Recognized and respected issue experts from PA Chamber member companies answer businesses’ most frequently asked questions about HR, Tax, Communications and Environmental concerns, compliance and best practices. Finance/Tax Joshua Cohen Benjamin Haverstick McNees Wallace & Nurick LLC What new law governs Pennsylvania entities? Effective February 21, 2017, Pennsylvania law changed significantly for business corporations, nonprofit corporations, and especially for limited liability companies, limited partnerships, limited liability Lps and general partnerships. The new law, Act 170, amending the Pennsylvania Associations Code, applies to all new entities formed on or after February 21, 2017, to all entities electing to be covered by the new provisions between February 21 and April 1, 2017, and automatically to all existing entities beginning on April 1, 2017, regardless of when the entity was formed. Pursuant to Act 170, Pennsylvania has adopted the most current versions of the Uniform Limited Liability Company Act, the Uniform Limited Partnership Act and the Uniform Partnership Act, with some Pennsylvania-specific modifications. The Act also harmonizes the law to a large extent among all types of business forms in Pennsylvania. The state will now have one of the most flexible and modern legal frameworks for business governance in the U.S., across the entire spectrum of business entity types. Here are some of the key changes: 1. Derivative Lawsuits. The new law clarifies, expands and harmonizes the provisions governing derivative lawsuits for LLCs, Lps, LLLPs, business corporations and nonprofit corporations. A derivative lawsuit is a lawsuit filed in the name of the entity by one or more members/shareholders/partners when the entity does not file such a lawsuit itself. The law establishes procedures for the voluntary formation of special litigation committees in the context of derivative lawsuits, threatened or filed, for all types of entities, and defines certain powers of such committees. 2. Liability Shield. The law now clarifies and expands the scope of liability protection for the partners of an LLP and the general partners of an LLLP. 3. Charging Orders. Provisions governing charging orders are now codified in detail. A charging order is a remedy for a creditor of a partner/member to obtain the economic rights of the partner/member (“transferable interests” under the new Act) but not the governance or voting rights. The new provisions both clarify the rights of the holder of a charging order, as well as protect the entity and the other partners/members. 4. Operating Agreements and Partnership Agreements. The new Act and the legislative commentary favor the implication of an operating agreement (or a partnership agreement, as the case may be) even if no such agreement is formally adopted. Businesses will likely want a clear, written operating (or partnership) agreement, so that there is no confusion over what the “implied” agreement might be. 5. Duties of Managers and General Partners. The Act codifies the general legal standard that LLC managers (including managing members) and LP general partners owe a duty of loyalty, a duty of care and an obligation of good faith and fair dealing to the entity and the other members/partners. Also under the new Act, the operating agreement or partnership agreement can alter or limit but not eliminate the duty of loyalty and can specify the types of activities that do not violate the duty of loyalty, may alter the duty of care and can identify standards by which the duty of good faith and fair dealing will be measured. In each of these cases, the change cannot be “manifestly unreasonable” at the time that the agreement is entered into in light of the circumstances existing at that time. 6. Nonprofit and Benefit Entities. The law now allows for the formation of nonprofit Lps and nonprofit LLCs. Previously, the law only provided for nonprofit corporations. Similarly, benefit LLCs and benefit Lps can be formed (similar to benefit corporations), which are forprofit entities that also have a charitable purpose. 7. Certificates of Authority. The law now allows for an LLC or a partnership to file, amend or cancel a new type of certificate called a Certificate of Authority. This Certificate is filed with the state to create a public record of the person or position in the organization who has the legal authority to sign contracts, convey property, etc. in the name of the entity, and can also be filed in a county Recorder of Deeds office with respect to authority to convey real property (e.g., deeds, easements and mortgages). These Certificates will allow third parties without knowledge to the contrary to rely on the authority specified in the Certificate. Because Act 170, with legislative comments, is over 500 pages, the above list is not inclusive of everything covered. The new Act touches many areas of the law governing the operations of business entities and creates opportunities for greater flexibility in these entities. ■ Joshua Cohen is member and Benjamin Haverstick is of counsel at McNees Wallace & Nurick