ARTICLE C

DOMESTIC BUSINESS CORPORATION ANCILLARIES

 

Chapter

21.  Nonstock Corporations

23.  Statutory Close Corporations

25.  Registered Corporations

27.  Management Corporations

29.  Professional Corporations

31.  Insurance Corporations

 

 

CHAPTER 21

NONSTOCK CORPORATIONS

 

Subchapter

A.  Preliminary Provisions

B.  Powers, Duties and Safeguards

 

Enactment.  Chapter 21 was added December 21, 1988, P.L.1444, No.177, effective October 1, 1989.

Cross References.  Chapter 21 is referred to in section 1103 of this title.

 

 

SUBCHAPTER A

PRELIMINARY PROVISIONS

 

Sec.

2101.  Application and effect of chapter.

2102.  Formation of nonstock corporations.

2103.  Contents of articles and other documents of nonstock corporations.

2104.  Election of an existing business corporation to become a nonstock corporation.

2105.  Termination of nonstock corporation status.

§ 2101.  Application and effect of chapter.

(a)  General rule.--This chapter shall be applicable to:

(1)  A business corporation that elects to become a nonstock corporation in the manner provided by this chapter.

(2)  A domestic corporation for profit subject to Subpart D (relating to cooperative corporations) organized on a nonstock basis.

(3)  A domestic insurance corporation that is a mutual insurance company.

(b)  Application to business corporations generally.--The existence of a provision of this chapter shall not of itself create any implication that a contrary or different rule of law is or would be applicable to a business corporation that is not a nonstock corporation. This chapter shall not affect any statute or rule of law that is or would be applicable to a business corporation that is not a nonstock corporation.

(c)  Laws applicable to nonstock corporations.--Except as otherwise provided in this chapter, Part I (relating to preliminary provisions) and this subpart shall be generally applicable to all nonstock corporations. The specific provisions of this chapter shall control over the general provisions of Part I and this subpart. In the case of a nonstock corporation, references in this part to "shares," "shareholder," "share register," "share ledger," "transfer book for shares," "number of shares entitled to vote" or "class of shares" shall mean memberships, member, membership register, membership ledger, membership transfer book, number of votes entitled to be cast or class of members, respectively. Except as otherwise provided in this article, a nonstock corporation may be simultaneously subject to this chapter and one or more other chapters of this article.

(Dec. 19, 1990, P.L.834, No.198, eff. imd.; Oct. 22, 2014, P.L.2640, No.172, eff. July 1, 2015)

 

2014 Amendment.  Act 172 amended subsec. (c).

1990 Amendment.  Act 198 amended subsec. (a).

§ 2102.  Formation of nonstock corporations.

(a)  General rule.--A nonstock corporation shall be formed in accordance with Article B (relating to domestic business corporations generally) except that its articles shall contain:

(1)  A heading stating the name of the corporation and that it is a nonstock corporation.

(2)  The provisions required by section 2103 (relating to contents of articles and other documents of nonstock corporations).

(b)  Initial members.--Upon the filing of articles of a nonstock corporation, the subscribers to the minimum guaranteed capital of the corporation, if any, and the incorporators shall be the initial members of the corporation.

 

Cross References.  Section 2102 is referred to in sections 2105, 7105 of this title.

§ 2103.  Contents of articles and other documents of nonstock corporations.

In lieu of required statements relating to shares or share structure, a nonstock corporation shall set forth in any document permitted or required to be filed under this subpart the fact that the corporation is organized on a nonstock basis. A nonstock corporation may, but need not, have a minimum guaranteed capital which shall be furnished by the subscribers thereto in such proportions as they may agree.

 

Cross References.  Section 2103 is referred to in sections 2102, 2105, 7105 of this title.

§ 2104.  Election of an existing business corporation to become a nonstock corporation.

