Legislature(2017 - 2018)HOUSE FINANCE 519
04/26/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB131 | |
| HB128 | |
| HB76 | |
| HB124 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 131 | TELECONFERENCED | |
| += | HB 128 | TELECONFERENCED | |
| += | HB 124 | TELECONFERENCED | |
| += | HB 76 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 124
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an
effective date."
2:15:57 PM
Co-Chair Foster indicated there was one amendment that he
would be offering. He asked the bill sponsor to provide the
committee with a recap of the bill.
REPRESENTATIVE SAM KITO, SPONSOR, reviewed the bill. He
explained that the bill established a charter type of
corporation that would allow a company to have, within its
bi-laws, operations plan, and activities more than just a
fiduciary responsibility to its shareholders. They would be
allowed, under the "B" corporation statute, to provide a
public benefit. The public benefit would be defined in the
organizing documents of the corporation. He had covered
several questions. He would defer to his staff to present
his position on the amendment.
Co-Chair Foster reviewed the list of available testifiers
online.
Co-Chair Foster MOVED to ADOPT Amendment 1 (copy on file):
Page 15, following line 2:
Insert a new section to read:
"Sec. 10.60.725. Reliance by third parties. (a) A
person who, in good faith, centers into a
transaction with a benefit corporation may
(1) assume without inquiry that the
transaction, and each action or inaction by
any director or officer of the benefit
corporation giving effect to the
transaction, is in furtherance of the
benefit corporation's general public benefit
purpose or specific public benefit purpose;
and
(2) enforce the transaction against the
benefit corporation as if the transaction is
in furtherance of the benefit corporation's
general public benefit purpose or specific
public benefit purpose.
(b) Nothing in this section exempts a covered
financial institution from identifying and
verifying the beneficial owner of a legal entity
that is a customer as required under a federal or
state law or regulation. In this subsection,
"covered financial institution" has the meaning
given in 31 C.F.R. 1010.605."
Representative Wilson OBJECTED for discussion.
2:18:24 PM
BIANCA CARPENETI, STAFF, REPRESENTATIVE SAM KITO, indicated
that the amendment was a friendly safe harbor amendment
proposed by the Alaska Bankers Association. The proposed
language was intended to function much like Alaska's
certificate of trust statute. In particular, the subsection
of the trust statute was AS 13.36.079(f)(g). The provisions
provided third parties transacting business with a trust.
They could rely on a trust statement that the transaction
was permitted by the trust, and, as such, enforceable
against the trust. The intent of the amendment was to
provide the same contractual certainty to third parties
that contracted businesses with proposed public benefit
corporations.
Ms. Carpeneti turned to Article 5, Actions and Claims,
Sections 10, 60, 300, and 320 of the proposed legislation
found on pages 9 and 10. The section provided that parties
might bring action against a public benefit corporation for
failing to pursue or create a public benefit. Since
monetary damages were not permitted under the proposed
legislation, the likely relief would be injunctive in
nature. The relief could theoretically include a court,
setting aside a contract under the theory that it did not
satisfy or further a public benefit. Absent the proposed
language, third parties might feel compelled to make an
independent assessment of whether the transaction satisfied
or furthered a public benefit. She relayed that there were
some concerns that sort of analysis might increase the
costs of completing transactions and might make some
transactions more difficult to complete.
Ms. Carpeneti reported that the bill sponsor's position on
the amendment was neutral. He consulted with William Clark,
the lawyer that testified in front of the committee at the
prior bill hearing, who understood the intent of the
amendment but thought it might go too far. Specifically, he
had concerns with subsection 2 regarding the non-benefit
corporation part of the contract. He disagreed that the
non-benefit corporation should not have a duty to inquire
about the purpose of the contract, but it might have said
too much to allow the other party to enforce a contract in
all cases. If a court declined to enforce a contract, the
other party would still be protected because it would be
entitled to any damages it could prove. She relayed Mr.
Clark's suggestion was to strike subsection 2. Although he
noted that his concerns were not extremely serious.
Representative Kito's office also contacted DCCED to see if
there were any concerns about the proposed amendment.
Responses were received from Janey Hovenden, Director,
Division of Corporations, Business and Professional
Licensing. She noted that the division did not see an issue
with the proposed changes. Representative Kito's office
also heard from Kevin Anselm from the Division of Banking.
The division requested the addition of subsection 3, as
provided in the amendment before the committee.
PETER PINNOW, SENIOR COUNCIL, WELLS FARGO, MINNEAPOLIS, MN,
referred to section 2 and indicated the intent was to track
the same rights and the same protections afforded under the
trust certificate statute that was referenced.
2:22:33 PM
Co-Chair Seaton commented that either the general public
benefit or the specific public benefit were not the sole
reason for the company's existence. He read from the
amendment (see above). He understood that in a trust there
was an obligation to only act on behalf of the
beneficiaries of the trust. The amendment encompassed an
additional benefit that was offered by a corporation but
was not its sole benefit. He thought the language would
interfere with a company's right to make a profit by not
furthering the specific or benefit purpose. He wanted
someone to address the issue of mixing trusts with an
auxiliary purpose, which could become problematic.
