eckert seamans business in pennsylvania

aguidetodoingbusinessinPennsylvania

Pittsburgh600 Grant Street, 44th FloorPittsburgh, PA 15219(412) 566.6000

Harrisburg213 Market Street, 8th FloorHarrisburg, PA 17101(717) 237.6000

PhiladelphiaTwo Liberty Place, 22nd Floor50 South 16th StreetPhiladelphia, PA 19102(215) 851.8400

SouthpointeSummit Corporate CenterSuite 2001001 Corporate DriveCanonsburg, PA 15317(724) 873.2870

www.eckertseamans.com

Prepared by

Legal Guide to DoingBusiness in Pennsylvania

TABLEOF CONTENTSDISCLAIMER................................................................................................................................1

MESSAGEFROMECKERTSEAMANSCEO...................................................................................2

CHOICEOFENTITY......................................................................................................................3

Introduction....................................................................................................... 3

BusinessCorporation..............................................................................................................3

Partnerships............................................................................................................................6

GeneralPartnerships................................................................................................. 6

LimitedPartnerships...............................................................................................................7LimitedLiabilityPartnerships..................................................................................................8

ForeignLimitedLiabilityPartnerships....................................................................................9

LimitedLiabilityCompanies....................................................................................................9

SummaryTable.....................................................................................................................11

FOREIGNENTITIES........................................................................................................ 12

FILINGINFORMATION...............................................................................................................13COVENANTSNOTTOCOMPETE................................................................................................14

CONTRACTSINTENTTOBELEGALLYBOUND........................................................................16

CONFESSIONSOFJUDGMENT...................................................................................................17

TAXATION..................................................................................................................................18

CorporateNetIncomeTax....................................................................................................18

CapitalStock/FranchiseTax..................................................................................................20

Sales&UseTax.....................................................................................................................21

RealtyTransferTax...............................................................................................................24PersonalIncomeTax.............................................................................................................25

REALESTATE..............................................................................................................................27

TypesofEstatesinRealProperty.........................................................................................27OwnershipofRealProperty.................................................................................................27

LocalPractice........................................................................................................................27


Deeds....................................................................................................................................28

RecordingandRealtyTransferTax.......................................................................................29

PurchaseandSalesAgreements...........................................................................................31

Mortgages.............................................................................................................................31

MechanicsLienLaw.............................................................................................................32

Leasing..................................................................................................................................33

TitleInsurance.......................................................................................................................34

FormsofAcknowledgement............................................................................. 35

FormofCertificateofResidence..........................................................................................37LABOR........................................................................................................................................38

EqualEmploymentOpportunity...........................................................................................38

ConsiderationofCriminalRecords.......................................................................................38

MedicalExams......................................................................................................................38

TermsandConditionsofEmployment.................................................................................39

TerminationofEmployment............................................................................. 40

MiscellaneousStatutes...................................................................................... 40

INTELLECTUALPROPERTY.........................................................................................................42

TradeSecretLaw...................................................................................................................42

TrademarksandServiceMarks.............................................................................................43

TradeNames/FictitiousNames ......................................................................... 45

EmployeeInventions.............................................................................................................46

EmployeeConfidentiality......................................................................................................47

RightofPublicity...................................................................................................................47

FranchisesandBusinessOpportunities................................................................................48

USEFULREFERENCES.................................................................................................................49

BUSINESSINCENTIVES..............................................................................................................51

1 Legal Guide to DoingBusiness in Pennsylvania

DISCLAIMERTheinformationcontainedintheattachedsummaryisintendedasageneraldiscussionofcertainlegaltopicsasconsideredunderPennsylvanialaw.Assuch,thediscussiondoesnotattempttocovertheexceptionsornuancesofstatelawandshouldnotbereliedupontocoveralllawsapplicabletoanyparticularfactualsituation.UsersareencouragedtoseekPennsylvaniacounseltoassistinspecificmatters.

EckertSeamansCherin&Mellott,LLC


MESSAGEFROMECKERTSEAMANSCEODearLegalGuideReader:TheLegalGuidetoDoingBusinessinPennsylvaniaisintendedasanoverviewofthelawsoftheCommonwealthofPennsylvaniaforcompaniesandindividualsdoingbusinessintheKeystoneState.

EckertSeamansCherin&Mellott,LLCpridesitselfonbeingabletodeliversuperiorlegalservicesthroughoutPennsylvania.Thefirmwasfoundedin1958bynineattorneyspracticinginPittsburgh.Todaythefirmhasmorethan250attorneyswithfourofficesinPennsylvania;over350attorneysandtenofficesfirmwidethatserviceclientsrangingfromstartupstotheFortune500.

EckertSeamansisproudofitsaffiliationandactiveparticipationwithLexMundiandinvitesitsfellowmemberstocalluponitforassistancewhentheneedarises.Ifyouhaveaquestionorwouldliketocontactthefirm,thefollowingattorneyscaneitheransweryourquestionsorputyouintouchwiththeappropriateperson:

Litigation ChrisOpalinski 412.566.1904 [email protected] JohnPauciulo 215.851.8480 [email protected] JohnMyers 412.566.5900 [email protected] TimHudak 412.566.2584 [email protected] JackMeck 412.566.1916 [email protected] JimPellow 412.566.1986 [email protected] DaleHershey 412.566.6058 [email protected] DaveRadack 412.566.6777 [email protected] RobertaJacobs

Meadway215.851.8522 rjacobsmeadway@eckertseamans.

comTax RayVogliano 412.566.6994 [email protected] LoudonHap

Campbell717.237.6028 [email protected]

WehopeyoufindtheinformationcontainedinthisGuideusefulinyourpractice.Sincerely,

TimothyP.RyanChiefExecutiveOfficer


CHOICEOFENTITYIntroductionUnderPennsylvanialaw,varioustypesofentitiesmaybeformedandusedtoconductbusiness,including(1)businesscorporations,(2)partnerships,and(3)limitedliabilitycompanies(LLCs).Eachtypeofentityanditsowners,bystatelaw,areprovidedwithdifferentrightsanddutiesandconsiderationshouldbegiventotherespectiveattributesofeachtypeofentityandthegoalsofthebusinessenterpriseinchoosingthemostsuitableentity.BusinessCorporationTheBusinessCorporationLawof1988(15Pa.C.S.A.101,et.seq.)(theBCL)isthestatutewhichgovernstheformationandoperationofcorporationsorganizedunderPennsylvanialaw.FormationCorporationsarecreateduponthefilingofArticlesofIncorporationwiththeBureauofCorporationsattheDepartmentofState(seedetailedinformationregardingfilingwiththeCorporationBureauattheendofthisSection).Section1306oftheBCLprovidesthattheArticlesofIncorporationcontainataminimum:

Signaturesoftheincorporators(atleastone,whichneednotbeashareholder); Nameofthecorporation; Addressoftheinitialregisteredoffice(actuallocationinPennsylvania,notapostoffice

box); Astatementwhetherthecorporationisincorporatedonastockornonstockbasis; Thenumberofsharesthecorporationisauthorizedtoissue; Astatementofvotingrights,designationsandpreferenceslimitationsandspecialrights

inrespectofthesharesofanyclass; Thenameandaddressofeachincorporator; Thetermofthecorporation,ifnotperpetual.

Adocketingstatementisrequiredatthetimeofincorporation,alongwitha$125.00feeandcopiesofanyrequiredgovernmentalapprovals.Inaddition,everycorporationisrequiredby15Pa.C.S.1307toadvertiseitsintentiontofileforincorporation.ProofofpublicationshouldbefiledinthecompanyminutesandnotsenttotheDepartmentofState.Corporationsmustadoptbylawsbyholdinganorganizationalmeeting.15Pa.C.S.A.1310.ThereisnorequirementthatthismeetingtakeplacewithinPennsylvania.AcorporationsbylawssetforththeinternalrulesbywhichthecorporationoperatesandtheBCLpermitscorporationstoadoptrulesinwhateverformdesired.Notwithstandingthisflexibility,thereare


certainprovisionsthatmustbeconsistentwiththeBCL.Theseincludeprovisionsrelatingto:corporaterecordsandinspections,1508(d);liabilityforunlawfuldividendsanddistributions,1553(e);financialreportstoshareholders,1554(e);dissentersrights,1571(f);statutoryrightofshareholderstonotice,1701(b);shareholderrighttoremovedirectorsforcause,1726(b);prohibitionagainstindemnificationforwillfulmisconductorrecklessness,1746(b);10daynoticerequirementforpartialwrittenshareholderconsents,1766(c);andinapplicabilityofcustodianruletocertaincorporations,1767(d).ManagementUndertheBCL,corporationsmusthaveshareholders,directorsandofficers.Unlessotherwisespecifiedinthebylaws,thePennsylvaniacorporationismanagedunderthedirectionandauthorityoftheboardofdirectors.Directorsstandinafiduciaryrelationshiptothecorporationandmustperformtheirdutiesingoodfaith,inamannerreasonablybelievedtobeinthebestinterestsofthecorporation,andwiththeinquiry,skillanddiligenceofapersonofordinaryprudence.Thisstandardrequiresthatadirectoractingingoodfaithmayrelyoninformation,opinions,andreportspreparedbythosethedirectorreasonablybelieveshascompetenceinthemattersaddressedinsuchdocuments.15Pa.C.S.A.1712.Thedirectorhasbothadutyofloyaltyandadutyofcare.UniquetoPennsylvania,undertheBCL,adirectorsdecisionmaybeaffectedbysocialaswellaseconomicfactors.15Pa.C.S.A.1715(a).Everycorporationmusthaveofficersconsistingof,ataminimum,apresident,treasurerandsecretary,orpersonswhoactinsuchcapacitiesregardlessoftheirtitle.15Pa.C.S.A.1732(a).Oneindividualmayserveineachcapacity.Additionaloffices,suchasvicepresident,maybeestablishedinthebylaws.LimitationofLiabilityPennsylvanialawrecognizescorporationsaslegalpersonswhichareseparatefromtheindividualswhoownit.Corporations,therefore,havemanyofthesamelegalrightsasindividualsincludingtherighttoownproperty,enterintocontractsandbringlegalsuits.Individualshareholdersofthecorporationarenotpersonallyresponsibleorliableforthedebtsandobligationsofthecorporationprovidedthatthecorporationhasbeendulyformedandhascompliedwiththestatutoryrequirements.Onlywhereaparticipationtheoryortheequitabledoctrineofpiercingthecorporateveilcanbeestablishedwillshareholders,officersordirectorsofacorporationbeliableforacorporationsobligations.Underaparticipationtheory,liabilityfallsontheindividual,ratherthanthecorporation,whentherecordestablishestheindividualsparticipationintortiousactivity.Incontrast,acourtpiercesthecorporateveiluponafindingthatthecorporationisnotabonafideindependententity.Thereisastrongpresumptionagainstpiercingthecorporateveil.Courtsarereluctanttopiercethecorporateveil,doingsoonlywhen


theentityisusedtodefeatpublicconvenience,justifywrong,protectfraudordefendcrime.TaxTreatmentAsnotedabove,corporationsarerecognizedaspersonsanentitydistinctfromitsownersand,assuch,havecertainrights,includingtherighttoownproperty,enterintocontracts,bringlegalsuits,etc.Thelogicalextensionofthisprincipleisthatcorporationsaresubjecttotaxation.Sincethecorporationpaystaxesonitsprofits,eachdollarissubjecttotaxtwiceonceatthecorporatelevelandagainasincometotheshareholdersupondistributiontothem.BusinessownersseekingtoavoiddoubletaxationoftenchoosetomakeanelectionunderSubchapterSoftheInternalRevenueCodeandanalogousPennsylvanialaw.AsasocalledScorporation,earningsarenotretainedbythecorporationbutaredeemedtopassthroughtotheowners,andthusaretaxedonlyonce.AnScorporationissubjecttocertainlimitations,includingthenumberofitsshareholdersandthenatureofitsshareholders.Forexample,partnerships,Ccorporationsandmostotherentities,aswellasnonresidentaliens,maynotownsharesinanScorporation.Therefore,businessownerswhowanttobeapubliclytradedandpubliclyownedentityusuallyfindthataCcorporationisthebestformofbusinessforthem.Individualsformacorporationbecauseashareholdersliabilityislimitedtothemoneyusedtopurchasethestockofthecorporation.ThedrawbackascomparedtopartnershipsandLLCsisthatcorporationsaresubjecttoentityleveltax.Asnotedbelow,however,withcertaintypesofpartnershipsandLLCs,ownerscanachievetheadvantagesoflimitedliabilityandflowthroughpartnershiptaxation.MeetingsAfterformation,everycorporationmustholdanorganizationalmeetingadoptingbylaws.15Pa.C.S.A.1310.Followingtheorganizationalmeeting,therearetwotypesofmeetingsoftheshareholders:regularandspecialmeetings.15Pa.C.S.A.1755.Althoughthebylawsofacorporationmayspecifythenumberofmeetingsofshareholders,atleastoneregularmeetingoftheshareholdersmustbeheldineachcalendaryearforthepurposeofelectingdirectorsofthecorporation.15Pa.C.S.A.1755(a).Whilefailuretoholdsuchanannualmeetingwillnotworktoinvalidatecorporateactionordissolvethecorporation,itisconsideredafailuretoobservecorporateformalitiestodoso,andshareholdersmaybecalledatanytimeandarenotrequiredbylaw.15Pa.C.S.A.1755(b).


