Legislature(2017 - 2018)HOUSE FINANCE 519
04/17/2017 01:30 PM FINANCE
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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.