BILL NUMBER: AB 361 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 14, 2011
INTRODUCED BY Assembly Member Huffman
( Principal coauthor: Assembly Member
Blumenfield )
FEBRUARY 14, 2011
An act to amend Section 25600 of the Corporations Code,
relating to corporations. An act to add Part 13
(commencing with Section 14600) to Division 3 of Title 1 of the
Corporations Code, relating to benefit corporations.
LEGISLATIVE COUNSEL'S DIGEST
AB 361, as amended, Huffman. Department of Corporations.
Benefit corporations.
Existing law, the General Corporation Law, authorizes and
regulates the formation and governance of general corporations. The
Nonprofit Corporation Law authorizes the formation and governance of
nonprofit public benefit corporations, nonprofit mutual benefit
corporations, and nonprofit religious corporations, and specifies the
respective purposes for which those corporations may lawfully be
formed. Existing law specifies the duties of corporate directors and
the rights of shareholders. Existing law does not provide for the
formation and governance of benefit corporations.
This bill would authorize and regulate the formation and
governance of a new form of corporate entity known as a benefit
corporation. The bill would also permit an existing general
corporation to become a benefit corporation by amendment to its
articles of incorporation, as specified, adopted by at least a
minimum status vote, as defined, and would permit a corporation to
become a benefit corporation through a merger, as specified.
This bill would define "benefit corporation" to mean a corporation
that has been organized under the General Corporation Law and has
elected to become subject to the provisions of the bill, as
specified. The bill would provide that a benefit corporation may be
formed for the purpose of creating a general public benefit, defined
as a material positive impact on society and the environment, taken
as a whole, as measured by a 3rd-party standard, as defined, that
satisfies certain requirements. The bill would also provide that a
benefit corporation may identify one or more specific public
benefits, as defined, as an additional purpose of the corporation,
including, without limitation, providing low-income or underserved
individuals or communities with beneficial products or services,
promoting economic opportunity for individuals or communities beyond
the creation of jobs in the ordinary course of business, preserving
the environment, and improving human health.
This bill would require directors to consider the impacts of any
action or proposed action upon specified considerations, including,
among others, the shareholders and employees, and of customers who
are beneficiaries of the general or specific public benefit purposes,
and the environment, and would allow directors to consider the
impacts of those actions on, among other things, the resources,
intent, and conduct of any person seeking to acquire control of the
benefit corporation.
This bill would require a benefit corporation to designate a
benefit director, as defined, and would authorize a benefit
corporation to designate a benefit officer, as defined. The bill
would require the benefit officer, or, in the absence of a benefit
officer, the benefit director, to prepare a specified statement
relating to the public benefit purposes of the corporation. The bill
would require the benefit corporation to prepare an annual benefit
report to include, among other things, a description of the ways in
which the benefit corporation pursued a general public benefit and
any specific public benefit and the extent to which those benefits
were created, and would require the benefit corporation to file with
the Secretary of State a copy of the benefit report together with a
filing fee in a specified amount to cover the reasonable regulatory
costs associated with maintaining those filings.
This bill would include provisions governing the fiduciary duty
and liability of an officer or director of a benefit corporation. The
bill would provide that the duties of a director or officer, and the
general and any specific public benefit purpose of a benefit
corporation, may be enforced only in a benefit enforcement
proceeding, as defined, that would be permitted to be commenced or
maintained only as specified.
Existing law establishes the Department of Corporations in the
Business, Transportation and Housing Agency and makes the
Commissioner of Corporations the chief officer of the department.
This bill would make a nonsubstantive, technical change to that
provision.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Part 13 (commencing with Section 14600)
is added to Division 3 of Title 1 of the Corporations
Code , to read:
PART 13. BENEFIT CORPORATIONS
CHAPTER 1. PRELIMINARY PROVISIONS
14600. (a) This part shall be applicable to all benefit
corporations.
(b) The existence of a provision of this part shall not of itself
create any implication that a contrary or different rule of law is or
would be applicable to a business corporation that is not a benefit
corporation. This part shall not affect any statute or rule of law
that is or would be applicable to a corporation that is not a benefit
corporation.