CorporateRecordsTheBCLrequireseverycorporationtomaintainupdatedbooksandrecordsofcorporateaction,alongwithashareregisterlistingthename,addressandnumberofsharesheldbyeachshareholder.15Pa.C.S.A.1508(a).Everyshareholderhastherighttoexaminetherecordsofthecorporationuponwrittendemandstatingthepurposeofinspection.15Pa.C.S.A.1508(b).Aproperpurposeforinspectionisapurposereasonablyrelatedtotheinterestofthepersonasashareholder.15Pa.C.S.A.1508(b).PartnershipsPennsylvanialawrecognizesseveraldifferentformsofpartnerships.Themostcommonformsofpartnershipsarethegeneralpartnershipandthelimitedpartnership.GeneralPartnershipsFormationTheUniformPartnershipAct(UPA),whichnearlyeverystatehasadopted,includingPennsylvania,governstheformationandoperationgeneralpartnerships.See15Pa.C.S.A.8101.TheUPAdefinesageneralpartnershipasanassociationoftwoormorepersonstocarryonascoownersabusinessforprofit.15Pa.C.S.A.8311(a).Partnershipsarebaseduponcontractamongthepartnersthatcomprisethepartnership.Thepersonsassociatedinapartnershipmaybenaturalpersons,corporations,oranyotherentity.Ageneralpartnershipisformedbyagreementofthepartners,whichneednotbeinwriting.Theonlyrequirementsarethattheagreementincludetheclearmutualassentoftwoormorepersons,issupportedbyconsideration,providesforasharingofprofitsandlossesandthereiscoownershipofthebusiness.ThereisnorequiredfilingtobemadewithPennsylvaniasDepartmentofStatetoestablishageneralpartnershipunderPennsylvanialaw.ManagementUnlessthepartnershipprovidesotherwise,eachgeneralpartnerisentitledtoshareequallyinallaspectsofthemanagementofthepartnership.15Pa.C.S.A.8331(5).Inaddition,eachgeneralpartnerisconsideredanagentofthepartnershipandhastheauthoritytobindthepartnership.15Pa.C.S.A.8321.Anindividualorcorporationmayserveasageneralpartner.LimitationofLiabilityWithageneralpartnership,theownersdonotgettheadvantageoflimitedliability.Unlessthegeneralpartnershipregistersasalimitedliabilitypartnership,thepartnershavenoprotectionfromtheliabilitiesofthepartnershipaseachpartnerisjointlyandseverallyliableforalloftheliabilitiesofthebusiness.15Pa.C.S.A.8327.


TaxTreatmentGeneralpartnershipsareregardedaspassthroughentities,whereeachpartnersshareofincomeorlossisincludedonincometaxreturnofthepartnerandtaxedatthepersonalorcorporaterate.Generalpartnershipsarenotsubjecttocapitalstockorforeignfranchisetaxes.MoredetailedinformationaboutthesetaxesisprovidedintheTaxationSectionofthisGuide.LimitedPartnershipsPennsylvanialimitedpartnershipsaregovernedbythePennsylvaniaRevisedUniformLimitedPartnershipAct.15Pa.C.S.A.8511.Unlikeageneralpartnershipthatisacreationofthepartiescomprisingthepartnership,limitedpartnershipsarecreationsofthestateandinordertoexistrequirethatacertificateoflimitedpartnershipbefiledwiththeDepartmentofState.15Pa.C.S.A.8511.FormationLimitedpartnershipsareformeduponthefilingofacertificateoflimitedpartnershipwiththeDepartmentofState.Thecertificatemustincludethefollowinginformation:

Nameofthelimitedpartnership; Addressofthelimitedpartnership; Nameandaddressofeachgeneralpartner; Ifapartnersinterestinthelimitedpartnershipistobeevidencedbyacertificateof

partnershipinterest,astatementtothateffect; Anyotherprovisionthepartnerselecttosetforthinthecertificate.

Apartnershipagreementmaybewritten,butdoesnothavetobe.15Pa.C.S.A.8520.Apersonmaybeadmittedasalimitedpartnerifthepersonorallyagreestothetermsofthepartnershiporexecutesthewrittenpartnershipagreementorotherwritingevidencingtheintentofthepersontobecomealimitedpartner.Itshouldbenotedthatalthoughthereisnorequirementthatapartnershipagreementbeinwriting,Pennsylvaniarequiresthatcertainprovisionsbeinwritinginordertobebinding.Theseprovisionsinclude:

Admissionofadditionalgeneralpartners,8521(a); Eventsofwithdrawal,8532(a)(4)and(5); Sharingofprofitsandlosses,8543; Sharingofdistributions,8544; Withdrawaloflimitedpartner,8553(a); Distributioninkind,8555; Nonjudicialdissolution,8517(a)(2)and(4).


ManagementIncontrasttoageneralpartnership,onlythegeneralpartnerofthelimitedpartnershipactsastheagentofthelimitedpartnership.15Pa.C.S.A.8533.Asageneralrule,limitedpartnersdonothaveanyrighttoparticipateinthemanagementofthepartnershipsbusiness.Infact,inmanyjurisdictionsapartymustnotparticipatetomaintainalimitedpartnersliabilityprotection.This,however,isnotthecaseinPennsylvania.15Pa.C.S.A.8523.LimitationofLiabilityInalimitedpartnership,onlythelimitedpartnershavethebenefitoflimitedliability.15Pa.C.S.A.8533(b).Inmanyjurisdictions,theliabilityprotectionappliesonlytolimitedpartnerswhodonotactivelyparticipateinthemanagementofthebusiness.However,asnotedabove,thisisnotthecaseinPennsylvania.Asoriginallyenacted,thePennsylvaniaRevisedUniformLimitedPartnershipActprovidedthatlimitedpartnerswerenotliableforthedebtsofthelimitedpartnershipunlesstheyparticipatedinthecontrolofthebusiness.However,thisprovisionwasrevisedeffectiveJanuary1,2002,becausethesafeharborwassobroadastogenerallyswallowtheruleandunderthecircumstancestherulecreatedatrapfortheunwary.TaxTreatmentLimitedpartnershipsareregardedaspassthroughentities,whereeachpartnersshareofincomeorlossisincludedonincometaxreturnofthepartnerandtaxedatthepersonalorcorporaterate.Limitedpartnershipsarenotsubjecttocapitalstockorforeignfranchisetaxes.MoredetailedinformationaboutthesetaxesisprovidedintheTaxationSectionofthisGuide.LimitedLiabilityPartnerships(LLPs)Alimitedliabilitypartnership(orLLP)isageneralpartnershiporlimitedpartnershipthatregisterswithCommonwealthofPennsylvaniaDepartmentofStateasanLLP.LLPsgenerallyareprofessionalpartnerships,suchaslawfirmsandaccountingfirms.FormationTherequiredformforthecreationofanLLPisreferredtoasaStatementofRegistration,andrequiresthesignatureofonegeneralpartneranda$125.00fee.Furthermore,everydomesticregisteredLLPisrequiredtofileanannualcertificateofregistrationbeforeApril15fortheprecedingcalendaryear.15Pa.C.S.A.8221.Also,thenameoftheLLPmustcontainthetermcompany,limitedorlimitedliabilitypartnershiporanabbreviationofoneofthoseterms.15Pa.C.S.A.8203(a)(2).ItisimportanttonotethattofileasageneralpartnerofanLLP,priorregistrationofthegeneralpartnershipisnotrequired.However,tofileasalimitedpartnerto


theLLP,thelimitedpartnermustbeanexistinglimitedpartnership.ManagementManagementoftheLLPtypicallyrestswiththegeneralpartners,althoughthepartnershipagreementshouldstatemanagementoftheLLP.LimitationofLiabilityThegeneralpartnersofanLLParenotpersonallyresponsibleforthenegligentmisconductcommittedbyanotherpartner,buttheydoremainliableforallotherdebtsofthepartnershipsuchascontractualliabilities.15Pa.C.S.A.8204.ThistortonlyprotectionofanLLPisanimportantconsiderationwhendecidingwhattypeofentitytoform.TaxTreatmentLLPsareregardedaspassthroughentities,whereeachpartnersshareofincomeorlossisincludedonincometaxreturnofthepartnerandtaxedatthepersonalorcorporaterate.LLPsarenotsubjecttocapitalstockorforeignfranchisetaxes.MoredetailedinformationaboutthesetaxesisprovidedintheTaxationSectionofthisGuide.ForeignLimitedLiabilityPartnerships(LLPs)AforeignLLPisrequiredtoregisterwiththeCommonwealthinordertotransactbusinessinPennsylvania.Theliabilityofpartnersinaforeign,registeredLLPmaynotbegrantedgreaterprotectionfromliabilitythanisavailabletopartnersinadomesticLLP.15Pa.C.S.A.8211(c).LimitedLiabilityCompanies(LLCs)ThePennsylvaniaLimitedLiabilityCompanyLawof1994governsLLCsintheCommonwealth.15Pa.C.S.A.8901.LLCsareapopularbusinessform,asownersenjoythelimitedliabilityprotectionofacorporationtogetherwiththepassthroughtaxbenefitsofpartnerships.Nonetheless,LLCsaresubjecttoparticulartaxobligations,asexplainedfurtherbelow.OwnersofLLCinterestsarereferredtoasmembers.FormationLLCsareformeduponfilingaCertificateofOrganizationwiththeCommonwealth.TheCertificatemustinclude:

NameoftheLLC; Addressoftheinitialregisteredoffice(anactuallocationinPennsylvania); Names,addressesandsignaturesoforganizers; Astatementwhetherthemembersinterestswillbecertificated;


Astatementwhethermanagementofthecompanywillbevestedinmanagers; AstatementwhethertheLLCisaregisteredprofessionalcorporation.

