Legislature(2017 - 2018)HOUSE FINANCE 519
04/17/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB91 | |
| HB124 | |
| HB25 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 124 | TELECONFERENCED | |
| + | HB 91 | TELECONFERENCED | |
| + | HB 25 | TELECONFERENCED | |
| + | SB 88 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 124
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an
effective date."
2:32:25 PM
Representative Kito briefly reviewed the legislation. He
summarized that the bill established a separate corporate
classification called "benefit corporations." He voiced
that benefit corporations allowed corporations to follow
direction other than fiduciary and perform other functions
besides profit driven objectives in order to operate and
provide benefits to other organizations.
BIANCA CARPENETI, STAFF, REPRESENTATIVE SAM KITO, read from
a prepared statement:
My testimony will start with the aim of this bill,
some of the arguments in favor of a benefit
corporation, and then offer an overview of the bill
itself. After my presentation, there are two
individuals online for invited testimony. Also, Janey
Hovenden, Director of Division of Corporations,
Business & Professional Licensing is here to take
questions for the department. Finally, Terry
Bannister from Legislative Legal is on the phone to
answer drafting questions.
The purpose of HB 124 is to expand the options for
Alaskan entrepreneurs and investors by placing a new
type of corporate entity, a benefit corporation, in
Alaska statute. A benefit corporation is a for-profit
corporation that incorporates public benefits and
community improvements into their business practices,
no matter the principal services or products provided.
Corporate law generally requires corporations to
consider the financial impact to their shareholders as
the top priority when making decisions. Maximizing
corporate returns can interfere with other corporate
goals, such as electing to do something beneficial for
the community by enhancing social benefits.
A benefit corporation is a corporate entity that would
have an expanded purpose beyond maximizing share value
to explicitly include general and specific public
benefit;
· Considers/balances the impact of their decisions
not only on shareholders but also on their
stakeholders;
· Must make available to the public a regular
benefit report that assesses their overall social
and environmental performance against a third
party standard.
Three arguments in support of laws establishing public
benefit corporations:
· Creates legal requirements that regulate
corporations claiming to work towards social
good: Becoming a benefit corporation as a legal
entity means a business that says it is dedicated
to the public good will have to substantiate this
claim, similar to how qualifying as tax-exempt
helps define nonprofits as charitable. Moreover,
benefit corporations' reporting requirements to
shareholders, the state, and the public provide a
degree of transparency that corporations could
otherwise refuse to provide.
· Promotes societal benefits by clarifying
fiduciary duty: Entrepreneurs are more likely to
pursue lines of business in a socially beneficial
way when the law ensures that pursuit of profits
does not need to be the highest priority.
Likewise, investors concerned with the public
good are given an alternative.
· Provides legal protection for companies that seek
purpose-driven partnerships Benefit corporation
legislation allows entities to undertake
beneficial partnerships that conventional
corporations might shun out of fear that
shareholders would not see it as a venture likely
to be profitable.
Ms. Carpeneti read the sectional analysis of HB 124:
Section 1 10.06.633(a) Establishes how corporations
may be dissolved and is amended to include benefit
corporations; (a8) declares that a benefit corporation
is dissolved if delinquent for 6 months or more in
including its benefit report in the biennial report or
in paying the benefit report filing fee.
Section 2 Adds a new chapter to AS 10 Alaska
corporations code, chapter 60- Benefit Corporations.
Article 1
Establishes how a business corporation may incorporate
or amend its status to become a benefit corporation;
that the benefit corporation shall have a purpose of
creating general public benefit from all effects of
its business and operations and may identify a
specific public benefit; requires that any status
change must be approved by the minimum two-thirds
vote.
Section 10.60.010 Establishes how a new business
corporation or an existing entity may become a benefit
corporation; declares that an amendment of an existing
corporation must be adopted by at least the minimum
two-thirds vote.
Section 10.60.020 States that if an existing entity
that is not a benefit corporation will become one as a
result of a merger or other status change, the plan of
merger or status change must be approved by at least
the minimum required vote.
Section 10.60.030 In addition to its corporate purpose
under existing corporate statute AS 10.06.005, this
states that a benefit corporation shall have a purpose
of creating general public benefit from all effects of
its business and operations and creation of the
general public benefit is determined to be in the best
interest of the benefit corporation.