(c) The provisions of the General Corporation Law (Division 1
(commencing with Section 100)) shall apply to benefit corporations,
except where those provisions are in conflict with or inconsistent
with the provisions of this part.
14601. As used in this part:
(a) "Benefit corporation" means a corporation organized under the
General Corporation Law that has elected to become subject to this
part and whose status as a benefit corporation has not been
terminated as provided in this part.
(b) "Benefit director" means the director designated as the
benefit director of a benefit corporation as provided in subdivision
(a) of Section 14621.
(c) "Benefit enforcement proceeding" means a claim or action
brought directly by a benefit corporation, or derivatively on behalf
of a benefit corporation, against a director or officer for either of
the following:
(1) Failure to pursue the general public benefit purpose of the
benefit corporation or any specific public benefit purpose set forth
in its articles.
(2) Violation of a duty or standard of conduct imposed on a
director pursuant to this part.
(d) "Benefit officer" means the officer of a benefit corporation,
if any, designated as the benefit officer as provided in Section
14623.
(e) "General public benefit" means a material positive impact on
society and the environment, taken as a whole, as measured by a
third-party standard, from the business and operations of a benefit
corporation.
(f) "Independent" means that a person has no material relationship
with a benefit corporation or any of its subsidiaries. Serving as a
benefit director or benefit officer does not, in itself, make a
person not independent. A material relationship between a person and
a benefit corporation or any of its subsidiaries shall be
conclusively presumed to exist if any of the following apply:
(1) The person is, or has been within the last three years, an
employee of the benefit corporation or any of its subsidiaries, other
than as a benefit officer.
(2) 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 any of its
subsidiaries.
(3) The person, or an association of which the person is a
director, officer, or other manager or in which the person owns
beneficially or of record 5 percent or more of the outstanding equity
interests, owns beneficially or of record 5 percent or more of the
outstanding shares of the benefit corporation.
(g) Subject to subdivision (k), "minimum status vote" means that,
in addition to any other approval or vote required by Division 1
(commencing with Section 100) or the articles of incorporation, both
of the following shall apply:
(1) The shareholders of every class or series shall be entitled to
vote on the corporate action regardless of any limitation stated in
the articles or bylaws on the voting rights of any class or series.
(2) The corporate action shall be approved by the vote of the
shareholders of each class or series entitled to cast at least
two-thirds of the votes that all shareholders of the class or series
are entitled to cast on that action.
(h) "Specific public benefit" includes all of the following:
(1) Providing low-income or underserved individuals or communities
with beneficial products or services.
(2) Promoting economic opportunity for individuals or communities
beyond the creation of jobs in the ordinary course of business.
(3) Preserving the environment.
(4) Improving human health.
(5) Promoting the arts, sciences, or advancement of knowledge.
(6) Increasing the flow of capital to entities with a public
benefit purpose.
(7) The accomplishment of any other particular benefit for society
or the environment.
(i) Subject to subdivision (k), "subsidiary" of a person means an
association in which the person owns beneficially or of record 50
percent or more of the outstanding equity interests.
(j) "Third-party standard" means a standard for defining,
reporting, and assessing overall corporate social and environmental
performance to which both of the following apply:
(1) The standard is a comprehensive assessment of the impact of
the business and the business's operations upon the consideration
listed in Section 14620.
(2) The standard is developed by an organization that is
independent of the benefit corporation and that satisfies both of the
following requirements:
(A) Not more than one-third of the members of the governing body
of the organization are representatives of either of the following:
(i) An association of businesses operating in a specific industry,
the performance of whose members is measured by the standard.
(ii) Businesses whose performance is measured by the standard.
(B) The organization is not materially financed by an association
or business described in subparagraph (A).
(3) The standard is developed by a person that does both of the
following:
(A) Accesses necessary and appropriate expertise to assess overall
corporate social and environmental performance.
(B) Uses a balanced multistakeholder approach, including a public
comment period of at least 30 days to develop the standard.
(4) All of the following information regarding the standard is
publicly available:
(A) The criteria considered when measuring the overall social and
environmental performance of a business.
(B) The relative weightings assigned to the criteria described in
subparagraph (A).
