HF 2063 (LSB 5453YH (2) 86)

HOUSE FILE 2063

BY  ISENHART

A BILL FOR

An Act providing for benefit corporations, and providing for fees.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

SUBCHAPTER I
PRELIMINARY PROVISIONS

    Section 1.  NEW SECTION.  490B.101  Short title.
   This chapter shall be known and may be cited as the “Iowa Benefit Corporation Act”.
    Sec. 2.  NEW SECTION.  490B.102  Definitions.
   Except as otherwise provided in this chapter, or unless the context otherwise requires, the words and phrases used in this chapter shall have the same meaning as the words and phrases used in chapter 490, including but not limited to the words and phrases used in section 490.140. In addition, all of the following shall apply:
   1.  “Benefit corporation” means a business corporation, if all of the following apply:
   a.  It has elected to become subject to this chapter.
   b.  Its status as a benefit corporation has not been terminated.
   2.  “Benefit director” means a director designated as the benefit director of a benefit corporation under section 490B.302.
   3.  “Benefit enforcement proceeding” means a claim or action relating to any of the following:
   a.  The failure of a benefit corporation to pursue or create general public benefit or a specific public benefit set forth in its articles of incorporation.
   b.  A violation of any obligation, duty, or standard of conduct provided under this chapter.
   4.  “Benefit officer” means an individual designated as the benefit officer of a benefit corporation under section 490B.304.
   5.  “Business corporation” means a corporation formed as a domestic corporation under chapter 490.
   6.  “Entity” means a person formed under the laws of this state including but not limited to a limited liability company under chapter 489; a corporation under chapter 490; a nonprofit corporation under chapter 504; a partnership, limited partnership, limited liability partnership, or limited liability limited partnership under chapter 486A or 488; or a cooperative association or other cooperative organized under chapter 497, 498, 499, 501, or 501A.
   7.  “General public benefit” means a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, which results from the business and operations of a benefit corporation.
   8.  “Independent” means having no material relationship with a benefit corporation or a subsidiary of the benefit corporation as provided in section 490B.304A.
   9.  “Minimum status vote” means any of the following:
   a.  In the case of a business corporation, in addition to any other required approval or vote required under chapter 490, the satisfaction of all of the following conditions:
   (1)  The shareholders of every class or series are entitled to vote as a separate voting group on the corporate action regardless of a limitation stated in the articles of incorporation or bylaws regarding the voting rights of any class or series.
   (2)  The corporate action is approved by vote of the shareholders of each class or series entitled to cast at least two-thirds of the votes that all shareholders of the class or series are entitled to cast on the action.
   b.  In the case of an entity other than a business corporation, in addition to any other required approval, vote, or consent, the satisfaction of all the following conditions:
   (1)  The holders of every class or series of equity interest in the entity that are entitled to receive a distribution of any kind from the entity are entitled to vote on or consent to the action regardless of any otherwise applicable limitation on the voting or consent rights of any class or series.
   (2)  The action is approved by vote or consent of the holders described in subparagraph (1) entitled to cast at least two-thirds of the votes or consents that all of those holders are entitled to cast on the action.
   10.  “Specific public benefit” means any of the following:
   a.  Providing low-income or underserved individuals or communities with beneficial products or services.
   b.  Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business.
   c.  Protecting or restoring the environment.
   d.  Improving human health.
   e.  Promoting the arts, sciences, or advancement of knowledge.
   f.  Increasing the flow of capital to entities with a purpose to benefit society or the environment.
   g.  Conferring any other particular benefit on society or the environment.
   11.  “Subsidiary” means, in relation to a person, an entity in which the person holds beneficially or of record fifty percent or more of the outstanding equity interests.
   12.  “Third-party standard” means a recognized standard for defining, reporting, and assessing corporate social or environmental performance that is all of the following:
   a.  Comprehensive because the standard assesses the effect of the business and its operations upon the interests listed in section 490B.301, subsection 1, paragraphs “b” through “e”.
   b.  Developed by an entity that is not controlled by the benefit corporation.
   c.  Credible because the standard is developed by an entity that meets all of the following conditions:
   (1)  Has access to necessary expertise to assess overall corporate social or environmental performance.
