Legislature(2015 - 2016)HOUSE FINANCE 519
03/19/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB116 | |
| HB49 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 49 | TELECONFERENCED | |
| + | HB 116 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 49
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an
effective date."
2:18:44 PM
REPRESENTATIVE PAUL SEATON, SPONSOR, read the sponsor
statement for the bill:
HB 49 expands the options for Alaskan entrepreneurs
and investors by placing a new type of corporate
entity, the Benefit Corporation, in Alaskan statute. A
benefit corporation is a for-profit corporation which
incorporates public benefits and community improvement
into its business practices, no matter the principal
service or product provided. Allowing the creation of
benefit corporations will give business owners more
choice in how to run their business and will bring to
Alaska a slice of the $6.6 trillion that is invested
nationally in similar corporations.
Corporate law generally requires a corporation to
consider the financial impact to their shareholders as
the top priority when making decisions. Under the
benefit corporate structure, owners and boards have
the freedom to take actions which positively impact
their communities without fear of violating a
fiduciary duty. Benefit corporations are formed
voluntarily and have the same tax status of any other
for-profit corporation. By electing in their articles
of incorporation to become a benefit corporation, a
business simply gains the flexibility to include
mission and social impact in their business practices.
Twenty-seven other states have passed benefit
corporation legislation and many more have benefit
bills in process. Over 1400 benefit corporations have
incorporated in those states, including Ben & Jerry's,
Patagonia, Rasmussen College, Epic Coffee, and King
Arthur Flour Company (America's oldest flour company).
Each of these companies works to benefit the public
and their communities in the way that matters most to
them.
HB 49 also includes measures to ensure accountability
and transparency. Just as a traditional corporation
provides their shareholders with financial reports, a
benefit corporation will additionally create and
publish a biennial benefit report describing how the
company has pursued the general public benefit. This
report, which is held against a third party standard,
allows shareholders, investors, and the public to
confidently invest in benefit corporations that share
their values.
The goal of HB 49 is to give businesses more
flexibility and control over their decisions and to
provide investors with a clear social investment
option.
Representative Seaton relayed that the bill idea was
brought to him by some of his constituents who were looking
for ways for corporations to be accountable and to allow
mission-based or social impact-based investments to
advance. He had received feedback from Dianne Hughes, an
owner from the Earth Friendly Coffee Company in Homer, and
Gordon Blue, the director of Alaska Sustainable Fisheries
Trust in Sitka. He pointed out letters in member packets
from people around the state. He was available for
questions.
Co-Chair Thompson mentioned that there were agency folks
available for questions.
2:24:34 PM
Representative Gattis wanted to know what corporations were
unable to do currently without passing new legislation.
Representative Seaton mentioned that someone with a stock
portfolio has probably noticed a plethora of stockholder
lawsuits that have come about. He claimed they were
typically a result of shareholders being disgruntled with
the maximization of their returns. House Bill 49 allowed
corporations to pursue a community or statewide goal as a
general or specific benefit. All of the people investing in
a B Corporation would be aware that the purpose of their
investment was not only to make a profit but also to pursue
a benefit goal. He furthered that often corporations were
held back from doing what was socially responsible because
of the potential of being sued by their stockholders.
Representative Seaton continued that corporate law defines
the primary purpose of a C Corporation; to earn money for
its shareholders. In the case of a B Corporation, the
corporation, the board of directors, and the investors
could pursue mission or social impact investments without
the fear of being sued. He spoke of the success of the B
Corporation all around the country in terms of the pursuit
of sustainability. A large corporate farm, as a C
Corporation, might not be able to use sustainable farming
practices if it meant lower profits for its shareholders.
Shareholders might sue a corporation if they thought the
farming method took away from their bottom line. Whereas, a
B Corporation could select a general and specific public
benefit.
Representative Gattis had a difficult time thinking about a
corporation that did not have profit as a primary goal. She
understood the concept but was struggling with the idea.
Representative Seaton responded that B Corporation's main
mission could be to make a profit but could also have a
goal of providing a general or public benefit. The B
Corporation status benefited a corporation in certain other
ways such as: maintaining a certain persona, being able to
get action in the legislature, or providing an economic
advantage to the corporation over others. Many of the
stockholder lawsuits were based on certain kinds of things.
