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House File 62 - 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.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 490.1302, subsection 1, Code 2017, is
2amended by adding the following new paragraph:
3 NEW PARAGRAPH. g. Consummation of a transaction requiring
4at least a ninety percent vote under section 490.1803.
5 Sec. 2. NEW SECTION. 490.1801 Definitions.
6As used in this division:
71. “Benefit corporation” means a for-profit corporation
8intended to operate in a responsible and sustainable manner, to
9produce a public benefit or benefits as set forth in a public
10benefit provision, and to otherwise operate in a manner that
11considers the best interests of those materially affected by
12its conduct.
132. “Public benefit” means a positive effect, or reduction
14of a negative effect, on the environment or on one or more
15communities or categories of persons or entities, other than
16shareholders in their capacity as shareholders, of an artistic,
17charitable, economic, educational, cultural, literary,
18religious, social, ecological, or scientific nature.
193. “Public benefit provision” means a provision in the
20articles of incorporation that establishes one or more public
21benefits to be promoted by the corporation.
22 Sec. 3. NEW SECTION. 490.1802 Name.
231. The name of a benefit corporation shall contain the
24words “benefit corporation”, or the abbreviation “B.C.”, or the
25designation “BC”, any of which shall be deemed to satisfy the
26requirements of section 490.401, subsection 1.
272. Notwithstanding subsection 1, the corporate name of a
28benefit corporation that is also a professional corporation
29or foreign professional corporation under chapter 496C shall
30contain the words “professional benefit corporation” or the
31abbreviation “P.B.C.” or “PBC”, any of which shall be deemed to
32satisfy the requirements of section 490.401, subsection 1.
33 Sec. 4. NEW SECTION. 490.1803 Certain amendments, mergers,
34and share exchanges — votes required.
351. Notwithstanding any other provisions of this chapter,
-1-1a corporation that is not a benefit corporation shall not,
2without the approval of at least ninety percent of the voting
3power of each class and series of the outstanding shares of the
4corporation, in each case whether voting or nonvoting, do any
5of the following:
6a. Amend its articles of incorporation in accordance with
7section 490.1003 to include a public benefit provision.
8b. Merge with or into or enter into a share exchange
9with another entity if, as a result of such merger or share
10exchange, the shares in such corporation would become, or be
11converted into or exchanged for the right to receive, shares in
12a domestic benefit corporation, foreign benefit corporation,
13or similar corporation.
142. Notwithstanding any other provisions of this chapter, a
15benefit corporation shall not, without the approval of at least
16two-thirds of the outstanding shares entitled to vote thereon,
17do any of the following:
18a. Amend or eliminate its public benefit provisions in
19accordance with section 490.1003.
20b. Merge with or into or agree to any share exchange with
21any entity, unless no vote of shareholders of the corporation
22would be required pursuant to section 490.1104, subsection 7.
23c. Become an unincorporated entity by conversion.
24 Sec. 5. NEW SECTION. 490.1804 Stock certificates.
25Any stock certificate issued by a benefit corporation
26shall note conspicuously that the corporation is a benefit
27corporation.
28 Sec. 6. NEW SECTION. 490.1805 Duties of directors.
291. In managing or directing the management of the
30business and affairs of the benefit corporation, directors
31shall consider the public benefit or benefits specified in
32its articles of incorporation, the best interests of those
33materially affected by the conduct of the corporation, and the
34pecuniary interests of the corporation and its shareholders.
352. Directors of a benefit corporation shall not have any
-2-1duty to a person on account of any interest of such person in
2the public benefit or public benefits specified in the articles
3of incorporation or on account of any interest materially
4affected by the conduct of the corporation in such person’s
5capacity as such a beneficiary.
63. Unless otherwise provided in the articles of
7incorporation, any failure to consider the interests of those
8materially affected by the conduct of the corporation, the
9public benefit or benefits, or the pecuniary interests of the
10shareholders shall not constitute an intentional infliction of
11harm on the corporation or the shareholders for the purposes of
12section 490.202, subsection 2, paragraph “d”, subparagraph (1),
13subparagraph division (b), or section 490.202, subsection 2,
14paragraph “e”, subparagraph (2).
