Legislature(2017 - 2018)BARNES 124
04/10/2017 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB9 | |
| HB38 | |
| HB124 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 38 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 9 | TELECONFERENCED | |
| += | HB 124 | TELECONFERENCED | |
HB 124-BENEFIT CORPORATIONS
4:38:41 PM
CHAIR KITO announced that the final order of business would be
HOUSE BILL NO. 124, "An Act relating to corporations, including
benefit corporations, and other entities; and providing for an
effective date."
4:38:46 PM
REPRESENTATIVE WOOL moved to adopt the proposed committee
substitute for HB 124, Version 30-LS 0348\D, Bannister, 4/4/17,
as the working document.
4:39:00 PM
CHAIR KITO objected for purposes of discussion.
[Chair Kito passed the gavel to Vice Chair Wool.]
4:39:26 PM
CHAIR KITO, prime sponsor of HB 124, stated that the committee
heard the bill previously and there are some changes, most of
which are technical.
4:39:56 PM
BIANCA CARPENETI, Staff, Representative Sam Kito, Alaska State
Legislature, on behalf of Representative Kito, prime sponsor of
HB 124, reviewed the five changes in Version D. She said the
first change is to standardize the use of the term "general
public benefit". Since this term is a unitary concept it does
not take an indefinite article, she explained, and there were
some inconsistencies in the [original] bill where there was an
indefinite article. This change is seen on page 5, line 29;
page 9, lines 7 and 24; page 10, line 7; and page 11, line 2.
The second change, she stated, is changing the word "reasonably"
to "rationally" in keeping with model legislation establishing
benefit corporations. This change occurs in four places twice
on page 6, lines 9 and 11, and page 9, lines 17 and 19. She
said the third change is removal of "for general public benefit
purposes" to avoid redundancy on page 15, line 7. The fourth
change, she continued, is deletion of the word "purpose" in
order to use the definition of those terms in the definition
section without tying them to the public benefit corporation
requirements. This change occurs on page 15, line 11. The
fifth change, she reported, is that the effective date is
changed to July 1, 2018. This change occurs on page 17, line 7.
MS. CARPENETI addressed questions asked by committee members
during the bill's previous hearing. Regarding Representative
Knopp's question about examples of benefit corporations, she
noted that many types of businesses have become benefit
corporations since the first law was passed in Maryland in 2010.
The benefit corporations currently incorporated in the U.S. come
from a range of industries, including retail, manufacturing,
technological, service, professional services, private
education, and food and beverage production. They come in all
sizes from one-person service companies to large-scale
international brands. Examples of well-known benefit
corporations, she related, include Method, Kickstarter, Plum
Organics, King Arthur Flour, Patagonia, Solberg Manufacturing,
Laureate Education, and Alt School.
MS. CARPENETI addressed the committee's question about whether a
benefit corporation must be publicly traded and reported that
they do not have to be publicly traded to be a benefit
corporation. She said the legal designation of a benefit
corporation does not set requirements as to whether a benefit
corporation is publicly traded or privately held. Currently
there are around 5,000 benefit corporations throughout the U.S.
and only one of them is publicly traded and that is Laureate
Education and Alt School, which went public in February 2017.
MS. CARPENETI addressed the question about why the need for a
benefit corporation if it isn't publicly traded. She explained
that most of the 5,000 benefit corporations throughout the U.S.
are private companies. However, she continued, many have also
taken outside capital in the form of venture capital or private
equity dollars and so being able to protect the company's
mission over time and consider stakeholders is incredibly
important to these entrepreneurs, especially when outside
capital has been raised.
MS. CARPENETI noted there were several questions about a special
taxation benefit conferred to benefit corporations. She said
there is no special tax benefit conferred, the benefit
corporation status only affects requirements of corporate
purpose, accountability, and transparency. Everything else
regarding corporation laws and tax laws remain the same, she
reported. So, a type of corporation whether C or S must
still be elected.
MS. CARPENETI addressed Representative Wool's question about
whether Newman's Own is an example of a benefit corporation.
She said she's found no indication of Newman's Own being
registered as a benefit corporation, rather Newman's Own gives
100 percent of its after-tax profits to the Newman's Own
Foundation, a private non-profit foundation, which in turn gives
the money to various educational and charitable organizations.
