Legislature(2017 - 2018)SENATE FINANCE 532
03/21/2018 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Appointment: Commissioner - Department of Revenue | |
| Appointment: State Assessment Review Board | |
| Appointment: University of Alaska Board of Regents | |
| HB114 | |
| HB124 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 124 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 114 | TELECONFERENCED | |
CS FOR HOUSE BILL NO. 124(FIN)
"An Act relating to corporations, including benefit
corporations, and other entities; and providing for an
effective date."
9:45:22 AM
Representative Sam Kito, Sponsor, introduced the
legislation. He reported that HB 124 created a benefit
corporation classification for C corporations in the state.
The benefit corporation allowed for more than just a
fiduciary duty to corporate activities. He provided the
example of a bike shop that offered its employees paid work
time for trail improvement work. In a traditional corporate
structure, the individuals would be working outside of the
fiduciary responsibility of the corporation risking
shareholder objections. The bill allowed for the bylaws of
a corporation to allow for employees to work on public
service projects or engage in another manner to provide a
public benefit. The benefit had to be clearly identified in
the corporation's bylaws and a periodic report was required
that indicated how the company was meeting its beneficial
and fiduciary duties.
9:48:40 AM
Senator Stevens asked whether other states had similar laws
in place. Representative Kito answered in the affirmative
and estimated that 30 other states adopted similar
statutes.
Senator Micciche thought the bill was interesting. He asked
who defined whether the actions were beneficial, or if each
company would define its "benefit." He believed that in
some cases "some of these companies worked against the
economy of the state of Alaska." He wondered if it was
possible for the benefit to counter what others believed
were beneficial. Representative Kito replied that the
determination of whether the action of a company would be
beneficial would be published in the articles of
incorporation and bylaws, which was available for public
scrutiny. He offered that a benefit would not be defined in
stature or regulation.
9:51:05 AM
Senator von Imhof understood that corporations currently,
through mission statements and value statements, could
express its objectives and intentions. She was unsure as to
what problem the bill was trying to solve. She used the
example of Wells Fargo, which had a corporate giving
program. The bank had employees dedicated to the program.
The bank offered defined allowances for employees to work
on company sanctioned events or volunteer opportunities.
She wondered what the bill was attempting to "fix."
Representative Kito thought that the examples Senator von
Imhof described did not violate the fiduciary
responsibility the company had to its shareholders. The
company had made profits and its board of directors
directed some profits to the charitable activities that did
not affect its "bottom-line." He advised that if a company
started having employees working on non-billable hours for
various beneficial projects, a complaint or lawsuit could
ensue on the basis that the company was not meeting its
fiduciary responsibility by paying for an employee that was
not generating income. The bill attempted to protect a
company whose board of directors wanted to offer company
time or resources to benefit a nonprofit or some other
public benefit like soup kitchens. He added that the bill
could also apply to native corporations. A regional native
corporation could provide resources to support its
nonprofit arm without concerns over lawsuits from
shareholders.
9:54:44 AM
Senator von Imhof asked whether there was a numerical
threshold in the bill that addressed a level of profit the
benefit corporation must maintain. She guessed that the
company could be accused of being too focused on the
benefit in lieu of profit and she wondered whether the
benefit corporation was subject to a certain level of
profit. Representative Kito answered that the line would be
drawn in the bylaws of the corporation and would be the
measure of accountability to its directors and
shareholders. He understood that the corporation that filed
as a benefit corporation would be accountable to itself in
identifying the benefit it wanted to offer and how it
wanted to provide it. He remarked that the board of
directors would regulate whether the corporation was
providing the benefit as determined by the bylaws.
Co-Chair MacKinnon asked if the sponsor knew of any cases
in which a company had been sued for misusing proceeds.
Representative Kito deferred the answer to his staff. Co-
Chair MacKinnon asked if Representative Kito was aware of
specific lawsuits that happened in other states under the
terms he had discussed. Representative Kito was unaware of
any lawsuits and added that he was aware that the trend was
to provide corporations as many tools as possible to
fulfill their mission.
Senator von Imhof voiced that the sponsor had indicated
that a corporation's bylaws currently allowed them to fill
any mission they wish. She did not feel a state statute was
necessary. Representative Kito responded that the challenge
was whether a resource of a company could be used to
benefit a community versus direct profit. Currently, a
company could not perform an action that did not result in
a profit. The bill allowed for more flexibility in how a
corporation could perform community service and be shielded
from shareholder lawsuits.
