House File 85 - IntroducedA Bill ForAn Act 1allowing the formation of certain for-profit
2corporations as benefit corporations authorized to do
3business in this state under certain conditions.
2Benefit Corporations
3   Section 1.  NEW SECTION.  490.1801  Definitions.
   4As used in this subchapter:
   51.  “Benefit corporation” means a for-profit corporation
6intended to operate in a responsible and sustainable manner, to
7produce a public benefit or benefits as set forth in a public
8benefit provision, and to otherwise operate in a manner that
9considers the best interests of those materially affected by
10its conduct.
   112.  “Public benefit” means a positive effect, or reduction
12of a negative effect, on the environment or on one or more
13communities or categories of persons or entities, other than
14shareholders in their capacity as shareholders, of an artistic,
15charitable, economic, educational, cultural, literary,
16religious, social, ecological, or scientific nature.
   173.  “Public benefit provision” means a provision in the
18articles of incorporation that establishes one or more public
19benefits to be promoted by the corporation.
20   Sec. 2.  NEW SECTION.  490.1802  Name.
   211.  The name of a benefit corporation shall contain the
22words “benefit corporation”, or the abbreviation “B.C.”, or the
23designation “BC”, any of which shall be deemed to satisfy the
24requirements of section 490.401, subsection 1.
   252.  Notwithstanding subsection 1, the corporate name of a
26benefit corporation that is also a professional corporation
27or foreign professional corporation under chapter 496C shall
28contain the words “professional benefit corporation” or the
29abbreviation “P.B.C.” or “PBC”, any of which shall be deemed to
30satisfy the requirements of section 490.401, subsection 1.
31   Sec. 3.  NEW SECTION.  490.1803  Certain amendments, mergers,
32and share exchanges — votes required.
   331.  Notwithstanding any other provisions of this chapter,
34a corporation that is not a benefit corporation shall not,
35without the approval of at least ninety percent of the voting
-1-1power of each class and series of the outstanding shares of the
2corporation, in each case whether voting or nonvoting, do any
3of the following:
   4a.  Amend its articles of incorporation in accordance with
5section 490.1003 to include a public benefit provision.
   6b.  Merge with or into or enter into a share exchange
7with another entity if, as a result of such merger or share
8exchange, the shares in such corporation would become, or be
9converted into or exchanged for the right to receive, shares in
10a domestic benefit corporation, foreign benefit corporation,
11or similar corporation.
   122.  Notwithstanding any other provisions of this chapter, a
13benefit corporation shall not, without the approval of at least
14two-thirds of the outstanding shares entitled to vote thereon,
15do any of the following:
   16a.  Amend or eliminate its public benefit provisions in
17accordance with section 490.1003.
   18b.  Merge with or into or agree to any share exchange with
19any entity, unless no vote of shareholders of the corporation
20would be required pursuant to section 490.1104, subsection 7.
   21c.  Become an unincorporated entity by conversion.
22   Sec. 4.  NEW SECTION.  490.1804  Stock certificates.
   23Any stock certificate issued by a benefit corporation
24shall note conspicuously that the corporation is a benefit
26   Sec. 5.  NEW SECTION.  490.1805  Duties of directors.
   271.  In managing or directing the management of the
28business and affairs of the benefit corporation, directors
29shall consider the public benefit or benefits specified in
30its articles of incorporation, the best interests of those
31materially affected by the conduct of the corporation, and the
32pecuniary interests of the corporation and its shareholders.
   332.  Directors of a benefit corporation shall not have any
34duty to a person on account of any interest of such person in
35the public benefit or public benefits specified in the articles
-2-1of incorporation or on account of any interest materially
2affected by the conduct of the corporation in such person’s
3capacity as such a beneficiary.
   43.  Unless otherwise provided in the articles of
5incorporation, any failure to consider the interests of those
6materially affected by the conduct of the corporation, the
7public benefit or benefits, or the pecuniary interests of the
8shareholders shall not constitute an intentional infliction of
9harm on the corporation or the shareholders for the purposes of
10section 490.202, subsection 2, paragraph “d”, subparagraph (1),
11subparagraph division (b), or section 490.202, subsection 2,
12paragraph “e”, subparagraph (2).
13   Sec. 6.  NEW SECTION.  490.1806  Periodic statements and
   151.  A benefit corporation shall include in every notice of a
16meeting of shareholders a statement to the effect that it is
17a benefit corporation.