15 Sec. 7. NEW SECTION. 490.1806 Periodic statements and
16reports.
171. A benefit corporation shall include in every notice of a
18meeting of shareholders a statement to the effect that it is
19a benefit corporation.
202. A benefit corporation shall, no less than biennially,
21provide its shareholders with a report addressing the public
22benefit or benefits specified in the articles of incorporation,
23and the interests of those materially affected by its conduct.
24The report shall include all of the following:
25a. The objectives the board of directors has established to
26address such public benefit or public benefits and interests.
27b. The standards the board of directors has adopted to
28measure the corporation’s progress in addressing such public
29benefit or public benefits and interests.
30c. Factual information based on those standards regarding
31the corporation’s success in meeting the objectives for
32addressing such public benefit or public benefits and
33interests.
34d. An assessment of the corporation’s success in meeting
35the objectives and addressing such public benefit or public
-3-1benefits and interests.
23. The articles of incorporation of a benefit corporation
3may require that the corporation do any of the following:
4a. Provide its report more frequently than biennially.
5b. Make the report described in subsection 2 available to
6the public.
7c. Use a third-party standard in connection with or
8attain a periodic third-party certification addressing the
9public benefit or public benefits identified in the public
10benefit provision in the articles of incorporation or the best
11interests of those materially affected by the corporation’s
12conduct.
13 Sec. 8. NEW SECTION. 490.1807 Derivative suits.
141. In any derivative suit instituted by a shareholder of a
15benefit corporation to enforce the public benefit requirements
16set forth in section 490.1805, subsection 1, the complaint must
17state all of the following:
18a. Each plaintiff was a shareholder of the corporation at
19the time the complaint states the directors failed to properly
20perform their obligations, or that such plaintiff’s stock
21thereafter devolved upon such plaintiff by operation of law,
22and thereafter remained a shareholder of the corporation until
23the lawsuit was commenced.
24b. At the time the lawsuit was commenced, the plaintiff
25individually or the plaintiffs collectively owned at least five
26percent of any class of the corporation’s shares.
272. The complaint shall also allege with particularity the
28efforts, if any, made by the plaintiff to obtain the action the
29plaintiff desires from the directors or comparable authority
30and the reasons for the plaintiff’s failure to obtain the
31action or for not making the effort.
323. No such derivative suit may be maintained by any
33plaintiff who fails to continue as a shareholder during the
34pendency thereof or if the plaintiff individually or the
35plaintiffs collectively fail to continue to own at least five
-4-1percent of any class of the corporation’s shares.
2 Sec. 9. NEW SECTION. 490.1808 Other business corporations
3— application and effect of division.
4The existence of a provision in this division shall not of
5itself create an implication that a contrary or different rule
6of law is applicable to a corporation that is not a benefit
7corporation. Unless expressly stated otherwise, this division
8shall not affect a statute or rule of law that is applicable to
9a corporation that is not a benefit corporation.
10 Sec. 10. Section 496C.5, Code 2017, is amended to read as
11follows:
12496C.5 Corporate name.
131. The corporate name of a professional corporation, the
14corporate name of a foreign professional corporation or its
15name as modified for use in this state, and any fictitious name
16or trade name adopted by a professional corporation or foreign
17professional corporation shall contain the words “professional
18corporation” or the abbreviation “P.C.” or “PC”, and except
19for the addition of such words or abbreviation, shall be a name
20which could lawfully be used by a licensed individual or by a
21partnership of licensed individuals in the practice in this
22state of a profession which the corporation is authorized to
23practice.
241A. Notwithstanding subsection 1, the corporate name of a
25professional corporation that is also a benefit corporation
26under chapter 490, division VIII, shall comply with section
27490.1802.
282. Each regulating board may by rule or regulation
29adopt additional requirements as to the corporate names and
30fictitious or trade names of professional corporations and
31foreign professional corporations which are authorized to
32practice a profession which is within the jurisdiction of the
33regulating board.
34EXPLANATION
35The inclusion of this explanation does not constitute agreement with
-5-1the explanation’s substance by the members of the general assembly.
