Whenever the Department of State rejects
a document delivered for filing under this [title or fails to
make available a certified duplicate copy within the time
provided by section 136(b) (relating to immediate certified
copy):
(1) the original document or copies thereof;
(2) the statement, if any, of the department made under
section 136(b)(1)(ii); and
(3) any other papers relating thereto;]
title, the original document or a copy thereof and any papers
relating thereto may be delivered to the prothonotary or clerk
of the court vested by or pursuant to Title 42 (relating to
judiciary and judicial procedure) with jurisdiction of appeals
from the department. Immediately the prothonotary or clerk shall
transmit the papers to the court without formality or expense to
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the person who delivered the original document to the
department. The question of the eligibility of the document for
filing [in] by the department shall thereupon, at the earliest
possible time, be heard by a judge of the court, without jury,
in the court or in chambers. The finding of the court, or any
judge thereof, that the document is eligible for filing [in] by
the department shall be final and the department shall act in
accordance therewith. The true intent of this section is to
secure for applicants an immediate hearing in court and a
determination by the court without delay or expense to the
applicants.
* * *
§ 138. Statement of correction.
(a) Filing of statement.--Whenever any document authorized
or required to be delivered to the department for filing by any
provision of this title has been so filed and is an inaccurate
record of the action therein referred to or was defectively or
erroneously executed, the document may be corrected by
delivering to the department for filing a statement of
correction. The statement of correction, except as provided in
subsection (c), shall be signed by the association or other
person that delivered the inaccurate, defective or erroneous
document for filing and shall set forth:
(1) The name of the association or other person and,
subject to section 109 (relating to name of commercial
registered office provider in lieu of registered address),
the location, including street and number, if any, of its
registered or other office.
(2) The statute by or under which the association was
formed, or the preceding filing was made, in the case of a
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filing that does not constitute a part of the public organic
record of an association.
(3) [The] Either:
(i) the inaccuracy or defect to be corrected[.]; or
(ii) the portion of the document requiring
correction in corrected form.
(4) [The portion of the document requiring correction in
corrected form or, if] If the document was erroneously
executed, a statement that the original document shall be
deemed reexecuted or [stricken from the records of the
department] not effective ab initio, as the case may be.
(b) Effect of filing.--
(1) The [corrected document] correction shall be
effective:
(i) Upon filing [in] of the statement of correction
by the department, as to those persons who are
substantially and adversely affected by the correction.
(ii) As of the date the original document was
effective, as to all other persons.
(2) A filing under this section:
(i) shall not have the effect of causing [the
original public organic record of an association to be
stricken from the records of the department, but] either
of the following to cease being effective:
(A) the first public organic record of a
domestic association that creates the association
under any provision of this title other than Chapter
3 (relating to entity transactions); or
(B) the registration under Subchapter B of
Chapter 4 (relating to registration) of a foreign
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association; but
(ii) may be used to correct the public organic
record [may be corrected under this section] or
registration.
* * *
§ 139. Tax clearance of certain fundamental transactions.
* * *
(c) Exceptions.--It shall not be necessary to file tax
clearance certificates with the Department of State:
* * *
(2) With articles of dissolution under section 1971
(relating to voluntary dissolution by shareholders or
incorporators) or 5971 (relating to voluntary dissolution by
members or incorporators).
* * *
Section 5. Title 15 is amended by adding a section to read:
§ 146. Annual report.
(a) Required contents.--A domestic filing entity, domestic
limited liability partnership, domestic electing partnership
that is not a limited partnership or registered foreign
association must deliver to the department for filing an annual
report signed by the entity or association that states:
(1) its name and jurisdiction of formation;
(2) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address of its registered office, if any,
including street and number, if any, in this Commonwealth;
(3) the name of at least one governor;
(4) the names and titles of the persons who are its
principal officers, if any, as determined by its governors;
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(5) the address of its principal office, including
street and number, if any, wherever located; and
(6) its entity number or similar identifier issued by
the department.
(b) Date of information.--Information in an annual report
must be current as of the date the report is delivered to the
department for filing.
(c) Filing deadlines.--An annual report must be delivered to
the department for filing each year, beginning with the calendar
year after which an entity or association first becomes subject
to this section, and:
(1) before July 1 in the case of a domestic or foreign
corporation for profit or not-for-profit;
(2) before October 1 in the case of a domestic or
foreign limited liability company; and
(3) on or before December 31 in the case of any other
form of domestic or foreign association.