   (2)  Uses a balanced multiple stakeholder approach to develop the standard, including a reasonable public comment period.
   d.  Transparent because the following information is made publicly available:
   (1)  A description of the standard that includes all of the following:
   (a)  Criteria considered when measuring the overall social or environmental performance of a business corporation.
   (b)  The relative weightings, if any, of the criteria described in subparagraph division (a).
   (2)  A description of the development and revision of the standard which includes all of the following:
   (a)  The identity of the directors, officers, material owners, and the governing body of the entity that developed and controls revisions to the standard.
   (b)  The process by which revisions to the standard and changes to the membership of the governing body are made.
   (c)  An accounting of the revenue and sources of financial support for the entity, with sufficient detail to disclose any relationship that could reasonably be considered to present a potential conflict of interest.
    Sec. 3.  NEW SECTION.  490B.103  Application and effect of chapter.
   1.  This chapter applies to all benefit corporations. 
   2.  The existence of a provision of this chapter shall not of itself create an implication that a contrary or different rule of law is applicable to a business corporation that is not a benefit corporation. This chapter shall not affect a statute or rule of law that is applicable to a business corporation that is not a benefit corporation. 
   3.  Chapter 490 shall be construed as part of this chapter and shall apply to benefit corporations, including but not limited to their formation or organization, reports, fees, authority, powers, rights, and the regulation and conduct of their affairs. 
   4.  A benefit corporation may be subject simultaneously to this chapter and one or more other chapters of this title, including chapter 496C. In such event, the provisions of this chapter shall take precedence with respect to a benefit corporation.
   5.  A provision of the articles of incorporation or bylaws of a benefit corporation shall not limit, be inconsistent with, or supersede a provision of this chapter.
    Sec. 4.  NEW SECTION.  490B.104  Incorporation of benefit corporation.
   A benefit corporation shall be incorporated in accordance with chapter 490, division II. The articles of incorporation of a benefit corporation must also state that it is a benefit corporation.
    Sec. 5.  NEW SECTION.  490B.105  Election of benefit corporation status.
   1.  An existing business corporation may become a benefit corporation under this chapter by amending its articles of incorporation so that the articles contain, in addition to the requirements of chapter 490, division II, a statement that the corporation is a benefit corporation. In order to be effective, the amendment must be adopted by at least the minimum status vote.
   2.  a.  An entity that is not a benefit corporation may become a benefit corporation pursuant to subsection 1 if all of the following apply:
   (1)  The entity is one of the following:
   (a)  A party to a merger or conversion.
   (b)  An exchanging entity in a share exchange.
   (2)  The surviving, new, or resulting entity in the merger, conversion, or share exchange is to be a benefit corporation.
   b.  In order to be effective, a plan of merger, conversion, or share exchange subject to paragraph “a” must be adopted by at least the minimum status vote.
    Sec. 6.  NEW SECTION.  490B.106  Termination of benefit corporation status.
   1.  A benefit corporation may terminate its status as such and cease to be subject to this chapter by amending its articles of incorporation to delete the provision required by section 490B.104 or 490B.105 to be stated in the articles of a benefit corporation. In order to be effective, the amendment must be adopted by at least the minimum status vote.
   2.  If a plan of merger, conversion, or share exchange would have the effect of terminating the status of a business corporation as a benefit corporation, the plan must be adopted by at least the minimum status vote in order to be effective. Any sale, lease, exchange, or other disposition of all or substantially all of the assets of a benefit corporation, unless the transaction is in the usual and regular course of business, shall not be effective unless the transaction is approved by at least the minimum status vote.
SUBCHAPTER II
CORPORATE PURPOSES

    Sec. 7.  NEW SECTION.  490B.201  Corporate purposes.