2GENERAL. This bill amends the “Iowa Business Corporation
3Act” codified in Code chapter 490, by allowing a for-profit
4corporation to either incorporate as or become a benefit
5corporation with the purpose of operating in a responsible and
6sustainable manner, that promotes one or more public benefits,
7and that operates in a manner that considers the best interests
8of persons materially affected by its conduct (new Code
9section 490.1801(1)). A public benefit may be of an artistic,
10charitable, cultural, economic, educational, cultural,
11literary, religious, social, ecological, or scientific nature
12(new Code section 490.1801(2)). Both the Code chapter and the
13bill’s amendments creating new division XVIII are based on
14model legislation prepared by the American bar association.
15DECLARATION. In order to be regarded as a benefit
16corporation, the corporation’s articles of incorporation
17(articles) must include a public benefit provision that
18expressly describes the corporation’s public benefit (new Code
19section 490.1801(3)). Moreover, the corporation’s benefit
20status must be identified in its corporate name (new Code
21section 490.1802). Consequently, a professional corporation
22which is also a benefit corporation must also identify itself
23as a form of benefit corporation (amended Code section 496C.5).
24In addition, stock issued by the benefit corporation must state
25its benefit status (new Code section 490.1804), as must any
26shareholder meeting notice (Code section 490.1806(1)).
27CHOICE TO FORM AS OR BECOME A BENEFIT ENTITY. A new
28corporation may choose to form as a benefit corporation at
29the time of incorporation by filing its articles with the
30secretary of state, and an existing corporation may choose to
31become a benefit corporation by amending its filed articles.
32An existing corporation may also choose to become a benefit
33corporation by combining through merger or share exchange
34with a benefit corporation or similar foreign public benefit
35entity (new Code section 490.1803(1)). In any case, at least
-6-190 percent of the existing corporation’s outstanding voting
2and nonvoting shares of each class and series must approve
3the choice. Dissenting shareholders are entitled to exercise
4ordinary appraisal rights (amended Code section 490.1302(1)).
5However, the approval of at least two-thirds (66 2/3 percent)
6of a benefit corporation’s outstanding shares entitled to vote
7on the question is required to amend or eliminate a public
8benefit provision from its articles, or to merge with or agree
9to a share exchange with a nonbenefit entity (new Code section
10490.1803(2)).
11MANAGEMENT. When making a decision affecting the business
12affairs of a benefit corporation, its board of directors
13must balance three criteria: its public benefit provision,
14the best interests of persons materially affected by the
15benefit corporation’s conduct, and the traditional factor
16of its stockholders’ pecuniary interests (new Code section
17490.1805(1)). A director does not have a duty to account for
18a business decision (new Code section 490.1805(2)), and a
19director’s failure to consider a factor does not constitute
20an intentional infliction of harm on the corporation or the
21shareholders, unless otherwise provided in the corporation’s
22articles (new Code section 490.1805(3)). However, at least
235 percent of the corporation’s shareholders may institute a
24derivative suit to enforce compliance with the corporation’s
25public benefit provision, in part by alleging that the
26directors failed to properly perform their duties (new Code
27section 490.1807).
28REPORT. The benefit corporation must prepare and deliver a
29report to shareholders that addresses how its public benefit
30provision is being promoted and persons materially affected
31by the corporation’s conduct (new Code section 490.1806(2)).
32The benefit corporation’s directors are responsible for the
33report’s preparation. The corporation’s articles may require
34the involvement by a third party, who may be responsible for
35certifying how the corporation addressed the public benefit
-7-1or the best interests of those materially affected by the
2corporation’s conduct. The report is not required to be
3disclosed to the public, or delivered more frequently than once
4every two years, unless otherwise specified in the benefit
5corporation’s articles (new Code section 490.1806(3)).
6APPLICATION. The special designation of a corporation as a
7benefit corporation does not by itself create an implication
8that different rules apply to nonbenefit corporations.
9However, a specific provision governing a benefit corporation
10also does not affect any other provision that applies to a
11nonbenefit corporation unless otherwise expressly stated (new
12Code section 490.1808).