ManagementLLCsmaybemanagedbythemembersoroneormoreappointedmanagers.ThedefaultruleinPennsylvaniaisthatanLLCismanagedbythemembers.EachmemberhastheauthoritytobindtheLLCbecauseeachmemberisdeemedtobeageneralpartnerformanagementpurposes.15Pa.C.S.A.8904.ThemembersofanLLCmaychoosetoappointoneormoremanagerstooperateandcontrolthebusinessoftheLLC.EachmanagerisvestedwiththeauthoritytobindtheLLCbecauseeachmanagerisdeemedtobeageneralpartnerformanagementpurposes.15Pa.C.S.A.8904.Inordertochoosethistypeofmanagement,themembersmustexplicitlysaysointheCertificateofOrganization.15Pa.C.S.A.8913.Themanagermanagedstructurealsocanbeusedtoformamanagementstructurethatissimilartoacorporatestructurewiththemanagersactingasdirectorswhoappointofficersandthemembersactingaspassiveshareholders.LimitationofLiabilityUnlikealimitedpartnership,thereisnorequirementthatanownermustberesponsibleforpotentialliability.MembersarenotliableforthedebtsoftheLLCsolelybecausetheyaremembers.15Pa.C.S.A.8922(a).ThisaspectoftheLLCisprimarilythereasonwhyLLCshavebecomesopopularnationally.However,theirpopularityinPennsylvaniaistemperedbecauseoftheapplicationofthecapitalstock/foreignfranchisetaxtoLLCs(exceptforLLCsthatalsoarerestrictedprofessionalcorporations,suchaslawfirms).TaxTreatmentItisimportantforthosewhochoosetooperateasalimitedliabilitycompany(LLC)andtobetaxedasapartnershipforfederaltaxpurposestounderstandthatanLLCisneverthelesssubjecttoPennsylvaniascapitalstock/franchisetaxes.PennsylvaniaLLCsaresubjecttothecapitalstocktaxandforeignLLCsaresubjecttotheforeignfranchisetax.CapitalStockTaxisapropertytaximposeduponthevalueofadomesticcorporationscapitalstockbaseduponthecompanystaxablepropertyandassetswithinPennsylvania.TheFranchiseTaxisimposeduponaforeigncorporationsvalueofcapitalstockapportionedtoPennsylvania.AnLLCissubjecttothetaxbecauseitisimposedonacorporationasthattermisdefinedin72Pa.C.S.A.7601(a),andincludesthelimitedliabilitycompanyasacorporation(exceptasnotedbelow).Thegoodnewsaboutthecapitalstock/franchisetaxesisthattheyareexpectedtobeeliminatedby2014.MoredetailedinformationaboutthesetaxesisprovidedintheTaxationSectionofthisGuide.


SummaryTable

Belowisasummarytablecomparinggeneralpartnerships,limitedpartnerships,limitedliabilitypartnershipsandlimitedliabilitycompanies.

Type

Ownership

Control Liability Federal Taxation State Taxation

General Partnership

Two or more

owners Individuals or

entities

By partners in

accordance with partnership agreement

Each partner has

authority to bind the company

All partners are jointly and severally liable for all partnership debts

Each partners share of income or loss is included on income tax return of the partner and taxed at the personal or corporate rate

Same as federal Not subject to

capital stock/foreign franchise tax

Limited Partnership

Two or more


entities At least one

general partner and one limited partner

Typically controlled by

general partner(s) in accordance with partnership agreement

Each general partner

has authority to bind the company

General partners are jointly and severally liable for all partnership debts

Each limited

partners liability limited to capital invested

In Pennsylvania,

limited partners may participate in management of business and maintain liability protection




Limited Liability Partnership

Two or more


entities

By partners in

accordance with partnership agreement

Depends in part on

whether LLP began as general partnership or as limited partnership

General partners not liable for negligent or wrongful acts or misconduct committed by other partners; remain jointly and severally liable for all other partnership debts (e.g., contractual obligations)

Each limited

partners liability limited to capital invested




Limited Liability Company

One or more


entities

Depends on whether

company is member- or manager-managed

By members or

managers (as case may be) in accordance with terms of operating agreement

Members liability limited to capital invested

Managers do not have

liability of general partners; only authority

May be taxed as corporation or partnership (default is partnership tax treatment)

If only a single member and taxed as

a partnership, then treated as a disregarded entity

If treated as partnership, then each

members share of income or loss is included on income tax return of the member and taxed at the personal or corporate rate

Could elect to be taxed as a

corporation and then make the subchapter S election

Same as federal Subject to

capital stock/foreign franchise tax (unless also a restricted professional company)


FOREIGNENTITIESForeigncorporationsaresubjecttoChapter41oftheBCL.15Pa.C.S.A.4101et.seq.PriortodoingbusinessinPennsylvania,foreigncorporationsmustobtainaCertificateofAuthorityfromtheDepartmentofState.15Pa.C.S.A.4121(a).ForeigncorporationsthatdonotobtainacertificatearepenalizedbybeingprohibitedfrombringingsuitinPennsylvania.Similartomoststates,PennsylvaniaenumeratesonlythoseactivitiesthatDONOTconstitutedoingbusiness.(15Pa.C.S.4122).Inordertoobtainacertificateofauthority,acorporationmustexecuteanApplicationforCertificateofAuthorityforthatmustsetforth:

Nameofthecorporation; Jurisdictionunderwhichthecorporationisincorporated; Addressofthecorporationsprincipalplaceofbusinessinthestateofincorporation; AddressofthecorporationsproposedregisteredofficeinPennsylvania,subjecttothe

statutoryprovision;inlieuthereof,thenameofacommercialregisteredoffice; Astatementthatthecorporationisacorporationincorporatedforapurpose(s)

involvingpecuniaryprofit(nonprofitsmuststatetheyarenotincorporatedforsuchpurposes);

Adocketingstatement; Anynecessarygovernmentalapprovals; A$250fee.

Uponreceiptoftheapplication,theDepartmentofStatewillsendtotheforeignregistrantthePennsylvaniaEnterpriseRegistrationForm(alsoknownasthePAForm100).ThisformmustbecompletedbyallentitiestoregisterforcertaintaxesandservicesadministeredbythePennsylvaniaDepartmentofRevenueandthePennsylvaniaDepartmentofLaborandIndustry.Inaddition,everycorporationisrequiredby15Pa.C.S.4124(b)orby15Pa.C.S.6124(b)toadvertiseitsintentiontoapplyoritsapplicationforaCertificateofAuthority.ProofofpublicationshouldbefiledinthecompanyminutesandnotsenttotheDepartmentofState.


FILINGINFORMATIONAllfilingsdescribedinthisSectionaretobemadewiththeBureauofCorporationsofthePennsylvaniaDepartmentofState:BureauofCorporationsandCharitableOrganizationsDepartmentofStateP.O.Box8722Harrisburg,PA171058722Phone:(717)7871057Phone:(888)6599962email:[email protected]:00amto5:00pmMondaythroughFriday.Documentsmaybesubmittedbydeliveringthemdirectlytothereceptionarea,bymail,orbyfacsimile.CopiesoftheformsdescribedaboveareavailableontheBureauofCorporationswebsite:http://www.portal.state.pa.us/portal/server.pt/community/corporations/12457/forms/571880


COVENANTSNOTTO COMPETETherearenostatutesthatgoverncovenantsnottocompeteinPennsylvania.Suchcovenantstypicallytakeoneoftwoformsoracombinationofthetwo:anoutrightprohibitionofemploymentbyacompetitororaprohibitionofsolicitationoftheemployerscustomers.Acovenantnottocompetebetweenanemployerandanemployee,althoughnotfavoredbythelaw,arevalidandenforceableinPennsylvania,if(1)itisancillarytotheemploymentandsupportedbyadequateconsideration,(2)isdesignedtoprotectalegitimatebusinessinterestoftheemployer,and(3)isreasonablylimitedindurationandarea.Thecourtswillalsoenforcerestrictivecovenantswithindependentcontractorsandfranchisors,typicallyapplyingsimilarprinciplesasareappliedtosuchcovenantsinemploymentcontracts.Covenantsnottocompeteassociatedwiththesaleofabusinessaredeemedtobenecessarytotheprotectionofthebusinessgoodwillandwillbeenforcedgenerallyaccordingtotheirterms.Tobeenforceable,acovenantnottocompetebyanemployeemustbeenteredintoinconnectionwiththeoriginalhiringofanemployeeaspartofthehiringagreement,orinconsiderationofamaterialandbeneficialchangeintheemploymentrelationship.ThepromiseofcontinuedatwillemploymentwillnotsupportacovenantnottocompeteenteredintowithacurrentemployeeunderPennsylvanialaw.ThetypesofmaterialandbeneficialchangesthatPennsylvaniacourtshaveheldtoprovidetheconsiderationforanenforceablecovenantnottocompeteinclude:apromotion;entryintoacontractthatisnotterminableatwill;1andprovidingtheemployeewithstock,optionsoranotherformofequityinterest.CourtsinPennsylvaniawillenforcearestrictivecovenantifitisintendedanddesignedtoprotectcustomerrelationshipsortradesecretsoftheemployer.Suchthingsasaninvestmentintrainingorteachingspecializedskillsmayalsoprovideaprotectableinterest.ThereisauthorityinPennsylvaniathat,wheretheemployeehasbeendischargedforpoorperformance,theemployermaynotbeabletoshowthatthereisalegitimatereasonforittoseekenforcementofacovenantnottocompete,sincetheemployerjudgedtheemployeesskillstobeworthless.Thedurationofarestrictivecovenantmayonlybeforsuchlengthoftimeasisreasonablynecessarytoprotecttheinterestsoftheemployer.Durationsofonetotwoyearshave

1 The term must not be minimal for example, giving an employee a contract that cannot be terminated without 30-days notice will not be sufficient. The courts have not addressed a six-month term.


commonlybeenupheld,andlongerperiodsforexecutiveemployees.Similarly,thereasonablenessofageographiclimitationwilldependuponashowingofwhatisneededtoprotecttheemployerslegitimateinterests.Nogeographiclimitationisneededforacustomernonsolicitationprovision,sincethelocationofthecustomersprovidestheneededrestrictiononthescopeoftherestraint.ThereasonablenessfactorshavebeenheldbyPennsylvaniacourtstobeapplicableonlywhereequitableenforcement(injunction)hasbeensought.Inasuitfordamagesatlaw,itneednotbeshownthattherestraintsarereasonable.Pennsylvaniacourtswillawarddamages,includinglostprofitsandliquidateddamages,forbreachofacovenantnottocompete.IfaCourtdeterminesthatthedurationorgeographicscopeofacovenantisexcessive,itwillnotinvalidatetheagreementinmostcases,butwillreformtheagreementandenforceitforthetimeperiodandterritorywhichitfindstobereasonablynecessarytoprotecttheemployer'sinterests.AscolorfullyputbytheSupremeCourt:("Themanwhowildlyclaimsthatheownsallofthecherrytreesinthecountrycannotbedeniedprotectionoftheorchardinhisbackyard.)Iftheassetsofthepromiseeemployeraresold,anassignmentofacovenantnottocompeteisnotenforceable,unlesstheagreementcontainingthecovenanthasaprovisionexpresslypermittingassignment.Ofcourse,thesaleofthepromiseeemployersstockwillnotaffecttheenforceabilityofthecovenant,sincethereisnolegalentitychange.


CONTRACTSINTENTTO BE LEGALLYBOUNDPennsylvaniacontractprinciplesincorporateauniquetwistnotpresentinotherjurisdictions.Thetwistinvolvesthephraseintendingtobelegallybound,whichappearseitherintheNOW,THEREFOREprovisionbetweentherecitalsandthebodyofanagreementorintheINWITNESSWHEREOFprovisionthataccompaniesthepartiessignatures.Thisintendingtobelegallyboundphraseismagiclanguagethatmakesacontractbindingabsentconsideration.ItcomesfromtheUniformWrittenObligationsActpromulgatedbytheNationalConferenceofCommissionersonUniformStateLawsinthe1920s,anditwasmeanttobeasubstituteforsealedcontracts,whichalsomaybebindingabsentconsideration.But,bewareofrelyingonthephraseintendingtobelegallyboundasaconsiderationsubstitute.Unlikesomeotheruniformlawsthatenjoywidespreadacceptance,suchastheUniformCommercialCode,theUniformWrittenObligationsActwasenactedonlyinPennsylvaniaandUtah,andremainseffectiveonlyinPennsylvania.33Pa.C.S.A.6.So,attheendoftheday,thisphrasemaybemagiconlyforcontractsgovernedbyPennsylvanialaw.


