Source: https://www.cga.ct.gov/2014/FC/2014SB-00023-R000603-FC.htm
Timestamp: 2019-10-21 02:19:59
Document Index: 369025489

Matched Legal Cases: ['§ 3', '§ 33', '§ 2', '§ 2', '§ 2', '§ 33', '§ 2', '§ 7', '§ 5', '§ 6', '§ 2', '§ 11', '§ 2', '§ 2', '§ 2', '§ 10', '§ 2', '§ 3', '§ 15']

Substitute Senate Bill No. 23
Senate, April 17, 2014
Section 1. (NEW) (Effective October 1, 2014) Sections 1 to 15, inclusive, of this act shall be known and may be cited as the "Connecticut Benefit Corporation Act".
Sec. 2. (NEW) (Effective October 1, 2014) As used in this section and sections 3 to 15, inclusive, of this act:
(1) "Benefit corporation" means a business corporation (A) that has elected to become subject to the provisions of sections 3 to 15, inclusive, of this act, and (B) whose status as a benefit corporation has not been terminated pursuant to section 7 of this act.
(2) "Benefit director" means either (A) the director designated as the benefit director of a benefit corporation pursuant to section 10 of this act, or (B) a person with one or more of the powers, duties or rights of a benefit director under section 10 of this act to the extent that such person has been granted all or part of the authority to manage the business and affairs of the corporation by a shareholder agreement that complies with section 33-717 of the general statutes.
(3) "Benefit enforcement proceeding" means any claim or action for (A) the failure of a benefit corporation to pursue or create a general public benefit or any specific public benefit purpose set forth in its certificate of incorporation, or (B) the violation of any obligation, duty or standard of conduct under sections 3 to 15, inclusive, of this act.
(6) "Charitable organization" means any organization that is exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and that the United States Treasury Department has expressly determined, by letter, to be an organization that is described in Section 501(c)(3) of said Internal Revenue Code.
(7) "General public benefit" means a material positive impact on both society and the environment, taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation.
(9) "Legacy preservation provision" means a provision in the certificate of incorporation adopted in accordance with section 6 of this act.
(10) "Material relationship" means a relationship between a person and a benefit corporation or any of its subsidiaries if any of the following apply: (A) The person is, or has been within the last three years, an employee other than a benefit officer of the benefit corporation or a subsidiary; (B) an immediate family member of the person is, or has been within the last three years, an executive officer other than a benefit officer of the benefit corporation or a subsidiary; or (C) there is beneficial or record ownership of five per cent or more of the outstanding shares of the benefit corporation, calculated on the assumption that all outstanding rights to acquire shares in the benefit corporation had been exercised, by (i) the person, or (ii) an entity (I) of which the person is a director, an officer or a manager; or (II) in which the person owns beneficially or of record five per cent or more of the outstanding equity interests, calculated on the assumption that all outstanding rights to acquire equity interests in the entity had been exercised.
(13) "Specific public benefit" includes: (A) Providing low-income or underserved individuals or communities with beneficial products or services; (B) promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business; (C) protecting or restoring the environment; (D) improving human health; (E) promoting the arts, sciences or advancement of knowledge; (F) increasing the flow of capital to other benefit corporations or similar entities whose purpose is to benefit society or the environment; and (G) conferring any other particular benefit on society or the environment.
(15) "Third-party standard" means a recognized standard for defining, reporting and assessing corporate social and environmental performance that: (A) Assesses the effect of its business and operations upon the interests listed in subparagraphs (B), (C), (D) and (E) of subdivision (1) of subsection (a) of section 9 of this act; (B) is developed by an entity that is independent; and (C) makes publicly available the following information about the development and revision of the standard: (i) The identity of the directors, officers, material owners, and the governing body of the entity that developed and controls revisions to the standard; (ii) the process by which revisions to the standard and changes to the membership of the governing body are made; and (iii) an accounting of the revenue and sources of financial support for such entity, with sufficient detail to disclose any relationships that could reasonably be considered to present a potential conflict of interest.
Sec. 3. (NEW) (Effective October 1, 2014) (a) The provisions of this section and sections 4 to 15, inclusive, of this act shall be applicable to all benefit corporations.