   1.  A benefit corporation shall have a purpose of creating general public benefit. This purpose is in addition to its purpose under section 490.301.
   2.  The articles of incorporation of a benefit corporation may identify one or more specific public benefits to be created as a purpose in addition to any purpose provided in section 490.301 or subsection 1. The identification of a specific public benefit under this subsection does not limit the obligation of a benefit corporation under subsection 1.
   3.  The creation of general public benefit as described in subsection 1 and a specific public benefit as described in subsection 2 is in the best interests of the benefit corporation. 
   4.  A benefit corporation may amend its articles of incorporation to add, amend, or delete the identification of a specific public benefit that it is the purpose of the benefit corporation to create. In order to be effective, the amendment must be adopted by at least the minimum status vote.
   5.  A professional corporation that is a benefit corporation does not violate section 496C.4 by having the purpose to create general public benefit as provided in subsection 1 or a specific public benefit as provided in subsection 2.
SUBCHAPTER III
ACCOUNTABILITY

    Sec. 8.  NEW SECTION.  490B.301  Standard of conduct for directors.
   1.  In discharging the duties of their respective positions and in considering the best interests of the benefit corporation, a benefit corporation’s board of directors, committees, and individual directors shall consider the effects of any action or inaction upon all of the following:
   a.  The shareholders of the benefit corporation.
   b.  The employees and workforce of the benefit corporation, its subsidiaries, and its suppliers.
   c.  The interests of customers as beneficiaries of the general public benefit or specific public benefit purpose of the benefit corporation as provided in section 490B.201.
   d.  Community or societal factors, including those of each community in which offices or facilities of the benefit corporation, its subsidiaries, or its suppliers are located.
   e.  The local and global environment.
   f.  The short-term and long-term interests of the benefit corporation, including but not limited to benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation.
   g.  The ability of the benefit corporation to create general public benefit or any specific public benefit as provided in section 490B.201.
   2.  In discharging the duties of their respective positions and in considering the best interests of the benefit corporation, a benefit corporation’s board of directors, committees, and individual directors may consider any of the following:
   a.  The interests referred to in section 490.1108A.
   b.  Any other pertinent factor or the interest of any other person or group of persons deemed appropriate.
   3.  In discharging the duties of their respective positions and in considering the best interests of the benefit corporation, a benefit corporation’s board of directors, committees, and individual directors need not give priority to the interest of a particular person referred to in subsection 1 or 2 over the interests of any other person unless the benefit corporation’s articles of incorporation state the benefit corporation’s intention to give priority to a certain interest related to its creation of general public benefit or a specific public benefit as provided in section 490B.201.
   4.  The consideration of an interest or factor in the manner required by subsections 1 through 3 shall not constitute a violation of section 490.830.
   5.  Except as provided in the articles of incorporation or bylaws of a benefit corporation, a director is not personally liable for monetary damages for any of the following:
   a.  An action or inaction in the course of performing the duties of a director under subsections 1 through 3 if the director performed the duties of office in compliance with this section and section 490.830.
   b.  The failure of the benefit corporation to pursue or create general public benefit or a specific public benefit as provided in section 490B.201.
   6.  A director of a benefit corporation does not have a duty to a person who is a beneficiary of the general public benefit or a specific public benefit purpose of the benefit corporation as provided in section 490B.201, arising from the status of the person as a beneficiary.
   7.  A director of a benefit corporation who makes a business judgment in good faith fulfills the duty under this section if all of the following apply:
   a.  The director is not interested in the subject of the business judgment.
   b.  The director is informed with respect to the subject of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances.
   c.  The director rationally believes that the business judgment is in the best interests of the benefit corporation.
    Sec. 9.  NEW SECTION.  490B.302  Benefit director.
   1.  The board of directors of a benefit corporation that is a publicly traded corporation shall, and the board of any other benefit corporation may, include a director who is designated the benefit director. Such director shall have, in addition to the powers, duties, rights, and immunities of the other directors of the benefit corporation, the powers, duties, rights, and immunities provided in this subchapter.