(d) Rejection of report.--If an annual report does not
contain the information required by this section, the department
must:
(1) reject the report;
(2) notify promptly in record form the reporting entity
or association in a record of the rejection; and
(3) return the report for correction.
(e) Modification of prior filings.--If an annual report
contains information about the registered office which differs
from the information shown in the records of the department
immediately before the report is delivered to the department for
filing, the address of the registered office of the entity or
association delivering the report to the department for filing
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will be deemed to be changed to the address set forth in the
report effective as of the filing of the report.
(f) Change of information.--The information in an annual
report may be changed by delivering to the department an annual
report which includes a statement that the report contains a
change in the information previously included in a report for
that year. The department may not charge a fee for filing a
report or processing a change under this subsection.
(g) Notice by department.--The department annually must
deliver notice to each association required to file an annual
report under this section of the annual report filing
requirement at least two months before the annual report is due .
Failure by the department to deliver notice to any party, or
failure by any party to receive notice, of an annual report
filing requirement does not relieve the party of the obligation
to make the annual report filing.
(h) Transitional provision.--This section shall take effect
on (insert the date that is one year after the effective date of
this act).
Section 6. Section 151(b) of Title 15 is amended to read:
§ 151. Short title and application of subchapter.
* * *
(b) Application.--This subchapter contains an enumeration of
fees to be charged by the [Corporation Bureau of the department]
bureau for services performed under this title or any other
provision of law relating to corporations or associations and
under Titles 13 (relating to commercial code), 17 (relating to
credit unions) and 54 (relating to names).
Section 7. Section 153(b) of Title 15 is amended and
subsection (a) is amended by adding paragraphs to read:
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§ 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:
* * *
(18) Annual report of domestic or foreign
association:
(i) Annual report delivered to the bureau by a
nonprofit corporation or a limited partnership or
limited liability company with a not-for-profit
purpose........................................... 0
(ii) Annual report delivered to the bureau
electronically.................................... 0 7
(iii) Annual report not delivered to the
bureau electronically............................. 0 7
(19) Reinstatement of domestic association:
(i) Application for reinstatement delivered to
the bureau electronically.......................... 35
(ii) Application for reinstatement not
delivered to the bureau electronically............. 40
(iii) Additional fee required by section
383(a)(4)(ii) (relating to reinstatement) for each
annual report not previously paid.................. 15
(20) Statement of validation:
(i) Statement of validation, any filing fee
referred to in section 227(c) (relating to
statement of validation), plus.................... 75
(ii) (Reserved).
(b) Daily listings.--The bureau may provide listings or
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copies [of microfilm], or both, of complete daily filings of any
class of documents or papers for a fee of 25¢ per filing listed
or set forth therein.
* * *
Section 8. Section 202(b)(1) of Title 15 is amended and
subsection (b) is amended by adding a paragraph to read:
§ 202. Requirements for names generally.
* * *
(b) Duplicate use of names.--Except as provided in
subsection (f), the proper name of a covered association must be
distinguishable on the records of the department from the
following:
(1) The proper name of another covered association [or
the name of an association registered at any time under 54
Pa.C.S. Ch. 5 (relating to corporate and other association
names)], unless the covered association [or other
association] has:
(i) stated that it is about to change its name, is
about to cease to do business, is being wound up or is a
foreign association about to withdraw from doing business
in this Commonwealth, and the statement and a consent to
the adoption of the name are delivered to the department
for filing;
(ii) filed a tax return or certificate with the
Department of Revenue indicating that the covered
association or other association is out of existence or
has failed for a period of three successive years to file
with the Department of Revenue a report or return
required by law and the fact of the failure has been
certified by the Department of Revenue to the Department
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of State;
(iii) abandoned its name under the laws of its
jurisdiction of formation, by amendment, merger,
consolidation, division, expiration, dissolution or
otherwise, without its name being adopted by a successor,
and an official record of that fact, certified as
provided under 42 Pa.C.S. § 5328 (relating to proof of
official records), is presented by a person to the
department.[; or
(iv) had the registration of its name under 54
Pa.C.S. Ch. 5 terminated.]