(b) The provisions of this section and sections 4 to 15, inclusive, of this act shall not create an implication that a contrary or different rule of law is applicable to a business corporation that is not a benefit corporation. The provisions of this section and sections 4 to 15, inclusive, of this act shall not affect a statute or rule of law that is applicable to a business corporation that is not a benefit corporation.
(c) Except as otherwise provided in this section and sections 4 to 15, inclusive, of this act, the provisions of chapter 601 of the general statutes shall be generally applicable to all benefit corporations. The specific provisions of this section and sections 4 to 15, inclusive, of this act shall control over the general provisions of chapter 601 of the general statutes.
(d) A provision of the certificate of incorporation or bylaws of a benefit corporation may not limit, be inconsistent with, or supersede a provision of this section or sections 4 to 15, inclusive, of this act.
(e) Nothing in this section or sections 4 to 15, inclusive, of this act shall (1) be construed as creating or granting to any person any contractual right to, or proprietary interest in, the income or assets of a benefit corporation by virtue of the fact that he or she may directly or indirectly benefit from the general public benefit or any specific public benefit of a benefit corporation, (2) be construed as imposing or creating a charitable use, interest or restriction on any property or assets of a benefit corporation, or (3) deprive the Attorney General of jurisdiction over a benefit corporation under any other applicable law.
Sec. 4. (NEW) (Effective October 1, 2014) A benefit corporation shall be incorporated in accordance with the provisions of chapter 601 of the general statutes by filing a certificate of incorporation with the office of the Secretary of the State that states that the corporation is a benefit corporation.
Sec. 5. (NEW) (Effective October 1, 2014) (a) A business corporation that is not a benefit corporation may elect to become a benefit corporation by amending its certificate of incorporation to contain, in addition to matters required by section 33-636 of the general statutes, a statement that the corporation is a benefit corporation. Any such amendment to the certificate of incorporation shall be approved by a minimum status vote.
(b) If an entity that is not a benefit corporation is a party to (1) a merger in which (A) the surviving entity will be a benefit corporation, or (B) shares or other equity interests in such entity will be converted into a right to receive shares of a benefit corporation, or (2) a share exchange with a benefit corporation in which the shares or other equity interests of the entity will be exchanged for shares of a benefit corporation, the plan of merger or share exchange shall be approved by a minimum status vote. If an entity other than a business corporation is a party to any such transaction and a minimum status vote by the equity owners of such entity is required for approval of the transaction, the equity owners of such entity shall be entitled to appraisal rights under the procedures set forth in chapter 601 of the general statutes as if the entity were a business corporation.
Sec. 6. (NEW) (Effective October 1, 2014) (a) A benefit corporation may, not earlier than twenty-four months after the date that it became a benefit corporation, adopt a legacy preservation provision by amending its certificate of incorporation to contain a statement that the corporation is subject to a legacy preservation provision. Any such amendment shall be adopted in accordance with the procedures set forth in chapter 601 of the general statutes and shall be approved by the unanimous vote or written consent of the shareholders of every class or series, regardless of any limitation stated in the certificate of incorporation or bylaws on the voting rights of any such class or series.
Sec. 7. (NEW) (Effective October 1, 2014) (a) Except for a benefit corporation that adopts a legacy preservation provision, a benefit corporation may terminate its status as such and cease to be subject to the provisions of sections 3 to 15, inclusive, of this act by amending its certificate of incorporation to delete any provision stating that such corporation is a benefit corporation. Any such amendment shall be approved by a minimum status vote.
(d) Except for a benefit corporation that adopts a legacy preservation provision, any sale, lease, exchange or other disposition of assets of a benefit corporation, other than a disposition described in section 33-830 of the general statutes, that would leave the benefit corporation without a significant continuing business activity shall be approved by a minimum status vote. A benefit corporation that adopts a legacy preservation provision shall not enter into a sale, lease, exchange or other disposition of its assets, other than a disposition described in section 33-830 of the general statutes, unless the disposition is to one or more (1) charitable organizations, or (2) other benefit corporations that have adopted legacy preservation provisions, and such disposition is approved by a minimum status vote.
Sec. 8. (NEW) (Effective October 1, 2014) (a) A benefit corporation shall have a purpose of creating a general public benefit. Such purpose shall be in addition to any purpose under chapter 601 of the general statutes.
(b) The certificate of incorporation of a benefit corporation may identify one or more specific public benefits as a purpose for such benefit corporation to create in addition to any purpose under chapter 601 of the general statutes and subsection (a) of this section. The identification of a specific public benefit under this subsection shall not limit the obligation of a benefit corporation under subsection (a) of this section.