(C) The identity of the directors, officers, any material owners,
and the governing body of the organization that developed, and
controls revisions to, the standard.
(D) The process by which revisions to the standard and changes to
the membership of the governing body described in subparagraph (C)
are made.
(E) An accounting of the sources of financial support for the
organization, with sufficient detail to disclose any relationships
that could reasonably be considered to present a potential conflict
of interest.
(k) For purposes of the definitions of "independent" in
subdivision (f) and "subsidiary" in subdivision (i), a percentage of
ownership in an association shall be calculated as if all outstanding
rights to acquire equity interests in the association had been
exercised.
14602. A benefit corporation shall be formed in accordance with
Chapter 2 (commencing with Section 200) of Division 1 except that the
articles shall also state that the corporation is a benefit
corporation.
14603. (a) A general corporation may become a benefit corporation
under this part by amending the corporation's articles so that the
articles contain a statement that the corporation is a benefit
corporation. The amendment shall not be effective unless it is
adopted by at least the minimum status vote.
(b) If a corporation that is not a benefit corporation is a party
to a merger reorganization or is the acquired corporation in an
exchange reorganization, and the surviving corporation in the
reorganization is to be a benefit corporation, then the
reorganization shall not be effective unless the reorganization is
adopted by the corporation by at least the minimum status vote.
14604. (a) A benefit corporation may terminate its status as a
benefit corporation and cease to be subject to this part by amending
the corporation's articles to delete the provision required by
Section 14602. The amendment shall not be effective unless the
amendment is adopted by at least the minimum status vote.
(b) If a reorganization would have the effect of terminating the
status of a general corporation as a benefit corporation, the
reorganization shall not be effective unless the reorganization is
adopted by at least the minimum status vote.
CHAPTER 2. CORPORATE PURPOSES
14610. (a) A benefit corporation shall have the purpose of
creating a general public benefit. This purpose is in addition to,
and may be a limitation on, the corporation's purpose under Section
206 and any specific purpose set forth in its articles in accordance
with subdivision (b).
(b) The articles of a benefit corporation may identify one or more
specific public benefits that shall be the purpose or purposes of
the benefit corporation to create in addition to its purposes under
Section 206 and subdivision (a). The identification of a specific
public benefit under this subdivision does not limit the obligation
of a benefit corporation to create any other general public benefit.
(c) The creation of general and specific public benefit as
provided in subdivisions (a) and (b) shall be deemed to be in the
best interests of the benefit corporation.
(d) A benefit corporation may amend, its articles to add, amend,
or delete the identification of a specific public benefit that shall
be the purpose of the benefit corporation to create. The amendment
shall not be effective unless the amendment is adopted by at least
the minimum status vote.
CHAPTER 3. ACCOUNTABILITY
14620. (a) In discharging their respective duties, and in
considering the best interests of the benefit corporation, the board
of directors, committees of the board, and individual directors of a
benefit corporation shall consider the impacts of any action or
proposed action upon all of the following:
(1) The shareholders of the benefit corporation.
(2) The employees and workforce of the benefit corporation and its
subsidiaries and suppliers.
(3) The interests of customers of the benefit corporation as
beneficiaries of the general or specific public benefit purposes of
the benefit corporation.
(4) Community and societal considerations, including those of any
community in which offices or facilities of the benefit corporation
or its subsidiaries or suppliers are located.
(5) The local and global environment.
(6) The short-term and long-term interests of the benefit
corporation, including benefits that may accrue to the benefit
corporation from its long-term plans and the possibility that these
interests may be best served by retaining control of the benefit
corporation rather than selling or transferring control to another
entity.
(7) The ability of the benefit corporation to accomplish its
general, and any specific, public benefit purpose.
(b) In discharging their respective duties, the persons described
in subdivision (a) may consider the impacts of any action or proposed
action upon any of the following:
(1) The resources, intent, and conduct, including past, stated,
and potential conduct, of any person seeking to acquire control of
the corporation.
(2) Any other pertinent factors or the interests of any other
group that any of the persons described in subdivision (a) deems
appropriate.
