Nonprofit Law Update: Pennsylvania Creates Nonprofit LLCs and Benefit Companies

Nonprofit leaders have some new options when it comes to how to organize their business.  Recent changes to Pennsylvania law have paved the way for the easier creation of charitable entities. 

On February 21, 2017, PA Act 170 of 2016 went into effect with the stated purpose modernizing, clarifying, and replacing outdated laws.  Act 170 amends Title 15 (Associations Code) and Title 54 (Names) of the Pennsylvania Consolidated Statutes.  

In general, Act 170 replaces the 1914 version of general partnerships, limited partnerships and limited liability companies with the Uniform Partnership Act (UPA), the Uniform Limited Partnership Act (ULPA) and the Uniform Limited Liability Company Act (ULLCA). These changes create better consistency between an LLC and Corporation, and clarify taxation and owner protection. 

The big news for nonprofit leaders, however are the provisions of Act 170 which are specifically related to nonprofits, namely the creation of Nonprofit LLCs and Benefit Companies.

These two new entity forms are new and very significant changes to Pennsylvania business law. 

Before Act 170, LLCs could designate themselves as tax-exempt from federal income taxation, but not be exempt from state or property tax. Now, if the purpose of the nonprofit is defined in the public filing of the entity, nonprofit LLCs can share the same benefits as non-profit corporations. 

Benefit Companies, a concept new to Pennsylvania and only found in two other states – Maryland and Oregon – are Limited Liability Companies that have a purpose of creating a general public benefit

A General Public Benefit is defined as a material positive impact on society and the environment, taken as a whole and assessed against a third-party standard, from the business and operations of a benefit company.

An optional identification election on the Benefit Companies’ Certificate of Organization is Specific Public Benefit. These include: 

(1) providing low-income or underserved individuals or communities with beneficial products or services; 

(2) promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business; 

(3) preserving the environment

(4) improving human health

(5) promoting the arts, sciences or advancement of knowledge

(6) promoting economic development through support of initiatives that increase access to capital for emerging and growing technology enterprises, facilitate the transfer and commercial adoption of new technologies, provide technical and business support to emerging and growing technology enterprises or form support partnerships that support those objectives; 

(7) increasing the flow of capital to entities with a public benefit purpose; and

(8) the accomplishment of any other particular benefit for society or the environment.

Additionally, the new law states that a member shall not be personally liable for monetary damages for failure of the benefit company to pursue or create general public benefit or a specific public benefit.

The Department of State’s Bureau of Corporations and Charitable Organizations Bureau revised all of its 20 forms and added 11 additional forms to conform to these new changes, brought about by Act 170 of 2016. 

TLO will help you decide what entity is right for your business and navigate these new forms and changes.  Contact us today.