2023 Pennsylvania Society Code Update

On November 3, 2022, Gov. Wolf signed House Bill 2057 into law 122. This Act made numerous amendments to Title 15 of the Pennsylvania Consolidated Code, known as the “Association Code” (Update of Title 15).¹ The Title 15 Update went into effect on January 2, 2023.² Certain important provisions will come into effect at a later date.³ The bill’s main sponsor, Rep. Brad Rohe, cites modernization of Pennsylvania’s corporate law as the purpose behind the bill, with most of the amendments being the Delaware General Corporation Law, the Model Business Corporation Law, or It is modeled after the principles of corporate governance. Analysis and Recommendations.^Four This multi-part series outlines the major changes coming to Pennsylvania through the Title 15 Update. This Part 1 provides an overview of the major changes.

Summary of major changes

The Title 15 update includes the following major changes:

1. Annual report. The Title 15 Update adopts an annual report, replacing the previous decade-long filing.^Five Beginning in 2024, all entities incorporated in Pennsylvania and all entities registered to do business in Pennsylvania are required to file an annual report with the Pennsylvania Department of State.⁶ The annual deadline is determined by the type of entity. (b) a limited liability company he must file by October 1; (c) all other entities;⁷ Must be submitted by December 31st.⁸

2. Abandonment of business opportunities. Pennsylvania corporations may waive interest in business opportunities, both for-profit and non-commercial. This eliminates the need for interested directors or officers to bring such opportunities to the company first. A waiver may be a blanket waiver or limited to a particular class or category. Waivers may be included in the Articles of Incorporation or adopted by the Board of Directors.⁹

3. Fiduciary Duties; Business Judgment Rules; Officers. The Title 15 Update clarifies that a Pennsylvania director’s duty to conduct a reasonable investigation into potential matters does not go beyond what is required by law.^Ten In addition, Section 1712(d) of the Title 15 Update adopts a statutory statement of business judgment rules relating to directors. The treatment of officers’ duties has been transferred to the new Section 1734, which also adopts the Statutory Business Judgment Rules for Officers. New Section 1735 authorizes bylaws (or provisions of section) adopted by shareholders to extend to directors the same protections from personal liability that are now available to directors under Section 1713 . Unlike similar new Delaware provisions,¹¹ Potential protections are available to all officers, not just certain categories of officers, and do not deny potential protection against claims brought by or in the interests of the company. The Title 15 Update also responds to certain case law relating to claims of obligations to creditors by clarifying that directors have obligations only to the company and not to creditors. explicitly stated.¹² Similar changes have been made to nonprofits.¹³

4. ratification. This update adds statutory procedures for authorizing defective conduct by Pennsylvania entities. Approval under the Title 15 Update requires action by the entity’s board of directors or applicable governing body. Approval by the entity’s stakeholders is also mandatory if required by contract, governing document, statute, or other applicable regulation. If the defective conduct required a submission, the entity must also make a verification submission to the Pennsylvania State Department.¹⁴

5. Choice of forums. Pennsylvania for-profit and non-profit corporations’ articles of association or articles of incorporation may contain provisions that provide a forum for adjudicating internal corporate claims. The exclusive forum provision must include at least one Pennsylvania court and may designate courts in other jurisdictions so long as the company has a reasonable relationship with that jurisdiction. For claims arising under the Federal Securities Act of 1933, this provision may provide exclusive jurisdiction to the federal courts.¹⁵ The Title 15 Update states that such clauses do not confer personal or subject matter jurisdiction on any particular court.¹⁶

Further details will be provided in future alerts related to this multi-part series.

Conclusion

The Title 15 Update modernizes many aspects of Pennsylvania’s charter of associations, particularly the Business Corporation Law. Pennsylvania and Pennsylvania-registered foreign corporations are currently required to file an annual report, but the process is simple and intuitive. If a technical flaw in an endorsement prevents verification of an action for a particular entity, the update provides a clearer path to ratification without the complication of invalidating the action or automatically banning potential old challenges to endorsement. Directions are provided. Expanding the sanctions already widely available under the Business Corporation Law to change many statutory default rules, this update also includes provisions under Delaware General Corporation Law, such as waiving business opportunities and approving businesses. It also codifies changes to certain areas of flexibility granted to entities. limit the liability of corporate officers; Finally, subject to the interpretation of the Association Bylaws by some courts, the latest version provides important clarifications regarding the duties of Directors.