(c) In discharging their respective duties, the persons described
in subdivision (a) shall not be required to give priority to the
interests of any particular person or group referred to in
subdivision (a) or (b) over the interests of any other person or
group unless the benefit corporation has stated its intention to give
priority to interests related to a specific public benefit purpose
identified in the articles.
(d) In discharging its consideration of impacts as provided in
subdivision (a), the board of directors, committees of the board, and
individual directors may rely exclusively on their personal or
collective understanding of those impacts or they may additionally
rely on the information, opinions, reports, or statements specified
in subdivision (b) of Section 309. The consideration of those impacts
shall not constitute a violation of Section 309.
(e) A director shall have no liability for any of the following:
(1) Any action taken as a director, if the director performed the
duties of his or her office in compliance with Section 309 and this
section.
(2) Any failure of the benefit corporation to create a general or
specific public benefit.
(f) A director shall not have a fiduciary duty to a person that is
a beneficiary of the general or specific public benefit purposes of
a benefit corporation arising from the status of the person as a
beneficiary.
14621. (a) The board of directors of a benefit corporation shall
include one director who shall be designated the "benefit director"
and shall have, in addition to all of the powers, duties, rights, and
immunities of the other directors of the benefit corporation, the
powers, duties, rights, and immunities provided in this chapter.
(b) The benefit director shall be elected, and may be removed, in
the manner provided by Chapter 3 (commencing with Section 300) of
Division 1, and shall be an individual who is independent. The
benefit director may serve as the benefit officer while also serving
as the benefit director. The articles or bylaws of a benefit
corporation may prescribe additional qualifications of the benefit
director not inconsistent with this subdivision.
(c) (1) The benefit director shall prepare, and the benefit
corporation shall include in its annual benefit report to
shareholders required by Section 14630, a statement indicating
whether, in the opinion of the benefit director, the benefit
corporation acted in accordance with its general, and any specific,
public benefit purpose in all material respects during the period
covered by the report and whether the directors and officers complied
with Sections 14620 and 14622, respectively.
(2) If, in the opinion of the benefit director, the benefit
corporation or its directors or officers failed to act in accordance
with the standards described in paragraph (1), then the statement of
the benefit director shall include a description of the ways in which
the benefit corporation or its directors or officers failed to act
in accordance with those standards.
(d) The acts of an individual in the capacity of a benefit
director shall constitute for all purposes acts of that individual in
the capacity of a director of the benefit corporation.
(e) If a shareholders' agreement provides that the powers and
duties of the board of directors shall be exercised or performed by
the shareholders, then the bylaws of the benefit corporation shall
provide that one of the shareholders who performs the duties of a
director shall have the powers, duties, rights, and immunities of a
benefit director.
(f) Regardless of whether the bylaws of a benefit corporation
include a provision eliminating or limiting the personal liability of
directors as authorized by paragraph (10) of subdivision (a) of
Section 204, a benefit director shall not be personally liable for
any act or omission in the capacity of a benefit director unless the
act or omission constitutes self-dealing, willful misconduct, or a
knowing violation of law.
14622. (a) Each officer of a benefit corporation shall consider
the interests and factors described in Section 14620 in the manner
provided in that section when either of the following applies:
(1) The officer has discretion to act with respect to a matter.
(2) It reasonably appears to the officer that the matter may have
a material effect on any of the following:
(A) The creation of a general or specific public benefit by the
benefit corporation.
(B) Any of the interests or factors referred to in subdivision (a)
of Section 14620.
(b) The consideration by an officer of interests and factors in
the manner described in subdivision (a) shall not constitute a
violation of the duties of the officer.
(c) An officer shall not be personally liable for monetary damages
for either of the following:
(1) Any action taken as an officer if the officer performed the
duties of the position in compliance with this section.
(2) Any failure of the benefit corporation to create a general or
specific public benefit.
(d) An officer shall not have a fiduciary duty to a person that is
a beneficiary of the general or specific public benefit purposes of
a benefit corporation arising from the status of the person as a
beneficiary.