(1.1) Paragraph (1) does not apply to protect the proper
name of another covered association during the time while:
(i) the association is administratively dissolved
under Subchapter H of Chapter 3 (relating to
administrative dissoluti on or cancellation), if the
association is a domestic filing entity;
(ii) the statement of registration of the
association is canceled under Subchapter H of Chapter 3,
if the association is a domestic limited liability
partnership; or
(iii) the statement of election of the association
is canceled under Subchapter H of Chapter 3, if the
association is an electing partnership.
* * *
Section 9. Sections 207(a) and (b) and 209(a) and (b) of
Title 15 are amended to read:
§ 207. Required name changes by senior associations.
(a) Loss of rights to name.--A covered association shall
cease to have the exclusive right to its proper name [if the
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association]:
(1) [has failed to file in the Department of Revenue a
report or a return required by law;
(2)] while it is administratively dissolved under
Subchapter H of Chapter 3 (relating to administrative
dissoluti on or cancellation), if the association is a
domestic filing entity;
(2) while its statement of registration is canceled
under Subchapter H of Chapter 3, if the association is a
domestic limited liability partnership;
(3) while its statement of election is canceled under
Subchapter H of Chapter 3, if the association is an electing
partnership; or
(4) if it has filed in the Department of Revenue a tax
return or certificate indicating that it is out of existence.
[; or
(3) has failed to file the most recent required
decennial filing under 54 Pa.C.S. § 503 (relating to
decennial filings required).]
(b) Adoption of new name on [reactivation] reinstatement.--
Upon the removal of the reason why a covered association has
lost the exclusive right to its proper name under subsection
(a), the association shall make inquiry with the Department of
State with regard to the availability of its name and, if the
name has been appropriated by another person, the covered
association shall adopt a new name in accordance with law before
resuming its activities.
* * *
§ 209. Registration of name of nonregistered foreign
association.
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(a) General rule.--A nonregistered foreign association may
register [its name under 54 Pa.C.S. Ch. 5 (relating to corporate
and other association names) if the name] a name that is
available for use by a registered foreign association pursuant
to section 206 (relating to requirements for foreign association
names) by delivering to the department for filing an application
for registration of name, signed by the association, setting
forth:
(1) The name of the association.
(2) The address, including street and number, if any, of
the principal office of the association.
(3) The name being registered.
(b) Annual renewal.--An association that has in effect [a
registration of its] the registration of a name may renew the
registration from year to year by annually delivering to the
department for 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 10. The heading of Subchapter B of Chapter 2 of
Title 15 is amended to read:
SUBCHAPTER B
[(Reserved)]
RATIFICATION OF DEFECTIVE
ENTITY ACTIONS
Section 11. Subchapter B of Chapter 2 of Title 15 is amended
by adding sections to read:
§ 221. Definitions.
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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:
"Applicable rule." A statute, rule or regulation regulating
the procedures for seeking or obtaining authorization or
approval of an entity action. The term includes this title and
the provisions of prior organic laws applicable to a domestic
entity and an entity action subject to this subchapter.
"Date of the defective entity action." The date, or the
approximate date if the exact date is unknown, the defective
entity action was purported to have become effective.
"Defective entity action." An overissue or any other entity
action purportedly taken that is and, at the time the entity
action was purportedly effective, would have been within the
power of the entity, but due to a failure of authorization of
the entity action:
(1) is void or voidable;
(2) cannot be determined not to be void or voidable by
the governors of the ratifying entity or previous entity; or
(3) otherwise does not operate fully in the manner
intended at the time the entity action was purported to have
become effective.
"Entity action." An action taken by or on behalf of a
domestic entity, including any action taken by the incorporator
or organizer, the governors or a committee of the governors, an
officer or other agent of the entity or the interest holders and
any action taken by or on behalf of a previous entity pursuant
to a plan or plan agreement providing for the formation or
augmentation of the domestic entity.
"Failure of authorization." Either:
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(1) the failure of an entity action to have been
authorized, adopted, approved or otherwise effected in
compliance with the organic rules, a resolution of the
governors, an applicable rule, a plan, a plan agreement or a
governance agreement or the disclosure set forth in a proxy
or consent solicitation statement regarding the approval or
authorization of the entity action; or
(2) a circumstance where the governors cannot determine
that an entity action was validly authorized, approved or
otherwise effected in compliance with paragraph (1).
