BILL NUMBER: AB 361 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 27, 2011
AMENDED IN ASSEMBLY MARCH 14, 2011
INTRODUCED BY Assembly Member Huffman
(Principal coauthor: Assembly Member Blumenfield)
( Coauthor: Senator Leno
)
FEBRUARY 14, 2011
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. 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 assessed against
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,
board of directors 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 statement
indicating whether, in the board's opinion, the benefit corporation
failed to pursue its general public benefit and any specific public
benefit, a description of the ways in which the benefit
corporation pursued a general public benefit and any
specific public benefit and those benefits, the
extent to which those benefits were created, and the process and
rationale for selecting the 3rd-party standard used to
prepare the benefit reports, 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.
Vote: majority. Appropriation: no. Fiscal committee: 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)
(b) "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 relating to any 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.
(3) Failure of the benefit corporation to deliver or post an
annual benefit report as required by Section 14630.
(e)
(c) "General public benefit" means a material positive
impact on society and the environment, taken as a whole, as
measured by assessed against 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)
(d) 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)
(e) "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"
(f) "Subsidiary" of a person
means an association entity in which
the person owns beneficially or of record 50 percent or more of the
outstanding equity interests. For purposes of this definition, a
percentage of ownership in an entity shall be calculated as if all
outstanding rights to acquire equity interests in the
entity had been exercised.
(j)
(g) "Third-party standard" means a standard for
defining, reporting, and assessing overall corporate social and
environmental performance to which both all
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 considerations listed in
paragraphs (2) to (5), inclusive, of subdivision (b) of Section
14620.
(2) The standard is developed by an organization that is
independent of entity that has no material financial
relationship with the benefit corporation or any of its
subsidiaries 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
entity are representatives of any of the following:
(i) An association Associations of
businesses operating in a specific industry, the performance of whose
members is measured by the standard.
(ii) Businesses from a specific industry or an association of
businesses in that industry.
(ii)
(iii) Businesses whose performance is measured
by assessed against the standard.
(B) The organization entity is not
materially financed by an association or business described in
subparagraph (A).
(3) The standard is developed by a person
an entity 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
entity 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 entity , 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. If the amendment is
adopted, a shareholder of the corporation may, by complying with
Chapter 13 (commencing with Section 1300) of Division 1, require the
corporation to purchase at their fair market value the shares owned
by the shareholder which are dissenting shares as defined in
subdivision (b) of Section 1300 in accordance with the procedures in
that chapter.
(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. If the
amendment is adopted, a shareholder of the corporation may, by
complying with Chapter 13 (commencing with Section 1300) of Division
1, require the corporation to purchase at their fair market value the
shares owned by the shareholder which are dissenting shares as
defined in subdivision (b) of Section 1300 in accordance with the
procedures in that chapter.
(b) If a reorganization (Section 181) 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 approved
by at least the minimum status vote.
(c) If a benefit corporation is the converting corporation
(Section 1150) in a conversion (Section 161.9), the conversion shall
not be effective unless the conversion is approved by at least the
minimum status vote.
(d) A sale, lease, conveyance, exchange, transfer, or other
disposition of all or substantially all of the assets of a benefit
corporation, unless the transaction is in the usual and ordinary
course of business of the benefit corporation, shall not be effective
unless the transaction is approved by at least the minimum status
vote. If the transaction is approved, a shareholder of the
corporation may, by complying with Chapter 13 (commencing with
Section 1300) of Division 1, require the corporation to purchase at
their fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b) of Section 1300 in
accordance with the procedures in that chapter.
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) A director shall perform the duties of a director
including duties as a member of any committee of the board upon
which the director may serve, in good faith, in a manner the director
believes to be in the best interests of the benefit corporation and
with that care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar
circumstances.
(b) 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)
(c) In discharging their respective duties, the persons
described in subdivision (a) may consider the impacts of
any action or proposed action upon (b) may consider
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. person or group.
(c)
(d) In discharging their respective duties, the persons
described in subdivision (a) shall not be required to give priority
to any particular factor or the interests of any
particular person or group referred to in subdivision (a) or
(b) over (b) or (c) over any other factor or
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.
(e) In performing the duties of a director, a director shall be
entitled to rely on information, opinions, reports, or statements,
including financial statements and other financial data, in each case
prepared or presented by any of the following:
(1) One or more officers or employees of the benefit corporation
whom the director believes to be reliable and competent in the
matters presented.
(2) Counsel, independent accountants, or other persons as to
matters that the director believes to be within those persons'
professional or expert competence.
(3) A committee of the board upon which the director does not
serve, as to matters within its designated authority, which committee
the director believes to merit confidence, so long as, in any of
those cases, the director acts in good faith, after reasonable
inquiry when the need therefor is indicated by the circumstances and
without knowledge that would cause that reliance to be unwarranted.
(2) Any
(f) A director shall not be
liable for monetary damages under this part for any failure of
the benefit corporation to create a general or specific public
benefit.
(g) A person who performs the duties of a director in accordance
with this part shall not be liable for monetary damages for any
alleged failure to discharge the person's obligations as a director.
(h) In addition to the limitations provided in subdivisions (f)
and (g), the liability of a director for monetary damages may be
eliminated or limited in a benefit corporation's articles to the
extent provided in paragraph (10) of subdivision (a) of Section 204.
(f)
(i) 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.
(j) A director of a foreign corporation that is subject to Section
2115 shall not be subject to Section 309 and shall be subject
instead to this section if the director of the foreign corporation is
subject to duties under its articles of incorporation, bylaws, or
the law of its jurisdiction of incorporation similar to the duties of
directors under this section.
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 shall
prepare for inclusion in the annual benefit report to
shareholders required by Section 14630, a statement indicating
whether, in the opinion of the benefit director
board of directors , the benefit corporation
acted in accordance with failed to pursue 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. covered by the report.
(b) If, in the opinion of the board of directors, the benefit
corporation failed to pursue its general, and any specific, public
benefit purpose, the statement required by subdivision (a) shall
include a description of the ways in which the benefit corporation
failed to pursue its general, and any specific, public benefit
purpose.
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) (b) 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 liable for monetary
damages under this part for any 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.
14623. (a) 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 under this chapter 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 entity of which the benefit
corporation is a subsidiary.
(D) Other persons as have been specified in the articles or bylaws
of the benefit corporation.
(c) A benefit corporation shall not be liable for monetary damages
under this part for any failure of the benefit corporation to create
a general or specific public benefit.
(d) If the court in a benefit enforcement proceeding finds that a
failure to comply with this part was without justification, the court
may award an amount sufficient to reimburse the plaintiff for the
reasonable expenses incurred by the plaintiff, including attorney's
fees and expenses, in connection with the benefit enforcement
proceeding.
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 process and rationale for selecting the third-party
standard used to prepare the benefit report.
(A)
(B) 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)
(C) 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)
(D) 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. The
assessment does not need to be audited or certified by a third
party.
(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)
(3) 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)
(4) The statement required by Section 14621.
(5) 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.
14631. All certificates representing shares of a benefit
corporation shall contain, in addition to any other statements
required by the General Corporation Law (Division 1 (commencing with
Section 100)), the following conspicuous language on the face of the
certificate:
"This entity is a benefit corporation organized under Part 13
(commencing with Section 14600) of Division 3 of Title 1 of the
California Corporations Code."