CONFESSIONSOFJUDGMENTPennsylvaniaisoneoftheremainingjurisdictionsthatpermitstheuseandenforcementofconfessionsofjudgment.ConfessionsofjudgmentaregovernedbythePennsylvaniaRulesofCivilProcedure.Forconfessionsofjudgmentforpossessionofrealproperty,seePa.R.Civ.P.2970etseq.;forconfessionsofjudgmentformoney,seePa.R.Civ.P.2950etseq.Therulesforpossessionofrealpropertyaresimilartotherulesgoverningconfessionsofjudgmentformoney,withafewexceptions.AjudgmentformoneymustbeconfessedbyfilingacomplaintinaccordancewithRulesofCivilProcedure295152.AconfessionofjudgmentforpossessionthroughejectmentisobtainedbyfilingacomplaintinaccordancewithRuleofCivilProcedure2971.Itshouldbenotedthattheremediesofconfessionsofjudgmentformoneyandejectmentarenotmutuallyexclusive.SeePa.R.Civ.P.2972.Ifaninstrumentprovidesforboth,acreditormayobtainbothtypesofrelief,butrecoverybeyondtheactualdebtwillnotbepermitted.Forexample,alandlordmayejectatenantandobtainjudgmentintheamountofrentwhichhasaccruedwhenevictionoccurs,butmaynotalsoacceleratetheamountofrentdueundertheleaseandobtainaconfessedjudgmentforthatamount.See,e.g.,HomartDevelopmentCo.v.Sgrenci,662A.2d1092,110001(Pa.Super.1995)(discussingjudiciallycreatedbartodoublerecoveryinlandlordtenantcontext).In1996,thePennsylvaniaRulesofCivilProcedurewererevisedtoeliminateconfessionsofjudgmentarisingincommercialcredittransactions.TheRulesnowrequireaplaintiffseekingjudgmenttoaverinthecomplaintthatthejudgmentisnotbeingenteredinaconsumercredittransaction.SeePa.R.Civ.P.2952(a)(3).Additionally,theRuleswereamendedtoprohibitaconfessionofjudgmentforpossessionofrealpropertyinconnectionwitharesidentialleaseexecutedbyanaturalperson.Pa.R.Civ.P.2970.Asaresult,confessionsofjudgmentonlyapplytocommercialtransactions.


TAXATIONCorporateNet Income TaxPennsylvaniasCorporateNetIncomeTax(CNIT)isimposeduponcorporationspursuanttoArticleIVoftheTaxReformCodeof1971.IntheCommonwealthofPennsylvania,theCNITisaflatrateof9.99percent.CorporationsarerequiredtopayCNITfortheprivilegeofdoingbusiness,carryingonactivities,havingcapitalorpropertyemployedorused,orowningpropertyintheCommonwealth.Corporationisdefined,asacorporation,jointstockassociation,businesstrust,limitedliabilitycompanyorotherentitywhichforfederalincometaxpurposesisclassifiedasacorporation.Consolidatedreturnsarenotpermitted,thuseachtaxpayermustreportitsCNITonaseparatecompanybasis.Groupsstatutorilyexemptare:

Buildingandloanassociations,banks,bankandtrustcompanies,nationalbanks,savingsinstitutions,trustcompanies,insuranceandsuretycompanies;

BusinesstrustsqualifyingasarealestateinvestmenttrustunderIRC856orasarealestateinvestmenttrustsubsidiaryunder856(i);

DomesticorforeignbusinesstrustsqualifyingasaregulatedinvestmentcompanyunderIRC851andregisteredwithSEC,oranyrelateddomesticorforeignbusinesstrustwhichconfinesitsactivitiesinPennsylvaniatothemaintenance,administration,andmanagementofintangibleinvestmentsandactivitiesorregulatedinvestmentcompanies;

Corporations,trusts,orotherentitieswhichareexemptorganizationsperIRC501; Corporations,trusts,orotherentities,organizedasnonprofits,that:(a)wouldqualify

underIRC501;(b)wouldqualifyasahomeownersassociationperIRC528(c);(c)aremembershiporganizationssubjecttoIRC277limitationondeductions,andnopecuniarygainorprofitinurestoamemberorrelatedentity;or(d)areanonstockcommodityoronanonstockstockexchange;

CooperativeAgriculturalAssociationswhicharesubjecttoAgriculturalCooperativeNet IncomeTax; PennsylvaniaSCorporationswithavalidSCorporationelection; Nonelectinggeneralandlimitedpartnerships; Limitedliabilitycompaniestaxedaspartnershipsforfederaltaxpurposes; Singlememberlimitedliabilitycompaniesdisregardedasseparatetaxableentitiesfor

federalcorporateincometaxpurposes.Thestartingpointtodeterminethetaxbaseisthefederaltaxableincomebeforethenetoperatinglossdeductionandspecialdeductions(FederalForm1120,line30).


ForCNITpurposes,thereisnodeductionforanytaxesimposedonormeasuredbynetincome.Anysuchtaxesdeductedforfederalpurposesmustbeaddedbacktothefederaltaxableincome.TheCNITisdecoupledfromthefederalbonusdepreciationprovisions.Thebonusdepreciation(30and50percent)isaddedtofederaltaxableincome,andthetaxpayerisallowedadditionalcertainPennsylvaniadepreciationequalto3/7oftheregularfederaldepreciation.Intheyearofsale,thetaxpayerreducesfederalgainbytheamountofanydisallowedbonusdepreciationwhichhasnotbeenrecoveredthroughadditionalPennsylvaniadepreciation.Thefollowingaresubtractionsfromfederaltaxableincome:

InterestonU.S.andstateobligations,reducedbyrelatedexpenses; GainsandlossesoncertainPennsylvaniaandfederalobligations; Dividendsfromdomestics,tothesameextentasforfederal; Dividendsfromforeigncorporations,totheextentaswouldbedeductibleifthecompany

weredomestic; Foreigndividendgrossup; Amountofreductioninemployersdeductionforwagesandsalariesasaresultof

employertakingcreditforitsFICAtaxobligationsonitsemployeestipsortargetedjobspursuanttoIRC45Bor51.

NetOperatingLossDeductionsaresubjecttoanannuallimitationofthegreaterof$3millionor20percentoftaxableincomeandhavea20yearcarryforwardperiod.NocarryforwardperiodispermittedfromaPennsylvaniaScorporationyear.However,aPennsylvaniaScorporationyeardoescountasataxableyearforcountingthecarryforwardperiod.EstimatedtaxistobepaidinquarterlypaymentsonMarch15,June15,September15,andDecember15forcalendaryearcompaniesandthe15thdayofthethird,sixth,ninth,andtwelfthmonthforfiscalyearfilers.Iftheamountpaidasofanyquarterlyduedateislessthantheappropriateprorataportionof90percentoftheactualfinaltax,thenastraightinterestrateapplies,unlessthereisasubstantialunderpayment(25percentormore),thentherateis120percentofthestraightinterestrate.Theadditiontotaxbearsinterestwhiletheinterestdoesnot.ThefilingdeadlineisApril15thforcalendarfilersandthe15thdayofthefourthmonthforfiscalyearfilers.Extensionsforfilingmustberequestedbeforetheregularduedateandtherearenoextensionsforpaymentoftax.


Penaltiesandinterest: Interestisbasedonfederalrateatthebeginningofcalendaryear; Failuretofileandknowinglyfilingafalsereportpenaltyis10percentofthefirst$1,000; 5percentofthenext$4,000;1percentofanythinginexcessof$5,000; Penaltyforneglectingorrefusingtofileupondemandbydepartmentis$500; Penaltyforfailuretofilereportofchangeis$5perday; Additionalcriminalpenaltiesmayapply.

CorporationsthattransactbusinessoutsideofPennsylvaniaandaretaxableinanotherstatemayallocateandapportiontheirincome.Nonbusinessincomesuchasrentsandgain/lossesonthesaleofrealestatelocatedinPennsylvaniaareallocatedtoPennsylvania. Apportionmentisbasedonathreefactorapportionmentfractionincludingapropertyfactor,apayrollfactor,andasalesfactor.Fortaxableyearsbeginningafter2010,thepropertyandpayrollfactorscontribute5percentoftheapportionmentfactorandthesalesfactorcontributes90percent.Thepropertyfactorisbasedsolelyonrealandtangiblepersonalproperty.CapitalStock/Franchise TaxCapitalStockTaxisapropertytaximposeduponthevalueofadomesticcorporationscapitalstockbaseduponthecompanystaxablepropertyandassetswithinPennsylvania.TheFranchiseTaxisimposeduponaforeigncorporationsvalueofcapitalstockapportionedtoPennsylvania.Thesetaxesareleviedoncorporations,certainlimitedpartnerships,jointstockassociations,businesstrusts,andlimitedliabilitycompanies.Nonprofitcorporationsdeemedexemptunder501(c)(3)oftheInternalRevenueCode,cooperativeagriculturalassociationsnotconductedforprofit,stateandnationalbanksandsavinginstitutions,titleinsuranceandtrustcompanies,buildingandloanassociations,familyfarmcorporations,andinsurancecompaniesarenotsubjecttothetax.Also,taxexemptionisprovidedforalloraportionofthecapitalstockofcorporationsthatareorganizedformanufacturing,processing,research,ordevelopmentpurposesandthatareinvestedinandactuallyandexclusivelyengageincarryingonsuchactivities.Thetaxratefortaxableyearsbeginningin2012is1.89mills.BoththeCapitalStockTaxandtheFranchiseTaxaretobephasedoutuntilthetaxexpiresin2014.Therulesforvaluationofcapitalstockarethesameforcapitalstockandfranchisetaxpurposes.Capitalstockvalueisdefinedastheproductoftimesthesumoftheaveragenetincomecapitalizedattherateof9percentplus75percentofnetworth,fromwhichproductshallbesubtracted$150,000,thealgebraicformulaofwhichis(.5(averagenetincome/.095+(.75)(networth))$150,000.Thetaxisthendeterminedbymultiplyingthevaluebyarate(1.89millsin2012,tobereducedbyonemilleachyearuntiltheratereacheszero).


Thedefinitionofaveragenetincome(aftertax)istheaverageofthenetincomeorlossforeachofthecurrentandimmediatelyprecedingfouryears.Iftheentityhasnotbeeninexistenceforfiveyears,theaveragenetincomeshallbetheaveragenetincomeforthenumberofyearsthattheentityhasactuallybeeninexistence. Innocaseshallaveragenetincomebelessthanzero.Thenetincomeorlossoftheentityforanytaxableyearshallbetheamountsetforthasincomeperbooksonitsfederalincometaxreturn.Suchnetincomewillbecomputedonanunconsolidatedbasis.Networthisdefinedasthesumoftheentitysissuedandoutstandingcapitalstock,surplusandundividedprofitsperbookssetforthforthecloseofsuchtaxyearonitsfederalincometaxreturn.Inthecaseofanentityowningthecommonstockofothercorporations,thenetworthwillbetheconsolidatednetworthoftheentityinaccordancewithgenerallyacceptedaccountingprinciples.Networthwillneverbelessthanzero.Inthecaseofalimitedliabilitycompanyorbusinesstrust,networthistheentitysassetsminusitsliabilitiesasofthecloseofsuchtaxyear.LimitedLiabilityCompaniesaresubjecttotheCapitalStock/FranchiseTax.Distributionstomembersaredeductibleinarrivingatbookincomeonlyif(a)thelimitedliabilitycompanyisnottaxableasacorporationforfederalincometaxpurposesandthemembersmateriallyparticipateinitsactivitiesor(b)thelimitedliabilitycompanyisadisregardedentityofanaturalpersonforfederalincometaxpurposes.Ataxpayermustmakeinstallmentpaymentsofestimatedcapitalstockorfranchisetax. Theestimatedtaxmustbepaidinfourinstallmentsthataredueonorbeforethe15thdayofthethird,sixth,ninth,andtwelfthmonthsofthetaxableyear.Sales&UseTaxAtaxof6percentisimposedon(i)eachseparatesaleatretail(anytransferoftangiblepersonalproperty,includingthelicensetouse,ortherenditionofselectedservices,foraconsideration)or(ii)useoftangiblepersonalpropertyorservicesasdefined.Tangiblepersonalpropertyincludes:

Allcorporealpersonalproperty; Goods; Wares; Merchandise; Steam; Natural,manufactured,andbottledgasfornonresidentialuse; Thenonresidentialuseofelectricity;


Prepaidtelecommunications; Premiumcableservice; Interstateandintrastatetelecommunicationserviceswiththeexceptionofsubscriber

linechargesandbasiclocaltelephoneservicesforresidentialuseandpayphonesoperatedbyinsertingmoney;

Spirituousandvinousliquor; Maltorbrewedbeverages; Softdrinks.