"Formation or augmentation." The formation of an entity
pursuant to a plan or the vesting of property, liabilities,
rights, privileges, immunities or powers in an entity pursuant
to a plan.
"Governance agreement." An agreement regarding the
governance of an entity or the transfer of interests in the
entity to which the entity and at least one interest holder are
parties or are stated or intended beneficiaries.
"Overissue." The purported issuance:
(1) with respect to a domestic business corporation, of:
(i) shares of a class or series of a business
corporation in excess of the number of shares of the
class or series the corporation has the power to issue
under its articles of incorporation at the time of the
issuance; or
(ii) shares of any class or series that is not at
the time authorized for issuance by the articles of
incorporation of a business corporation; or
(2) with respect to any type of domestic entity other
than a business corporation, of:
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(i) interests of any type in excess of the number of
interests of that type the entity has the power to issue
under its organic rules at the time of the issuance; or
(ii) interests of any type that is not at the time
authorized for issuance by the organic rules of the
entity.
"Plan." A plan as defined in section 312 or a plan of asset
transfer under section 1932 or other sale, lease, exchange or
other disposition of all or substantially all assets, in each
case approved or adopted or implemented by an entity or by a
previous entity.
"Plan agreement." An agreement providing for the adoption or
implementation of a plan to which the entity is a party or
providing for the formation or augmentation of the entity.
"Previous entity." In the case of ratification of the
formation or augmentation of a domestic entity pursuant to a
plan, each entity that adopted, approved or implemented the
plan, other than the ratifying entity.
"Putative interests." The shares or interests of any class,
series or type, including shares or interests issued upon
exercise of rights, options, warrants or other securities
convertible into shares or interests , that purportedly were
created or issued as a result of a defective entity action.
"Ratifying entity." The domestic entity whose governors or
interest holders have ratified a defective entity action or who
seek review under section 228 of a defective entity action that
has not been ratified.
"Valid interests." The shares or interests of any class,
series or type that have been duly authorized and validly issued
in accordance with all applicable rules, including as a result
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of ratification or validation under this subchapter.
"Validation effective time." With respect to a defective
entity action ratified under this subchapter, means the later
of:
(1) the time at which the ratification of the defective
entity action is approved in accordance with this subchapter
by either:
(i) the interest holders; or
(ii) the governors, if approval of the interest
holders is not required; and
(2) the time at which any statement of validation filed
in accordance with section 227 (relating to statement of
validation) becomes effective.
§ 222. Nonexclusivity.
Ratification or validation under this subchapter is not the
exclusive means of ratifying or validating a defective entity
action, and the absence or failure of ratification or validation
in accordance with this subchapter does not, of itself, affect
the validity or effectiveness of any entity action properly
ratified under common law or otherwise, nor does it create a
presumption that an entity action is or was a defective entity
action or void or voidable.
§ 223. Ratification of defective entity actions.
(a) Action by governors.--To ratify a defective entity
action under this subchapter other than the ratification of an
election of the initial governors under subsection (b), the
governors of the ratifying entity must take an action, in
accordance with section 224 (relating to action on
ratification), stating:
(1) the defective entity action to be ratified and, if
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the defective entity action involved the issuance of putative
interests, the number and type of putative interests
purportedly issued;
(2) the date of the defective entity action;
(3) the nature of the failure of authorization with
respect to the defective entity action to be ratified; and
(4) that the governors approve the ratification of the
defective entity action.
(b) Election of initial governors.--In the event that the
defective entity action to be ratified relates to the election
of the initial governors of an entity, a majority of the persons
who, at the time of the ratification, are exercising the powers
of the governors may take an action stating:
(1) the name of each person who first took action in the
name of the entity as the initial governors of the entity;
(2) the earlier of the date on which each person first
took action or was purported to have been elected as an
initial governor; and
(3) that the ratification of the election of each person
as an initial governor is approved.
(c) Action by interest holders.--If any provision of the
organic rules, a resolution of the governors, an applicable
rule, a plan, a plan agreement or a governance agreement
requires action by the interest holders or would have required
action by the interest holders of the entity or of a previous
entity at the date of the occurrence of the defective entity
action, and that required action by the interest holders has not
previously been obtained, the ratification of the defective
entity action approved in the action taken by the governors
under subsection (a) shall be submitted to the interest holders
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for action in accordance with section 224.
