On July 1, 2015, Act 172 of 2014, the Association Transactions Act (the “Act”), went into effect, overhauling Pennsylvania’s entity laws contained in Title 15, Corporations and Unincorporated Associations. Derived from the Model Entity Transactions Act (“META”), the Act seeks to modernize and streamline the “hub and spoke” organization of Title 15 by crafting central, consolidated sets of provisions applicable to all types of entities.
The Act governs five fundamental types of transactions: mergers, conversions, interest exchanges, divisions, and domestications. These transactions may take place regardless of the form of the business entities involved.
Notably, the Act simplifies conversions for entities. Prior to the Act’s adoption, Pennsylvania had no comprehensive statutory framework to convert the form of an entity. Instead, business owners and entities endured the cumbersome process of winding down affairs and then either dissolving before forming a new type of entity or merging with another entity. The Act serves to rehabilitate these time-consuming and costly transactions.
The Act now authorizes divisions for all types of entities. A division transaction, offered in only a few jurisdictions, gives entities the option of dividing into multiple, new entities in order to separate assets and liabilities into a new spin-off entity. Spin-off entities are not required to be in the same form as the original entity, providing greater flexibility for business transactions.
Under the Act, domestications are also now available to all forms of entities, not just business corporations. Domestications may be utilized to move an entity originally formed in another state to Pennsylvania.
New types of filings are now available as a result of the Act, including the Statement of Abandonment, the Statement of Interest Exchange, the Statement of Conversion, and the Transfer of Registration.
The Statement of Abandonment permits the withdrawal of a document that has been delivered to the Department of State before it takes effect. The Statement of Interest Exchange replaces the prior form of that filing and is now available for all types of entities. The Statement of Conversion is filed when an entity changes its form. The Transfer of Registration enables registered foreign entities to reflect a merger or conversion occurring outside Pennsylvania.
These updates to Pennsylvania’s business entity laws work to lower transaction costs while increasing efficiency, making Pennsylvania a more attractive place to do business.
If we can be of help in facilitating entity transactions, or you have questions about how the Act may affect your business, please let us know. Obermayer will monitor the operation of these new provisions, and will continue to provide you with relevant updates.
The information contained in this article should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.