Sec. 9. (NEW) (Effective October 1, 2014) (a) In discharging the duties of their respective positions and considering the best interests of the benefit corporation, the board of directors, any committee of the board and the individual directors of the benefit corporation:
(2) May consider (A) in the circumstances described in subsection (d) of section 33-756 of the general statutes, as amended by this act, the interests referred to in said subsection, and (B) other pertinent factors or the interests of any other group that the board of directors, any committee of the board and the directors of the benefit corporation deem appropriate; and
(b) The consideration of interests and factors in the manner required by subsection (a) of this section (1) shall not constitute a violation of section 33-756 of the general statutes, as amended by this act, and (2) is in addition to the power of directors to consider the interests and factors listed in subsection (d) of section 33-756 of the general statutes, as amended by this act, in the circumstances described in said subsection.
(c) A director shall not be personally liable for (1) any act or omission in the course of performing the duties of a director under subsection (a) of this section if the director performed the duties of the position in compliance with section 33-756 of the general statutes, as amended by this act, and this section, or (2) failure of the benefit corporation to pursue or create a general public benefit or any specific public benefit.
Sec. 10. (NEW) (Effective October 1, 2014) (a) The board of directors of a benefit corporation that is a publicly traded corporation shall, and the board of any other benefit corporation may, include a director who shall (1) be designated the benefit director, and (2) have, in addition to the powers, duties, rights and immunities of the other directors of the benefit corporation, the powers, duties, rights and immunities provided in sections 3 to 15, inclusive, of this act.
(b) The benefit director shall be elected, and may be removed, in the manner provided under chapter 601 of the general statutes. The benefit director shall be an individual who is independent. The benefit director may serve as the benefit officer at the same time as serving as the benefit director. The certificate of incorporation or bylaws or a shareholder agreement of a benefit corporation may prescribe additional qualifications of the benefit director that are consistent with this subsection.
(c) The benefit director shall prepare, and the benefit corporation shall include in the annual benefit report to its shareholders required by section 14 of this act, the opinion of the benefit director on each of the following: (1) Whether the benefit corporation acted in accordance with its general public benefit purpose and any specific public benefit purpose in all material respects during the period covered by the report, (2) whether the directors and officers complied with subsection (a) of section 9 of this act and subsection (a) of section 11 of this act, respectively, and (3) if, in the opinion of the benefit director, the benefit corporation or its directors or officers failed to comply with subsection (a) of section 9 of this act or subsection (a) of section 11 of this act, a description of the ways in which the benefit corporation or the corporation's directors or officers failed to comply.
Sec. 11. (NEW) (Effective October 1, 2014) (a) Each officer of a benefit corporation shall consider the interests and factors described in subsection (a) of section 9 of this act in the manner provided in that subsection if (1) the officer has discretion to act with respect to a matter, and (2) it reasonably appears to the officer that the matter may have a material effect on the creation by the benefit corporation of a general public benefit or any specific public benefit identified in the certificate of incorporation of the benefit corporation.
(b) The consideration of interests and factors in the manner described in subsection (a) of this section shall not constitute a violation of section 33-765 of the general statutes, as amended by this act.
(c) An officer shall not be personally liable for (1) an act or omission as an officer in the course of performing the duties of an officer under subsection (a) of this section if the officer performed the duties of the position in compliance with section 33-765 of the general statutes, as amended by this act, and this section, or (2) the failure of the benefit corporation to pursue or create a general public benefit or any specific public benefit.
Sec. 12. (NEW) (Effective October 1, 2014) A benefit corporation may designate a benefit officer. A benefit officer shall have (1) the powers and duties relating to the purpose of the corporation to create a general public benefit or any specific public benefit provided (A) by the bylaws, or (B) absent controlling provisions in the bylaws, by resolutions or orders of the board of directors, and (2) the duty to prepare the benefit report required by section 14 of this act.
Sec. 13. (NEW) (Effective October 1, 2014) (a) Except in a benefit enforcement proceeding, no person may bring an action or assert a claim against a benefit corporation or its directors or officers with respect to (1) the failure to pursue or create a general public benefit or any specific public benefit identified in its certificate of incorporation, or (2) the violation of an obligation, duty or standard of conduct under sections 3 to 15, inclusive, of this act.
