On October 22, 2014 House Bill 2234 became effective, establishing Pennsylvania’s “Entity Transactions Law”1, a version of the Model Entity Transactions Act (META) which will streamline and make more uniform the way in which fundamental changes such as mergers and acquisitions affecting Pennsylvania corporations and other business associations will be accomplished. The bill also adopted new provisions related to associations and significantly updates provisions of Title 15 (Corporations and Unincorporated Associations) and Title 54 (Names). The material provisions of the bill will become effective July 1, 2015.
The Entity Transactions Law draws heavily from META, which is sometimes referred to as the “junction box law”, provides a common set of Pennsylvania provisions applicable to transactions involving all forms of associations under Title 15 (including business and non-profit corporations, partnerships and limited liability companies), governs mergers and similar fundamental transactions among them, enables conversions from one form to another and domestication (“reincorporation”) of foreign entities into Pennsylvania, uses a common approach (and vocabulary) to approvals of such transactions and integrates the law on entity names.
META is a product of the National Conference of Commissioners on Uniform State Laws and the American Bar Association. As adopted in the Entity Transactions Law, it governs four kinds of transactions:
- 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 two entities
- Domestication of an entity originally organized in another state
Under the Entity Transactions Law, changes in business form and acquisitions can be accomplished without certain intermediate steps that were often required, such as dissolution (raising concerns over creditor satisfaction procedures) or multi-step processes.
To complete each kind of transaction, a plan must be approved by the interest holders of each participating entity, although the requirements of the plan itself and the approval process differ slightly based on the type of entity and transaction. After the plan is approved, a statement relevant to the transaction, or in some cases a copy of the plan itself, must be filed with the Pennsylvania Secretary of State (similar to merger transactions). The objective in these procedures is to make sure that no interest is extinguished by any of the transactions outlined above, and to end the transaction with an entity that continues the business of the original entities in a straightforward and streamlined manner without extinguishing the original entities’ obligations.
Though the Entity Transaction Law is expected to streamline and simplify transactions from a process perspective, the various state and federal tax implications that are often drivers of transaction goals and outcomes will continue to evolve but could give rise to significant tax gains despite simplified transaction structures.
While some initial administrative provisions of the legislation will take effect immediately to facilitate the transition from existing Pennsylvania law to the new framework, the bulk of the legislation will take effect on July 1, 2015.
Buchanan Ingersoll & Rooney attorneys Thomas M. Thompson and Perry S. Patterson serve on the Title 15/Business Associations Committee of the Section on Business Law of the Pennsylvania Bar Association, which drafted the legislation. This committee is continuing to work to modernize the various Pennsylvania associations’ statutes to bring them more in line with the uniform statutes adopted by a number of other states.
1Chapter 4 of Title 15 of the Pennsylvania Consolidated Statutes
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