Co-Chair MacKinnon asked if a benefit corporation would be
required to pay corporate taxes in the state.
Representative Kito replied that a benefit corporation was
another classification of a C corporation with a benefit
bylaw and would pay taxes and registration fees. Co-Chair
MacKinnon inquired whether B corporations were required to
pay taxes in the state. Representative Kito answered that
the benefit corporation was a C corporation and the bill
would not impact any other type of non-C corporation in the
state. The benefit corporation would be subject to any
applicable taxes.
10:00:12 AM
Senator Micciche asked if the sponsor could verify whether
the bill would affect any liability of a C corporation to
the state. Representative Kito stated that C Corporations
that currently existed would not be changed at all unless
they opted to become a benefit corporation. Senator
Micciche asked if a C corporation chose to organize as a
benefit corporation would the same tax rate paid prior to
the change apply. Representative Kito answered in the
affirmative and added that the only practical change would
be to the corporation's bylaws and mission and would still
be required and obligated to pay the same income tax.
Co-Chair MacKinnon questioned his answer. She wondered
whether more items were deducted against the bottom-line of
profit resulting in less corporate taxes paid to the state.
She surmised that the state would lose money by creating a
new category of expenses to write off from profit.
Representative Kito imagined that a tax impact would be
difficult to determine. He restated that his intent was
"not to take corporate profits and turn them into something
else." The benefit corporation status was another tool for
corporations to use. He elaborated that the amount of
revenue the state received from corporate income tax and
"the change in the bill was not substantial enough to make
an appreciable difference." Co-Chair MacKinnon considered
large oil companies that paid large amounts of taxes to the
state and wondered what the impact would be if they chose
to become benefit corporations. She was unsure how that
would be accountable to the Internal Revenue Service (IRS).
She would follow up on the issue.
10:03:19 AM
Vice-Chair Bishop referred to the last sentence of the
first paragraph of the Sponsor Statement (copy on file):
"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." He
understood that the intent of the bill was to protect the
fiduciary responsibility of the shareholders. He offered a
hypothetical scenario of benefit corporation employees
rebuilding a playground during work hours. He deduced that
the shareholders could protest that the corporation's
bottom-line was not being increased by the benefit
activity. Representative Kito replied that his description
was exactly the type of situation the bill was attempting
to protect against; a shareholder lawsuit because the
employee was not fulfilling the fiduciary duty of the
corporation when engaged in benefit activity.
Vice-Chair Bishop mentioned the eventuality of an employee
getting injured performing benefit activity. He
characterized the situation as "going down another whole
rabbit trail." Representative Kito presumed that the
employee would still be covered by worker's compensation
and whatever insurance the corporation offered. Vice-Chair
Bishop deduced that insurance premiums would rise.
CAITLYN ELLIS, STAFF, REPRESENTATIVE SAM KITO, stated that
benefit corporations were formed voluntarily by a two-
thirds vote of the shareholders. The shareholders endorsed
whatever public good was defined by the company. She
explained that benefits could include redistributing a
percentage of profits or allow employees to perform benefit
work. The result was a two-fold option for the business; a
fiduciary responsibility and a public benefit
responsibility. The bill allowed the company to prioritize
its values and the shareholders were "well aware" of the
mission. The state could benefit from the $6.6 trillion
invested in B Corporations by allowing benefit
corporations. She elucidated that a handful of companies in
the state wanted benefit corporation status.
10:06:58 AM
Senator von Imhof asked what would stop an existing
corporation from switching to a B-Corporation and then
writing off more expenses claiming the work is for the
common good and paying less taxes. She characterized the
bill as granting allowable and legal tax breaks. Ms. Ellis
stated that the bill would not change what a company could
do. The bill offered protection to a company from its
shareholders. The same write-offs would be available that
were currently in existence as under HB 124. She reiterated
that benefit corporations were voluntary, and the
shareholders were aware of the bylaws.
Co-Chair MacKinnon asked whether Ms. Ellis was aware of a
corporation that was sued by its shareholders. Ms. Ellis
was not aware of a company sued by shareholders but offered
to follow up with a definitive answer.
Representative Kito commented that the state currently
offered a series of tax credits currently available to C
corporations that allowed them to reduce their tax
liability by donating to things like the education system.
He thought the scope of the change created by the bill
would be significantly smaller than any of the tax credits
the state currently offered. The bill would allow a new
type of community and public involvement with corporations
and permit a company to define its values in its bylaws.