(d) Abandonment of ratification.--Unless otherwise provided
in the action taken by the governors under subsection (a), after
the action by the governors has been taken and, whether or not
the action has been approved by the interest holders, the
governors may abandon the ratification at any time before the
validation effective time without further action of the interest
holders.
§ 224. Action on ratification.
(a) Quorum and required vote of governors.--The quorum and
voting requirements applicable to a ratifying action by the
governors under section 223 (relating to ratification of
defective entity actions) shall be the quorum and voting
requirements applicable to the entity action proposed to be
ratified at the time the ratifying action is taken.
(b) Notice to interest holders.--If the ratification of the
defective entity action requires action by the interest holders
under section 223(c), and if the action is to be taken at a
meeting, the entity must give notice to each holder of
interests, regardless of whether entitled to vote, as of the
record date for notice of the meeting and as of the date of the
occurrence of the defective entity action. If the ratification
relates to an overissue, the entity must give notice to the
holders of both valid and putative interests. The entity is not
required to give a notice otherwise required by this subsection
to holders of valid or putative interests whose identities or
addresses for notice cannot be determined from the records of
the entity. The notice must state that the purpose, or one of
the purposes, of the meeting is to consider ratification of a
defective entity action and must be accompanied by:
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(1) either a copy of the action taken by the governors
in accordance with section 223 or the information required by
section 223(a)(1) ,(2), (3) and (4); and
(2) a statement that any claim that the ratification of
the defective entity action and any putative interests issued
as a result of the defective entity action should not be
effective, or should be effective only on certain conditions,
must be brought within 120 days after the applicable
validation effective time.
(c) Quorum and required vote of interest holders.--Except as
provided in subsection (d) with respect to the voting
requirements to ratify the election of governors, the quorum and
voting requirements applicable to the approval by the interest
holders required by section 223(c) shall be the quorum and
voting requirements applicable to the entity action proposed to
be ratified at the time of the interest holder approval, except
that the presence or approval of interests of any class or
series of which no interests are then outstanding, or of any
person that is no longer an interest holder, shall not be
required.
(d) Election of governors.--Action by interest holders
ratifying the election of governors requires either:
(1) that the votes cast within the voting group favoring
ratification exceed the votes cast opposing ratification of
the election at a meeting at which a quorum is present; or
(2) in the case of directors or a class of directors of
a business corporation elected by cumulative voting, that the
votes cast against ratification not be sufficient to elect
one or more directors to the board or to the class.
(e) Putative interests.--The following apply to putative
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interests:
(1) Putative interests on the record date for
determining the interest holders entitled to vote on any
matter submitted to interest holders under section 223(c)
shall be entitled to vote and shall be counted for quorum
purposes in any vote to approve the ratification of the
matter if:
(i) they are shares of a registered corporation
described in section 2502(1) (relating to registered
corporation status); and
(ii) have been held of record in fungible bulk by a
registered clearing agency or its nominee, acting as
securities intermediary.
(2) In all other cases, putative interests on the record
date for determining the interest holders entitled to vote on
any matter submitted to interest holders under section 223(c)
(and without giving effect to any ratification of putative
interests that becomes effective as a result of the vote) are
not entitled to vote and do not count for quorum purposes in
any vote to approve the ratification of a defective entity
action.
(f) Required amendment.--If the approval under this section
of putative interests would result in an overissue, in addition
to the approval required by section 223, approval of an
amendment to the organic rules of the entity to increase the
number of interests of an authorized class or series or to
authorize the creation of a class or series of interests so
there will be no over issue is also required.
§ 225. Optional notice.
(a) General rule.--If interest holder approval is not
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required under section 223(c) (relating to ratification of
defective entity actions) or if notice has not been given in
accordance with section 224(b) (relating to action on
ratification), the ratifying entity nonetheless may give notice
of an action taken under section 223 to each interest holder,
including the holders of both valid and putative interests,
regardless of whether entitled to vote, as of both:
(1) the date of the action by the governors; and
(2) the date of the defective entity action ratified.
(b) Contents.--The notice shall contain:
(1) either a copy of the action taken by the governors
in accordance with section 223(a) or (b) or the information
required by section 223(a)(1), (2), (3) and (4) or section
223(b)(1), (2) and (3), as applicable; and
(2) a statement that any claim that the ratification of
the defective entity action and any putative interests issued
as a result of the defective entity action should not be
effective, or should be effective only on certain conditions,
must be brought within 120 days after the giving of the
notice.