Section 10.60.040 Allows a benefit corporation to
identify or amend its articles to include a specific
public benefit purpose in addition to its general
public benefit purpose and lists examples of specific
public benefits.
Section 10.60.050 Clarifies that a professional
corporation formed under AS 10.45 does not violate
this statute by being a benefit corporation under
10.60.
Section 10.60.060 Provides that a benefit corporation
may terminate its benefit status by amending its
articles, or by being party to a merger or other
status change, which would terminate its benefit
corporation status; both must be approved by at least
the minimum required vote.
Section 10.60.070 States that if a benefit corporation
disposes of all or substantially all of its assets the
transaction, unless it is in the usual and regular
course of business, must be approved by the minimum
status vote required.
Article 2
Establishes the duties of the board and the directors
and enumerates seven factors that must be considered
while making decisions; clarifies that a director of a
benefit corporation is not personally liable for the
failure to create a general public benefit if they are
acting in compliance with the chapter and in good
faith.
Section 10.60.100 Establishes seven factors that the
board of directors and individual directors of a
benefit corporation shall consider while discharging
their duties. The directors of the benefit corporation
are not required to give priority to any one of these
listed factors unless the intention to prioritize has
been identified in the benefit corporation's articles
of incorporation.
Section 10.60.110 States that consideration of these
factors is not a violation of existing Alaska statutes
regarding the duties and rights of corporate boards
(AS 10.06.450).
Section 10.60.120 Except as provided in the articles
of incorporation, this states that a director of a
benefit corporation is not personally liable for
monetary damages for action, inaction, or failure of
the benefit corporation to create a general public
benefit if the duties of the director were performed
in compliance with this chapter or AS 10.06.450.
Section 10.60.130 Clarifies that a director of a
benefit corporation does not have a duty to a person
solely because that person is a beneficiary of the
benefit corporation's general or specific public
benefit purpose.
Section 10.60.140 Declares that a director of a
benefit corporation who makes a business judgment in
good faith fulfills their duties under this chapter if
they are not personally invested in the subject, are
informed on the subject of the judgment, rationally
believe the business judgment is in the best interest
of the benefit corporation, and consider the interests
and factors listed under AS 10.60.100 (above).
Article 3
Directs how the board of a benefit corporation my
designate a benefit director, who shall not have a
material relationship with the corporation; outlines
the benefit director's role, especially relating to
the biennial benefit report; allows that the benefit
director shall have the same role and rights as any
other director of the benefit corporation.
Section 10.60.150 Allows that a board of directors of
a benefit corporation may include a designated benefit
director. A benefit director shall have the same
duties and rights as other directors but shall also
have additional duties (described below), such as the
preparation of the annual compliance statement.
Section 10.60.160 States that the board of a benefit
corporation will elect and remove a benefit director
following the manner of general Alaska corporate law
under AS 10.06.453.
Section 10.60.170 Directs that a benefit director
shall not have a material relationship (defined under
AS.10.60.220) with the benefit corporation or its
subsidiaries and allows for additional benefit
director qualifications under the benefit
corporation's articles or bylaws.
Section 10.60.180 Declares that a benefit director
shall prepare a biennial compliance statement to be
included in the benefit corporation's annual report.
The compliance statement will include the benefit
director's opinion on the benefit corporation's
achievement of its general public benefit purpose, any
specific public benefit purpose, the director's
compliance with their duties, and any failures in
these sections.
Section 10.60.190 Equates the actions or inactions of
a benefit director with actions or inactions of any
director of the benefit corporation.
Section 10.60.200 States that a benefit director is
not personally liable for actions done in their
capacity as benefit director unless the action
constitutes willful misconduct or violation of law.
Section 10.60.210 Provides that a benefit director of
a professional corporation that is also a benefit
corporation is not prohibited from having a material
relationship with the benefit corporation or a
subsidiary.
Section 10.60.220 Establishes the guidelines for
determining whether a benefit director of a benefit
corporation has a material relationship with the
benefit corporation or a subsidiary.
Article 4
Directs an officer of a benefit corporation to
consider the factors enumerated under the board of
directors; clarifies the duties of an officer acting
in good faith; and allows that a benefit corporation
may designate a benefit officer, who shall have duties
similar to the benefit director.
Section 10.60.230 Directs an officer of a benefit
corporation to consider the factors listed in AS
10.60.100 (duties of the directors) if the officer is
in the position to act in a way that may influence the
creation of general public benefit or specific public
benefit.