(b) A benefit corporation shall not be liable for monetary damages under sections 3 to 15, inclusive, of this act for any failure of the benefit corporation to pursue or create a general public benefit or any specific public benefit.
(c) A benefit enforcement proceeding may be commenced or maintained only (1) directly by the benefit corporation, or (2) derivatively in accordance with the provisions of chapter 601 of the general statutes by (A) a person or group of persons that owns beneficially or of record not less than five per cent of the total number of shares of a class or series outstanding at the time of the act or omission complained of, (B) a person or group of persons that owns beneficially or of record ten per cent or more of the outstanding equity interests in an entity of which the benefit corporation is a majority-owned subsidiary at the time of the act or omission complained of, or (C) other persons as specified in the certificate of incorporation or bylaws of the benefit corporation.
Sec. 14. (NEW) (Effective October 1, 2014) (a) A benefit corporation shall select a third-party standard by which to assess such corporation's pursuit of a general public benefit and any specific public benefit. Selecting or changing a third-party standard shall require approval by (1) the greater of (A) a majority of all the directors in office when the action is taken, or (B) the number of directors required by the certificate of incorporation or bylaws of the benefit corporation to take action under this section, or (2) the vote or written consent of the shareholders required by the certificate of incorporation or bylaws of the benefit corporation to take action under this section.
(5) The opinion of the benefit director described in subsection (c) of section 10 of this act; and
Sec. 15. (NEW) (Effective October 1, 2014) (a) A benefit corporation shall send its annual benefit report to each shareholder (1) not later than one hundred twenty days following the end of the fiscal year of the benefit corporation, or (2) at the same time that the benefit corporation delivers any other annual report to its shareholders, whichever is earlier.
Sec. 16. Section 33-856 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2014):
(5) If the corporation is not a benefit corporation, as defined in section 2 of this act, (A) an amendment of the certificate of incorporation to state that the corporation is a benefit corporation; (B) consummation of a merger to which the corporation is a party in which the surviving entity will be a benefit corporation or in which shares in the corporation will be converted into a right to receive shares of a benefit corporation; or (C) consummation of a share exchange to which the corporation is a party and the shares of the corporation will be exchanged for shares of a benefit corporation; or
Sec. 17. Section 33-756 of the general statutes is amended by adding subsection (f) as follows (Effective October 1, 2014):
(NEW) (f) A director is not liable under this section for any act or omission in the course of performing the duties of a director under subsection (a) of section 9 of this act if the director performed such duties in compliance with this section and section 9 of this act.
Sec. 18. Section 33-765 of the general statutes is amended by adding subsection (e) as follows (Effective October 1, 2014):
(NEW) (e) An officer is not liable under this section for any act or omission in the course of performing the duties of an officer under subsection (a) of section 11 of this act if the officer performed such duties in compliance with this section and section 11 of this act.
Sections 17 and 18 were added for conformity with sections 9 and 11.
The bill establishes benefit corporations as a type of for-profit corporation. There is a cost to the Secretary of the State (SOTS), estimated to be $62,000, associated with programming a new business entity into the CONCORD commercial records database.
The bill is expected to have a neutral impact on fee revenue at the SOTS. The SOTS collects fees from business entities for establishment, filing of annual reports, and dissolution. SOTS is not anticipated to realize a change in revenue from such fees as it is anticipated that most new benefit corporations will be reclassifications of existing businesses. The passage of similar legislation in several surrounding states has significantly decreased the likelihood that existing businesses will move corporate registration to Connecticut in order to become benefit corporations.
sHB 5030, the FY 15 revised budget, as favorably reported by the Appropriations Committee, includes a carry forward of $60,000 in Other Expense funds from FY 14 to FY 15 for programming expenses associated with this bill.
sSB 23
This bill establishes a legal framework for forming a for-profit corporation that both pursues social benefits and increases value for its shareholders (benefit corporation or b-corp). Corporations formed under current law are legally obligated to do only the latter. B-corps formed under the bill operate under the same laws as traditional business corporations (business corporation laws (BCL)) and seek to increase shareholder value. But their corporate purpose also includes doing things that generally benefit society and the environment or create specific public benefits.
