PHILADELPHIA ESTATE PLANNING COUNCIL

VOL. XXVI, NO. 3 • SPRING 2017

“PULLC Act”) became fully effective to recover against a transferable , Pennsylvania and replaced the PLLC .1 Unlike its the PULLC Act makes clear that it does not predecessor, the PULLC Act specifically cause the dissociation of the member or a and defined the held by a member. dissolution and winding up of the limited LLC Law Revised For example, it defined “transferable liability . interest” as the “right, as initially owned Diverging from both the PLLC Law and by a person in the person’s as Suzanne A. Prybella & James C. Vandermark Delaware law, the PULLC Act allows a member, to receive distributions from a judgment creditor to foreclose the a company, whether or transferable interest of the member. Pennsylvania recently enacted new not the person remains a member or In most cases, the purchaser at the 2 legislation that will enable attorneys, continues to own any part of the right.” foreclosure sale will only obtain the estate planners, and other professionals The PULLC Act also makes clear that a transferable interest and does not thereby to advise clients seeking to place assets member’s transferable interest is personal become a member. This is because in a limited liability company with greater property and such transferable interest the purchaser is also subject to PULLC confidence when addressing issues is the only right that may be transferred Act’s provisions relating to transfers of regarding the protections afforded by to non-members. Thus, if a member sells transferable interests, as discussed above. the limited liability company form. Prior or otherwise transfers their transferable However, there is a significant caveat to to February 21, 2017, Pennsylvania interest, the recipient of the transferable this rule as it pertains to sole member followed the Pennsylvania Limited interest has only the right to receive that limited liability . The PULLC Liability Company Law (15 Pa. C.S. § member’s distributions. The member is Act allows creditors foreclosing against 8901 et seq.) (the “PLLC Law”). The not dissociated as a member from the LLC the sole member of a , PLLC Law was similar to Delaware’s and the recipient is not entitled to: to force the sale of the member’s entire Limited Liability Company Act in that it (i) participate in the or interest, not just their transferable interest. included provisions regarding transfers conduct of the company’s activities and of membership interests (which included Enactment of the PULLC Act was part affairs; or 4 both economic rights and rights to of a much larger amendment to Title participate in the management of the (ii) …have access to records or other 15 ( and Unincorporated ). information concerning the company’s Associations) to replace the law governing activities and affairs.3 limited liability companies, limited liability The PLLC Law, however, did not provide , limited partnerships and clear guidance with respect to the The PULLC Act also provides significant clarification as to the rights of creditors, general partnerships. In particular, the property rights of members or to what following changes are notable from a extent creditors could recover against a which are limited to those rights provided for under the PULLC Act. This includes obligation and asset protection member’s interest in the limited liability standpoint: company. Instead, members were left to charging orders as the sole remedy faceoff in court to define the member’s available to judgment creditors for Limited Liability Companies obtaining distributions made by the property interests and the extent to • Clarifies that although a limited limited liability company. If a creditor is which creditors could recover against liability operating agreement may not able to obtain a charging order, it will be such interests for the unpaid of completely eliminate the a lien against the member’s transferable the member. The uncertainty as to the or the duty of care of its members, it may interest and requires the limited liability protections available under the PLLC Law specify (reasonable) conduct that does company to pay over to the creditor any caused some clients to consider other not violate such duties. entity forms and alternative jurisdictions. distributions that would otherwise be paid to the member. The creditor can • Permits the transfer of any distribution On April 1, 2017, the Pennsylvania also have a receiver appointed to ensure right by a member of an LLC pursuant Uniform Limited Liability Company Act distributions are paid to the creditor. of 2016 (15 Pa. C.S. § 8811 et seq.) (the However, because the creditor is only able continued on page 2

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PLLC Law continued that the rules of the Uniform Partnership involving federal, state and local taxation. In Act are generally the default rules. addition, she advises clients on issues regarding Further clarifies that property is owned the qualification and maintenance of -exempt to any terms or restrictions on transfers status. imposed by the LLC’s operating by the partnership and not by individual partners. James Vandermark, an associate at White agreement. and Williams LLP, concentrates his practice in • Specifies that a member is not an agent • Provides that a partner has duties the areas of , tax, and commercial of loyalty and care to address suits law. He represents a variety of , of the LLC, solely because it is a member including financial institutions, corporations, by partners for breach of fiduciary of such LLC, thus eliminating the companies and government entities. “statutory apparent authority” which was responsibilities. His experience includes advising creditors and previously the law. • Provides the general partners of an LLP debtors in commercial and consumer bankruptcy cases as well as complex state and local tax with liability protection similar to that • Expands the permissible purposes of an matters. James also represents clients involved in LLC to include not-for- purposes. enjoyed by of a bankruptcy restructuring efforts and adversarial Previously, Pennsylvania law only and members of a limited liability proceedings, disputes involving business tax and real estate tax assessments, and other permitted not-for-profit purposes with company. sophisticated commercial litigation matters. respect to corporations. A nonprofit • Creates distribution tests which address LLC is permitted to receive and hold real the ability of creditors to recoup property in trust for the purposes set improper distributions in light of the forth in its Certificate of . partners’ shield from liability. A nonprofit may want to create an LLC • Provides for the satisfaction of for a number of reasons, including for creditors upon liquidation (similar to protection from the risks and liabilities corporations). associated with the of real property or to operate a business that Also worth noting is that the inaction is not substantially related to advancing of the Uniform the nonprofit’s exempt purpose (without Act severs the link between limited jeopardizing its 501(c)(3) status under partnership law and federal law). law and creates an independent source of law with respect to limited partnerships. • Creates “Benefit Companies” or “Benefit LLCs” which are entities whose purpose Footnotes: must be for general public benefit (and 1 The PULLC Act became partially effective on may be for a specific public benefit) February 21, 2017. During the interim period meaning that it must have a “material between February 21, 2017, and April 1, 2017, the PPLC Law governed only (1) limited liability positive impact on society and the companies formed on or after February 21, environment, taken as a whole and 2017 and (2) limited liability companies assessed against a third-party standard, previously formed and that elected to be from the business and operations of governed by the PULLC Act. a benefit company”. The third-party 2  15 Pa.C.S. § 8812(a). standard must be maintained by the 3 15 Pa.C.S. § 8852(a)(3). entity and any reports and assessments 4 See Pennsylvania House Bill #1398 (Act 2016- confirming the third-party standard 170) must be made publicly available (which Suzanne Prybella, an associate at White and means Benefit Companies will be very Williams LLP, focuses her practice on commercial transparent entities). lending transactions as well as on estate planning and tax matters. In her practice, Limited Liability Partnerships Suzanne advises clients on estate and wealth • Clarifies that the agreement among transfer planning, asset protection planning partners governs the partnership and and estate administration, as well as issues

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