Section 10.60.240 States that an officer does not
violate current general corporate statutes regarding
duties of officers (AS 10.06.483) when considering the
factors previously mentioned above.
Section 10.60.250 Except as provided in the articles
of incorporation, this states that an officer of a
benefit corporation is not personally liable for
monetary damages if their duties were performed in
compliance with Alaska statutes.
Section 10.60.260 Clarifies that an officer of a
benefit corporation does not have a duty to a person
solely because that person is a beneficiary of the
corporation's general or specific public benefit.
Section 10.60.270 Declares that an officer of a
benefit corporation who makes a business judgment in
good faith fulfills their duties under this chapter if
they are not personally invested in the subject, are
informed on the subject of the judgment, rationally
believe it is in the best interest of the benefit
corporation, and if they consider the factors listed
in AS 10.60.100.
Section 10.60.280 Allows that a benefit corporation
may designate an officer as a benefit officer, who
shall have duties that are related to the creation of
general public benefits and specific public benefits.
The benefit officer shall prepare the annual benefit
report required in Article 6.
2:37:39 PM
Ms. Carpeneti continued reading prepared remarks:
Article 5
Identifies the persons that may bring actions or
claims against a benefit corporation for a failure to
pursue general or specific public benefit.
Section 10.60.300 States that persons identified under
AS 10.60.320 may bring an action or claim against a
benefit corporation for a failure to pursue general or
specific public benefits as set out in their articles
or for a violation of duties under this chapter.
Section 10.60.310 Clarifies that a benefit corporation
is not liable for monetary damages for a failure to
create a general or specific public benefit.
Section 10.60.320 Identifies the persons or entities
that may bring a claim or action against a benefit
corporation under AS 10.60.300.
Article 6
Defines what must be contained in the required
biennial benefit report; requires that the benefit
report must be held against a third party standard;
establishes a timeline for the delivery of the report
to shareholders; requires public availability of the
report; and directs the benefit corporation to file
the benefit report with the department as part of
their biennial report.
Section 10.60.500 Requires a benefit corporation to
file a biennial benefit report as a part of the
biennial report required by AS 10.06.805.
Section 10.60.510 Declares what must be contained in
the biennial benefit report. The report will include
descriptions of how the benefit corporation pursued
the general and any specific public benefit,
circumstances that hindered that pursuit, and why the
third-party standard was selected or changed; an
assessment of the overall performance of the general
public benefit purpose held against a third-party
standard; the name and address of the benefit director
and benefit officer, if any; the compensation paid to
each director; the compliance statement of the benefit
director; and any connection between the creator of
the third-party standard and the benefit corporation.
Section 10.60.520 Requires that, if a benefit director
resigns or is removed, the benefit report shall
include any written correspondence regarding the
resignation or removal.
Section 10.60.540 Establishes a timeline for delivery
of the benefit report to the shareholders.
Section 10.60.550 Directs the benefit corporation to
post all of its benefit reports on the benefit
corporation's public website, if the website exists.
The posted reports may omit director compensation,
financial or proprietary information that was included
in the report to the shareholders.
Section 10.60.560 Requires a benefit corporation that
does not have a website to provide a copy of the most
recent benefit report free of charge to any person who
requests it. The report may omit director
compensation, financial or proprietary information
that was included in the report to the shareholders.
Section 10.60.570 Requires the benefit corporation to
provide the Department of Commerce, Community, and
Economic Development with a copy of the biennial
benefit report for filing as a part of its biennial
reports (AS 10.06.805), omitting any director
compensation, financial or propriety information, and
requires the department to establish a fee for the
filing of the benefit report. A failure to deliver the
report or pay the filing fee within six months or more
constitutes a basis for involuntary dissolution of the
benefit corporation (AS 10.06.633). Subsection (c)
allows that the department may file the benefit report
in hard copy, rather than electronically.
Article 7
Identifies the process necessary for a benefit
corporation to effect a status change; allows for
shareholder dissent under a status change; defines
guidelines for the third-party standards; clarifies
that a benefit corporation is not eligible for any tax
exemptions beyond those available for a traditional
corporation; and states that this chapter does not
prevent a non-benefit corporate entity from
considering a general or specific public benefit.
Section 10.60.700 Establishes that a status change
(merger, amendment, etc.) for a benefit corporation or
domestic entity other than a business corporation must
be approved by at least a two-thirds vote of all
shareholders entitled to vote.