PhiladelphiaandAlleghenyCountybothimposeanadditionalonepercentsalesandusetax.Taxisdueon:

Propertyorservice; Transportation,delivery,handling; Postageinsurance; Labor,services,installation; Manufacturersfederalexcisetaxes,mercantiletaxes,grossreceipttax; Restocking; Waitingtime,meals,mileage; Cashdiscountsfortimelypayments; Warrantycharges,evenifseparatelyitemizedorinvoiced.

However,taxisexcludedfromthefollowingcharges:

Propertyorservicetakenintrade; Chargesforreturnablecontainer; Storediscounts,volumeortradediscounts,rebates,storeormanufacturerscoupons,

employeediscountstakenatthetimeofthesalesoastoreducethepurchasepriceatthetimeofsale;

Onthespotcashdiscounts; Gratuities; Federalretailexcisetax; Financechargesseparatelystated; ChargesforalcoholicbeveragesexceptpurchasesfromLiquorControlBoardStoresor

licensedmaltbeveragedistributors.Servicessubjecttotaxinclude:

Repairing,altering,mending,pressing,fitting,dyeing,laundering,drycleaning,orcleaningoftangiblepersonalpropertyotherthanwearingapparelorshoes;

Applyingorinstallingtangiblepersonalpropertyasarepairorreplacementpartofotherpersonalproperty,exceptwearingapparelorshoes;


Thepurchaseofprintingservices,however,tangiblepersonalpropertydirectlyandpredominantlyusedinprintingmaybeexcludedundermanufacturing;

Washing,cleaning,waxing,polishing,orlubricatingofmotorvehicles; Stateinspectionandwashing,cleaning,waxing,polishing,orlubricatingofmotor

vehicles; Disinfectingorpestcontrolservices; Buildingmaintenanceorcleaningservices; Lawncareservices; Selfstorageservices; Lobbyingservices; Adjustment,collection,orcreditreportingservices; Secretarialoreditingservices; Employmentagencyservicesandhelpsupplyservices; Telecommunicationservices.

ComputerserviceswhichwerepreviouslysubjecttotaxbecametaxexemptforservicesrenderedonorafterJuly1,1997.Thepurchaseofcannedsoftwareandcomputerhardwarearesubjecttotax.TheexclusionstothesalestaxareconstruedagainsttheCommonwealth.Asaleforthepurposesofresaleisexcludedfromtax.AlsoexcludedispropertyinPennsylvaniausedsolelyforfabrication,manufacture,etc.,andthereaftertransportedoutsidePennsylvaniaforexclusiveuseoutsidePennsylvania. Manufacturingisdefinedasanyoperationengagedinasabusinesswhichinvolvesmanufacturing,fabricating,compounding,processing,orotheroperations,wherebytangiblepersonalpropertyisplacedinaform,compositionorcharacterdifferentfromthatinwhichitwasacquiredwhetherforsaleorusebythemanufacturer.Thismanufacturingexclusionextendsonlytopropertyuseddirectlyinmanufacturingoperations.Physicalincorporationoftangiblepersonalpropertyasaconstituentintoothertangiblepersonalpropertywhichissoldintheregularcourseofbusinessisexcluded. Thepurchaseoruseofproperty,tangiblepersonalproperty,orrelatedservicesperformedthereonareexemptfromtaxifsuchpropertyispredominatelyusedbythepurchaserdirectlyintheoperationsofmanufacturing,farming,publicutilities,dairying,andprocessing.

Thetaxisalsosubjecttoexemptionswhichareconstruedagainstthetaxpayer. Theseincludebutarenotlimitedto:

Isolatedtransactions(exceptregisteredmotorvehicles,trailers,motorboatsandaircraft);


Outofstatepurchases; Residentialutilityservices; Charitableorganizations,volunteerfiremensorganizations,nonprofiteducational

institutionsandreligiousorganizations; Gasoline(subjecttoothertax); UnitedStates,Pennsylvania,politicalsubdivisions; Wrappingmaterials; Medicines,drugs,andselectedmedicalequipment; Coal; Vehiclessoldtononresidentforoutofstateuseandregisteredoutofstate; Water; Wearingapparel; Religiousarticles,bibles,andreligiouspublications; Foodandbeverages(exceptsoftdrinks,alcohol,andtakeout); Newspapersandprintedadvertisingmaterialscirculatedtherewith; Mailordercatalogues,directmailadvertisingliteratureormaterials,andthesaleatretail

oruseofsubscriptionsformagazines,includingtradejournals; Investmentmetalbullionandinvestmentcoins; BuildingmachineryandequipmentpursuanttoaconstructioncontractwiththeUnited

States,Pennsylvania,instrumentalitiesandsubdivisions,charitableorganizations,volunteerfiremensorganizations,nonprofiteducationalinstitutionorreligiousorganization;

Employeecostportionofofficebuildingcleaningservices; Prebuilthousing.

TheHotelOccupancyTaxisasixpercenttaximposedontheoccupancyofanyroom,includingmeetingrooms.RealtyTransferTaxThestaterealtytransfertaxisonepercentofthevalueoftherealtytransferred. Localtaxingauthoritiesareallowedtoimposeanadditionalrealtytransfertax.Thetypicallocaltaxrateisanadditionalonepercent,butratesvarybylocality.Forexample,theCityandSchoolDistrictofPittsburgheachandSchoolDistrictofPhiladelphiaimposeanadditionalthreepercenttax.Thetaxisbasedonthepropertyvalue,whichnormallyistheactualconsiderationpaidinanybonafidesaleofrealestateatarmslengthforactualmonetaryworth.Inothercasessuchasgifts,bargainsalesandforeclosures(wheretheconsiderationisnominalordoesnotequaltheactualmonetaryworth),thetaxisbasedonthecomputedvalue,whichistheassessedvalue


asadjustedbythecommonlevelratiofactorforthecountyinwhichthepropertyislocated.Ifpropertyisnotassessedforpropertytaxpurposes,anappraisalmayberequired.Thescopeoftaxabletransfersisquitebroadandcautionisadvised.Forexample,aleasewithatermof30yearsormore(includingallrenewalterms)isataxabletransfer.Topreventpartiesfromavoidingthetaxbytransferringequityinterestsinapartnershiporcorporation,thestatutetaxestheacquisitionofarealestatecompany.Arealestatecompanyisanentityprimarilyengagedinthebusinessofholding,sellingorleasingrealestateandwhich(i)holdsrealestatethevalueofwhichis90percentormoreofitsassets,or(ii)derives60percentormoreofitsgrossreceiptsfromtheownershipordispositionofrealestate.Forpurposesofthelocaltax,thethresholdmaydifferthevaluetestis50percentinPhiladelphiaandPittsburgh.Arealestatecompanyisacquiredifthechangeinownershipdoesnotaffectthecontinuityofthecompanyandthetotalchangesinownershipinanythreeyearperiodhastheeffectoftransferring90percentormoreofthetotalownershipinterestinthecompany.Thethresholdpercentagemayvarybylocalordinance.Generally,entitiesaredeemedtobeseparatefromtheirowners,andtransfersbetweenthemaretaxable.Certaintransfersofrealtyareexemptfromthetax.Transfersbywill,transfersbetweenhusbandandwife,parentandchild,betweensiblings,andtransfersmadepursuanttoastatutorymergerofcorporationsareexempt.Achangeinformofanentitywhichownsrealestate,forinstanceaconversionofageneralpartnershiptoalimitedpartnership,maybeexemptdependingonthecircumstances.Thetaxisdueandpayableuponpresentationoftheinstrumentofconveyanceforrecordationor,inthecaseofanacquiredcompany,upontherequisitechangeofownership.Underthestatute,thepartiesarejointlyandseverallyliableforthetax.Betweenthemselves,thepartiesarefreetoallocateresponsibilityforpaymentofthetaxastheymayagree.Iftheagreementissilent,anagreementtopaythetaxinequalshareswillbepresumed.Pennsylvaniacurrentlydoesnotlevyataxonmortgagesorotherindebtednesssecuredbyrealestate.Personal Income TaxThePennsylvaniapersonalincometaxappliesataflatrateof3.07percentandisleviedoneachofeightcategoriesofincome:

Compensation; Netprofitsfromabusiness; Netprofits,netgainsfromdispositionofproperty;


Netgainsorincomefromrents,royalties,patentsandcopyrights; Dividends; Interest; Netgamblingandlotterywinnings; Netgainsorincomederivedthroughestatesortrusts.

Alossinoneclassofincomemaynotbeoffsetagainstincomeinanotherclass,normaygainsorlossesbecarriedbackwardorforwardfromyeartoyear.Thepersonalincometaxdoesnotprovideforastandarddeductionorpersonalexemption.AcreditisallowedforgrossornetincometaxespaidtootherstatesorforeigncountriesbyPennsylvaniaresidents.


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REALESTATETypesof Estates inRealPropertyPennsylvanialawrecognizesthreetypesofestatesinrealproperty:(i)thesurfaceestate,(ii)themineralestate;and(iii)therighttosubjacent(subsurface)support.Themineralestateissometimesfurthersubdividedintothecoalestate,theoilandgasestate,andotherminerals.Apropertyownermayownrealpropertyinanycombinationoftheforegoingestates,andeachestatemaybeownedbyaseparateparty.OwnershipofRealPropertyRealpropertycanbeownedbyindividuals,partnerships,corporations,limitedliabilitycompanies(LLCs),businesstrusts,testamentaryandintervivostrusts,estatesandotherentities.Minorsandpersonsunderdisabilitiesmaynotbeabletoholdtitletorealproperty,andPennsylvaniastatutesshouldbeconsultedinthisregard.Pennsylvaniacontinuestorecognizetenancybytheentireties.Atransferofrealpropertytoahusbandandwifeispresumedtocreateatenancybytheentireties.Thepartiesmustexpresslystateotherwiseiftheydonotwishtoholdtitleinthismanner.Atransferoftitletotwoormoreparties,otherthanhusbandandwife,ispresumedtocreateatenancyincommon.Forthepartiestocreateajointtenancy,thepartiesmustuselanguageinthedeedsufficienttoovercomethepresumptionoftenancyincommon,andmustexpresslyprovideforsurvivorshipbyspecifyinggranteesasjointtenantswithrightsofsurvivorship.Thechoiceofthetypeofentityemployedtoownrealestatemaybeinfluencedbytaxconsiderations.CloselyheldcorporationsandScorporationsarerarelyusedtoholdtitletorealestate,duetocertainadversefederalincometaxconsequences,andbecausetheyaresubjecttothePennsylvaniaCapitalStockTax.Limitedliabilitycompanies(LLCs)arealsosubjecttotheCapitalStockTax,andtheimpactofthistaxshouldbeassessedbeforeselectinganLLCtoholdtitletorealestate.Limitedpartnerships,havingcorporateorLLCgeneralpartners,arepreferredbymanypractitionersforholdingtitletorealestatesincetheygenerallyarepassthroughentitiesforfederalincometaxpurposes,andarenotsubjecttotheCapitalStockTax.LocalPracticePennsylvaniacanberoughlysplitintothreeseparateregions,Western,CentralandEastern.Localpracticesbetweenthethreeregionsdiffertosomeextent.Forexample,adeedconveyingrealpropertyinWesternPennsylvaniamustcontain:(i)acoalnoticefromthegrantor/seller,whichisinnormalblacklettering(52P.S.1551);and(ii)acoalnoticesignedbythegrantee,whichmustbeinredlettering(52P.S.1406.14).Thesesnoticesservetonotifythegranteethata


