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House Co-Sponsorship Memoranda

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House of Representatives
Session of 2013 - 2014 Regular Session


Posted: April 8, 2014 04:02 PM
From: Representative Mike Turzai and Rep. Frank Dermody
To: All House members
Subject: Co-sponsorship of Legislation – Business Entity Law
In the near future, we will introduce legislation to modernize Pennsylvania's entity law to enable business entities to change their organizational forms as businesses grow and change over time. Our legislation is based on model legislation prepared by the National Conference of Commissioners on Uniform State Laws (ULC) and was drafted in close consultation with the Pennsylvania Bar Association.

By way of background, businesses in Pennsylvania may organize in a number of forms. These entity forms include:

• Business corporations
• Nonprofit corporations
• General partnerships
• Limited liability partnerships
• Limited liability companies

Over time a business may find it beneficial, or even necessary, to change from one of these forms to another. Under current law, a business seeking to change its form must either completely wind down its current business and dissolve before starting anew in the new entity form or merge with another entity. Dissolution of the business or a merger is often difficult, time consuming and unnecessary, causing needless expense to Pennsylvania businesses and disruption for employees, creditors, vendors, and customers.

Our legislation will allow a business to make a direct conversion to a different entity form without having to first dissolve the old business entity.

This legislation will also consolidate in Title 15 a comprehensive set of general provisions to permit four kinds of transactions to take place regardless of the form of the business entities involved:

• Merger of one entity with another;
• Conversion of an entity to another kind of entity;
• An interest exchange between two entities so that one of them is controlled by the other without actually merging the entities, and
• Domestication in Pennsylvania of an entity organized in another state.

Our legislation consolidates these provisions in Title 15 and repeals similar provisions that are currently located in various existing statutes. It also follows up on legislation enacted in 2012 that enabled limited liability companies to have banking powers by authorizing banking corporations to convert to limited liability companies. The Pennsylvania Department of Banking and the Pennsylvania Insurance Department support this legislation.

We all have an interest in ensuring that businesses opening, operating and employing in Pennsylvania remain competitive in a modern marketplace. In addition to strengthening existing Pennsylvania businesses, this legislation will invite new businesses to relocate in Pennsylvania, creating new jobs and sparking new growth in the real estate sector and other industries. It will be a significant step toward a healthier economy for hard-working Pennsylvanians and their families.

Please join us in supporting this legislation that will provide a more coherent structure to Title 15 and remove unnecessary requirements and procedures in the law that serve only as obstacles to growth of Pennsylvania businesses.

Introduced as HB2234