(c) Exception.--Notice under this section is not required to
be given to holders of valid and putative interests whose
identities or addresses for notice cannot be determined from the
records of the entity.
(d) Notice by registered corporations.--A notice given by a
registered corporation under this section may be given by means
of a publicly available filing with the United States Securities
and Exchange Commission.
§ 226. Effect of ratification.
(a) General rule.--A defective entity action is not void or
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voidable, or deprived of full effect, as a result of its failure
of authorization if ratified in accordance with this subchapter,
unless the court determines under section 228 (relating to
judicial proceedings regarding validity of entity actions) that
the ratification was not valid.
(b) Specific aspects of validation.--Subject to a court
determination under section 228 that the ratification was not
valid, from and after the validation effective time of a
defective entity action, and without regard to the 120-day
period during which a claim may be brought under section 228:
(1) The defective entity action is not void or voidable,
or deprived of full effect, as a result of its failure of
authorization, and is duly authorized and a valid entity
action effective as of the date when the defective entity
action was taken.
(2) The issuance of each putative interest or fraction
of a putative interest purportedly issued pursuant to the
defective entity action is not void or voidable, and each
putative interest or fraction of a putative interest is an
identical, duly authorized and validly issued interest or
fraction of an interest as of the time it was purportedly
issued.
(3) Any entity action taken subsequent to the defective
entity action in reliance on the defective entity action
having been validly effected is duly authorized and valid as
of the time taken. Any subsequent defective entity action
resulting directly or indirectly from the original defective
entity action, if the failure of authorization of the
subsequent defective entity action relates solely to the
defective entity action ratified under this subchapter, is
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duly authorized and valid as of the time taken.
(4) If a document was previously filed by the department
in respect of the defective entity action, any statement in
the document to the effect that the defective entity action
was validly approved in accordance with applicable rules is
deemed stricken from the document.
§ 227. Statement of validation.
(a) General rule.--If a defective entity action ratified
under this subchapter would have required under any other
section of this title a filing in accordance with this title,
the ratifying entity shall deliver to the department for filing
a statement of validation in accordance with this section,
regardless of whether a filing was previously made in respect of
the defective entity action and in lieu of a filing otherwise
required by this title. The statement of validation shall serve
to amend or substitute for any other filing with respect to the
defective entity action required by this title.
(b) Contents.--The statement of validation must be signed by
the ratifying entity and set forth:
(1) the name of the ratifying entity;
(2) subject to section 109 (relating to name of
commercial registered office provider in lieu of registered
address), the address of its registered office, including
street and number, if any, in this Commonwealth;
(3) the defective entity action that is the subject of
the statement of validation (including, in the case of any
defective entity action involving the issuance of putative
interests, the number and type of putative interests issued
and the date or dates upon which the putative interests were
purported to have been issued);
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(4) the date of the defective entity action;
(5) the nature of the failure of authorization in
respect of the defective entity action;
(6) a statement that the defective entity action was
ratified in accordance with this subchapter, including the
date on which the governors ratified the defective entity
action and the date, if any, on which the interest holders
approved the ratification of the defective entity action; and
(7) the following information with respect to previous
documents delivered to the department by the ratifying entity
or by a previous entity:
(i) if a document was previously filed by the
department in respect to the defective entity action and
no changes to the filing are required to give effect to
the ratification of the defective entity action, the
statement of validation must:
(A) state the name of the entity filing the
statement of validation and the statute under which
it was incorporated or formed;
(B) state the name, title and filing date of the
filing previously made and any previous statement of
correction to that filing; and
(C) have attached a copy of the filing
previously made, together with any previous statement
of correction to that filing.
(ii) if a document was previously filed by the
department in respect to the defective entity action and
the filing requires a change to give effect to the
ratification of the defective entity action, the
statement of validation must:
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(A) state the name of the entity filing the
statement of validation and the statute under which
it was incorporated or formed;
(B) state the name, title and filing date of the
filing previously made and any previous statement of
correction to that filing;
(C) have attached a filing containing all of the
information required to be included under the
applicable section or sections of this title to give
effect to the defective entity action; and
(D) state the date and time that the filing
attached to the statement of validation is deemed to
have become effective; or
(iii) if a document was not previously filed by the
department in respect to the defective entity action and
the defective entity action would have required a filing
under any other section of this title, the statement of
validation must:
(A) state the name of the entity filing the
statement of validation and the statute under which
it was incorporated or formed;
(B) have attached a document containing all of
the information required to be included under the
applicable section or sections of this title to give
effect to the defective entity action; and
(C) state the date and time that the document is
deemed to have become effective.