The bill's governance structure and accountability requirements align with the b-corp's public benefit purpose. The bill requires a b-corp's directors and officers to consider certain interests and constituencies besides the shareholders' financial interests when making decisions. It also requires b-corps to report annually on their overall social and environmental performance. Under BCL, traditional corporate directors and officers must further the shareholders' interest without having to consider public interests (although they may purse social and community goals in limited situations) or report on how the corporation benefitted society and the environment.
The bill specifies rules and procedures for establishing and dissolving b-corps, changing the specific public benefits they choose to create, disposing of a b-corp's assets, and entering into mergers or consolidations with traditional business entities or other b-corps. The bill also allows b-corps to include provisions in their bylaws and certificates of incorporation ensuring that their assets continue to serve a public purpose after they dissolve.
The bill provides a procedure for bringing an action against a b-corp for failing to create general or specific public benefits or violating any of the bill's provisions, but limits access to the procedure to shareholders and other parties specified in a b-corp's certificate of incorporation. Eligible parties may use the procedure to seek orders directed at a b-corp's conduct, but not to obtain monetary damages.
§§ 3 & 16 — BENEFIT CORPORATION AS A FORM OF FOR-PROFIT CORPORATION
By law, traditional for-profit business corporations must maximize value for their shareholders by making decisions aimed at increasing earnings, dividends, and share prices (shareholder value). The bill creates a legal framework for establishing for-profit corporations that must legally create public benefits as well as increase shareholder value. It places that framework within BCL, specifying that b-corps are subject to the bill's and BCL's provisions, except for the bill's specific provisions, which supersede BCL's general provisions.
The bill's authorization to form b-corps creates no implication that a different or contrary law applies to corporations that are not b-corps. The bill does not affect or change BCL, except to extend statutory appraisal rights to a traditional corporation's shareholders when:
1. the corporation's certificate of incorporation is amended to make it a b-corp,
2. the corporation merges with another corporation and the surviving entity is a b-corp,
3. the corporation converts its shares into the right to receive shares in a b-corp, or
4. the corporation exchanges its shares for those of a b-corp.
(When a corporation (1) sells its assets or (2) merges or exchanges shares with another corporation, its shareholders have the right to have their shares appraised and purchased from them at the appraised price (CGS § 33-856)).
The bill's other provisions address the relationship between a b-corp and various parties. The bill:
1. gives people no legal claims to the b-corp's income or assets simply because they might benefit from a b-corp's creation of general and specific public benefits,
2. requires b-corps to use their assets or property only for charitable purposes, and
3. does not deprive the attorney general of jurisdiction over b-corps under the BCL or other law.
A b-corp's bylaws or certificate of incorporation cannot limit, conflict with, or supersede the bill's provisions.
§§ 2 & 8 — GENERAL AND SPECIFIC PUBLIC BENEFITS
The authority to create general and specific public benefits sets b-corps apart from other traditional corporations, and the bill specifies that the creation of these benefits serves a b-corp's best interest.
The bill authorizes b-corps to create two types of public benefits. All b-corps must have a purpose of creating a “general public benefit,” defined as a material positive impact on society and the environment, taken as a whole and assessed against a third-party standard described below. This benefit is in addition to those legal purposes allowed under the BCL.
The bill also allows b-corp to create one or more of the following “specific public benefits:”
1. providing low-income or underserved people or communities with beneficial products or services;
2. promoting economic opportunity for individuals or communities beyond creating jobs in the normal course of business;
3. protecting or restoring the environment;
4. improving human health;
5. promoting the arts, sciences, or advancement of knowledge;
6. increasing the flow of capital to other b-corps or similar entities whose purpose is to benefit society or the environment; and
7. conferring any other particular benefit on society or the environment.
Benefit corporations choosing to create one or more of these benefits must still create a general public benefit.
The general public benefit and any specific public benefits a b-corp chooses to create must be stated in its certificate of incorporation. The b-corp can subsequently add a specific public benefit or change or delete an existing one, but must do so by a minimum status vote, which is described below.
§§ 2, 4, 5, & 8 — CREATING A BENEFIT CORPORATION
The bill (1) allows parties to establish a new corporation as a b-corp or transform a traditional corporation into a b-corp and (2) specifies how they must do so. By law, parties may establish a new corporation by filing a certificate of incorporation with the secretary of the state. Under the bill, those establishing a new b-corp must also file with the secretary, but indicate in the certificate that the corporation is a b-corp.