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2corporations as benefit corporations authorized to do
3business in this state under certain conditions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 490.1302, subsection 1, Code 2017, is
2amended by adding the following new paragraph:
3 NEW PARAGRAPH. g. Consummation of a transaction requiring
4at least a ninety percent vote under section 490.1803.
5 Sec. 2. NEW SECTION. 490.1801 Definitions.
6As used in this division:
71. “Benefit corporation” means a for-profit corporation
8intended to operate in a responsible and sustainable manner, to
9produce a public benefit or benefits as set forth in a public
10benefit provision, and to otherwise operate in a manner that
11considers the best interests of those materially affected by
12its conduct.
132. “Public benefit” means a positive effect, or reduction
14of a negative effect, on the environment or on one or more
15communities or categories of persons or entities, other than
16shareholders in their capacity as shareholders, of an artistic,
17charitable, economic, educational, cultural, literary,
18religious, social, ecological, or scientific nature.
193. “Public benefit provision” means a provision in the
20articles of incorporation that establishes one or more public
21benefits to be promoted by the corporation.
22 Sec. 3. NEW SECTION. 490.1802 Name.
231. The name of a benefit corporation shall contain the
24words “benefit corporation”, or the abbreviation “B.C.”, or the
25designation “BC”, any of which shall be deemed to satisfy the
26requirements of section 490.401, subsection 1.
272. Notwithstanding subsection 1, the corporate name of a
28benefit corporation that is also a professional corporation
29or foreign professional corporation under chapter 496C shall
30contain the words “professional benefit corporation” or the
31abbreviation “P.B.C.” or “PBC”, any of which shall be deemed to
32satisfy the requirements of section 490.401, subsection 1.
33 Sec. 4. NEW SECTION. 490.1803 Certain amendments, mergers,
34and share exchanges — votes required.
351. Notwithstanding any other provisions of this chapter,
-1-1a corporation that is not a benefit corporation shall not,
2without the approval of at least ninety percent of the voting
3power of each class and series of the outstanding shares of the
4corporation, in each case whether voting or nonvoting, do any
5of the following:
6a. Amend its articles of incorporation in accordance with
7section 490.1003 to include a public benefit provision.
8b. Merge with or into or enter into a share exchange
9with another entity if, as a result of such merger or share
10exchange, the shares in such corporation would become, or be
11converted into or exchanged for the right to receive, shares in
12a domestic benefit corporation, foreign benefit corporation,
13or similar corporation.
142. Notwithstanding any other provisions of this chapter, a
15benefit corporation shall not, without the approval of at least
16two-thirds of the outstanding shares entitled to vote thereon,
17do any of the following:
18a. Amend or eliminate its public benefit provisions in
19accordance with section 490.1003.
20b. Merge with or into or agree to any share exchange with
21any entity, unless no vote of shareholders of the corporation
22would be required pursuant to section 490.1104, subsection 7.
23c. Become an unincorporated entity by conversion.
24 Sec. 5. NEW SECTION. 490.1804 Stock certificates.
25Any stock certificate issued by a benefit corporation
26shall note conspicuously that the corporation is a benefit
27corporation.
28 Sec. 6. NEW SECTION. 490.1805 Duties of directors.
291. In managing or directing the management of the
30business and affairs of the benefit corporation, directors
31shall consider the public benefit or benefits specified in
32its articles of incorporation, the best interests of those
33materially affected by the conduct of the corporation, and the
34pecuniary interests of the corporation and its shareholders.
352. Directors of a benefit corporation shall not have any
-2-1duty to a person on account of any interest of such person in
2the public benefit or public benefits specified in the articles
3of incorporation or on account of any interest materially
4affected by the conduct of the corporation in such person’s
5capacity as such a beneficiary.
63. Unless otherwise provided in the articles of
7incorporation, any failure to consider the interests of those
8materially affected by the conduct of the corporation, the
9public benefit or benefits, or the pecuniary interests of the
10shareholders shall not constitute an intentional infliction of
11harm on the corporation or the shareholders for the purposes of
12section 490.202, subsection 2, paragraph “d”, subparagraph (1),
13subparagraph division (b), or section 490.202, subsection 2,
14paragraph “e”, subparagraph (2).