14623. (a) A benefit corporation may designate an officer as the
"benefit officer" who shall have the authority to perform, and shall
perform, the duties in the management of the benefit corporation
relating to the purpose of the corporation to create a general or
specific public benefit as may be provided by the bylaws or, in the
absence of controlling provisions in the bylaws, as may be determined
by resolutions or orders of the board of directors.
(b) If a benefit corporation has a benefit officer, the duties of
the benefit officer shall include preparing the benefit report
required by Section 14630.
14624. (a) The duties of a director or officer under this
chapter, and the general and any specific public benefit purpose of a
benefit corporation, may be enforced only 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 the
duties of directors and officers under this chapter or with respect
to the general or any specific public benefit purpose of the benefit
corporation except in a benefit enforcement proceeding.
(b) A benefit enforcement proceeding may be commenced or
maintained only as follows:
(1) Directly by the benefit corporation.
(2) Derivatively by any of the following:
(A) A shareholder.
(B) A director.
(C) A person or group of persons that owns beneficially or of
record 5 percent or more of the equity interests in an association of
which the benefit corporation is a subsidiary.
(D) Other persons as have been specified in the articles or bylaws
of the benefit corporation.
CHAPTER 4. TRANSPARENCY
14630. (a) A benefit corporation shall deliver to each
shareholder an annual benefit report including all of the following:
(1) A narrative description of all of the following:
(A) The ways in which the benefit corporation pursued a general
public benefit during the applicable year and the extent to which
that general public benefit was created.
(B) The ways in which the benefit corporation pursued any specific
public benefit that the articles state it is the purpose of the
benefit corporation to create and the extent to which that specific
public benefit was created.
(C) Any circumstances that have hindered the creation by the
benefit corporation of a general or specific public benefit.
(2) An assessment of the overall social and environmental
performance of the benefit corporation, prepared in accordance with a
third-party standard applied consistently with any application of
that standard in prior benefit reports or accompanied by an
explanation of the reasons for any inconsistent application.
(3) The name of the benefit director and the benefit officer, if
any, and the address to which correspondence to each of them may be
directed.
(4) The compensation paid by the benefit corporation during the
applicable year to each benefit director.
(5) The name of each person that owns 5 percent or more of the
outstanding shares of the benefit corporation, either beneficially,
to the extent known to the benefit corporation without independent
investigation, or of record.
(6) The statement of the benefit director described in subdivision
(c) of Section 14621.
(7) A statement of any connection between the entity that
established the third-party standard, or its directors, officers, or
material owners, and the benefit corporation, or its directors,
officers, and material owners, including any financial or governance
relationship that might materially affect the credibility of the
objective assessment of the third-party standard.
(b) The benefit report shall be sent annually to each shareholder
within 120 days following the end of the fiscal year of the benefit
corporation or at the same time that the benefit corporation delivers
any other annual report to its shareholders.
(c) A benefit corporation shall post its most recent benefit
report on the public portion of its Internet Web site, if any, except
that the compensation paid to directors and any financial or
proprietary information included in the benefit report may be omitted
from the benefit report as posted on the Internet Web site.
(d) Concurrently with the delivery of the benefit report to
shareholders pursuant to subdivision (b), the benefit corporation
shall deliver a copy of the benefit report to the Secretary of State
for filing, except that the compensation paid to directors and any
financial or proprietary information included in the benefit report
may be omitted from the benefit report as filed in accordance with
this subdivision. The Secretary of State shall charge a fee not to
exceed seventy dollars ($70) for filing a benefit report to cover the
reasonable regulatory costs associated with maintaining those
filings.
SECTION 1. Section 25600 of the Corporations
Code is amended to read:
25600. There is in the state government, in the Business,
Transportation and Housing Agency a Department of Corporations, which
shall administer the provisions of this division. The chief officer
of the Department of Corporations is the Commissioner of
Corporations. The commissioner shall be appointed by the Governor and
shall hold office at the pleasure of the Governor. He or she shall
receive an annual salary as fixed in the Government Code. Within 15
days from the time of his or her appointment, the commissioner shall
take and subscribe to the constitutional oath of office and file it
in the office of the Secretary of State.
Whenever the term "Division of Corporations" is used in the law,
it shall mean the Department of Corporations.