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thirdpartymay(andoftendoes)ownthecoalrightsand/ortherightofsupport.Inotherregions,onlytheblackcoalnoticeisemployed.InCentralPennsylvania,aspecificissuetobeawareofistheseveranceofoilorgasrightspursuanttothesocalledtitlewash.InEasternPennsylvania,generalwarrantydeedsarealmostneverused,whilesuchdeedsarestillsometimesusedinWesternPennsylvania.Andthereareothervariousdifferencessuchthatitisextremelyimportanttoidentifythelocalpracticesforeachoftheseregions.Inaddition,Pennsylvaniaismadeupof66counties,andeachcountyoftenhasitsownspecialrequirementsfortheformofandrecordingofdeeds,mortgagesandotherinstruments.ItisimportanttocontacttheRecorderofDeedstoascertainanyspecialcountyrequirementsinadvanceofsubmittingyourinstrumentsforrecording.Deeds21P.S.1setsforthastatutoryformofdeed.21P.S.2etseq.setsforthinterpretiveprovisionsandapprovedwordsofconveyance.TherearethreebasictypesofdeedsinPennsylvania:(i)thegeneralwarrantydeed,(ii)thespecialwarrantydeed,and(iii)thequitclaimdeed.See21P.S.5,6and7.Thegeneralwarrantydeedisbecomingrare,andtitleinsuranceisnowthegenerallyacceptedmethodofassuringthattitleisgoodandmarketable. Ageneralwarrantydeedwarrantstitleagainstclaimsofallpersonswhomsoever.Aspecialwarrantydeedonlywarrantstitleagainsttheclaimsofthegrantorandthosemakingclaimsundersuchgrantor.Aquitclaimmerelyremises,releasesandquitclaimsuntothegranteeallright,title,interest,property,claimanddemandthegrantormayhaveinandtotheproperty,ifany;andthegrantoragreesitshallnotatanytimethereafterhave,claim,challenge,ordemandthepropertyinanymannerwhatever.Therealsoarefiduciarydeeds,sheriffsdeedsandthelikewhichhavetheirownspecificwarrantiesandformattingrequirements.Foraconveyanceoflandtobeeffective,therealpropertymustbedescribedwithsufficientdefinitivenessandcertaintysoastolocateanddistinguishitfromotherlandsofthesamekind.Thedeedmaynotbeacceptedforrecordingunlessthelegaldescriptionincludestheuniformtaxparcelidentificationnumber(referredtoinsomecountiesastheblockandtonumber).Somecountiesrequirethedeeddescriptiontobecertifiedbeforeitwillbeacceptedforrecording,toensurethatitcontainsthetaxparcelIDnumberandotherwiseconformswithrequirementsoftheRecorderofDeeds.StandardexecutionrequirementsfordeedsinPennsylvaniarequiresignatureofanddeliveryby


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thegrantorandanacknowledgementofgrantorssignature.Whilewitnessesarenotrequired,itisacommonpracticeinPennsylvaniatohaveatleastonewitness. Ifthegrantorisacorporation,thenthedeedmay(butneednot)beattestedbythecorporatesecretary.CorporatesealsarenolongernecessaryinPennsylvania.TherequirementthatanaturalpersonssignaturebeaccompaniedbyasealhasbeenabolishedinPennsylvaniabystatute.TherightsofdowerandcourtesyhavebeenabolishedbystatuteinPennsylvania.However,issuespertainingtoequitabledistributionmaybeofconcernifthegrantorismarriedbutseparatedorinvolvedindivorceproceedings.Accordingly,manypractitionersroutinelyrequirethegrantorsspousetoexecuteajoinderreleasingandwaivinganyright,titleorinteresttotherealpropertyacquiredbyvirtueofmarriage.PennsylvaniahasenactedtheUniformWrittenAcknowledgementAct,whichprescribestheacceptedformofanotaryorotheracknowledgement.UndertheAct,documentsexecutedinanotherstateareeligibleforrecordationinPennsylvania,iftheacknowledgementismadeinthestatutoryformofthatstate.However,thevariousPennsylvaniaRecordersofDeedsarenotalwaysfamiliarwithoutofstateforms,anditisrecommendedthatthePennsylvaniaformatbeused.Alternatively,practitionersmaycallaheadtotheRecorderofDeedsandhavetheoutofstateacknowledgementapprovedinadvance.Thestatutoryformsofacknowledgementbyanindividualandacorporationareattachedbelow.AnotherrequirementwhichisspecifictoPennsylvaniafordeedsisthecertificateofresidencewherebythegranteecertifiesitsproperandcorrectmailingaddressfortaxbillpurposes(includingnameofpersonorentityresponsibleforreceivingthetaxbills).Theacceptedformofthecertificatevariesfromcountytocounty.Arepresentativeformisincludedbelow.Adisclosurestatementmayberequiredtobeincludedinthedeedifthepropertybeingconveyedhasbeenasolidwastedisposalsite(35P.S.6020.405)orhasbeenthesubjectofanadministrativeresponseaction((35P.S.6020.512),RecordingandRealtyTransferTaxPennsylvaniaisaracenoticejurisdiction.Abonafidepurchaserwithoutknowledgewilltakefreeofandhavepriorityovertheunrecordedinterestofanearlierclaimant.Togivelegalnoticetothirdparties,thedeedmustbeproperlyrecorded.Therecordingstatuteisfoundat21P.S.351.ThedeedmustberecordedintheOfficeoftheRecorderofDeedsofthecountyorcountiesinwhichtherealpropertyislocated;andtherecordingfeeandtherealtytransfertax,ifany,


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mustbepaiduponpresentationofthedeedforrecording.Therecordingfeeissetbythecountyandmayvary.TherealtytransfertaxmaybeassessedbyboththeCommonwealthofPennsylvaniaandthemunicipalityandschooldistrictinwhichtherealpropertyislocated.Thestatetaxrateiscurrentlyonepercent,andthecombinedmunicipalandschoolrateisgenerallyisonepercentbutvariesbymunicipalityandcanbeashighasthreepercent.Thestaterealtytransfertaxstatuteisfoundat72P.S.8101etseq.Thelocaltaxesareimposedbylocalordinancesandtaxingresolutions,subjecttothelimitationsimposedbystatetaxenablingstatutes.Thetaxisdeterminedbymultiplyingthetaxratetimestheconsiderationpaidfortheproperty(or,ifnoconsiderationispaid,timestheassessedvalueoftheproperty),timesacommonratiomultiplierfortheCountyinquestionwhichisannouncedfromtimetotimebytheDepartmentofRevenue.Realtytransfertaxesarethejointandseveralobligationofgrantorandgrantee.Thepartiesmayagreetoallocatepaymentofthetaxbetweenthem,howeverthetaxiscustomarilysplitequallybetweenthegrantorandthegrantee.Thereareanumberoftransactionswhichareexemptorexcludedfromrealtytransfertaxes.Examplesincludetransfersbetweencertainfamilymembers,transfersbywillorintestacy,andtransferspursuanttostatutorymergersofcorporations.However,Pennsylvanialawcontainsprovisionswhichmaysubjectrealestatetransactionstothetaxinunexpectedways.Forinstance,entitiesaretreatedasseparatetaxpayersfromtheirshareholdersandsubsidiaries,andthetaxoftenappliestointercompanytransactionssuchasplacingrealestateintoanewlyformedsinglepurposeentityforpurposesoffinancingrealestate.Also,thetaxmayapplytothetransferofstockorpartnershipinterestsinacompanythatownsrealestate.Cautionisadvised.WhilethereisnorequirementinPennsylvaniathattheactualconsiderationberecitedinthedeed,thepartyrecordingadeedwhichrecitesnoornominalconsiderationwillberequiredtorecordaRealtyTransferTaxStatementofValuesettingfortheithertheactualconsiderationpaid,ortheassessedfairmarketvalue,toenablethecorrectcalculationofthetax.Intheeventthatthepartiesdeemtheconveyanceasexemptfromrealtytransfertax,thepartyrecordingthedeedwillberequiredtorecordaRealtyTransferTaxStatementofValuesettingforththebasisforsuchexemption.SomecountiesrequirealldeedstobeaccompaniedbyaStatementofValue.Pennsylvaniacurrentlydoesnotlevyataxonmortgagesorotherindebtednesssecuredbyrealestate.


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PurchaseandSalesAgreementsAgreementsforthepurchaseandsaleofrealestatemustbeinwritingpursuanttotheStatuteofFrauds.ThereisnostandardformofcommercialrealestatesalesagreementinPennsylvania.Forsalesofresidentialrealestate,thePennsylvaniaAssociationofRealtors(PAR)hasvariouspreprintedformswhicharecustomarilyusedbothbybrokersandattorneys.Forresidentialsales,thesellerisrequiredtoprovideapropertydisclosureformwhenenteringintoanagreementofsale(68P.S.7301).Therearecertainstatutorydisclosureswhichshouldbeincludedinthesalesagreement.Failuretoincludethesedisclosuresmayresultinawarrantybeingimpliedagainstseller,ormayevenrenderthesalesagreementvoidablebythebuyer.Statutorydisclosuresincludezoning(21P.S.611etseq.),waterandsewageavailability(35P.S.750.7a),andcoalandsubsurfacesupportnotices(52P.S.1551and53P.S.1406.14).Ifalicensedrealestatebrokerorsalespersonispreparingtheagreementofsale,certaindisclosuresandstatementsarerequiredtobeincluded,49Pa.Code35.333.MortgagesPennsylvaniafollowsthelientheoryofmortgages.Accordingly,deedsoftrustarenotusedinPennsylvania.Pennsylvaniaisajudicialforeclosurestate,andprivatepowersofsalearenotusedsinceajudicialsaleistheonlymethodofcuttingofftheequityofredemption.Theancientformsofforeclosurehavebeenabolished,andmortgageforeclosureactionsarenowgovernedexclusivelybythePennsylvaniaRulesofCivilProcedure.Theexecutionrequirementsofamortgagefollowthosesamerequirementssetforthfortheexecutionofadeed.Amortgagealsomustincludeacertificateofresidence.FutureadvancesmaybesecuredundertheOpenEndMortgagestatute,42Pa.C.S.A.8143and8144.IfthemortgageisanopenendmortgagewhichmeetstherequirementsoftheAct,andifthemortgageisproperlyrecorded,thensubsequentadvancesofloanproceedswilltakepriorityoverinterveningencumbrancesandliens. Inaddition,subsequentadvancestopaytaxesandinsurance,costsmaintainingtheproperty,andcostsofsecuringthelienwillalsotakepriorityoverinterveninginterests.Inordertocomplywiththestatute,themortgagemustincludethewordsopenendintheheading(title)oftheinstrument,andmustcontainthestatutorylanguage.Noticethatifthelenderreceivesstatutorynoticeofajuniorlien,andthesubsequentadvanceisnotobligatory,thensubsequentadvanceswillnotretainpriorityoverthejuniorlien.Thereareseveralotherstatutoryexceptionstothepriorityofopenendmortgagelienswhichthepractitionershouldreview.