Section 10.60.710 Allows a shareholder to dissent if
the business corporation amends its article to become
a benefit corporation. Shareholder dissent is covered
under current business corporate statutes AS
10.06.574-10.06.582.
Section 10.60.720 Establishes statutory guidelines for
third-party standards used as an assessment tool in
the required annual benefit report.
Section 10.60.730 Clarifies that a benefit corporation
is not eligible for any tax exemptions beyond what is
available to corporations that are not benefit
corporations.
Section 10.60.740 Clarifies that this chapter does not
prevent a non-benefit corporate entity from including
the consideration of or donation to a general or
specific public benefit in its general powers.
2:38:29 PM
Ms. Carpeneti continued reading prepared remarks:
Article 8
Allows from the creation of regulations for this
chapter; clarifies that this chapter does not affect
non-benefit corporate entities; declares that benefit
corporations are subject to Alaska corporate law
unless specifically addressed; and defines terms used
in the chapter.
Section 10.60.910 Allows the department to adopt
regulations to implement chapter 10.60.
Section 10.60.920 Clarifies that this chapter does not
affect statutes or laws that apply to business
corporations that are not benefit corporations.
Section 10.60.930 Clarifies that a benefit corporation
is subject to general Alaska corporate law (AS 10.06
and AS 10.45) unless specifically addressed by this
chapter, in which case this chapter takes priority
over previsions in previous chapters.
Section 10.60.940 States that a provision of the
articles or bylaws of a benefit corporation may not
limit, be inconsistent with, or superseded a provision
of this chapter.
Section 10.60.990 Defines terms used throughout the
chapter.
Section 3 Allows the Department of Commerce,
Community, and Economic Development to adopt
regulations to implement this Act, not to take effect
before July 1, 2018.
Section 4 Implements Section 3 immediately.
Section 5 Provides an effective date of July 1, 2018
for this Act except for Section 4 (above).
2:38:40 PM
Ms. Carpeneti provided closing remarks about benefit
corporations. She delineated that benefit corporations were
formed voluntarily and had the same tax status of any other
for-profit corporation. The required bi-annual benefit
report was meant to provide accountability to shareholders
and offer transparency to investors. She concluded that the
bill established a strong foundation for benefit
corporations to achieve "mission alignment and value
creation" and "created more flexibility when evaluating
potential sale and liquidity actions."
Vice-Chair Gara asked where the Alaska Statutes addressed a
corporation's duty to maximize the benefit for
shareholders.
TERRY BANNISTER, LEGISLATIVE LEGAL SERVICES, ALASKA STATE
LEGISLATURE, replied that she was not aware of a specific
provision in the state's corporate code. She pointed out
that the issue was addressed in a number of out-of-state
court cases that decided the only allowable goal of a
corporation was "improving the finances of the
shareholder."
2:40:56 PM
Representative Neuman asked whether an existing corporation
could become a benefit corporation and how it would
accomplish the change. Ms. Carpeneti replied in the
affirmative. She detailed that the transition process was
delineated in Section 10.60.010, which included a
two/thirds vote by its shareholders.
Representative Neuman stated that throughout the bill and
on page 16 there was language related to a "specific public
benefit." He wondered how public benefits were defined in
regulation. He felt that excessive regulation would be
necessary to ensure a public benefit. Representative Kito
replied that public benefits would be defined by corporate
boards and shareholders and clearly identified in the
corporate bylaws. Representative Neuman asked whether the
benefit corporations could write their own regulations.
Representative Kito clarified that the benefits and goals
would be included in the corporation's bylaws and the only
guideline in Alaska Statute required that the benefit
corporation would provide a public benefit. Representative
Neuman asked how a "benefit partnership" would form.
Representative Kito clarified whether he was referring to a
type of a corporation. Representative Neuman answered in
the affirmative. Representative Kito understood that the
bill created a separate type of corporation and was
uncertain whether a partnership was applicable.
Ms. Carpeneti did not believe a partnership would qualify
as a benefit corporation.
Representative Neuman provided a hypothetical scenario
where another for-profit corporation provided funds to the
benefit corporation for its public benefit objective.
Representative Kito thought Representative Neuman was
suggesting that one corporation could provide monetary
support to another corporation. He offered that a benefit
corporation's goal was not to receive grants from other
corporations but to generate revenue from business services
or products and "interact with the community, state, or
other customers or partners" based on its bylaws.