An existing corporation can change itself into a b-corp by amending its certificate of incorporation to that effect, an action that requires its board's approval and a minimum status vote.
§ 2 — LEGACY PRESERVATION PROVISION
The bill allows b-corps to adopt a “legacy preservation provision” (LPP), a legal device ensuring that their assets continue to serve a public purpose when a b-corp dissolves. A b-corp may add an LPP to its certificate of incorporation, but must wait at least two years after its formation before doing so. Under the bill, the LPP must require a dissolving b-corp to distribute its assets to one or more federal-tax-exempt charitable organizations or other b-corps with an LPP.
An LPP's adoption must be unanimously approved by the b-corp's shareholders for all shares in all classes or series, regardless of any limitations its bylaws or certificate of incorporation impose on any shareholder's voting or consent powers. The adoption must also comply with the BCL's procedures for amending certificates of incorporations (CGS §§ 33-795 –803).
§ 2 — MINIMUM STATUS VOTING REQUIREMENT
“Minimum status vote” refers to a voting requirement that must be met before certain actions can be taken under the bill. As discussed below, these actions include changing a traditional corporation into a b-corp, amending an existing b-corp's certificate of incorporation, and entering into mergers and share exchanges involving b-corps and traditional corporations or non-corporate entities, such as partnerships.
If the action involves two or more b-corps or a b-corp and a traditional corporation, the minimum status vote for both types of corporations is a vote of the shareholders in each class or series of shares, regardless of any limitations the bylaws or the certificate of incorporation place on their consent rights. The action must be approved by at least two-thirds of the shareholders in each class, series, or voting group as defined in the b-corp's certificate of incorporation, BCL, or the bill. This vote is in addition to any other approvals, votes, or consents required by the corporation's originating documents, bylaws, board resolutions or orders, or BCL.
If the action involves a merger between a b-corp and a partnership, limited liability company, or other noncorporate business entity, the minimum status vote for the business entity is a two-thirds vote of all equity holders in any series or class entitled to a distribution from the entity, regardless of any limitation on their voting or consent rights.
The bill's requirements for mergers and consolidations vary depending on (1) whether a b-corp is subject to an LPP or (2) the types of business entities involved in the transaction.
§ 7 — Rules Affecting B-Corps
Under the bill, a b-corp's ability to merge or exchange shares with another corporation depends on whether the b-corp is subject to an LPP. A b-corp subject to an LPP may merge or exchange shares with another b-corp that is also subject to an LPP. Specifically, the b-corp may:
1. merge with another corporate entity if the surviving entity is a b-corp with an LPP,
2. convert its shares into the right to receive the shares of another b-corp with an LPP, or
3. exchange its shares for those of another b-corp with an LPP.
Each of these transactions must be approved by a minimum status vote.
The bill allows b-corps that are not subject to an LPP to engage in the same transactions, but only if they do not result in or involve another b-corp. The merger or share exchange plan must be approved by a minimum status vote.
§ 5 — Rules Affecting Traditional Corporations and Other Business Entities
Under the bill, a traditional corporation may merge or consolidate with a b-corp if the corporation's shareholders approve the action by a minimum status vote. Such a vote is specifically required for a merger or consolidation that would (1) result in the b-corp being the surviving entity or (2) exchange the traditional corporation's shares for the b-corp's.
The bill also allows noncorporate entities to merge or consolidate with b-corps. In these cases, the bill specifies that an entity's equity owners are entitled to appraisal rights under the same procedures BCL provides to the shareholders of a traditional corporation.
§§ 6 & 7 — DISPOSING ASSETS
The bill allows b-corps to sell, lease, exchange, or otherwise dispose of their assets, but the requirements for doing so vary depending on whether a b-corp is subject to an LPP. A b-corp with an LPP cannot take any of these actions unless (1) the assets are going to a charitable organization or another b-corp subject to an LPP and (2) the disposition is approved by a minimum status vote.
A b-corp without an LPP needs such a vote only for dispositions that would leave it without any significant business activity.
In both instances, the bill's disposition requirements do not apply to sales, leases, other transactions that occur during a b-corp's regular business operation.
§§ 2 & 6 — TERMINATING A BENEFIT CORPORATION
As noted above, a b-corp with an LPP cannot dissolve without distributing its assets to one or more charitable organizations or b-corps. A b-corp without an LPP may terminate its status as a b-corp by amending its certificate of incorporation to delete the provision that identifies it as a b-corp. This amendment must be approved by a minimum status vote.