(a)  General rule.--Any business corporation may become a nonstock corporation under this chapter by:

(1)  Adopting a plan of election providing for the redemption by the corporation of all of its shares whether or not redeemable by the terms of its articles and adjusting its affairs so as to comply with the requirements of this chapter applicable to nonstock corporations.

(2)  Filing articles of amendment which shall contain, in addition to the requirements of section 1915 (relating to articles of amendment):

(i)  A heading stating the name of the corporation and that it is a nonstock corporation.

(ii)  A statement that it elects to become a nonstock corporation.

(iii)  A statement that the corporation is organized on a nonstock basis.

(iv)  Such other changes, if any, that may be desired in the articles.

(b)  Procedure.--The plan of election of the corporation into a nonstock corporation (which plan shall include the amendment of the articles required by subsection (a)) shall be adopted in accordance with the requirements of Subchapter B of Chapter 19 (relating to amendment of articles) except that:

(1)  The holders of shares of every class shall be entitled to vote on the plan regardless of any limitations stated in the articles or bylaws on the voting rights of any class.

(2)  The plan must be approved by two-thirds of the votes cast by all shares of each class.

(3)  If any shareholder of a business corporation that adopts a plan of election into a nonstock corporation objects to the plan of election and complies with the provisions of Subchapter D of Chapter 15 (relating to dissenters rights), the shareholder shall be entitled to the rights and remedies of dissenting shareholders therein provided. There shall be included in, or enclosed with, the notice of the meeting of shareholders called to act upon the plan of election a copy or a summary of the plan and a copy of Subchapter D of Chapter 15 and of this subsection.

(4)  The plan shall not impose any additional liability upon any existing patron of the business of the corporation, whether or not that person becomes a member of the corporation pursuant to the plan, unless the patron expressly assumes such liability.

(Nov. 3, 2022, P.L.1791, No.122, eff. 60 days)

 

Cross References.  Section 2104 is referred to in section 1571 of this title.

§ 2105.  Termination of nonstock corporation status.

(a)  General rule.--A nonstock corporation may terminate its status as such and cease to be subject to this chapter by:

(1)  Adopting a plan of termination providing for the issue of appropriate shares to its members and adjusting its affairs so as to comply with the requirements of this subpart applicable to business corporations that are not nonstock corporations.

(2)  Amending its articles to delete therefrom the additional provisions required or permitted by sections 2102(a)(1) (relating to formation of nonstock corporations) and 2103 (relating to contents of articles and other documents of nonstock corporations) to be stated in the articles of a nonstock corporation. The plan of termination (which plan shall include the amendment of the articles required by this section) shall be adopted in accordance with Subchapter B of Chapter 19 (relating to amendment of articles) except that:

(i)  The members of every class shall be entitled to vote on the plan regardless of any limitations stated in the articles or bylaws, or in a document evidencing membership, on the voting rights of any class.

(ii)  The plan must be approved by a majority of the votes cast by the members of each class.

(b)  Increased vote requirements.--The bylaws of a nonstock corporation adopted by the members may provide that on any amendment to terminate its status as a nonstock corporation, a vote greater than that specified in subsection (a) shall be required. If the bylaws contain such a provision, that provision shall not be amended, repealed or modified by any vote less than that required to terminate the status of the corporation as a nonstock corporation.

(c)  Mutual insurance companies.--With respect to the termination of the status of a mutual insurance company as a nonstock corporation, see section 103 (relating to subordination of title to regulatory laws) and Article VIII-A of the act of May 17, 1921 (P.L.682, No.284), known as The Insurance Company Law of 1921.

(Dec. 19, 1990, P.L.834, No.198, eff. imd.; June 22, 2001, P.L.418, No.34, eff. 60 days; Nov. 3, 2022, P.L.1791, No.122, eff. 60 days)

 

2022 Amendment.  Act 122 amended subsec. (a).

2001 Amendment.  Act 34 amended subsec. (c).

Cross References.  Section 2105 is referred to in section 1504 of this title.