15 Sec. 7. NEW SECTION. 490.1806 Periodic statements and
16reports.
171. A benefit corporation shall include in every notice of a
18meeting of shareholders a statement to the effect that it is
19a benefit corporation.
202. A benefit corporation shall, no less than biennially,
21provide its shareholders with a report addressing the public
22benefit or benefits specified in the articles of incorporation,
23and the interests of those materially affected by its conduct.
24The report shall include all of the following:
25a. The objectives the board of directors has established to
26address such public benefit or public benefits and interests.
27b. The standards the board of directors has adopted to
28measure the corporation’s progress in addressing such public
29benefit or public benefits and interests.
30c. Factual information based on those standards regarding
31the corporation’s success in meeting the objectives for
32addressing such public benefit or public benefits and
33interests.
34d. An assessment of the corporation’s success in meeting
35the objectives and addressing such public benefit or public
-3-1benefits and interests.
23. The articles of incorporation of a benefit corporation
3may require that the corporation do any of the following:
4a. Provide its report more frequently than biennially.
5b. Make the report described in subsection 2 available to
6the public.
7c. Use a third-party standard in connection with or
8attain a periodic third-party certification addressing the
9public benefit or public benefits identified in the public
10benefit provision in the articles of incorporation or the best
11interests of those materially affected by the corporation’s
12conduct.
13 Sec. 8. NEW SECTION. 490.1807 Derivative suits.
141. In any derivative suit instituted by a shareholder of a
15benefit corporation to enforce the public benefit requirements
16set forth in section 490.1805, subsection 1, the complaint must
17state all of the following:
18a. Each plaintiff was a shareholder of the corporation at
19the time the complaint states the directors failed to properly
20perform their obligations, or that such plaintiff’s stock
21thereafter devolved upon such plaintiff by operation of law,
22and thereafter remained a shareholder of the corporation until
23the lawsuit was commenced.
24b. At the time the lawsuit was commenced, the plaintiff
25individually or the plaintiffs collectively owned at least five
26percent of any class of the corporation’s shares.
272. The complaint shall also allege with particularity the
28efforts, if any, made by the plaintiff to obtain the action the
29plaintiff desires from the directors or comparable authority
30and the reasons for the plaintiff’s failure to obtain the
31action or for not making the effort.
323. No such derivative suit may be maintained by any
33plaintiff who fails to continue as a shareholder during the
34pendency thereof or if the plaintiff individually or the
35plaintiffs collectively fail to continue to own at least five
-4-1percent of any class of the corporation’s shares.
2 Sec. 9. NEW SECTION. 490.1808 Other business corporations
3— application and effect of division.
4The existence of a provision in this division shall not of
5itself create an implication that a contrary or different rule
6of law is applicable to a corporation that is not a benefit
7corporation. Unless expressly stated otherwise, this division
8shall not affect a statute or rule of law that is applicable to
9a corporation that is not a benefit corporation.
10 Sec. 10. Section 496C.5, Code 2017, is amended to read as
11follows:
12496C.5 Corporate name.
131. The corporate name of a professional corporation, the
14corporate name of a foreign professional corporation or its
15name as modified for use in this state, and any fictitious name
16or trade name adopted by a professional corporation or foreign
17professional corporation shall contain the words “professional
18corporation” or the abbreviation “P.C.” or “PC”, and except
19for the addition of such words or abbreviation, shall be a name
20which could lawfully be used by a licensed individual or by a
21partnership of licensed individuals in the practice in this
22state of a profession which the corporation is authorized to
23practice.
241A. Notwithstanding subsection 1, the corporate name of a
25professional corporation that is also a benefit corporation
26under chapter 490, division VIII, shall comply with section
27490.1802.
282. Each regulating board may by rule or regulation
29adopt additional requirements as to the corporate names and
30fictitious or trade names of professional corporations and
31foreign professional corporations which are authorized to
32practice a profession which is within the jurisdiction of the
33regulating board.
34EXPLANATION
35The inclusion of this explanation does not constitute agreement with
-5-1the explanation’s substance by the members of the general assembly.