BENEFIT CORPORATION DIRECTORS AND OFFICERS
Decision-Making Factors. The bill specifies the interest and factors a member of a b-corp's board of directors must consider when discharging his or her duties individually or collectively as a board or committee member. A director must specifically consider how a corporate action affects:
1. the b-corp's shareholders;
2. the employees and workforce of the b-corp and its subsidiaries and suppliers;
3. the interests of the b-corp's customers as beneficiaries of the b-corp's general and specific public benefits;
4. community and societal factors, including those of each community in which offices or facilities of the b-corp or its subsidiaries or suppliers are located;
5. the local and global environment;
6. the short- and long-term interests of the b-corp, including benefits that may accrue to it from its long-term plans and, in the case of a merger, the possibility that these interests may best be served by its continued independence; and
7. the b-corp's ability to accomplish its general and specific public benefit purposes.
(By law, the directors of a traditional corporation can consider similar factors in certain situations, such as merger proposal.)
The directors, individually or collectively, may also consider (1) any other interests BCL allows them to consider in particular circumstances and (2) other pertinent factors or interests of any other group they deem appropriate.
When considering the bill's factors, directors do not have to give priority to the interest of any particular person or group unless the certificate of incorporation requires them to do so.
Immunities. Under the bill, the directors are not violating their duties under BCL when they consider the factors described above. Their authority to consider these factors is in addition to their authority to consider those factors specified in BCL.
The bill further specifies the conditions under which the directors are not personally liable to the b-corp in a direct or derivative suit under the BCL. Under the bill, they are not liable for any act or omission they made or failed to make while performing their duties as a director in compliance with the bill and the BCL. Nor are they liable for the b-corp's failure to create a general public benefit or any of its specific public benefits.
Lastly, under the bill, b-corp directors have no duty to a person whose only connection to the b-corp is that he or she benefits from the b-corp's creation of the general or specific public benefits.
§ 11 — Officers
The bill requires b-corp officers to consider the same interests and factors that directors must consider if (1) they have discretion to act on the matter under consideration and (2) it reasonably appears to an officer that the matter could materially affect the b-corp's ability to create its general or specific public benefit. A b-corp officer acting in these circumstances does not violate the BCL.
§§ 2 & 10 — BENEFIT DIRECTOR
Under the bill, the board of directors of a publically traded b-corp must, and the board of all other b-corps may, designate a benefit director responsible for preparing the b-corp's annual report and performing the other duties the b-corp's bylaws, resolutions, and orders specifically assign to the benefit director. Those duties, plus the powers, rights, and immunities these documents assign to the benefit director, are in addition to those this director has as a board member.
Under the bill, a benefit director can be designated in one of two ways. The board may elect one of its members to that position and may remove the member according the BCL's provisions for electing or removing board members. A benefit director may also be anyone, including a nonboard member, authorized to manage the b-corp's business and affairs under a shareholder agreement that complies with the BCL. The agreement must specifically assign to this person some or all of the powers, duties, and rights the bill assigns to a benefit director.
Whether designated by the board or under a shareholder agreement, a benefit director must not have a “material relationship” with the b-corp. Under the bill, this generally means that the director may not:
1. be or have been an employee of the b-corp or a subsidiary (other than as a benefit officer) within three years of serving as benefit director;
2. be immediately related to any current or recent executive officer of the b-corp or a subsidiary; or
3. generally (a) own 5% or more of the b-corp, (b) own 5% or more of an entity that owns 5% or more of the b-corp, or (c) hold an controlling position (such as a manager) in such entity.
A benefit director's current or previous service as the b-corp's or subsidiary benefit officer (see below) does not constitute a material relationship to the b-corp or its subsidiary. The b-corp's certificate of incorporation or bylaws may require additional, consistent qualifications of the benefit director.
The bill protects a benefit director's acts and omissions to the same extent it generally protects those of the b-corp's directors. But the bill protects a benefit director from personal liability to a greater extent than it does the other directors. Under the bill, the benefit director is liable only for self-dealing, willful misconduct, or a knowing violation of the law.