   182.  A benefit corporation shall, no less than biennially,
19provide its shareholders with a report addressing the public
20benefit or benefits specified in the articles of incorporation,
21and the interests of those materially affected by its conduct.
22The report shall include all of the following:
   23a.  The objectives the board of directors has established to
24address such public benefit or public benefits and interests.
   25b.  The standards the board of directors has adopted to
26measure the corporation’s progress in addressing such public
27benefit or public benefits and interests.
   28c.  Factual information based on those standards regarding
29the corporation’s success in meeting the objectives for
30addressing such public benefit or public benefits and
   32d.  An assessment of the corporation’s success in meeting
33the objectives and addressing such public benefit or public
34benefits and interests.
   353.  The articles of incorporation of a benefit corporation
-3-1may require that the corporation do any of the following:
   2a.  Provide its report more frequently than biennially.
   3b.  Make the report described in subsection 2 available to
4the public.
   5c.  Use a third-party standard in connection with or
6attain a periodic third-party certification addressing the
7public benefit or public benefits identified in the public
8benefit provision in the articles of incorporation or the best
9interests of those materially affected by the corporation’s
11   Sec. 7.  NEW SECTION.  490.1807  Derivative suits.
   121.  In any derivative suit instituted by a shareholder of a
13benefit corporation to enforce the public benefit requirements
14set forth in section 490.1805, subsection 1, the complaint must
15state all of the following:
   16a.  Each plaintiff was a shareholder of the corporation at
17the time the complaint states the directors failed to properly
18perform their obligations, or that such plaintiff’s stock
19thereafter devolved upon such plaintiff by operation of law,
20and thereafter remained a shareholder of the corporation until
21the lawsuit was commenced.
   22b.  At the time the lawsuit was commenced, the plaintiff
23individually or the plaintiffs collectively owned at least five
24percent of any class of the corporation’s shares.
   252.  The complaint shall also allege with particularity the
26efforts, if any, made by the plaintiff to obtain the action the
27plaintiff desires from the directors or comparable authority
28and the reasons for the plaintiff’s failure to obtain the
29action or for not making the effort.
   303.  No such derivative suit may be maintained by any
31plaintiff who fails to continue as a shareholder during the
32pendency thereof or if the plaintiff individually or the
33plaintiffs collectively fail to continue to own at least five
34percent of any class of the corporation’s shares.
35   Sec. 8.  NEW SECTION.  490.1808  Other business corporations
-4-1— application and effect of subchapter.
   2The existence of a provision in this subchapter shall not
3of itself create an implication that a contrary or different
4rule of law is applicable to a corporation that is not a
5benefit corporation. Unless expressly stated otherwise, this
6subchapter shall not affect a statute or rule of law that is
7applicable to a corporation that is not a benefit corporation.
9Conforming Changes
10   Sec. 9.  Section 490.401, Code 2021, is amended by adding the
11following new subsection:
12   NEW SUBSECTION.  1A.  Notwithstanding subsection 1,
13the corporate name of a corporation that is also a benefit
14corporation under subchapter XVIII, shall comply with section
16   Sec. 10.  Section 490.1302, subsection 1, Code 2021, is
17amended by adding the following new paragraph:
18   NEW PARAGRAPH.  h.  Consummation of a transaction requiring
19at least a ninety percent vote under section 490.1803.
20   Sec. 11.  Section 496C.5, Code 2021, is amended to read as
   22496C.5  Corporate name.
   231.  The corporate name of a professional corporation, the
24corporate name of a foreign professional corporation or its
25name as modified for use in this state, and any fictitious name
26or trade name adopted by a professional corporation or foreign
27professional corporation shall contain the words “professional
28corporation” or the abbreviation “P.C.” or “PC”, and except
29for the addition of such words or abbreviation, shall be a name
30which could lawfully be used by a licensed individual or by a
31partnership of licensed individuals in the practice in this
32state of a profession which the corporation is authorized to
   341A.  Notwithstanding subsection 1, the corporate name of a
35professional corporation that is also a benefit corporation
-5-1under chapter 490, subchapter XVIII, shall comply with section
   32.  Each regulating board may by rule or regulation
4adopt additional requirements as to the corporate names and
5fictitious or trade names of professional corporations and
6foreign professional corporations which are authorized to
7practice a profession which is within the jurisdiction of the
8regulating board.
10The inclusion of this explanation does not constitute agreement with
11the explanation’s substance by the members of the general assembly.