   2.  a.  A benefit director shall be elected, and may be removed, in the manner provided by chapter 490, division VIII, part A. The benefit director shall be an individual who is independent. The benefit director may serve as the benefit officer at the same time as serving as the benefit director. The articles of incorporation or bylaws of a benefit corporation may prescribe additional qualifications of the benefit director not inconsistent with this paragraph.
   b.  Notwithstanding paragraph “a”, a benefit director of a professional corporation subject to chapter 496C is not required to be independent.
   3.  The benefit director shall prepare, and the benefit corporation shall include in the annual benefit report to shareholders required by section 490B.401, the opinion of the benefit director regarding all of the following:
   a.  Whether the benefit corporation acted in accordance with its general public benefit and any specific public benefit purpose as provided in section 490B.201 in all material respects during the period covered by the report.
   b.  Whether the directors and officers complied with section 490B.301, subsection 1, and section 490B.303, subsection 1, respectively.
   c.  If, in the opinion of the benefit director, the benefit corporation’s directors or officers failed to comply with paragraph “b”, a description of the ways in which the benefit corporation’s directors or officers failed to comply.
   4.  An act or inaction of an individual in the capacity of a benefit director shall constitute for all purposes an act or inaction of that individual in the capacity of a director of the benefit corporation.
   5.  Regardless of whether the articles of incorporation or bylaws of a benefit corporation include a provision eliminating or limiting the personal liability of a director authorized by section 490.202, a benefit director is not personally liable for an act or omission in the director’s capacity as a benefit director unless the act or omission constitutes self-dealing, willful misconduct, or a knowing violation of law.
    Sec. 10.  NEW SECTION.  490B.303  Standard of conduct for officers.
   1.  Each officer of a benefit corporation shall consider the interests and factors described in section 490B.301, subsection 1, in the manner provided in that subsection if all of the following apply:
   a.  The officer has discretion to act with respect to a matter.
   b.  It reasonably appears to the officer that the matter may have a material effect on the creation by the benefit corporation of general public benefit or a specific public benefit as provided in section 490B.201.
   2.  The consideration of the best interests of the benefit corporation in the manner described in subsection 1 shall not constitute a violation of section 490.842.
   3.  Except as provided in the articles of incorporation or bylaws of a benefit corporation, an officer is not personally liable for monetary damages for any of the following:
   a.  An action or inaction as an officer in the course of performing the duties of an officer under subsection 1 if the officer performed the duties of the position in compliance with section 490.842 and this section.
   b.  The failure of the benefit corporation to pursue or create general public benefit or a specific public benefit as provided in section 490B.201.
   4.  An officer does not have a duty to a person who is a beneficiary of the general public benefit or a specific public benefit purpose of the benefit corporation, as provided in section 490B.201, arising from the status of the person as a beneficiary.
   5.  An officer who makes a business judgment in good faith fulfills the duty under this section if all of the following apply:
   a.  The officer is not interested in the subject of the business judgment.
   b.  The officer is informed with respect to the subject of the business judgment to the extent the officer reasonably believes to be appropriate under the circumstances.
   c.  The officer rationally believes that the business judgment is in the best interests of the benefit corporation.
    Sec. 11.  NEW SECTION.  490B.304  Benefit officer.
   1.  A benefit corporation may have an officer designated as the benefit officer.
   2.  a.  A benefit officer shall have the powers and duties relating to the purpose of the corporation to create general public benefit or a specific public benefit as provided in section 490B.201, if authorized by any of the following:
   (1)  The articles of incorporation or bylaws of the benefit corporation.
   (2)  Absent any controlling provisions in the articles of incorporation or bylaws of the benefit corporation, by resolution or order of the benefit corporation’s board of directors.
   b.  A benefit officer shall have the duty to prepare the benefit report required by section 490B.401.
    Sec. 12.  NEW SECTION.  490B.304A  Benefit officers and directors —— criteria for independence.
