BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 361
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          Date of Hearing:   May 18, 2011

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                    AB 361 (Huffman) - As Amended:  May 11, 2011 

          Policy Committee:                              JudiciaryVote:7-2

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:               

           SUMMARY  

          This bill,  as proposed to be amended  , authorizes and regulates 
          the formation and governance of a new form of corporate entity 
          known as a benefit corporation. Specifically, this bill:

          1)Stipulates that a benefit corporation is to be formed in 
            accordance with General Corporation Law (GCL), and states that 
            all provisions of the GCL apply to benefit corporations, 
            except where those provisions conflict or are inconsistent 
            with the provisions of this bill.

          2)Provides that a benefit corporation shall have the purpose of 
            creating a general public benefit (defined as a "material 
            positive impact on society and the environment") that may 
            exist in addition to, or be a limitation on, the corporation's 
            other purposes as set forth in its articles, and provides that 
            these articles may also identify one or more specific public 
            benefits, as defined, deemed to be in the best interests of 
            the benefit corporation.

          3)Requires the corporation to annually deliver to all 
            shareholders a benefit report and to include in this report a 
            statement indicating whether, in the opinion of the board of 
            directors, the benefit corporation failed to pursue its 
            general, and any specific, public benefit purpose in all 
            material respects during the period.

          4)Requires the benefit report to include an assessment of the 
            corporation's overall social and environmental performance 
            prepared in accordance with a third-party standard.

          5)Requires the corporation to post the benefit report on its 








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            website, and if it does not have a website, to provide a copy 
            to any person upon request without charge.

           FISCAL EFFECT  

          Minor one-time costs to the Secretary of State's Office to train 
          staff to accommodate the filing of a new type of corporation 
          with that Office.

           COMMENTS  

           1)Purpose  . According to the author, the California Corporations 
            Code lacks a framework for corporations to voluntarily 
            organize and operate with a greater public benefit purpose 
            than simply pursuing profit or a narrow objective of corporate 
            social responsibility. The author contends that the new form 
            of corporate entity proposed in this bill-a public benefit 
            corporation-would provide unprecedented flexibility to pursue 
            a higher corporate purpose of benefitting society or the 
            environment under higher standards of accountability and 
            transparency to shareholders seeking such flexibility. This 
            bill would regulate the formation and governance of benefit 
            corporations largely within the existing framework of the GCL 
            to minimize the extent to which the benefit corporation might 
            be treated differently than other general corporations. In 
            order to facilitate pursuit of the public benefit purpose, the 
            bill revises the fiduciary duty of the corporate directors of 
            a benefit corporation to clarify that such duty includes, but 
            does not preclude, consideration of both shareholder and 
            non-financial interests. Among other things, the bill provides 
            the directors of a benefit corporation specified legal 
            protection for actions to further the public benefit purpose, 
            even if they do not necessarily maximize shareholder value.

            This bill is sponsored by a nonprofit organization called B 
            Lab, who indicates it represents a network of over 100 
            businesses in California (and over 400 nationally) that 
            support efforts to create benefit corporations in the various 
            states in order to promote the mission of solving social and 
            environmental problems through business.

           2)Opposition  . The Corporations Committee of the Business Law 
            Section (CCBLS) of the State Bar, among several concerns, 
            argues that the bill is unclear as to whether corporate 
            directors have any fiduciary duty to act in the interest of 








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            the shareholders, particularly because Sec. 14620(d) of the 
            bill also provides that directors are not required to 
            prioritize the shareholders over any of the other particular 
            interests or factors that they must consider when evaluating 
            the impact of their actions. Opponents also contend that 
            shareholders of benefit corporations are "marginalized" 
            because there is little protection for shareholders "who do 
            not agree with the directors' unilaterally adopted fiduciary 
            duty standards." Supports counter that directors are still 
            required to act in the best interests of the corporation, as 
            well as the shareholders, but that the fiduciary duty is 
            redefined to include consideration of both shareholder and 
            non-financial interests-a central tenet of benefit 
            corporations.

            The California Association of Nonprofits (CAN) opposes largely 
            on the general principle that more information should be 
            gathered by the Legislature before it acts to authorize the 
            formation of a new and unprecedented corporate form, 
            particularly one that, in this case, CAN speculates may 
            "siphon off much-needed resources from effective existing 
            nonprofits by redirecting donor dollars from charitable 
            contributions to Ýbenefit] corporation investments."

           3)Other States  . According to the author, legislation to 
            authorize the formation of benefit corporations has already 
            been signed into law in Maryland, Vermont, New Jersey, and 
            Virginia, and is currently under consideration in Hawaii, New 
            York, North Carolina, Pennsylvania, and Colorado.

           4)Prior Legislation  . SB 1463 (DeSaulnier) of 2010, which created 
            a new form of corporate entity known as a Flexible Purpose 
            Corporation (FPC) in order to authorize corporations to 
            participate in designated for-profit and not-for-profit 
            activities, was referred to the Senate Judiciary Committee, 
            but was not heard. 

           5)Related Legislation  . SB 201 (DeSaulnier), substantially 
            similar to SB 1463, is pending in Senate Appropriations.


           6)The amendment  deletes a requirement for benefit corporations 
            to provide a copy of their annual benefit reports to the 
            Secretary of State-and an associated filing fee of up to 
            $70-and instead requires any benefit corporation lacking a 








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            website, on which benefit reports must be posted, to provide 
            the benefit report to any person, upon request, at no charge.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081