Representative Neuman was concerned if there was any
opportunity for money to flow from one corporation to
another by entering into a partnership with a benefit
corporation that could write their own rules on what is a
public benefit or not a public benefit. He queried whether
the scenario was possible. Representative Kito ascertained
that a benefit corporation could enter into an agreement
with any other corporation as a standard business practice
and supposed that any agreements would be implemented
through a contract just like any corporation could have a
contract with another. The legislation would not change any
existing laws regarding how corporations could interact.
The legislation only allowed a corporation to have other
"goals, values, or directions" other than a fiduciary
responsibility to its shareholders. Representative Neuman
suggested that the for-profit corporation's shareholders
might be opposed to the public benefit of the benefit
corporation. Representative Kito thought that the
shareholders of the for-profit corporation approved
distribution of its monetary assets or profits and the non-
benefitted corporation had to proceed in accordance with
shareholder wishes. He thought the scenario was unlikely.
Representative Neuman believed that his scenario was
possible. Representative Kito judged that "a corporation
was not able to violate its fiduciary responsibility [to
its shareholders] in order to support a benefit
corporation."
2:50:14 PM
Co-Chair Seaton suggested a scenario where a sporting
outfitters benefit corporation had a benefit of extending
trails or supported little league or other community sports
teams. He surmised that the benefit corporation could not
be sued by its shareholders for supporting its public
benefit goal. He asked whether his understanding was
accurate. Representative Kito answered that a benefit
corporation could act even more broadly and allow its
employees to participate in trail building, which was
"counter to the fiduciary responsibility" of a for-profit
corporation. He furthered that if trail building supported
the activity of the benefit corporation's bylaws allowing
employees to help build trails, the activity was allowable.
Co-Chair Seaton added that corporations could provide
community benefits as long as it was justified as an
activity that would ultimately boost profit to
shareholders. He deduced that a benefit corporation allowed
social benefits without risking shareholder lawsuits.
Representative Kito answered in the affirmative.
2:53:38 PM
Representative Pruitt cited Section 10.60.730 [page 15,
line 3] and read the following:
Sec. 10.60.730. Tax exemptions. A benefit corporation
may not claim a tax exemption under AS 43.20 (Alaska
Net Income Tax Act) if the tax exemption is not also
available to corporations that are not benefit
corporations.
Representative Pruitt asked whether benefit corporations
were taxed the same as other corporations. He asked for the
best comparison to other types of corporations in terms of
taxation. Ms. Carpeneti responded that a benefit
corporation would either be a C or S corporation and the
benefit designation did not affect its tax status.
Representative Pruitt asked if the position of benefit
director had the same voting authority as other directors
on corporate matters. Ms. Carpeneti answered in the
affirmative.
Representative Pruitt asked about specific language listed
in Article 2 under standards of conduct for directors. He
queried whether a benefit director was the professional
equal to and subject to the same Alaskan statutes as any
other type of corporate director. Representative Kito
understood that the one duty a benefit director performed
that was different from a regular corporate director was to
"manage and oversee the beneficial operations of the
corporation as identified in the bylaws." He continued that
the benefit director carried out duties without the
fiduciary goal but in accordance with the beneficial
purpose of the corporation. Representative Pruitt
hypothesized a scenario where the benefit director was a
"minority shareholder." He asked what the "rights of the
shareholders were to determine whether or not the benefit
director was operating within its bylaws." Representative
Kito replied that the articles of incorporation for the
benefit corporation designated the directors'
responsibilities. He elaborated that the other directors
had the ability to remove a questioned or underperforming
director and all directors had a responsibility to the
corporation and its bylaws. Representative Pruitt inquired
about the burden imposed on the other directors in the
process of removing the questioned benefit director and the
ability to determine his performance. Representative Kito
restated that the corporation's structure was contained
within its bylaws.
Ms. Carpeneti interjected that Article 5, Section 10.63.20
outlined the process and the right to bring action by the
shareholders. Representative Pruitt remarked that current
statute was "pretty extensive" regarding removing a
director that was not operating within the corporation's
bylaws and wanted to ensure the provisions applied to
benefit corporations to protect the shareholders.