2:29:12 PM
Co-Chair Thompson referred to an email he received from a
supporter of the bill. The supporter suggested that, first,
the bill provided legal protection to directors and
officers to consider the interest of all stakeholders.
Secondly, it created additional rights for stake
shareholders to hold directors and officers accountable.
Co-Chair Thompson believe that the two ideas conflicted
with each other.
Representative Seaton responded that the way in which
people were held accountable was to select a public benefit
and to measure themselves against third party standards.
Directors and officers that did not pursue the
corporation's general goal could be sued. However, a suit
was not limited to the measure of financial benefit but
also to the measure of meeting a public purpose. People in
B Corporations to make a profit and to fulfil a public
purpose. A benefit report had to be filed every two years.
Otherwise, stockholders could claim that the director and
board members were not fulfilling the goals of the
corporation.
Vice-Chair Saddler commented that it appeared that someone
was trying to graft the efficiency and energy of the
corporate capital model with the social idealism of public
interest efforts. He had a difficult time completely
understanding the idea because he believed corporations
were in the business to make money. He asked about the tax
implications for the State of Alaska. He wondered if
benefit corporations would be exempt from or subject to
paying taxes.
Representative Seaton responded that there would be no tax
implications. As a for-profit corporation a benefit
corporation would be subject to the same taxes as a C
Corporation without credits or benefits.
2:31:56 PM
Vice-Chair Saddler asked Representative Seaton if he had
any idea how many existing C Corporations would switch to a
benefit corporation structure if the legislation passed.
Representative Seaton responded that Nevada passed similar
legislation in January 2014. Since that time 499 companies
had either formed or converted to a benefit corporation. He
relayed that it took a two-thirds vote of stock holders to
convert. Conversion standards were outlined in the bill.
Vice-Chair Saddler anticipated that more corporations would
start out as a benefit corporation and make a change to a C
Corporation later. He asked about the practical impact on
the state economy with the passage of HB 49.
Representative Seaton responded there was a significant
amount of money invested in social responsible and
sustainable companies that would not invest in corporations
in Alaska if they were not sustainable. There was 6.6
billion in capital available, according to Pew Charitable
Trusts, for the investment in social responsible
corporations. Some of the money could be brought to Alaska,
but he did not know an amount.
Vice-Chair Saddler spoke of seeing some non-profits had
taken advantage of public laws such as water rights
reservations with an avowed purpose not to use the water
but to prevent other development projects from using it. He
was concerned whether a benefit corporation might use the
tools available to a for-profit corporation to deprive
other for-profit corporations from developing Alaska's
resources. He would address additional questions in the
future.
Representative Seaton suggested that becoming a benefit
corporation did not establish additional rights to state
resources. However, it did allow a benefit corporation to
define its investment parameters to include a social impact
element as part of its general purpose.
Vice-Chair Saddler emphasized wanting be sure of the answer
to his question prior to creating a new type of
corporation.
2:35:29 PM
Representative Gara told a story of a law case regarding
Buster Brown Shoe Company. They wanted to attract employees
by providing daycare at their business. The corporation was
challenged by a shareholder that claimed that it was not
maximizing profits under standard corporate law. Buster
Brown lost in court. He asked if owners and shareholders of
the benefit corporations were given notice of a change.
Representative Seaton responded positively. As a benefit
corporation, a corporate structure, was established in law
with reporting requirements. There was a much higher
threshold to convert to a B Corporation because of having
to have an agreement among stockholders.
Representative Gara wondered if one of the motivations in
establishing a benefit corporation was to avoid litigation.
Representative Seaton believed it was one motivation. He
elaborated that the purpose was to allow corporations to
have a specific public benefit as well as making money for
shareholders without fear of a lawsuit.
2:38:29 PM
Representative Gara asked if the proposed legislation would
allow a group to donate profits to, for example, a veterans
group or a faith-based cause as a for-profit corporation
and still adhere to its values.
Representative Seaton confirmed that Representative Gara
was correct. He relayed it was not a non-profit and
therefore could make money but could have a specific or
general public benefit. The examples given were well within
the aspects of the legislation.
Representative Munoz believed her question had been
answered regarding the proposed requirements to gain the
approval of the existing shareholders of a C Corporation.
She recalled a two-third majority vote of a corporation's
shareholders was necessary to institute a change to the
status of a benefit corporation. She was wondering if
percentages were defined in statute.