§§ 2, 10, & 12 — BENEFIT OFFICERS
The bill allows a b-corp to designate a benefit officer to prepare its annual report and exercise all the powers and duties related to its general and specific public benefits, as specified in the bylaws or the board's orders or resolutions authorizing the creation of such benefits. The bill gives the benefit officer the same duties and affords him or her the same immunities it affords to the b-corp's other officers. A benefit director may simultaneously serve as the benefit officer without forming a material relationship with the b-corp.
§§ 2 & 13 — BENEFIT ENFORCEMENT PROCEEDING
Under the bill, a b-corp or its shareholders may bring a benefit enforcement proceeding for (1) failing to create a general public benefit or specific public benefit or (2) violating the shareholders' appraisal rights (see below). Parties may bring a proceeding to order a b-corp to undertake an action or refrain from taking one, but not for money damages.
The b-corp can start a benefit enforcement proceeding directly against its directors or officers. One or more of its shareholders can also start one against the b-corp's directors, officers, or other shareholders (derivative action) if they (1) generally own at least 5% of the b-corp's shares when they start the suit or (2) own at least 10% of the entity that owns or controls the b-corp as a subsidiary. Under the bill, the beneficial owners of shares held in a voting trust or by a nominee may also start a proceeding.
Other groups may also start a proceeding if the b-corp's bylaws or certificate of incorporation allows them to do so.
§§ 10 & 14 — Content
The bill requires a b-corp to prepare an annual benefit report for its shareholders and the public. The report must contain a narrative description of:
1. how the b-corp pursued its general public benefit purpose during the year and the extent to which a general public benefit was created;
2. how the b-corp pursued its chosen specific public benefit purposes, if any, and the extent to which any specific public benefit was created;
3. any circumstances that have hindered the b-corp's creation of general public benefit or any chosen specific public benefit; and
4. the process and rationale for selecting or changing the third-party standard used to prepare the benefit report.
The report must also provide an assessment of the b-corp's overall social and environmental performance against a third-party standard (see below), either:
1. applied consistently with any application of that standard in prior benefit reports or
2. accompanied by an explanation of the reasons for any inconsistent application or the change to that standard from the one used in the most recent prior report.
The report must also provide the benefit director's opinion regarding:
1. whether the b-corp acted in accordance with its general public benefit purpose and any chosen specific public benefit purposes in all material respects during the reporting period,
2. whether the directors and officers complied with their duties under the bill, and
3. if they failed to do so, how.
The report must include a statement regarding any connection between the organization that established the third-party standard and the b-corp. This requirement applies to a connection between the organization's directors, officers, or any holder of 5% or more of the voting power or capital interests in the organization, and the b-corp's directors, officers, or anyone holding at least 5% of the b-corp's outstanding shares. It also includes any financial or governance relationship that might materially affect the third-party standard's credibility.
The report must provide each director's annual compensation for serving as a director and the names and mailing addresses of the benefit director and benefit officer, if any.
Lastly, if the benefit director or officer resigned, was removed, or refused to be reelected, the report must include any written statement or correspondence from that director or officer concerning the circumstances of his or her departure.
§§ 2 & 14 — Third-Party Standard
Under the bill, a b-corp's performance must be annually assessed against a recognized third-party standard for defining, reporting, and assessing corporate social and environmental performance. The standard must address the b-corp's impact on its employees, workforce, subsidiaries, and shareholders; its customers; the communities in which it operates; and the local and global environment. It must have been developed by an entity that has no “material relationship” with the b-corp (see § 3 & 10 — Benefit Director above). The entity that developed the standard must allow the public to know:
1. the identity of the people and organization that develop and control the process for making changes to the standard,
2. the process for revising the standard,
3. how changes to the organization's governing body are made, and
4. where the entity derives its revenue and financial support so that the public can identify any potential conflicts of interests.
Under the bill, a b-corp cannot select or change its third-party standard without the approval of (1) at least a majority of its directors or (2) approval or written consent of that portion of directors or shareholders who must, under the bylaws or certificate of incorporation, approve such actions.
§ 15 — Distribution
The b-corp must send a copy of the annual report to each shareholder within 120 days of the fiscal year's end or together with any other annual report it provides to shareholders, whichever is earlier. The b-corp must post and maintain each annual report publically on its website, but may omit its directors' compensation or any financial, confidential, or proprietary information. If the b-corp does not have a website, it must provide a copy of its most recent report, with compensation, financial, confidential, and proprietary information omitted, to anyone who requests a copy, at no charge.