LLC. HR Jonathan Segal Duane Morris Institute What should companies do to prevent and remedy cybersecurity attacks and breaches? Your CEO sends a highlyconfidential e-mail to someone in accounting or human resources asking for the W-2s for certain key employees. The information is provided immediately….to the CEO. But the CEO is not the CEO but rather a third party who has hacked and taken over her e-mail account. An employee is active on Twitter. He receives a direct message with an important link. He opens it up. No big deal. Except that it included malware. Cybersecurity attacks and other breaches can and have put businesses out of business. Sometimes the attacks are external. Other times they are an inside job, either accidental or deliberate. A strong firewall is necessary but it is not sufficient. And, insurance won’t cover every legal risk and it provides no protection against reputational risk. Here are but eight considerations for companies to consider to prevent and remedy the Increasingly possible — a cybersecurity attack or breach: 1. Upgrade your defenses to minimize cybersecurity risks, such as two-factor authentication in order to gain access to your server. 2. Minimize the risk of deliberate breaches by employees, such as having IT look for problematic patterns in computer usage. 3. Educate all employees on how they may accidentally cause a cybersecurity breach. For instance, explain what phishing is by way of clear examples. Another example: remind employee that they must make sure their lap top is secure at all times so that a child or someone else in the home cannot purposefully or accidentally wreak cyber havoc. 4. Revisit your policy on background checks, recognizing that those who have access to social security numbers and PHI under HIPAA may create greater risk. HR often decides who is subject to background checks. What about HR? 5. Incorporate “immunity language” under the Defend Trade Secrets Act in all employee agreements and policies on confidentiality so that, if an employee is the culprit, you have the potential to recover legal fees and exemplary damages. The immunity language makes clear that certain disclosures are not prohibited by the agreement or policy, for example, to the government or in a court filing. 6. Develop a rapid response/business continuity plan in the event of an attack or breach. This rapid response plan can be based on plans for other emergencies, such as a weather emergency, terroristic attack and so on. 7. Create a protocol for when there is a duty to report breaches to government officials and/or individuals affected and who will make the necessary notifications and who must approve them; remember, state laws vary so employers are best to understand them before an incident. 8. Establish a relationship with a forensic data analysis that can be available to help investigate immediately an actual or threatened attack or breach; you may need to pay now for immediate availability later. Can you do everything to prevent an attack? No. But that is not a reason to do next to nothing. Perfect is the enemy of the good. This Article should not be construed as legal advice or as pertaining to specific factual circumstances. ■ Jonathan Segal is partner and managing principal at the Duane Morris Institute. Communications/Marketing Trevin Shirey WebpageFX How do I earn attention from potential customers in a crowded advertising landscape in 2017? 2017 is undoubtedly bringing many unique challenges to businesses, but those in marketing departments are once again fighting to capture one of the most elusive commodities in business: consumers’ attention. Many words have been written about the ever-shrinking attention span in the digital age; a recent study by Microsoft revealed that it's around eight seconds. You could attack this problem by increasing your advertising budget to earn impressions, but there are better ways to earn attention from potential customers this year than simply writing a bigger check. Here are two ways you can tweak your marketing strategy to earn more attention without breaking the bank: 1. Become an early adopter New marketing channels and features are often effective ways to reach potential customers without increasing your budget. New ad formats tend to attract more attention and have higher ROI than standard Advertisements that blend in with your competitors’. One example of a new and underutilized feature is Facebook Custom Audiences, which allows you to advertise to Facebook users by email address. Whether you’re marketing directly to past customers or building a campaign to target an audience similar to your current customers, there is a lot of potential for this type of advanced targeting. If you really want to jump onto a new ad trend early, another option is virtual reality advertising. According to Ericsson ConsumerLab, 64 percent of smartphone users have said they are interested in using VR to see items in real size and form when shopping online, meaning that adding these features could be a great way to improve user experience and set your business apart from the rest. Of course, along