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New PA Entity Transactions Law Effective July 1, 2015

For decades, if the decision-makers of a Pennsylvania business entity wished to change the structure of that entity, the only way they could do so would be to dissolve the existing entity and to form a new entity. The process was time consuming and expensive. However, in a majority of situations, that will no longer be the case: The Pennsylvania Entity Transactions Law became effective on July 1, 2015. The new law is designed to allow our clients to convert their S corporations to limited liability companies, convert their limited partnerships to corporations, and so forth. The law also dramatically simplifies the means to accomplish fundamental transactions, such as mergers and exchanges of equitable interests. Even transactions between Pennsylvania entities and foreign entities are simplified (at least as far as accomplishing and recognizing those transactions in Pennsylvania).

There will be some new vocabularly with which we will all have to become familiar. For example, instead of designating persons as "shareholders" or "members," owners of equitable interests will simply be known as "interest holders." But such changes are a small price to pay for Pennsylvania businesspersons and their advisors, who have long sought to dispense with Pennsylvania's former antiquated and expensive processes.

The new Entity Transactions Law continues the trend of Pennsylvania becoming a progressive jurisdiction. However, we should keep in mind that the passage of the new law does not mean that we can cut corners in terms of properly forming and maintaining business entities. To the contrary, it is even more important to make certain that an entity is properly formed and maintained, so that any change will withstand the scrutiny of governmental and taxing authorities, as well as challenges by individuals who are disgruntled or disaffected by a particular transaction or change in structure.

Bottom line: The PA Entitiy Transactions Law can save principals of Pennsylvania companies a good deal of time and money--but only if the entities are properly formed and maintained from the beginning.

---Ken Milner