Representative Seaton deferred to his staff.
TANEEKA HANSEN, STAFF, REPRESENTATIVE PAUL SEATON, asked if
Representative Munoz was referring to a specific statute.
Representative Munoz referred to page 2, Section 2 of the
bill where it outlined the minimum voting requirement to
establish a benefit corporation. She felt the voting
prerequisites were not laid out clearly in the bill. She
mentioned Representative Seaton alluding to the necessity
of a two-thirds vote. Ms. Hansen confirmed that there was a
two-thirds vote requirement. She would provide the
information to the committee.
Representative Munoz wanted to make sure that the
requirement was referenced in the bill.
2:42:03 PM
Representative Wilson wanted to better understand why a new
type of corporation would be necessary in order for a
corporation to change its vision. She suggested conferring
with shareholders but making changes within the already-
established laws.
Representative Seaton responded that without establishing a
benefit corporation a C Corporation would be without
protection from shareholder litigation having to do with
pursuing anything other than profit. In forming a B
Corporation a company would be able to pursue not only a
profit but also an identified public benefit. All
shareholders would be aware of what they were buying and
what benefits were being invested in. The filing of a
benefit report by all B Corporations would be required.
Representative Wilson was referring to the process of
communicating with shareholders to inform them as to the
goals of the company outside of making a profit. She
wondered if a C Corporation could operate in such a way as
long as shareholders were aware of the terms.
Representative Seaton explained that the reason benefit
corporations were springing up was because of lawsuits
resulting from shareholders not agreeing to new terms. He
furthered that unless there was a corporate structure that
specifically defined terms and a corporation was required
to produce benefit reports then the people in a corporation
were at risk. He believed that within a closely held
operation, such as a business with only five people, a
group might be able to reach an agreement. However, a
corporation pursuing the $6.6 billion in available
investment monies designated for sustainable corporations,
would purchase stock rather than negotiating around a
table.
2:45:53 PM
Representative Wilson commented that they would not all be
around a table, the majority would rule, 50 percent plus 1.
She asked if a benefit corporation and B Corporation were
the same thing. She asked if there was a difference.
Representative Seaton indicated that a benefit corporation
was statutorily designated. He volunteered that B Lab,
similar to Pew Charitable Trust, provided a B Corporation
certification which had no force in law. He provided other
examples such as sustainable salmon labels, and certified
LEED buildings that have no official recognition in state
statute. He clarified that B Corporation was generally a
shorthand for a benefit corporation.
Representative Edgmon referred to page 2, lines 22 to 24,
which allowed a corporation to amend its articles of
incorporation to add an extra layer of indemnification. He
clarified that when the board of directors purchased
directors and officers insurance they would be protected
from an errant lawsuit. Otherwise, as a corporation, it
could spin off of subsidiaries, or form a limited liability
corporation, or incorporate as a non-for profit. However,
as a for-profit corporation it would allow for a provision
such as day care like in Representative Gara's earlier
example. He saw the bill being complicated in terms of many
pages in length, but he felt the substance was one theme.
Representative Seaton agreed that Representative Edgmon was
correct in his interpretation.
2:48:58 PM
Representative Pruitt relayed a scenario in which instead
of being sued by a shareholder who felt that the
corporation was not effectively running the business to
make them money they sued the corporation because they felt
the corporation was not investing enough capital into the
public benefit. He suggested that at any point an investor
of a benefit corporation could take issue with the amount
being invested in the benefit. He asked if a B Corporation
could be sued for a reason opposite of making a profit.
Representative Seaton directed his attention to page 9,
Article 5. He confirmed that claims against a corporation
for failing to pursue or create a general public benefit
could be filed but not for monetary damages. He used the
example of a retail sports complex that was supposed to
benefit little league but had not spent money on it as
reflected on a benefit report. A shareholder could litigate
against the corporation influencing the entity to invest
money to benefit little league.
2:52:11 PM
Representative Pruitt was uncertain that litigation would
be avoided by establishing a new type of B Corporation in
Alaska. He opined that litigation would still occur but on
another footing.
Representative Seaton responded that the difference was
that someone could sue but not for a financial gain.
Representative Pruitt argued that a shareholder could sue
for financial gain even if they were not receiving money
directly. They could claim that not enough money was being
directed to an entity or organization of which they were a
beneficiary.