   12GENERAL. This bill amends the “Iowa Business Corporation
13Act” codified in Code chapter 490, by creating new subchapter
14XVIII governing benefit corporations. The bill allows a
15new for-profit business to either incorporate as a benefit
16corporation or as an existing for-profit corporation to become
17a benefit corporation. The purpose of a benefit corporation
18is to operate in a responsible and sustainable manner, that
19promotes one or more public benefits, and in a manner that
20considers the best interests of persons materially affected
21by its conduct (new Code section 490.1801(1)). A public
22benefit may be of an artistic, charitable, cultural, economic,
23educational, cultural, literary, religious, social, ecological,
24or scientific nature (new Code section 490.1801(2)). Both
25existing Code chapter 490 and the bill’s amendments in part
26creating new subchapter XVIII are based on model legislation
27prepared by the American bar association.
   28DECLARATION. In order to be regarded as a benefit
29corporation, the corporation’s articles of incorporation
30(articles) must include a public benefit provision that
31expressly describes the corporation’s public benefit (new
32Code section 490.1801(3)). Moreover, the corporation’s
33benefit status must be identified in its corporate name (new
34Code section 490.1802 and amended Code section 490.401).
35Consequently, a professional corporation which is a benefit
-6-1corporation must also identify itself as a form of benefit
2corporation (new Code section 490.1802 and amended Code section
3496C.5). In addition, stock issued by the benefit corporation
4must state its benefit status (new Code section 490.1804), as
5must any shareholder meeting notice (Code section 490.1806(1)).
7may choose to form as a benefit corporation at the time of
8incorporation by declaring so in its articles of incorporation
9filed with the secretary of state (new Code section 490.1801(3)
10referring to Code section 490.202). An existing corporation
11may choose to become a benefit corporation by amending its
12filed articles (new Code section 490.1803(1) referring to Code
13section 490.1003)). An existing corporation may also choose
14to become a benefit corporation by combining through merger or
15share exchange with a benefit corporation or similar foreign
16public benefit entity (new Code section 490.1803(1) referring
17to Code section 490.1104(7)). In any case, at least 90 percent
18of the corporation’s outstanding voting and nonvoting shares
19of each class and series must approve the choice. Dissenting
20shareholders are entitled to exercise ordinary appraisal rights
21(amended Code section 490.1302(1)). However, the approval of
22at least two-thirds (66 2/3 percent) of a benefit corporation’s
23outstanding shares entitled to vote on the question is required
24to amend or eliminate a public benefit provision from its
25articles, or to merge with or agree to a share exchange with a
26nonbenefit entity (new Code section 490.1803(2) referring to
27Code sections 490.1003 and 490.1104(7)).
   28MANAGEMENT. When making a decision affecting the business
29affairs of a benefit corporation, its board of directors
30must balance three criteria: its public benefit provision,
31the best interests of persons materially affected by the
32benefit corporation’s conduct, and the traditional factor
33of its stockholders’ pecuniary interests (new Code section
34490.1805(1)). A director does not have a duty to account for a
35business decision that impacts a shareholder as a beneficiary
-7-1of a corporation’s public benefit provision (new Code section
2490.1805(2)). A director’s failure to consider a factor
3does not constitute an intentional infliction of harm on the
4corporation or the shareholders, unless otherwise provided in
5the corporation’s articles (new Code section 490.1805(3)).
6However, at least 5 percent of the corporation’s shareholders
7in any class may institute a derivative suit to enforce
8compliance with the corporation’s public benefit provision, in
9part by alleging that the directors failed to properly perform
10their duties (new Code section 490.1807). See Code chapter
11490, subchapter VII, part D.
   12REPORT. A benefit corporation must prepare and deliver
13a report to shareholders that addresses how its public
14benefit provision is being promoted and persons materially
15affected by the benefit corporation’s conduct (new Code
16section 490.1806(2)). The benefit corporation’s directors
17are responsible for the report’s preparation. The benefit
18corporation’s articles may require the involvement by a
19third party, responsible for certifying how the corporation
20addressed the public benefit or the best interests of those
21materially affected by the corporation’s conduct. The report
22is not required to be disclosed to the public, or delivered
23more frequently than once every two years, unless otherwise
24specified in the benefit corporation’s articles (new Code
25section 490.1806(3)).
   26APPLICATION. The special designation of a corporation as a
27benefit corporation does not by itself create an implication
28that different rules apply to nonbenefit corporations. A
29specific provision governing a benefit corporation also does
30not affect any other provision that applies to a nonbenefit
31corporation unless otherwise expressly stated (new Code section