(c) Additional filing fee.--In addition to the filing fee
required under section 153 (relating to fee schedule) for the
statement of validation, if the statement of validation relates
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to a situation described in subsection (b)(7)(iii), the entity
shall also pay a fee equal to the filing fee for that document
required by section 153 at the time the statement of validation
is delivered for filing.
§ 228. Judicial proceedings regarding validity of entity
actions.
(a) Standing.--Subject to subsection (f), review of a
ratification under this subchapter or of a defective entity
action may be commenced in the court by:
(1) the ratifying entity; or
(2) a person that, at the time of the defective action
or its ratification, was:
(i) a successor to the ratifying entity;
(ii) a governor of the ratifying entity;
(iii) an interest holder or beneficial owner of an
interest in the ratifying entity or in a previous entity;
or
(iv) materially and adversely affected by the
ratification.
(b) Parties.--No other party in addition to the ratifying
entity need be joined in order for the court to adjudicate the
matter. In an action filed by the ratifying entity, the court
may require notice of the action be provided to other persons
specified by the court and permit such other persons to
intervene in the action.
(c) Determination by the court.--In an action under this
section, the court may:
(1) determine the validity and effectiveness of a
ratification under this subchapter;
(2) determine the validity and effectiveness of any
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defective entity action not ratified under this subchapter;
and
(3) establish conditions upon the validity or
effectiveness of a ratification or defective entity action
reviewed by the court.
(d) Time limitation.--Notwithstanding any other provision of
applicable law, an action asserting that the ratification of a
defective entity action and any putative interests issued as a
result of the ratification of the defective entity action should
not be valid must be brought within 120 days after notice has
been given as provided in section 224(b) (relating to action on
ratification) or 225 (relating to optional notice).
(e) Effect on validation effective time.--The validation
effective time shall not be affected by the filing or pendency
of a judicial proceeding under this section or otherwise, unless
otherwise ordered by the court.
(f) Exclusivity.--An action to review a ratification under
this subchapter may be brought only by a person identified in
subsection (a) and only in the court.
§ 229. Limitation on voiding certain defective entity actions.
(a) Bar on voiding certain defective entity actions.--
Subject to subsection (d), after the expiration of the
applicable period set forth in subsection (c):
(1) a defective entity action other than an overissue is
not void or voidable as the result of the failure of
authorization and is a valid entity action effective as of
the date of the defective entity action;
(2) any entity action taken subsequent to the defective
entity action in reliance on the defective entity action
having been validly effected is valid as of the time taken;
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and
(3) any subsequent defective entity action resulting
directly or indirectly from the original defective entity
action is duly authorized and valid as of the time taken, if
the failure of authorization of the subsequent defective
entity action relates solely to the defective entity action
referred to in paragraph (1).
(b) Bar on voiding certain overissues.--Subject to
subsection (d), after the expiration of the applicable period
set forth in subsection (c):
(1) an overissue is not void or voidable on the basis of
having been in excess of the number of interests of the class
or series that the domestic entity had the power to issue or
on the basis of the entity's lack of authority to issue
interests of the class or series, and is a valid entity
action effective as of the date of the overissue;
(2) the putative interests are duly authorized and
validly issued valid interests;
(3) any entity action taken subsequent to the overissue
in reliance on the overissue having been validly effected is
valid as of the time taken; and
(4) any subsequent defective entity action resulting
directly or indirectly from the original overissue is duly
authorized and valid as of the time taken, if the failure of
authorization of the subsequent defective entity action
relates solely to the defective entity action referred to in
paragraph (1).