   1.  Serving as a benefit director or benefit officer shall not alone affect whether an individual is or is not independent.
   2.  A material relationship between an individual and a benefit corporation or any of its subsidiaries is conclusively presumed to exist if any of the following apply:
   a.  The individual is, or has been within the last three years, an employee other than a benefit officer of the benefit corporation or a subsidiary.
   b.  An immediate family member of the individual is, or has been within the last three years, an executive officer other than a benefit officer of the benefit corporation or a subsidiary.
   c.  There is beneficial or record ownership of five percent or more of the outstanding shares of the benefit corporation, calculated as if all outstanding rights to acquire equity interests in the benefit corporation had been exercised, by any of the following:
   (1)  The individual.
   (2)  An entity if any of the following apply:
   (a)  The individual is a director, an officer, or a manager of the entity.
   (b)  The individual owns beneficially or of record five percent or more of the entity’s outstanding equity interests, calculated as if all outstanding rights to acquire equity interests in the entity had been exercised.
    Sec. 13.  NEW SECTION.  490B.305  Right of action —— benefit enforcement proceedings.
   1.  a.  Except in a benefit enforcement proceeding, a person shall not bring an action or assert a claim against a benefit corporation or its directors or officers with respect to any of the following:
   (1)  The failure of the benefit corporation to pursue or create general public benefit or a specific public benefit as set forth in its articles of incorporation as provided in section 490B.201.
   (2)  A violation of an obligation, duty, or standard of conduct under this chapter.
   b.  A benefit corporation shall not be liable for monetary damages under this chapter for any failure of the benefit corporation to pursue or create general public benefit or a specific public benefit as provided in section 490B.201.
   2.  A benefit enforcement proceeding may be commenced or maintained only as follows:
   a.  Directly by the benefit corporation.
   b.  Derivatively, in accordance with chapter 490, division VII, part D by any of the following:
   (1)  A person or group of persons that owns beneficially or of record at least two percent of the total number of shares of all classes and series outstanding on the date of the complained of action or inaction.
   (2)  A director of the benefit corporation. 
   (3)  A person or group of persons that owns beneficially or of record five percent or more of the outstanding equity interests in an entity of which the benefit corporation is a subsidiary on the date of the complained of action or inaction.
   (4)  Any other person or group of persons as specified in the articles of incorporation or bylaws of the benefit corporation.
   3.  For purposes of this section, a person is the beneficial owner of shares or equity interests if the shares or equity interests are held in a voting trust or by a nominee on behalf of the beneficial owner.
SUBCHAPTER IV
TRANSPARENCY

    Sec. 14.  NEW SECTION.  490B.401  Preparation of annual benefit report.
   1.  A benefit corporation shall prepare an annual benefit report which shall include at least all of the following:
   a.  A narrative description of all of the following:
   (1)  The ways in which the benefit corporation pursued or created general public benefit.
   (2)  The ways in which the benefit corporation pursued or created a specific public benefit, as provided in section 490B.201, to the extent that the specific public benefit is stated in the benefit corporation’s articles of incorporation. 
   (3)  Any circumstances that have hindered the pursuit or creation of general public benefit or a specific public benefit as provided in section 490B.201.
   (4)  The process and rationale for selecting or changing the third-party standard used to prepare the benefit report.
   b.  An assessment of the overall social and environmental performance of the benefit corporation against a third-party standard that is all of the following:
   (1)  Applied consistently with any application of the third-party standard in prior benefit reports.
   (2)  Accompanied by an explanation of the reasons for any of the following:
   (a)  Inconsistent application.
   (b)  A change to the third-party standard from the standard used in the immediately prior report.
   c.  The name of the benefit director and the benefit officer, if any, and the address to which correspondence to each of them may be directed.
   d.  The compensation paid by the benefit corporation, during the year, to each director in the capacity of a director.
   e.  The opinion of the benefit director described in section 490B.302, subsection 3.
   f.  A statement of any connection between the organization that established the third-party standard, or its directors, officers, or any holder of five percent or more of the governance interests in the organization, and the benefit corporation or its directors, officers, or any holder of five percent or more of the outstanding shares of the benefit corporation, including any financial or governance relationship which might materially affect the credibility of the use of the third-party standard.
