2023 Pennsylvania Consolidated & Unconsolidated Statutes › Title 15 - CORPORATIONS AND UNINCORPORATED ASSOCIATIONS › Chapter 2 - Entities Generally › Section 229 - Limitation on voiding certain defective entity actions

§ 229. Limitation on voiding certain defective entity actions.
(a) Bar on voiding certain defective entity actions.--
Subject to subsection (d), after the expiration of the applicable period set forth in subsection (c):
(1) a defective entity action other than an overissue is not void or voidable as the result of the failure of authorization and is a valid entity action effective as of the date of the defective entity action;
(2) any entity action taken subsequent to the defective entity action in reliance on the defective entity action having been validly effected is valid as of the time taken; and
(3) any subsequent defective entity action resulting directly or indirectly from the original defective entity action is duly authorized and valid as of the time taken, if the failure of authorization of the subsequent defective entity action relates solely to the defective entity action referred to in paragraph (1).
(b) Bar on voiding certain overissues.--
Subject to subsection (d), after the expiration of the applicable period set forth in subsection (c):
(1) an overissue is not void or voidable on the basis of having been in excess of the number of interests of the class or series that the domestic entity had the power to issue or on the basis of the entity's lack of authority to issue interests of the class or series, and is a valid entity action effective as of the date of the overissue;
(2) the putative interests are duly authorized and validly issued valid interests;
(3) any entity action taken subsequent to the overissue in reliance on the overissue having been validly effected is valid as of the time taken; and
(4) any subsequent defective entity action resulting directly or indirectly from the original overissue is duly authorized and valid as of the time taken, if the failure of authorization of the subsequent defective entity action relates solely to the defective entity action referred to in paragraph (1).
(c) Applicable period.--
The applicable period under this section shall be the shortest of:
(1) in the case of a defective entity action taken by a registered corporation, two years from the date when the registered corporation, or any successor or any person directly or indirectly owning all the shares of the registered corporation or of any successor to the registered corporation, has disclosed the defective entity action in a public filing with the Securities and Exchange Commission;
(2) six years from the date when:
(i) the defective entity action is set forth in or implemented or purported to be implemented through the public organic record of the entity taking the action; or
(ii) disclosure in record form of the occurrence of the defective entity action is received by the person or persons whose authorization would have been necessary for the entity action not to have been defective; or
(iii) in the case of an overissue of shares of a business corporation, disclosure in record form is given to all shareholders in the manner set forth in section 1702 (relating to manner of giving notice) of the fact of the issuance of the putative interests or of the existence of the putative interests resulting from the overissue; and
(3) 21 years after the defective entity action.
(d) Application to court to void defective entity action.--
To the extent that relief is available under other applicable law, a person entitled to assert under applicable law that a defective entity action is void or voidable may, before the expiration of the applicable period set forth in this section, file an action for relief declaring or otherwise establishing that the defective entity action is void or voidable. If such an action is filed, the operation of subsection (a) or (b) shall be suspended until the final resolution of the action, and, to the extent that relief is obtained, subsections (a) and (b) shall not apply.
(e) Other relief not affected.--
The operation of subsections (a) and (b) and the time periods set forth in subsection (c) do not affect the availability of relief under applicable law other than this subchapter relating to a defective entity action not predicated on:
(1) a failure of authorization under this title relating thereto;
(2) a lack of power or authority under section 1521 (relating to authorized shares) or the organic rules resulting in an overissue; or
(3) the asserted void or voidable status of the defective entity action.
(f) No tolling.--
The operation of subsection (c) is not tolled by reason of any person's unawareness of the failure of authorization of the defective entity action or other grounds, other than, in the case of subsection (c)(1) and (2), active and deliberate fraud, concealment or forgery proven by clear and convincing evidence.
(g) Presumptions.--
For purposes of this section, the governors and interest holders of the entity are deemed to have acted in reliance on the defective entity action in authorizing subsequent entity actions unless clear and convincing evidence demonstrates a lack of such reliance. For purposes of subsection (c)(2)(ii) and (iii), a contemporaneous record in record form of the giving of disclosure by a governor, officer or agent of the entity is presumptive evidence of the giving and receipt of such disclosure.
(h) Amendment of organic rules following overissue.--
After the expiration of the applicable period applicable to an overissue, the domestic entity may, and within a reasonable period after a request in record form of a holder of formerly putative interests resulting from an overissue must, adopt an amendment to its organic rules:
(1) increasing the number of interests of the class or series that includes the formerly putative interests to the minimum number necessary for the entity's organic rules to set forth the power of the entity to have issued the total number of issued interests of the class or series held by all interest holders; or
(2) otherwise amending its organic rules to the extent necessary to authorize the creation and issuance of the class or series of formerly putative interests.
(i) Effectiveness of section.--
In the case of a defective entity action occurring before January 3, 2023:
(1) the operation of subsections (a) and (b) is suspended until January 3, 2024, notwithstanding any expiration of the applicable period set forth in subsection (c);
(2) despite any expiration of the applicable period set forth in subsection (c), a person entitled to assert under applicable law that a defective entity action is void or voidable may file an action under subsection (d) if the action is filed on or before January 3, 2024;
(3) any action pending on January 3, 2023, seeking relief on the grounds that a defective entity action is void or voidable, including any relief that may be obtained in the action, is not affected by this section;
(4) any final judgment relating to the defective entity action that had become no longer subject to appeal before January 3, 2023, is not affected by this section; and
(5) this section shall otherwise apply with full retroactive effect to a defective entity action.
(Nov. 3, 2022, P.L.1791, No.122, eff. 60 days)
2022 Amendment.
Act 122 added section 229.
Cross References. Section 229 is referred to in section 1914 of this title.