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Under21PS7211etseq.,knownastheMortgageSatisfactionAct,alendermustsatisfythemortgagebyrecordingasatisfactionpieceintheRecorderofDeedsOfficeinthecountyinwhichtherealpropertyislocatedwithin60daysfollowing:(i)paymentinfulloftheunderlyingdebtofthemortgageand(ii)borrowersfirstwrittenrequesttosatisfythemortgage.Failuretoproperlysatisfythemortgagewithinthe60dayperiodmayresultinthelenderforfeitingthemortgagelienandbecomingsubjecttoapenaltyinanamountnotexceedingtheamountoftheoriginalloan.Thelendermayalsoberequiredtoreimburseanycostsandexpenses,includingreasonableattorneysfees,incurredbytheborrowerinpursuingsatisfactionofthemortgage.TheMortgageSatisfactionActprovidesaformofthesatisfactionpiecewhichmeetsthestatutoryrequirements.MechanicsLienLawThePennsylvaniaMechanicsLienLaw(49PS1101etseq.)permitsaclaimanttofileastatutorylienagainstrealpropertytoenforcepaymentformaterialsand/orlaborfurnishedintheerectionandconstructionorthealterationorrepairofanimprovementtorealproperty.Eligibleclaimantsincludecontractors,subcontractors,subsubcontractorsandotherspecifiedsuppliersoflaborand/ormaterialsinexcessof$500.Thislienrightisanadditionalconcurrentandcumulativerightinrem,anddoesnotlimitordetractfromanyotherremediesavailableatlaworinequityforbreachofcontractorotherwise.Theclaimantwhoproperlyperfectsamechanicslienmayforecloseonthelienandhavethepropertysoldtopayitsclaim.Amechanicslienclaimmustbefiledwithinsixmonthsofthelastdatewhentheclaimantprovidedsubstantiallaborandmaterialstotherealproperty.Theclaimantisrequiredtoprovidevariousformsofnoticetotheownerandothershavinganinterestintherealpropertypriortofilingthelien,andtoserveandfilenoticeofthelien,allwithinafairlyshorttimeframe.Compliancewiththestatutorynoticeandservicerequirementsisstrictlyenforcedbythecourts.Pennsylvaniasmechanicslienstatutewassubstantiallyamended,effectiveasofJanuary1,2007.Underthepriorlaw,inordertoavoidamechanicslientheownerofthepropertytobeimprovedwouldenterintoaNoLienAgreementwiththecontractor,wherebythecontractor/subcontractoragreesnottofileamechanicslienagainsttheproperty.Suchanagreementwiththecontractor,ifproperlyfiledandindexedinthecourtrecords,wouldoperatetowaiveandreleasetheclaimsofallsubcontractorsandsuppliers/materialmen.However,thisstatutoryprocedureisnolongeravailableforcommercialconstructionprojectsorforcertainresidentialprojects.Advancewaiversandreleasesofliensinconnectionwithsuchprojectsarelegallyunenforceable.However,awaiverorreleaseoflienswillbevalidifgivenbythecontractororsubcontractorinexchangefor(andonlytotheextentof)paymentforlaborandmaterials.


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Theamendedmechanicslienlawprotectslendersbyprovidingthatthelienofapurchasemoneymortgageandastatutoryopenendconstructionmortgagewilltakepriorityoveramechanicslien.Practitionersshouldbeawareofrecentcaselawwhichlimitstheconstructionmortgageprioritytosituationswheretheloanproceedsareusedexclusivelyforimprovementstotheproperty,andnottopaylandacquisitioncosts,closingcostsorforanyotherpurpose.Itisimportanttonotethatatenantmayhavesufficientinterestintherealpropertytosubjectittoamechanicslien.Alandlordwillwanttoprovideintheleaseagreementthatanywork,repairs,alterationsoranyotherconstructionbytenantshallbecompletedinalienfreemannerandtorequirethatthetenantdischargeorbondoffanyandallmechanicsliensresultingfromtenantswork,repair,alterationorotherconstruction.AmechanicslienisfiledintheProthonotarysOfficeofthecountyorcountiesinwhichtherealpropertyissituate.Somecountiesmaystillindexmechanicsliensinaseparatemechanicsliendocket,whileothercountieshavecomputerizedandcombinedthedifferentindices.Itisimportanttoensurethatthelienisindexedinthenamesofboththecontractorandtheowner(s)oftheproperty.LeasingPennsylvanialeasingpracticeincludesallformsofleasing,fromresidentialapartmentleasestocommercialofficeandretailleases,andlandorgroundleases.PennsylvaniasLandlordandTenantAct(68P.S.250.101etseq.)generallyappliestoallformsofleases,butalsocontainsprovisionswhichspecificallygoverntheresidentiallandlordandtenantrelationship.TheActisfairlylimitedinitsapplicationtocommercialleases,whicharegenerallycoveredbycontractlaw.Practitionersshouldbeawareofthestatutoryformofrecordablememorandumoflease(21P.S.405),andtherequirementundertheStatuteofFraudsthatallleasesofrealpropertyforatermofthreeyearsorlongermustbeinwriting.Therealtytransfertaxisassessedonleaseshavingatermofthirtyyearsormore,countingallrenewaltermsprovidedintheleasewhetherexercisedornot.Pennsylvaniacaselawimpliesawarrantyofhabitabilityinresidentialleases,butnotincommercialleases.Whilebothresidentialandcommercialleasesaregenerallygovernedbycontractprincipals,thePennsylvaniaSupremeCourthasheldacommercialleasetobeanestateinpropertygovernedbyrealpropertyconcepts(ratherthancontractconcepts)incertainrespects.Forinstance,Pennsylvanialawapparentlydoesnotimplyadutyofthelandlordtomitigateitsdamagesinacommerciallease.


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Thereisnostandardformoflease,residentialorcommercial,ingeneraluseinPennsylvania.SubjecttotheActandcaselaw,thepartiesarefreetonegotiatethetermsofuseandoccupancy.Commercialleasesoftencontainwarrantstoconfessjudgmentagainstthetenantformoneydamagesincludingrent,andforpossessionoftheproperty(inejectment).WhilesuchprovisionsmaystillbelegallyenforceableinPennsylvania,theRulesofCivilProcedurelimittheirscopeandenforcement;andtheseleaseprovisionsareoftenthesubjectofnegotiation.TitleInsuranceTitleinsuranceisavailableinPennsylvaniaandisthecommonformoftitleassurance.AttorneystypicallydonotperformtitlesearchersorissuetitleopinionsinPennsylvania.Titleinsuranceisavailablewithrespecttofeeinterests,leaseholds,easements,mortgagesandmostotherformsofrealproperty.Ownerspoliciesandlenderspoliciesareavailable.TitleinsuranceisregulatedinPennsylvaniabytheTitleInsuranceRatingBureauofPennsylvania(TIRBOP).TitleinsurancepremiumratesareestablishedbyTIRBOPandarenototherwisenegotiable.TitlepolicyendorsementsarealsoregulatedbyTIRBOP,andcertainendorsementsavailableinotherstates,suchasforzoningorenvironmentalliens,maynotbeavailableinPennsylvania.(ForamoredetailedlookatPennsylvaniarealestatepractice,seetheLexMundiPennsylvaniaRealEstateSurvey).


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FormsofAcknowledgementByindividualsStateof___________________ ) ) SS:Countyof________________ )Onthis,the dayof ,20 , before me, the undersigned officer,personallyappeared , known tome(orsatisfactorilyproven)tobethepersonwhosenameissubscribedtothewithininstrument,andacknowledgedthathe/sheexecutedthesameforthepurposesthereincontained.Inwitnesswhereof,Ihereuntosetmyhandandofficialseal.

TitleofOfficer


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ByacorporationStateof___________________ ) ) SS:Countyof________________ )Onthis,the dayof ,20 , before me, the undersignedofficer,personallyappeared , who acknowledged himself to be the _____of , a Pennsylvania corporation, and thathe/sheassuch____________,beingauthorizedtodoso,executedtheforegoing instrumentforthepurposesthereincontainedbysigningthenameofthecorporationbyhimself/herselfassuch______ .Inwitnesswhereof,Ihereuntosetmyhandandofficialseal.

TitleofOfficer

NOTE:CommonwealthofPennsylvania istheproperheadingtouseforan instrumenttobeacknowledgedinfrontofaPennsylvanianotarypublic.


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Formof Certificateof Residence

CERTIFICATEOFRESIDENCETheundersigneddoes herebycertify that the precise addressoftheG r a n t e e /Mortgageeis: ____________________________________________________________ ____________________________________________________________ By:___________________________________ .


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LABOREqual EmploymentOpportunityPennsylvaniasHumanRelationsAct,administeredbythePennsylvaniaHumanRelationsCommission,prohibitsemployersoffourormorepersonsfromdiscriminatinginemploymentonthebasisofrace,color,religiouscreed,ancestry,disability,pregnancy,age(appliestoindividualsage40andover),sex,ornationalorigin.EmployeesmustfileanadministrativechargewiththeHumanRelationsCommissioninordertoexhaustremediesundertheHumanRelationsAct.Thelimitationsperiodforsuchacomplaintis180daysfromthedateoftheadverseaction.Discriminationinemploymentonpublicworkscontractsonthebasisofrace,creed,orcolorisalsoprohibited.TherearealsoextensiveequalemploymentandaffirmativeactionobligationsofthecontractingagenciesofPennsylvaniaandofcontractorswhoperformunderstatecontracts.ConsiderationofCriminalRecordsInreachinganemploymentdecisiononapplicants,employersinPennsylvaniaareprohibitedfromconsideringanapplicantsconvictionofacrime,excepttotheextentthatsuchinformationisrelevanttoanapplicantssuitabilityforthepositionsought.Applicantstopublicandprivateschoolsarerequiredtosubmitastatementastowhethertheapplicanthasbeeninvolvedincriminalactivity.Backgroundchecksarerequiredofschoolemployeesandindependentcontractorswhohavedirectcontactwithchildren.Allemployersmustnotifyanapplicantinwritingifthedecisionnottohiretheapplicantisbasedinwholeorinpartoncriminalhistoryrecordinformation.Employersmaynotrequireapplicantstosubmittoaliedetectororsimilartestasaconditionofemployment(otherthanemploymentasapubliclawenforcementofficerorinajobentailingaccesstonarcoticsorotherdangerousdrugs).MedicalExamsLiketheADA,theHumanRelationsActRegulationsprohibitinquiriesofapplicantsoremployeesthatmightelicitinformationaboutadisability.Pennsylvanialawalsoprohibitsanemployerfromrequiringanapplicantoranemployeetopaythecostofamedicalexaminationorformedicalrecordsrequiredasaconditionofemployment.Thislawdoesnotapplywhere,forexample,themedicalexaminationisrequiredbylawasaconditionofemployment.


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Termsand Conditionsof EmploymentPennsylvaniahasaWagePaymentandCollectionLawthatprovidesavehicletoenforcetimelypaymentofwagesandfringebenefits.Italsorestrictsdeductionsfromwagesforanyreasonotherthanuniondues,fringebenefits,legallyrequiredwithholdingsanddeductionsthatarefortheconvenienceoftheemployeeandauthorizedinwriting.Allwagesthenduemustbepaidtoaterminatingemployeenotlaterthanthenextregularpayday.TheActprovidesforliquidateddamagesforunpaidwagesofthegreaterof$500or25%oftheamountoftheunpaidwages,andmandatesattorneysfeesreimbursementforasuccessfulplaintiff.ThereisaMinimumWageLawthatprovidesforbothaminimumwageandforovertimefornonexemptemployeeswhoworkover40hoursinaweek.ThelawexemptsExecutive,ProfessionalandAdministrativeemployees,butdoesnothaveacomputerprofessionalsexemption.ThereareotherdifferencesfromthefederalFairLaborStandardsAct(FLSA),suchasthefactthatstatelawdoesnotprovideforpaymentbaseduponafluctuatingworkweek.Thelawwasrecentlyamendedtoprovideforpaymentofovertimeforhealthcareworkersonan8/80basis,trackingnowthefederallaw.PennsylvaniaalsohasitsownPrevailingWageActforthoseemployedonstateworks.Pennsylvaniahasenactedavarietyofstatuteswhichprovideprotectiontoemployeeswhoengageinpublicserviceandcivicdutyactivities. Forexample,anemployermaynotdepriveanemployeeofhis/heremployment,senioritypositionorbenefits,orthreatentootherwisecoercehim/herwithrespecttheretobecausetheemployeeservesasapetitorgrandjuror(forcertainemployersonly),attendscourtforprospectivejuryserviceortestifiesasawitnessinacriminalproceeding. Theemployerisnotrequiredtocompensateemployeeswhomissworkforthesereasons.Further,employersareprohibitedfromdischargingorotherwisedisciplininganyvolunteerfirefighterorvolunteermemberofthefire,police,ambulanceservice,orrescuesquadbecauseofanabsencefromworktofightafireortorenderemergencymedicalassistanceinthelineofduty,whichdutycommencedbeforethestartoftheemployeesworkshift.PennsylvaniahasincludedwhistleblowerprotectionswithintheWorkandCommunityRighttoKnowActandvariousotherstatestatutessuchastheMunicipalWastePlanning,RecyclingandWasteReductionAct.Inaddition,ithasenactedawhistleblowerlawwhichappliestopublicemployers,whichhasbeeninterpretedtoincludeemployersthatreceivedfundingthroughMedicaid.


