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