BILL ANALYSIS �
SB 201
Page 1
Date of Hearing: July 13, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 201 (DeSaulnier) - As Amended: March 14, 2011
Policy Committee: Banking and
Finance Vote: 9-0
Judiciary 6-3
Urgency: No State Mandated Local Program:
no Reimbursable:
SUMMARY
This bill authorizes the creation of a new form of corporate
entity entitled the Flexible Purpose Corporation (FPC) and
delineates the provisions for structure and compliance.
Specifically this bill:
1)Provides that creating a FPC can be done by executing and
filing articles of incorporation with the Secretary of State
(SOS).
2)Enacts conforming changes to the Corporations Code to
recognize FPCs.
3)Requires in the articles of incorporation that each FPC list
its flexible purposes and specifies the contents of the
articles of incorporation.
4)Requires each existing company wishing to become an FPC
through conversion or reorganization to take an affirmative
vote of at least two-thirds of each of its classes of
shareholders, or a higher vote threshold, if required in the
articles of incorporation.
5)Establishes that shareholders of an existing corporation that
converts to an FPC are entitled to dissenter's rights, which
are spelled out in existing law.
6)Requires each FPC to prepare an annual report, as specified,
which must be sent to its shareholders.
SB 201
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FISCAL EFFECT
The Secretary of State indicates initial costs of approximately
$10,000 to create new filing forms and instructions, and to
revise the Internet Website. Ongoing costs include personnel
costs of about $50,000 annually. Staff will review filings,
respond to legal correspondence and oversee any challenges that
may arise with the new entities. Actual costs will depend on
the number of filings for the new business type.
The Department of Corporations indicates that costs will likely
be minor for overseeing the issuance of securities.
SB 201
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COMMENTS
1. Purpose . According to the author, the California
Corporations Code lacks flexibility for corporations seeking
to combine the for-profit philosophy of a traditional
corporation with a higher special purpose that is charitable,
serves the public or otherwise benefits the environment, the
community or society. To address this need, this bill
authorizes a new form of corporate entity known as a flexible
purpose corporation (FPC), the form of which, the author
contends, would provide greater flexibility for the
corporation to combine profitability with broader social or
environmental special purpose.
2.Bill sponsors . This bill is sponsored by the California
Working Group for New Corporate Forms who identify themselves
as a self-appointed, diverse collection of corporate lawyers
in California who come from academia, small and large
corporate law firms, non-profit law firms and entrepreneurial
organizations. According to the group, for nearly 18 months
its members have been deliberating and drafting a proposed new
division of the Corporations Code to "facilitate the
organization of companies with greater flexibility for
combining profitability with a broader social or environmental
purpose."
3.Background . FPCs are distinguished by their special purpose
mission. Unlike other types of corporations, FPCs are
organized to allow the directors to pursue one or more special
purposes in addition to creating profit for shareholders.
FPCs must specify the special purpose in their articles of
incorporation, which is designed to put shareholders and
potential shareholders on notice that the FPC's directors may
exercise their business judgment to engage in activities that
take the special purpose into account, even if doing so will
not necessarily maximize profitability for shareholders. The
special purpose may be a "charitable or public purpose
activity" that could be carried out by a nonprofit benefit
corporation.
4.Related legislation. AB 361 (Huffman), pending in Senate
Judiciary, would authorize and regulate a new corporate entity
called the Benefit Corporation, a corporation that is similar
to FPCs.
SB 201
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5.Prior legislation . SB 1463 (DeSaulnier), 2010, created FPCs
in order to authorize corporations to participate in
designated for-profit and not-for-profit activities. SB 1463
was held in the Senate Judiciary Committee.
AB 2944 (Leno), 2008, allowed a corporate director, when
making business decisions on behalf of corporations, to
consider several factors, such as the long and short term
interest of the corporation and shareholder, the corporation's
employee, suppliers, customers, and creditors, community and
societal consideration, and the environment. AB 2944 was
vetoed by Governor Schwarzenegger, who called for additional
study.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081