10:10:06 AM
Ms. Ellis addressed portions of the Sectional Analysis
(copy on file):
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.
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.
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.
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.
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.
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.
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.
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.
10:13:35 AM
Co-Chair MacKinnon asked whether it was unique with
corporations to "indemnify or protect" directors who act on
behalf of corporations. Ms. Ellis did not know the answer
and offered to provide the information. Co-Chair MacKinnon
asked whether it was common to extend the protection to
third parties that engaged with the director of the benefit
corporation. She requested more clarity on the difference
between a benefit corporation and a C corporation.
Co-Chair MacKinnon wanted the Department of Commerce,
Community and Economic Development (DCCED) to provide
feedback from a licensing perspective and whether the
department supported the bill.
SARA CHAMBERS, DEPUTY DIRECTOR, DIVISION OF CORPORATIONS,
BUSINESS AND PROFESSIONAL LICENSING, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via
teleconference), stated that the department had an
administrative interest in the bill, but did not have a
recommendation either way. She elaborated that the division
did "very little qualitative work" with corporations that
were required to register. The division only collected a
filing tax and the tax would not change.
Co-Chair MacKinnon OPENED public testimony.
10:17:05 AM
STEVEN TRIMBLE, ARCTIC SOLAR VENTURES, ANCHORAGE (via
teleconference), testified in support of the bill. He
reported that the. company was Alaska's largest solar
company and grew 300 percent each year since its inception
in 2015. The company was expecting to build 1 megawatt of
solar projects in the state through its two business
locations in Anchorage. He delineated that Arctic Solar
Ventures was a Certified B Corporation and was certified
through and international body called B Lab that worked
with other states to enact legislation creating benefit
corporations. He explained that the international
certification allowed his company to adopt a triple bottom-
line approach to business; economic, societal and
environmental. The benefit corporation legislation allowed
a company to protect its certification from leadership
changes and shareholders votes. He noted that a two-thirds
vote was required to become a benefit corporation and the
same vote would be required to undo it. He emphasized that
he wanted state protection like the 33 other states that
adopted similar legislation and operate as a benefit
corporation. He mentioned that he was a co-owner of a
nationwide cooperative of 48 other solar companies that
were certified B Corporations and were benefit corporations
or in the process of becoming one. The cooperative members
shared the same values and reflected a national movement.
He favored adoption of HB 124 as a tool that differentiated
the way benefit companies engaged in business "with the
backbone that we are here to do good for Alaska." He
pointed out that B corporations were held accountable by a
third party through a "very rigorous assessment process."
The benefit corporation status protected the certification.
10:22:04 AM
Vice-Chair Bishop asked whether Mr. Trimble would have
access to more capital if the bill was to become law. Mr.
Trimble answered in the affirmative and added that because
his company was a certified B corporation people opted to
patronize his business, which "directly contributed" to his
company's bottom-line.
Co-Chair MacKinnon asked whether Mr. Trimble could provide
a copy of the third-party rigorous assessment standards
that he complied with. Mr. Trimble agreed to provide the
requested information from B Lab. Co-Chair MacKinnon asked
if Mr. Trimble served on the board since he had an owner
interest in setting the standards. Mr. Trimble clarified
that he was a member of the board of the national
cooperative where he was a member owner. He answered that
each of the 48 solar companies had one voting member that
voted in the decisions of the cooperative. The cooperative
had a board of directors, but each member had one equal
vote within the cooperative. Co-Chair MacKinnon asked
whether he served on the board or if he was the one voting
member out of the 48. Mr. Trimble responded that he was one
voting member. Co-Chair MacKinnon asked if Mr. Trimble
could speak further about protecting the company through
leadership changes. Mr. Trimble hypothesized that if he
left the company and someone else took over who did not
want to engage in the benefit activity the new owner could
simply change the directive without protective statutes. He
emphasized that the benefit was an integral part of the way
he built and operated the company and without the state's
benefit corporation status leadership change could reverse
everything his company accomplished.
10:26:32 AM
Co-Chair MacKinnon asked if Mr. Trimble's company competed
with other corporations as an energy company. Mr. Trimble
answered in the affirmative and stated that he competed
with other solar companies that installed solar panels. Co-
Chair MacKinnon asked if Mr. Trimble could practice as a B
corporation under a C corporation and maintain the culture
of his company. Mr. Trimble stated that there was nothing
preventing his company from operating as a C corporation,
but the issue of limited protection still existed. He
detailed that his company had a publicly published
scorecard through the assessment and certification of B
Lab. He reiterated that he could establish a corporation
like a benefit corporation in the state but lacking the
protection and reporting requirements. He furthered that a
corporation could claim they were providing public benefits
without being required to show accountability.