2GENERAL. This bill amends the “Iowa Business Corporation
3Act” codified in Code chapter 490, by allowing a for-profit
4corporation to either incorporate as or become a benefit
5corporation with the purpose of operating in a responsible and
6sustainable manner, that promotes one or more public benefits,
7and that operates in a manner that considers the best interests
8of persons materially affected by its conduct (new Code
9section 490.1801(1)). A public benefit may be of an artistic,
10charitable, cultural, economic, educational, cultural,
11literary, religious, social, ecological, or scientific nature
12(new Code section 490.1801(2)). Both the Code chapter and the
13bill’s amendments creating new division XVIII are based on
14model legislation prepared by the American bar association.
15DECLARATION. In order to be regarded as a benefit
16corporation, the corporation’s articles of incorporation
17(articles) must include a public benefit provision that
18expressly describes the corporation’s public benefit (new Code
19section 490.1801(3)). Moreover, the corporation’s benefit
20status must be identified in its corporate name (new Code
21section 490.1802). Consequently, a professional corporation
22which is also a benefit corporation must also identify itself
23as a form of benefit corporation (amended Code section 496C.5).
24In addition, stock issued by the benefit corporation must state
25its benefit status (new Code section 490.1804), as must any
26shareholder meeting notice (Code section 490.1806(1)).
27CHOICE TO FORM AS OR BECOME A BENEFIT ENTITY. A new
28corporation may choose to form as a benefit corporation at
29the time of incorporation by filing its articles with the
30secretary of state, and an existing corporation may choose to
31become a benefit corporation by amending its filed articles.
32An existing corporation may also choose to become a benefit
33corporation by combining through merger or share exchange
34with a benefit corporation or similar foreign public benefit
35entity (new Code section 490.1803(1)). In any case, at least
-6-190 percent of the existing corporation’s outstanding voting
2and nonvoting shares of each class and series must approve
3the choice. Dissenting shareholders are entitled to exercise
4ordinary appraisal rights (amended Code section 490.1302(1)).
5However, the approval of at least two-thirds (66 2/3 percent)
6of a benefit corporation’s outstanding shares entitled to vote
7on the question is required to amend or eliminate a public
8benefit provision from its articles, or to merge with or agree
9to a share exchange with a nonbenefit entity (new Code section
10490.1803(2)).
11MANAGEMENT. When making a decision affecting the business
12affairs of a benefit corporation, its board of directors
13must balance three criteria: its public benefit provision,
14the best interests of persons materially affected by the
15benefit corporation’s conduct, and the traditional factor
16of its stockholders’ pecuniary interests (new Code section
17490.1805(1)). A director does not have a duty to account for
18a business decision (new Code section 490.1805(2)), and a
19director’s failure to consider a factor does not constitute
20an intentional infliction of harm on the corporation or the
21shareholders, unless otherwise provided in the corporation’s
22articles (new Code section 490.1805(3)). However, at least
235 percent of the corporation’s shareholders may institute a
24derivative suit to enforce compliance with the corporation’s
25public benefit provision, in part by alleging that the
26directors failed to properly perform their duties (new Code
27section 490.1807).
28REPORT. The benefit corporation must prepare and deliver a
29report to shareholders that addresses how its public benefit
30provision is being promoted and persons materially affected
31by the corporation’s conduct (new Code section 490.1806(2)).
32The benefit corporation’s directors are responsible for the
33report’s preparation. The corporation’s articles may require
34the involvement by a third party, who may be responsible for
35certifying how the corporation addressed the public benefit
-7-1or the best interests of those materially affected by the
2corporation’s conduct. The report is not required to be
3disclosed to the public, or delivered more frequently than once
4every two years, unless otherwise specified in the benefit
5corporation’s articles (new Code section 490.1806(3)).
6APPLICATION. The special designation of a corporation as a
7benefit corporation does not by itself create an implication
8that different rules apply to nonbenefit corporations.
9However, a specific provision governing a benefit corporation
10also does not affect any other provision that applies to a
11nonbenefit corporation unless otherwise expressly stated (new
12Code section 490.1808).
-8-da/nh