Representative Seaton indicated that Representative Pruitt
was correct. He pointed out that it was totally voluntary
for a B Corporation to have a general or specific benefit.
The bill provided protection for a corporation that wanted
to have a general or public benefit as part of its mission.
There was nothing requiring a change to or the
establishment of a B Corporation. He furthered it was
totally up to the vote of the shareholders.
Representative Pruitt understood that a two-thirds vote was
required to establish a B Corporation. He wondered if the
voting requirement was the same for a corporation wanting
to convert from a B Corporation to a for-profit
corporation.
Representative Seaton responded positively. He conveyed
that he had to leave the committee meeting to chair another
but his staff would remain to answer any further questions.
2:56:36 PM
Co-Chair Neuman pointed out the simplicity of the bill. He
highlighted that the bill allowed a company to structure
itself as a B Corporation and outlined that a specified
percentage would be given to a public purpose or non-
profit. A benefit corporation paid taxes on its total
profits but was required to inform its stockholders what
portion of the profits would go to a certain non-profit
company upon the approval of the board. He wondered if he
was accurate.
Representative Seaton confirmed that Co-Chair Neuman was
correct in his interpretation.
Co-Chair Thompson stated that the committee would be
hearing more complicated bills than HB 49 indicating the
potential need to hold morning meetings.
Ms. Hansen provided additional information. She reported
that the bill allowed a corporation to define its purpose
in the articles of incorporation so that the shareholders
were informed. It was not only for the purpose of
contributing to non-profits. There were many corporations
that did things such as paying for volunteer hours to
promote employee and community wellness. There were other
options but corporations needed to articulate them in their
benefit report and to their shareholders through their
articles of incorporation.
Co-Chair Neuman opined that further involving private
industry was essential based on the state's fiscal
situation. The legislation before the committee helped
towards that end. He reiterated that shareholders expected
to have a maximum profit and the bill established that part
of the profit would go towards a non-profit. He used Ben
and Jerry's as an example. He did not believe the ice cream
company had ever been sued.
Ms. Hansen indicated that Ben and Jerry's was the model for
the legislation. She reported that they would have been a
benefit corporation but they were currently a subsidy of
Unilever. Ben and Jerry's pursued their status through a
certification process. They did not have legal protection.
Upon being taken over there was a requirement to seek the
best financial offer but somehow the board was able to
remain part of the decision making process to protect its
social benefit. HB 49 would protect a corporation's mission
and upon a change in ownership social benefit could be part
of the consideration.
Co-Chair Neuman talked about public radio seeking other
funding sources other than through the state. The
legislation would allow a corporation to help non-profit
corporations. He reiterated that there were budgetary costs
that the state could no longer support like public radio.
He commended Representative Seaton for bringing HB 49
forward.
3:01:14 PM
Vice-Chair Saddler asked if there was an exclusion for
making money under a benefit corporation. He asked if a
benefit corporation was a solution to a problem in Alaska.
Ms. Hansen indicated that it was more prominent in states
that had a greater number of publically owned corporations.
She referred to Gordon Blue of Sitka. She explained that
his company was currently a Limited Liability Corporation
(LLC) which functioned somewhat to protect its mission of
being community centered. The company needed to generate
profit in order to do what it did but had a very specific
community goal. The LLC functioned for Mr. Blue but in
previous testimony he indicated it limited the company's
profits quite a bit which in turn limited its ability to
have funds to carry out its mission. She furthered that Mr.
Blue was closely tied to a non-profit which was complicated
with the LLC. He had expressed that the benefit corporation
structure could potentially be much simpler way to achieve
the same goal of protecting a community benefit.
Vice-Chair Saddler asked about page 12, lines 8 to 11. He
thought there would be public interest in seeing to what
extent a benefit corporation was achieving its benefit
mission. However, this section would limit the results of a
benefit audit to someone with a connection to the benefit
corporation. He wondered if a person with a benefit
corporation was a shareholder. In other words, he asked if
someone would have access to a benefit audit if they bought
only one share of a stock.
Ms. Hansen explained that the section clarified that a
benefit corporation was not required to have its benefit
report audited. However, there were third-party standards
that the report was required to meet. The report had to
include the third-party standards the company chose,
explain why the company selected them, and clarify any
financial connection between the third-party standards and
the benefit corporation. There was no requirement that
corporation select a particular third-party standard. It
was dependent upon the focus of the corporation. She
reported that Global Reporting Initiative was one of the
third-party standards. She mentioned a sustainable farm
standards, more appropriate for a business in agriculture.