   2.  If, during the year covered by a benefit report, a benefit director resigned from or refused to stand for reelection to the position of benefit director, or was removed from the position of benefit director, and the benefit director furnished the benefit corporation with written correspondence concerning the circumstances surrounding the resignation, refusal, or removal, the benefit report shall include that correspondence as an exhibit.
   3.  Neither the benefit report nor the assessment of the performance of the benefit corporation in the benefit report required by subsection 1, paragraph “b”, is required to be audited or certified by a third party.
    Sec. 15.  NEW SECTION.  490B.402  Availability of annual benefit report —— filing —— fee.
   1.  A benefit corporation shall send its annual benefit report to each shareholder on the earlier of any of the following:
   a.  One hundred twenty days following the end of the fiscal year of the benefit corporation.
   b.  The date that the benefit corporation delivers any other annual report to its shareholders.
   2.  A benefit corporation shall post all of its benefit reports on the public portion of its internet site, if any. However, the compensation paid to directors and financial or proprietary information included in a benefit report required pursuant to section 490B.401 may be omitted from the benefit reports as posted.
   3.  a.  Concurrently with the delivery of the benefit report to shareholders under subsection 1, the benefit corporation shall deliver a copy of the benefit report to the secretary of state for filing. However, the compensation paid to directors and financial or proprietary information included in the benefit report may be omitted from the benefit report as delivered to the secretary of state.
   b.  The secretary of state may impose and collect a fee of not more than ten dollars for filing a benefit report.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   GENERAL. This bill allows a business corporation to incorporate and operate as a benefit corporation, generally subject to the Iowa business corporation Act (Code chapter 490) except as provided in the bill’s new Code chapter (Code chapter 490B). 
   ELECTION TO ATTAIN OR TERMINATE BENEFIT CORPORATION STATUS.  The bill provides that a business corporation attains or terminates its status as a benefit corporation by shareholder election.
   ARTICLES OF INCORPORATION. The bill provides that a benefit corporation’s articles of incorporation must have as a purpose the creation of general public benefit which provides a material positive impact on society and the environment as assessed against a third-party standard. The bill provides that a benefit corporation’s articles of incorporation may list one or more specific public purposes.
   BOARD ACTION. The bill requires a benefit corporation’s board of directors, in addition to its fiduciary duty to make decisions based on financial interests, to also consider factors associated with creating general public benefit or furthering a specific public benefit, or other beneficial goal. The bill limits a director’s personal liability due to any failure of the benefit corporation to accomplish a general or specific public benefit purpose. 
   LEGAL ACTIONS. The bill prohibits a person from bringing an action against a benefit corporation or its directors, except in a benefit enforcement proceeding. A benefit enforcement proceeding can only be commenced by the benefit corporation or derivatively by a person or group that holds shares in the corporation or an equity interest in the corporation, by a director, or by any other person or group provided in the articles of incorporation. 
   BENEFIT DIRECTOR AND OFFICER. The bill requires a public corporation’s board of directors to include a benefit director. A privately held benefit corporation’s board may include such director. Such director must be independent, having no material relationship with the benefit corporation. The bill provides that a benefit corporation may have a benefit officer who is charged with overseeing the creation of the corporation’s general public benefit or a specific public benefit. 
   REPORT. The bill requires a benefit corporation to prepare an annual benefit report to its shareholders. The report must include information regarding the third-party standard used to prepare the benefit report, the ways in which the benefit corporation pursued its general and specific public benefits, and an assessment of the overall social and environmental performance of the benefit corporation indicating whether the benefit corporation pursued its general or any specific public benefit purpose. The bill also requires the benefit corporation to file the benefit report with the secretary of state and pay the secretary of state a filing fee.