 

 

SUBCHAPTER B

POWERS, DUTIES AND SAFEGUARDS

 

Sec.

2121.  Corporate name of nonstock corporations.

2122.  Classes of membership.

2123.  Evidence of membership; liability of members.

2124.  Voting rights of members.

2125.  Inapplicability of certain provisions to nonstock corporations.

2126.  Dissolution of nonstock corporations.

§ 2121.  Corporate name of nonstock corporations.

(a)  General rule.--The corporate name of a nonstock corporation may contain the word "mutual."

(b)  Insurance names.--See section 202(c)(1)(iii) (relating to requirements for names generally).

(Dec. 19, 1990, P.L.834, No.198, eff. imd.; Oct. 22, 2014, P.L.2640, No.172, eff. July 1, 2015)

§ 2122.  Classes of membership.

The bylaws of a nonstock corporation adopted by the members may vest in the board of directors the power to establish classes of membership and to fix the several rights and liabilities thereof.

 

Cross References.  Section 2122 is referred to in section 1504 of this title.

§ 2123.  Evidence of membership; liability of members.

(a)  General rule.--Every member of record of a nonstock corporation shall be entitled to a written document evidencing his membership in the corporation. The document shall state:

(1)  That the corporation is a nonstock corporation incorporated under the laws of this Commonwealth, unless the name of the corporation contains the word "mutual."

(2)  The name of the person to whom issued.

(3)  The class of membership, if any, held by the member.

(b)  Notice of variations in rights.--If the membership of the corporation is divided into classes, the document shall set forth (or shall state that the corporation will furnish to any member, upon request and without charge) a full or summary statement of the special rights and liabilities of membership of each class and the variations in the rights and liabilities of membership between classes. If a membership is not fully paid or if the member is otherwise liable to assessment, the document evidencing the membership shall so state.

(c)  Liability.--A subscriber to the minimum guaranteed capital of or member of a nonstock corporation shall not be under any liability to the corporation or any creditor thereof other than the obligations of complying with the terms of the subscription to the minimum guaranteed capital, if any, and with the terms of the document evidencing his membership. Otherwise, the members of a nonstock corporation shall not be personally liable for the debts, liabilities or obligations of the corporation.

(d)  Dissenters rights.--The document evidencing membership shall constitute a share certificate for the purposes of Subchapter D of Chapter 15 (relating to dissenters rights).

(Dec. 18, 1992, P.L.1333, No.169, eff. 60 days)

§ 2124.  Voting rights of members.

Except as otherwise provided in a bylaw adopted by the members or in a written document evidencing membership, every member of record of a nonstock corporation shall have the right, at every meeting of members, to one vote.

 

Cross References.  Section 2124 is referred to in section 1504 of this title.

§ 2125.  Inapplicability of certain provisions to nonstock corporations.

(a)  Share structure.--The provisions of Subchapter B of Chapter 15 (relating to shares and other securities) shall not be applicable to a nonstock corporation. A nonstock corporation shall not create or issue shares.

(b)  Corporate finance.--A patronage rebate or dividend that is, or is equivalent to, a reduction in the charge made by a nonstock corporation to a member for goods or services shall not constitute a dividend or distribution within the meaning of section 1551 (relating to distributions to shareholders).

§ 2126.  Dissolution of nonstock corporations.

If at the time of dissolution of a nonstock corporation the articles, bylaws and documents evidencing membership fail to define the respective rights and preferences of the members upon dissolution, the surplus of cash or property remaining after discharging all liabilities of the corporation shall be paid to or distributed among the members according to such a plan of distribution as the members may adopt. The plan shall be adopted in accordance with Subchapter F of Chapter 19 (relating to voluntary dissolution and winding up) except that:

(1)  The members of every class shall be entitled to vote on the plan regardless of any limitations stated in the articles or bylaws, or in a document evidencing membership, on the voting rights of any class.

(2)  The plan must be approved by a majority of the votes cast by the members of each class.