Representative Pruitt questioned the definition of general
public benefit. He wondered who determined what a general
public benefit meant and who wrote the regulations
regarding what a public benefit was. He referred to page
16, line 8 and read the following:
(7) "general public benefit" means a material positive
effect on people and their surroundings, taken as a
whole, assessed against a third-party standard;
Representative Kito replied that a national B corporation
organization existed and worked with benefit corporations
around the country. He elaborated that the organization
identified standards and clearly identified what types of
public purposes a benefit corporation could participate in
or support.
Ms. Carpeneti added that B Lab Corporation was the national
organization that provided third party consultation and
lists of third party standards. She exemplified that a
third party standard existed for agriculture and offered to
provide the list. She informed the committee that many
kinds of third party standards existed in many other areas
that a benefit corporation evaluated itself against for the
purpose of its biannual report.
3:02:22 PM
Representative Pruitt requested a copy of the standards
list. He wondered whether the benefit had to correlate with
the type of business the benefit corporation engaged in.
Ms. Carpeneti responded that the benefit did not have to
correlate with the product or services the corporation
provided. Representative Kito provided a hypothetical
example to illustrate the point.
3:03:59 PM
Vice-Chair Gara appreciated the representative bringing the
bill forward and reminded the committee that a similar bill
was heard last year. He spoke of a philosopher who stated
that "the reward is the deed itself." He surmised that a
corporation who did perform public benefits to gain profits
from its good works, but did not alert the public could
expose it to shareholder law suits. He wondered whether the
benefit corporation could engage in public benefits without
the threat of shareholder law suits. Representative Kito
indicated that the "disposition of profits" for a for-
profit corporation was at the discretion of the directors.
However, without shareholders" support the corporation
could be sued. The benefit corporation was largely immune
to fiduciary shareholder lawsuits as long as the public
benefit was consistent with its identified beneficial
purpose. Vice-Chair Gara alluded to comparisons with Alaska
National Interest Lands Conservation Act (ANILCA) that
allowed native corporations to "benefit their shareholders"
and were also protected from lawsuits for creating social
service organizations. He believed the bill allowed for
more freedom and stated his support. Representative Kito
deduced that HB 124 offered additional benefits for native
corporations. He suggested that an Alaska Native Claims
Settlement Act (ANCSA) corporation might choose to
designate some beneficial functions to support cultural or
shareholder activities as a benefit corporation that was
restricted under current corporate statute.
Co-Chair Foster welcomed invited testifiers.
3:08:12 PM
STEPHEN TRIMBLE, FOUNDER AND CEO, ARCTIC SOLAR VENTURES,
ANCHORAGE, spoke in favor of the legislation. He relayed
that his company was a solar design and installation
company serving residential and commercial clients. He
remarked that his company wanted to become a benefit
corporation and he thoroughly examined the bills and laws
in other states pertaining to benefit corporations. He
shared that 30 states enacted legislation allowing benefit
corporations. He thought that the legislation was integral
to his company's survival. He mentioned the growing
interest in benefit corporations and reported having
coached at least 5 companies that wanted to peruse benefit
corporation designation out of many others that desired the
designation in Alaska. He elaborated on the involvement and
function of B Lab Corporation and explained that they were
the third party international certification organization
that helped benefit corporations who were accountable from
a reporting perspective. The company offered the "B Corp.
Certification" that was a business certification and
offered a compendium for the legal protections for benefit
corporations by state. He shared that his company received
the certification out of only two in Alaska and four
thousand worldwide. The certification and recording process
was extremely rigorous. He detailed that his company
enacted changes to its bylaws to state its beneficial
purpose and acted in the manner of a benefit corporation
but lacked the legal protection in the state. He pointed
out that "mission driven businesses were becoming
increasingly important to the future of business both
inside and outside of Alaska." He spoke of the millennial
workforce that would comprise 78 percent of the active
workforce by 2025. He relayed that 77 percent of the
millennial workforce considered mission driven business as
a factor for employment. He relayed that all of his job
candidates applied due to the fact that the company was a
certified B corporation and had a "commitment to society
and the environment.' He felt the B corporation status
attracted quality employees and investment.
3:14:04 PM
Representative Pruitt asked what type of corporation his
company was registered as in Alaska. Mr. Trimble responded
that the company was a C corporation that elected taxation
as an S corporation. Representative Pruitt asked about the
number of shareholders. Mr. Trimble replied that his
corporation had 5 shareholders and was small and privately
held. Representative Pruitt assumed that the percentage of
ownership among shareholders varied. Mr. Trimble answered
in the affirmative.