The core of the third-party standard was currently accepted
best practice policy for employment and worker wellbeing
and community support.
3:05:23 PM
Vice-Chair Saddler commented that in the following section
of the bill it indicated that a benefit corporation shall
send a report to each shareholder. Therefore, a person
purchasing only one share received a report. Ms. Hansen
relayed that it was required that the benefit report be
available to the public. If the company had a website the
report had to be on the site.
Co-Chair Thompson asked if there were any further
questions.
Representative Pruitt wondered what kind of entity would be
interested in forming a benefit corporation. He
specifically asked if non-profits had expressed an interest
in moving from a non-profit structure to a B Corporation.
Ms. Hansen responded that although it was possible that a
non-profit would want to make the shift it would also
require a shift in philosophy. An entity would no longer be
a non-profit changing one of its main goals to making a
profit. Mostly she had seen new corporations or current C
Corporations that had nurtured certain social values.
Creating a benefit corporation was an opportunity to
protect what were already goals held by corporations.
Representative Pruitt did not see the simplicity of the
bill. He believed the legislation created a loophole for a
non-profit corporation to make a profit, potentially
competing against for-profit entities. If a corporation's
goal was to have a benefit and was shielded from lawsuits
for placing company profits into a benefit, the non-profit
essentially and legally made money. Whereas, previously the
corporation had to be a non-profit. He reiterated that
there was more to the bill than the committee was aware of
as well as potential ramifications.
Co-Chair Thompson commented that a corporation would be
responsible for paying taxes if it moved away from being a
non-profit to becoming a for-profit corporation.
Representative Pruitt responded that a benefit corporation
could take all of its profits and place them into a public
purpose benefit to avoid paying taxes. He believed that the
taxes would offset profits. Ms. Hansen relayed that the
bill did not allow for any special tax exemptions of any
sort. The only way that the money going towards a benefit
would be tax exempt was whatever was currently allowed
under corporate law for a charitable donation.
Representative Pruitt used the example of running a day
care, which he claimed was the cost of doing business. He
suggested that income monies [from a B Corporation] could
be placed into a benefit [purpose] claiming it as a
business expense, leaving the B Corporation without a tax
liability. Therefore, he surmised the B Corporation would
be competing with other for-profit businesses but would
have the ability to write-off tax liability. He referred to
a B Corporation as a for-profit non-profit. He stressed
that he bill was not simply to donate money towards a
certain benefit.
Co-Chair Thompson commented that there were more
complications in moving from a non-profit to a profit
corporation. He mentioned assets and loans and speculated
that it would not be advantageous for a non-profit to
become a B Corporation. The entity would end up paying
taxes one way or another.
3:09:44 PM
Representative Gara said there were a million ways to avoid
paying taxes. He provided examples such as increasing the
compensation for executives or managers who would then pay
taxes on their income. He saw the bill as an extension of
freedom to decide about what type of corporations they want
to form and for what purpose. The bill added a new option
to choose their investment. Like any part of the
marketplace a person had the freedom to go somewhere else
if they wanted. The legislation did not take away taxes nor
would it shrink businesses.
Co-Chair Thompson commented that executives would be paying
more money in taxes. He pointed out that the bill had a new
fiscal note dated 3/13/15. He commented that the original
note had a misprint and the new fiscal note reflected the
amounts.
HB 49 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson announced that the meeting scheduled on
Friday, March 20, 2015 was canceled.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB049 Explanation of changes_H to E.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Sectional Analysis Ver E.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Sponsor Statement.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-2015 Legal FAQS-B Lab.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-2015 Sampling of Benefit Corporations.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-2015 States with Benefit Corporations.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-Letter Diane E. Hughes 2-4-2014.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB049 Supporting Document-Letter Grodon Blue 2-2-2015.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB116 Supporting Documents - Legislative Audit 05-30-14.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 116 |
| HB116 Sponsor Statement.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 116 |
| HB 49 New FN DCCED.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |
| HB 49 Support Letter.pdf |
HFIN 3/19/2015 1:30:00 PM |
HB 49 |