(c) Applicable period.--The applicable period under this
section shall be the shortest of:
(1) in the case of a defective entity action taken by a
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registered corporation, two years from the date when the
registered corporation, or any successor or any person
directly or indirectly owning all the shares of the
registered corporation or of any successor to the registered
corporation, has disclosed the defective entity action in a
public filing with the Securities and Exchange Commission;
(2) six years from the date when:
(i) the defective entity action is set forth in or
implemented or purported to be implemented through the
public organic record of the entity taking the action; or
(ii) disclosure in record form of the occurrence of
the defective entity action is received by the person or
persons whose authorization would have been necessary for
the entity action not to have been defective; or
(iii) in the case of an overissue of shares of a
business corporation, disclosure in record form is given
to all shareholders in the manner set forth in section
1702 (relating to manner of giving notice) of the fact of
the issuance of the putative interests or of the
existence of the putative interests resulting from the
overissue; and
(3) 21 years after the defective entity action.
(d) Application to court to void defective entity action.--
To the extent that relief is available under other applicable
law, a person entitled to assert under applicable law that a
defective entity action is void or voidable may, before the
expiration of the applicable period set forth in this section,
file an action for relief declaring or otherwise establishing
that the defective entity action is void or voidable. If such an
action is filed, the operation of subsection (a) or subsection
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(b) shall be suspended until the final resolution of the action,
and, to the extent that relief is obtained, subsection (a) and
subsection (b) shall not apply.
(e) Other relief not affected.--The operation of subsections
(a) and (b) and the time periods set forth in subsection (c) do
not affect the availability of relief under applicable law other
than this subchapter relating to a defective entity action not
predicated on:
(1) a failure of authorization under this title relating
thereto;
(2) a lack of power or authority under section 1521
(relating to authorized shares) or the organic rules
resulting in an overissue; or
(3) the asserted void or voidable status of the
defective entity action.
(f) No tolling.--The operation of subsection (c) is not
tolled by reason of any person's unawareness of the failure of
authorization of the defective entity action or other grounds,
other than, in the case of subsections (c)(1) and (c)(2), active
and deliberate fraud, concealment or forgery proven by clear and
convincing evidence.
(g) Presumptions.--For purposes of this section, the
governors and interest holders of the entity are deemed to have
acted in reliance on the defective entity action in authorizing
subsequent entity actions unless clear and convincing evidence
demonstrates a lack of such reliance. For purposes of subsection
(c)(2)(ii) and (iii), a contemporaneous record in record form of
the giving of disclosure by a governor, officer or agent of the
entity is presumptive evidence of the giving and receipt of such
disclosure.
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(h) Amendment of organic rules following overissue.--After
the expiration of the applicable period applicable to an
overissue, the domestic entity may, and within a reasonable
period after a request in record form of a holder of formerly
putative interests resulting from an overissue must, adopt an
amendment to its organic rules:
(1) increasing the number of interests of the class or
series that includes the formerly putative interests to the
minimum number necessary for the entity's organic rules to
set forth the power of the entity to have issued the total
number of issued interests of the class or series held by all
interest holders; or
(2) otherwise amending its organic rules to the extent
necessary to authorize the creation and issuance of the class
or series of formerly putative interests.
(i) Effectiveness of section.--In the case of a defective
entity action occurring before (insert the effective date of
this act):
(1) the operation of subsections (a) and (b) is
suspended until (insert the first anniversary of the
effective date of this act), notwithstanding any expiration
of the applicable period set forth in subsection (c);
(2) despite any expiration of the applicable period set
forth in subsection (c), a person entitled to assert under
applicable law that a defective entity action is void or
voidable may file an action under subsection (d) if the
action is filed on or before (insert the first anniversary of
the effective date of this act);
(3) any action pending on (insert the effective date of
this act), seeking relief on the grounds that a defective
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entity action is void or voidable, including any relief that
may be obtained in the action, is not affected by this
section;
(4) any final judgment relating to the defective entity
action that had become no longer subject to appeal before
(insert the effective date of this act) is not affected by
this section; and
(5) this section shall otherwise apply with full
retroactive effect to a defective entity action.
Section 12. The definitions of "conversion," "division,"
"domestication," "interest exchange" and "merger" in section
312(a) and (b) of Title 15 are amended to read:
§ 312. Definitions.
(a) 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:
* * *
["Conversion." A transaction authorized by Subchapter E
(relating to conversion).]
* * *
["Division." A transaction authorized by Subchapter F
(relating to division).]
* * *
["Domestication." A transaction authorized by Subchapter G
(relating to domestication).
"Interest exchange." A transaction authorized by Subchapter
D (relating to interest exchange).]
* * *
["Merger." A transaction in which two or more merging
associations are combined into a surviving association pursuant
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