The Title 15 Update amends the Associations Code in several other important aspects. For example, change or add provisions regarding the conduct of meetings and voting, and modify some provisions governing “registered” (i.e., public) businesses.¹⁷ Other significant changes include rules related to two-step transactions.¹⁸ acceptable methods of entity record keeping;¹⁹ emergency action of the entity,²⁰ Restrictions on the Rights of Opponents,^{twenty one} indemnity and waiver provisions in the Entity Bylaws;^{twenty two} resignation of a director,^{twenty three} Delay in validity of directors’ consents.^{twenty four}

For more information regarding the Title 15 Update, please contact the author of this client alert or your primary contact at the company. The next part of this multi-part series covers annual reporting requirements.

footnote

¹ HB 2057, Gen. Assemb., Reg. Seth. (Pa. 2022). Act 122 made changes that also conform to Title 54 (Names).

² 1 Pa. Cons. statistics. See also § 1701(a)(5); HB 2057, § 112.

³ lookExample: HB 2057, § 5 (adding § 146(h) to the Association Constitution).

^Four Memorandum from Pennsylvania Human Resources Representative Brad Rohe. Seth. (October 26, 2021), https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20210&cosponId=36409.

^Five HB 2057, § 5 (adding § 146(a) to the Association Code).

⁶ identification(Add § 146(h) to Association Code).

⁷ This includes limited partnerships, limited partnerships, elected partnerships, professional associations and business trusts. See 15 PA. Cons. statistics. § 102(a).

⁸ HB 2057, § 5 (adding § 146(c) to the Association Code).

⁹ Ditto. § 45 (Adds § 1719 to Associations Code).

^Ten identificationat § 42 (Amending Associations Code § 1712(a)) (Adopted in response to In re Nine West LBO Securities Litigation, 505 F. Supp. 3d 292, 310-12 (SDNY 2020) (Interpretation of Associations Code). ) .

¹¹ delete. code t. 8, § 102(b)(7).

¹² HB 2057, §§ 42, 44, 51 (amending §§ 1712 and 1717 of the Statutes of the Association and adding §§ 1734 and 1735, respectively, to the Statutes of the Association).

¹³ View IDat § 8​​0 (amending Associations Code § 5712); identificationat § 8​​2 (amending Associations Code § 5717); identification. at § 87 (adding § 5733.1(b)–(d) to the Association Bylaws); identification§ 87 (adds § 5733.2 to Association Code).

¹⁴ identificationat § 11 (adding §§ 221-29 to the Association Bylaws).

¹⁵ identificationat §§ 37, 79 (adding §§ 1513(a) and 5513(a) to the Association Code, respectively).

¹⁶ identification§ 37 (adding § 1513(b) to the Association Code);

¹⁷ Example: IDat § 40 (as amended Associations Code §§ 1704, 1708, 1709); identification. at § 53 (amending Associations Code § 1755); identification§ 54 (as amended §§ 1758, 1763 of the Associations Code); identification. § 60 (as amended Associations Code §§ 2522, 2528); identification§ 61 (add § 2530 to Associations Code); identificationat § 65 (amending Associations Code § 2561).

¹⁸ identification§ 15 (adding § 321(f) to the Association Code);

¹⁹ identification§ 2 (amending § 107(a) of the Association Code to allow record keeping via blockchain technology).

²⁰ identificationat § 34 (amending Associations Code § 1509).

^{twenty one} identification§ 40 (amending Associations Code § 1571(f)); ID. at § 16 (amending Associations Code § 363(c)).

^{twenty two} identification§ 52 (amending Associations Code § 1743).

^{twenty three} identification§ 47 (amending Associations Code § 1724).

^{twenty four} identification§ 49 (amending Associations Code § 1727).