10:29:57 AM
Co-Chair MacKinnon asked if Mr. Trimble was aware of
lawsuits in which shareholders were challenging a director.
Mr. Trimble replied in the affirmative and elucidated that
Ben and Jerry's Company was subject to a hostile takeover
because they were operating like a benefit corporation,
before benefit corporation legislation was adopted in
Vermont. A group of shareholders got together and sued the
company in an attempt to take it over, which lead to a
lengthy and costly lawsuit that removed many of the co-
founders of the company.
Senator von Imhof asked if passage of the bill would
provide the ability of benefit corporations to undercut
prices and compete against profit-driven competitors in
order to gain market share and in Artic Solar Venture's
case, in order to get customers off oil and gas through
renewable energy. She asked if the bill provided an unfair
business advantage because increased volumes at a lower
price could yield a higher net profit. Mr. Trimble answered
in the negative. He pointed out that his company was
branded as a premium solar provider and were not the lowest
cost option as per a "strict" company philosophy. He
stressed he did not see any scenario where the benefit
status could provide an unfair competitive advantage.
10:33:01 AM
Co-Chair MacKinnon CLOSED public testimony.
Vice-Chair Bishop discussed FN2 (CED) from DCCED. He
detailed that the cost for FY 19 was $22.4 thousand
allocated to Corporations, Business and Professional
Licensing. He read from page 2 of the fiscal note:
To implement this legislation the corporation's
database will need a systems change to create a new
entity indicator, new types of officials, and a new
reporting requirement. A regulations project will be
necessary to adopt regulations for the newly created
Chapter 60, Benefit Corporations, and to amend AS
10.06.633.
If the bill passes the following expenses will be
incurred:
Services: $11.9 (legal costs to amend regulations,
printing, and postage in the first year) $10.5
(information technology services for system change)
Corporation filing fees are General Fund/Program
Receipts fund source 1005 GF/Prgm (DGF). Corporation
filing fees are
set in regulation per AS 10 and 32, and revenue in
excess of authorized budgeted expenses reverts to the
State of Alaska general fund.
Co-Chair MacKinnon wondered whether the state would
initially use receipts from other corporations licensing
to support the new licensure. Ms. Chambers stated that any
cost incurred would be recouped in the same fiscal year
from the benefit corporations. The division generated
approximately $6 million to GF each year from corporate
licensing.
10:36:47 AM
Co-Chair MacKinnon asked what the filing fee for a benefit
corporation was. Ms. Chambers stated that all filing fees
for corporations were the same. She deemed that it was
possible that if an existing C-corporation changed to a B-
corporation, they would generate additional revenue due to
a fee to reincorporate. She reported that the fee was $250,
which $100 was a tax and the remainder were fees. In
addition, other fees were charged for multiple required
reporting. Reincorporating would generate additional
revenue to the state. Co-Chair MacKinnon estimated that it
would take approximately 90 new B corporations to break
even or the division would utilize other corporate
licensing funds. Ms. Chambers had not performed the
calculation required to answer the question. She offered to
provide an answer.
HB 124 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| FIN COMMISSIONER - Sheldon Fisher.pdf |
SFIN 3/21/2018 9:00:00 AM |
Confirmations 2018 |
| FIN ASSESSMENT REVIEW BOARD Westover.pdf |
SFIN 3/21/2018 9:00:00 AM |
Confirmations 2018 |
| FIN REGENT, UNIVERSITY of ALASKA Sweet.pdf |
SFIN 3/21/2018 9:00:00 AM |
Confirmations 2018 |
| HB124 Sponsor Statement 1.18.18.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 124 |
| HB124 Sectional Analysis ver U 1.18.18.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 124 |
| HB124 Explanation of changes from ver A to ver U 1.18.18.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 124 |
| HB124 Support Documents - Letters of Support 4.11.17.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 124 |
| HB 114 HB114 SCS v. O Explanation.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 114 |
| HB 114 SCS HB 114 FIN work draft v.O.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 114 |
| HB 114 DOWLD QA.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 114 |
| HB124 Support BENEFIT CORPORATIONS.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 124 |
| HB124 SFIN memo - follow up.pdf |
SFIN 3/21/2018 9:00:00 AM |
HB 124 |