3:15:04 PM
WILLIAM CLARK, ATTORNEY, DRINKER, BINDLE, AND REALTH,
PENNSYLVANIA, reported that he was a corporate lawyer in
Philadelphia and worked in support of benefit corporation
enactment in a number of states pro bono. He offered that
Washington D.C. adopted the legislation along with 30 other
states. He delineated that the first law permitting benefit
corporations passed in 2010 and now over 5000 were in
existence. He reported that Delaware who "set the tone for
all United States (U.S.) [corporate] law" authorized the
legislation four years ago and had almost one thousand
registered B corporations. The Chief Justice of Delaware
supported the concept in order to avoid shareholder
lawsuits. He spoke to the discussion concerning corporate
governance issues and the removal of directors. He
emphasized that "the benefit corporate statute relied
completely on the normal existing rules for all
corporations with respect to the governance of the
corporation." How the benefit director was elected,
removed, or whether the shareholders approved of the
director's decisions were controlled by existing corporate
law. The B Corporations were "run exactly like other
business corporations" which was why the tax status was the
same as for-profit corporations. Therefore, the only change
was the new rules concerning governance and not structure.
He appreciated the committee discussion.
3:19:25 PM
Representative Ortiz asked whether there were any general
opposition in the country to benefit corporation. Mr. Clark
replied in the negative. He qualified that the one
persistent question was whether the law establishing B
Corporations was necessary. He elucidated that legal
challenges to director's decisions were rare. The lawsuits
that often occurred related to the change in control of the
corporation due to sale. In that scenario, the law was
"very clear" that the director's duty was to maximize
profit over mission in the transaction. He thought a
widespread understanding of the positive consequences of
the concept was evident due to the unanimous votes in 13
states in support of the legislation.
Representative Wilson asked about the tax status. She asked
whether a "C" Corporation that became a "B" Corporation was
taxed as a "C" Corporation. Mr. Clark answered in the
affirmative.
3:21:56 PM
Vice-Chair Gara recalled a situation where a corporation
created a daycare for its employees and the shareholders
sued the company. He asked whether Mr. Clark was aware of
the case. Mr. Clark was unaware of the situation but
maintained that the situation was what "B" Corporation
status addressed.
Representative Neuman asked whether there were any current
lawsuits from the general public that questioned the public
benefit of the benefit corporation. Mr. Clark responded in
the negative and added that the law prohibited the general
public to challenge the actions of its directors. However,
shareholders had sued directors of corporations.
Representative Neuman wondered about the amount of
shareholder challenges for benefit corporations. Mr. Lucas
responded that he was unaware of any shareholder challenges
to benefit corporations but they were common with
traditional corporations. He named Revlon, eBay, and
craigslist.
Representative Pruitt inquired whether a benefit
corporation that wanted to benefit its employees had to
list the benefit in its bylaws. Mr. Clark answered in the
negative and offered that two concepts in the law were
significant. He detailed that one concept was a general
public benefit that produced a "material positive effect"
for the company's stakeholders. The other concept was the
"ability to specify" an explicit public benefit. The
corporation that did not elect a specific public benefit
but was committed to a material positive effect on its
stakeholders could include activities or benefits that
benefitted its employees and how it acted in the community
as a corporate citizen. He summarized that there was a
general benefit approach and in addition a "precise
mission" if elected. Representative Pruitt clarified that
general benefits to the public were specific to "B"
corporations but benefits to employees were not exclusive
to benefit corporations. He asked whether a regular
corporation could include employee benefits in its bylaws
or had to register as a benefit corporation to provide
benefits to its employees in order to shield the
corporation from litigation. Mr. Clark speculated that two
different concepts were under discussion. He expounded that
every benefit corporation was committed to the first
concept as stated on page 3, [lines 1 through 9] Section
10.60.030 that was derived from the business and operation
of the benefit corporation and intended to result in
material positive impact. The corporation could also elect
to specify a particular mission [Section 10.60.040., page
3, line 10]. Both the general commitment and the specific
commitment were part of a benefit corporation. He pointed
out that a normal corporation could amend its bylaws to
include a specific benefit but was not subject to benefit
corporation statutes.
Co-Chair Seaton OPENED Public Testimony.
Co-Chair Seaton CLOSED Public Testimony.
HB 124 was HEARD and HELD in committee for further
consideration.