While the way Newman's Own operates is commendable, she
continued, it's probably not a good example of being a benefit
corporation because being a benefit corporation means the
business is run in a particular way. So, if a company were a
poor employer and had bad corporate citizens in a community
where it operated but gave away some of its profits, that would
not make it a benefit corporation. The focus of benefit
corporations, she continued, is on being profitable in a
responsible way, not what the corporation does with its profits
once they've been earned.
MS. CARPENETI addressed another question from Representative
Wool about whether benefit corporations would be exempted if the
tax law were changed. She explained that tax wise benefit
corporations still elect whether to be C or S corporations, so
this benefit corporation status only affects the requirements
for corporate purpose, accountability, and transparency.
Everything else regarding the tax status remains the same.
4:44:59 PM
REPRESENTATIVE BIRCH posed a scenario of Microsoft with Bill
Gates operates Microsoft as a regular corporation. He said
whoever owns those shares can decide whether to direct shares to
a charitable purpose. He said he is still trying to understand
the merits of a benefit corporation since there is not a tax
benefit he is aware of.
CHAIR KITO recounted that in previous discussion it was
mentioned that it is a culture of social responsibility, so a
corporate structure that would allow individuals within the
corporation as well as the earnings of the corporation to be
utilized for a tangible beneficial purpose. With just a profit
motive or fiduciary motive then the profits could be used for a
charitable purpose or not. But as was heard last week from Mr.
Letourneau, he continued, a corporation would like to operate
with a culture of being responsible and giving back to the
community and this can be done by registering as a benefit
corporation, which allows the company to be accountable to its
shareholders and that the shareholders would also expect certain
behaviors from employees, directors, or others, so not just a
profit or charitable giving motivation.
REPRESENTATIVE BIRCH asked what the advantage is in doing it in
that manner as opposed to a non-profit like United Way.
CHAIR KITO replied that there are significant differences
between the services provided by a non-profit and the services
provide by a profit. For example, if he operated a for-profit
corporation that made and sold a "widget", he doesn't know that
he would be able to convert that into a non-profit organization
and if he did, 100 percent of that benefit would go to the non-
profit. He said it is about cultural sensitivity and giving
back to the community and, depending on what form a particular
owner, or a board of directors would want to take for their
corporation, they could structure with this bill a corporation
that would allow them to do what they would like to give back in
their way. For example, if their company was a mountain guide
company, rather than just making a profit the company could
choose to have its employees do 20 hours of community service
once a month and that could be part of the corporate culture and
bylaws so that that whole mountain guide company is committed to
giving back to some component of the community.
4:48:18 PM
VICE CHAIR WOOL recalled that in the committee's conversation
with the gentleman from Anchorage last week it was said that
this could almost be used as a marketing badge to say, "This is
how we run our company and another reason to support them."
CHAIR KITO said that is one of those things that are identified
specifically in the bill - that it is not a designation for
marketing purposes - but it can be utilized as a selling point
of the company and what the company might be able to offer.
MS. CARPENETI added that corporations are also generally
expected to put the interests of their shareholders as their
primary consideration. Two cases have set the precedent for
this, she said. One is Dodge v. Ford Motor Company and the
other is eBay Domestic Holdings Inc. v. Newmark. Both cases
affirmed that all activities of a for-profit corporation must
seek to maximize the economic value for its stockholders. It is
important to note, she continued, that the benefit corporation
status is needed to protect mainly directors from being sued in
a derivative suit. So, it is a legal protection as well for the
corporation to say that it is going to add the consideration of
its mission in addition to its economic.
4:50:10 PM
CHAIR KITO removed his objection to the adoption of Version D as
the working document.
[Vice Chair Wool returned the gavel to Chair Kito.]
4:50:21 PM
REPRESENTATIVE WOOL moved to report CSHB 124, Version 30-LS
0348\D, Bannister, 4/4/17, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 124(L&C) was reported from the House Labor
and Commerce Standing Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB38 Supporting Document - 2017 Research Report 3.24.17.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB0038 ver J 3.24.17.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 Explanation of Changes version A to version J 4.10.17.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 PowerPoint Presentation 4.10.2017.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 ver J Sectional Analysis 4.10.2017.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |
| HB038 ver J Side-by-side 4.10.2017.pdf |
HL&C 4/10/2017 3:15:00 PM |
HB 38 |