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Employersarerequiredtopermitemployees(ortheirrepresentatives,includingcounsel)toinspecttheirpersonnelfilesusedtodeterminetheirownqualificationsforemployment,promotion,higherwages,termination,anddisciplinaryaction.Thisappliesonlytocurrent,notformer,employees.Terminationof EmploymentPennsylvaniaadherestothecommonlawprincipleofemploymentatwill.Thismeansthatemployeesarepresumednottobeemployedforanydefiniteperiodoftime,andeithertheemployerortheemployeemayterminatetheemploymentrelationshipatanytimewithoutpriornoticeandfornoreason.Thepresumptionmaybeovercomeonlybyproofofacontractthatalterstheatwillemploymentstatus.Pennsylvaniacourtshaverecognizedlimitedexceptionstotheatwillprinciple,wherethedischargeofanemployeeviolatesapublicpolicy,butthisexceptionhasbeennarrowlyconstrued.Forexample,adischargeinretaliationforfilingaworkerscompensationclaimwouldviolatepublicpolicy,aswouldadischargeforrefusingtotakealiedetectortest.Pennsylvaniaemployersarenotrequiredtoinform,eitherverballyorinwriting,individualsofthereasonfortheirterminationofemployment. Moreover,thereisnostateplantclosinglawcomparabletothefederalWARNAct,butPennsylvaniaemployersthatrequiretheiremployeestogiveadvancenoticeofintentiontoquitunderpenaltyofforfeitureofwagesarerequiredtopayasumequaltosuchforfeituretoanyemployeewhoisdischargedwithoutsimilarnoticeforanyreasonotherthanincapacity,misconductorworkstoppage.Employeesinvoluntarilyseparatedfromtheiremploymentotherthanforwillfulmisconductwhoareableandavailabletoworkareentitledtounemploymentcompensationbenefits,whichareordinarilypaiddirectlybytheCommonwealth.TheCommonwealthfundismaintainedthroughanemployerandemployeepayrolltax,whichisaffectedbytheemployersexperiencerating.MiscellaneousStatutesPennsylvania,likeotherstates,hasenactedanumberoflawswhicharedesignedtoprotectthephysicalwellbeingofitscitizenworkers.Forexample,Pennsylvaniahasachildlaborlaw.PennsylvaniaalsohastheWorkersCompensationActandOccupationalDiseaseActwhichobligatesemployerstoprovidecompensationandmedicalexpensereimbursementtoemployeeswhoareinjuredinthecourseoftheiremploymentorwhocontractadiseaseordebilitatingconditionbecauseofexposuretoharmfulsubstancesduringtheiremployment.Thesebenefitsaretypicallyprovidedthroughprivateinsuranceobtainedbytheemployer.Thecostofsuchinsuranceisgenerallydeterminedbythesizeoftheemployerspayroll,the


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natureoftheemployersbusiness,andtheemployerscompensationexperiencerating.Theamountofthecompensationbenefitpayableisestablishedbylaw,andthesebenefitsaretheemployeesexclusiveremedyagainsttheemployerforworkrelatedinjuriesorillnesses.Althoughmuchofthestatestatuteispreemptedbyfederallegislation,thePennsylvaniaWorkandCommunityRighttoKnowlawdoesrequireemployerstocompleteaninclusiveHazardousSubstanceSurveyFormandanEnvironmentalHazardSurveyFormforanysubstancefoundontheCommonwealthsHazardousSubstanceList. EmployersmustalsosendsurveyformsandMaterialSafetyDataSheets(MSDSs)tolocalpublicsafetyagenciesuponrequest,allowDepartmentofLaborandIndustryemployeestomakeonsiteinspections,ensurethatlabelsoncontainersincludethemanufacturerstelephonenumber,ensurethatallMSDSscontainthechemicalabstractservicenumberandprovidecopiesofemployeehealthandexposurerecordstotheDepartmentuponrequest.PennsylvaniahasalsoenactedaCleanIndoorAirActtoprotectthepublichealthandtoprovideforthecomfortofallpartiesbyregulatingandcontrollingsmokinginpublicplaces,includingmanyworkplaces.


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INTELLECTUALPROPERTYTrade Secret LawInFebruary2004,PennsylvaniaadoptedaversionoftheUniformTradeSecretsAct.Pennsylvaniahasarelativelystrongandwelldevelopedbodyofcommonlawcoveringtradesecretprotection.Additionally,therearesomestatutesrequiringdisclosureoftradesecretinformation,forexample,theidentityand/ormaterialsafetydatasheetforahazardoussubstance,toappropriatestateagenciesoremergencyserviceproviders.Otherstatutesattempttobalancetradesecretprotectionwithsafetyandothergovernmentinterestsintheareasofairpollution,agriculturalfeeds,controlledsubstances,electricutilities,fertilizers,pesticides,andamendmentstoplantsorsoil.Furthermore,therulesofcivilprocedureprovideforprotectiveordersprecludingorlimitingthemannerofdisclosureoftradesecretsduringdiscovery.Pennsylvaniatakestheviewthatatradesecretisapropertyinterestthatislegallyprotectable.Atradesecretmayconsistofaformula,pattern,deviceorcompilationofinformationwhichisusedinonesbusinessandprovidesanadvantageovercompetitorswithouttheknowledgeofthetradesecret.Tobeprotectable,thetradesecretmustbetheparticularsecretoftheownerandnotasecretgenerallyknowninthetrade. Absolutesecrecyisnotrequiredtoestablishatradesecret.Instead,relativesecrecyisnecessary. Theprecautionstakentoprotectatradesecretmustbereasonableinviewofallofthecircumstances.Varioustypesoftechnicalinformationsuchasengineeringdrawings,computersoftwareandthelike,canbeprotectableasatradesecret.Nontechnicalbusinessinformationcanalsobeprotectableinsomecircumstances.Forexample,customerlistsaregenerallyprotectableastradesecrets.Costandpricinginformationthatisnotreadilyavailableintheindustrymayalsobeprotectabletradesecretinformation.However,supplierlistsandgeneralmarketinginformationareusuallynotqualifiedfortradesecretprotection.Aproductsubjecttoreverseengineeringcannotbeatradesecret.Ontheotherhand,amisappropriatedideacanconstituteatradesecretiftheideaisnovelandconcrete.InPennsylvania,theelementsnecessarytoestablishtradesecretmisappropriationarethat:(a)theplaintiffownsatradesecret;(b)theplaintiffdisclosedthetradesecrettothedefendantorthedefendanttookthetradesecretwithoutauthorization;(c)therelationshipbetweenthedefendantandtheplaintiffwassuchthattheuseordisclosureofthesecretwaswrongful;and(d)thedefendantusedordisclosed,orwilluseordisclose,thetradesecrettotheplaintiffsdetriment.


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ThePennsylvaniacaselawfollowsthefirstRestatementofTortsSection757.Abreachofaconfidentialrelationshipisnotabsolutelyrequiredinordertoestablishatradesecretclaim.Acquisitionofatradesecretbywrongfulmeansmayalsoconstitutemisappropriation.Damagesfortradesecretmisappropriationarebasedonthevalueoftheinformationtakenandtheunjustenrichmentgainedbythemisappropriator,includingprofits. Anewemployerwhohiresatradesecretmisappropriator,andwhoknowsthattheinformationwasdisclosedimproperly,isequallyliablefordamagesfortradesecretmisappropriation.Apersoncanbestoppedfromtakinganewpositiononlywherethenewemploymentislikelytoresultindisclosureofatradesecretownedbytheperson'sformeremployer.Punitivedamagesalsoareavailablefortradesecrettheft,particularlyifthetheftwaswillfulandwanton.Injunctiverelieffortradesecretmisappropriationalsoisavailable. Pennsylvaniacourtscurrentlyfollowthetrendtowardleadtimeinjunctions,wherethemisappropriatorisenjoinedonlyforaslongasneededtoindependentlydeveloptheinformation.Thestatuteoflimitationsforbringingclaimformisappropriationoftradesecretsisthreeyearsafterthemisappropriationwasdiscoveredor(bytheexerciseofreasonablediligence)shouldhavebeendiscovered.Trademarksand ServiceMarksPennsylvania,bystatute,providesforregistrationofbothtrademarksandservicemarkswhilepreservingallcommonlawrightsintrademarksandservicemarks.Anyword,name,symbolordevice,orcombinationthereof,maybeadoptedandusedandthenregisteredasatrademarkorservicemarkifitisemployedtoindicateasourceofgoodsorservices.Pennsylvanialawgenerallyparallelsthefederalsystemandthesystemsofanumberofotherstates.Unlikethefederalsystem,however,onemustusethemarkinPennsylvaniabeforeseekingregistrationinPennsylvania.Onecannotfileanapplicationonthebasisofabonafideintenttousethemark.Markswhicharedescriptiveordeceptivelymisdescriptiveorprimarilymerelyasurnamecannotberegistered.Markswhichsoresembleapreviouslyregistered,unabandonedmarksoastocreatealikelihoodofconfusionormistake,ortodeceivethepublicconcerningtheoriginormanufactureofthegoods,cannotberegisteredunlessthesecondentitytoapplyforregistrationhasasuperiorrightbyaprioradoptionanduseinPennsylvania.Anapplicationforregistrationmustidentifytheapplicant,theaddress,themark,andthegoodsorservicesinconnectionwithwhichthemarkisused,themannerinwhichthemarkis


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used,andtheclassinwhichthegoodsorservicesfall.Theclassificationsarelistedinthestatute.Theapplicationmustalsostatethedatewhenthemarkwasfirstusedanywhere,andthedatewhenitwasfirstusedwithintheCommonwealthofPennsylvania.Therealsomustbeastatementthattheapplicantistheownerofthemark,andthatnootherpersonhastherighttousethemarkwithintheCommonwealthofPennsylvania,eitherinidenticalformorinanynearresemblancethereto,asmightbecalculatedtodeceiveortobemistakentherefor.TheapplicantmustdisclosewhetheranapplicationtoregisterthemarkoraportionthereofwasfiledwiththeU.S.PatentandTrademarkOffice.Ifsuchanapplicationwasfiled,theapplicantmustprovidetheserialnumber,filingdate,status,andiftheapplicationhasnotresultedinaregistration,thereasonstherefor.Afacsimileofthemarkandtherequiredregistrationfeemustalsobeprovided.Theapplicantconfirmstheveracityoftheapplicationdetailsbysigningtheapplication.Assignmentsofmarksaswellastheirregistrations,alongwiththegoodwilloftherelatedbusiness,maybemade.AssignmentsmustbeinwritingandmayberecordedwiththePennsylvaniaDepartmentofState.Theregistrationshaveatermoffiveyearsandmayberenewedwithinsixmonthspriortoexpirationforperiodsoffiveye