with the high potential of being an early adopter comes high risk, and it’s unwise to dump a large portion of your advertising budget into these channels initially. Start small, measure the impact, and then decide if you should invest more or move onto something else. 2. Make it easier for customers to find you While being an early adopter can be a lot of fun, you don’t need to hire a VR team to earn potential customers’ attention. Shifting your marketing focus from outbound channels (billboards, print ads and radio ads) to inbound marketing (SEO, PPC and social media) allows people to discover your company on their own time. Outbound marketing focuses on broadcasting a message to a large audience with the hopes that a select few will be interested in it. Inbound marketing, on the other hand, focuses on making your company as visible as possible when consumers are ready to engage with a company like yours. For example, let’s say you’re a commercial painting company. A billboard will get you in front of a lot of people, but only a small percentage of them will be interested in hiring a vendor for commercial painting. With an inbound marketing campaign, however, your goal is to rank highly in Google search results and be visible on social media sites when people search for commercial painting companies. This allows you to reach potential customers who are already interested in your services, and you don’t have to worry about the rat race of competing to earn their attention. ■ Trevin Shirey is director of business development at WebpageFX. Energy/Environmental Chris Carusone Cohen Seglias Pallas Greenhall and Furman PC How will recent legislative and regulatory developments in Harrisburg affect the natural gas industry? There has been a flurry of legislative and regulatory activity in recent weeks affecting the energy industry in Pennsylvania — some of it good and some of it bad — but all of it important. On the positive side, news that the Pennsylvania Department of Environmental Protection has approved permit applications for the Mariner East 2 pipeline was music to the ears of project sponsor Sunoco Logistics and natural gas producers, who have been struggling for years with getting Pennsylvania’s vast deposits of natural gas liquids from western Pennsylvania to distribution outlets like the Marcus Hook Industrial Complex in Philadelphia for export to local, domestic and international markets. This good news comes on the heels of DEP’s reported approval of a water quality permit for the PennEast pipeline that will transport natural gas from Northeastern Pennsylvania to New Jersey. Outside Pennsylvania’s capital, the Federal Energy Regulatory Commission’s approval of the Atlantic Sunrise pipeline project that will transport natural gas from Northeastern Pennsylvania to points south, as well as Potter Township’s approval of Shell Chemical Appalachia’s permit to build a petrochemical complex to “crack” ethane into ethylene for use in manufacturing, are all cause for optimism, even though objections from environmental advocacy groups and other regulatory hurdles remain. On the negative side, Pennsylvania Governor Tom Wolf has reintroduced his budget proposal to impose a 6.5 percent severance tax on natural gas production. This proposal is largely driven by Pennsylvania’s budget deficit, which runs north of $1 billion dollars year after year due in large part to Harrisburg’s failure to address the increased costs of the state’s public pension system. Advocacy for the Governor’s proposal is largely predicated on the misperception that the natural gas industry is not taxed in Pennsylvania, even though it has paid more than $1 billion in impact fees required by Act 13 of 2012 and $2.1 billion in state and local taxes during a period where natural gas prices have remained largely stagnant. The fight against DEP’s new regulations governing the unconventional production of natural gas continues in Harrisburg, where the Marcellus Shale Coalition has challenged specific components of the unconventional regulations in Commonwealth Court and secured a preliminary injunction as to certain aspects of the new rules. Also cause for concern is DEP’s recent decision to race ahead of the U.S. Environmental Protection Agency to open a public comment period to revise its permitting process to reduce methane emissions at natural gas well sites and compressor stations. Both of these regulatory moves are expected to add millions to the cost of an unconventional well at a time when the industry can least afford it. Further compounding these concerns are bills pending in the General Assembly that would limit the ability of producers to deduct post-production costs from the royalties paid to Pennsylvania leaseholders, even when those leaseholders have specifically agreed to such deductions in their leases. Whether Pennsylvania continues to be its own worst enemy when it comes to one of its most promising industries remains to be seen in 2017. ■ Chris Carusone is partner at Cohen Seglias Pallas Greenhall and Furman PC.
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