Mr. Pinnow understood the representative's comment. He
explained that whenever there was a public benefit
requirement imposed by a statute Wells Fargo wanted to make
sure it had contractual certainty. It did not want to run
the risk of having its contracts set aside with 20/20 hind
sight. The proposal was intended to ensure that parties
transacting business with a public benefit corporation felt
safe and secure that the contract they entered into would
not be set aside in the future under the theory that the
contract did not further the public benefit. He reiterated
that the intent was to make sure there was contractual
certainty. He explained that the reason he analogized it to
the trust certificate was because, much like parties that
transacted business with trusts, they needed contractual
certainty that the transaction was authorized and in
furtherance of the trust purpose. As a third party who
would be interacting and lending money to a benefit
corporation, Wells Fargo would want to make sure it had
certainty just as a third party relying on a trust
certificate would.
2:27:09 PM
Co-Chair Seaton remarked that general benefits and specific
benefits were additional values to the operation of the
corporation. Neither were the sole purpose of the
corporation. He thought that, the way the amendment was
written, the entirety of the contract had to accomplish the
accessory benefit, rather than the sole purpose of a
corporation. A trust had a sole purpose. He suggested that
the amendment was converting the general benefit or
specific benefit into the sole purpose of the company and
that everything in the contract would have to comply. He
asked Mr. Pinnow to comment on the potential interpretation
of the language contained in the amendment.
Mr. Pinnow did not believe the purpose of the language
would require that a public benefit corporation only engage
in transactions that would serve a public benefit. The
purpose of the language was intended to make it clear and
provide third parties with the protection against their
contract right being set aside because of the contract not
furthering a public benefit objective. He suggested that
the language should not be interpreted as fundamentally
changing the requirements of a public benefit corporation.
It was intended solely to provide protection to third
parties transacting with a public benefit corporation.
2:29:42 PM
Co-Chair Seaton highlighted line 5 and asked if Mr. Pinnow
was saying that it was assumed without inquiry that the
transaction and each action or inaction by any director or
officer was to further the public benefit.
Mr. Pinnow responded that he could see Co-Chair Seaton's
point that the contract might be for the benefit of the
corporation but that the contract might not further the
public benefit purpose. He was concerned that a contract
might be set aside because someone argued that a contract
did not serve a public benefit.
Co-Chair Seaton did not have a problem with the intent of
the bill, but argued that the amendment did not accomplish
that goal. He indicated he objected to adopting the offered
specific language. He proposed having the Legislative Legal
Services redraft the amendment. He recommended taking out
the trust language as well.
Co-Chair Foster asked the bill sponsor how he wanted to
proceed. Representative Kito was comfortable with
revisiting the bill later and changing the language to
better satisfy the chair.
Representative Guttenberg thought the amendment was, at
best, neutral and potentially cloudy. He referred to the
section of the amendment that contained the language
causing confusion. He was concerned that someone would
enter a contract with a benefit corporation and have it
overridden. He asked Mr. Pinnow to comment.
Mr. Pinnow replied that the language spoke to the public
benefit purpose or the specific public benefit purpose. The
language was intended to deal solely with whether a
transaction furthered the public benefit purpose. He
suggested that if there were concerns about a contract that
would otherwise apply under general corporate law, the
language should not be interpreted to address that. The
language was intended to deal with the specific and unique
characteristics of the public benefit corporations and that
they had a public benefit purpose requirement that could be
enforced by shareholders.
2:35:58 PM
Co-Chair Seaton asked Mr. Pinnow about the concern the
amendment was trying to address. He wondered if the intent
was to ensure that when a party entered a transaction with
a benefit corporation that the transaction did not have to
further the general public benefit or the specific benefit
purpose to be valid. Co-Chair Seaton provided an example
regarding maintaining trails around Juneau. He asked if he
was correct in his assumption about Mr. Pinnow's intent.
Mr. Pinnow responded in the affirmative. Wells Fargo wanted
certainty. He provided the example of Wells Fargo lending
money to a public benefit corporation to do an addition
such as building a parking ramp that someone later
questioned the public benefit. Wells Fargo would not want
to have a transaction or contract set aside or called into
question as being outside of the corporate authority simply
because with hind sight it did not accomplish, achieve, or
further a public benefit.
Co-Chair Seaton understood what Mr. Pinnow was hoping to
achieve. He thought that the intent could be accomplished
by having Legislative Legal Services redraft the amendment.
He thought the issue could be resolved with the use of
different language.
Representative Wilson asked if the amendment could be
provided in time for her to speak with bankers at home to
make sure it worked for them.
Co-Chair Foster WITHDREW Amendment 1.
HB 124 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day.
He recessed the meeting to a call of the chair [Note: the
meeting never reconvened].