Bill Text: IA HF62 | 2017-2018 | 87th General Assembly | Introduced
Bill Title: A bill for an act allowing the formation of certain for-profit corporations as benefit corporations authorized to do business in this state under certain conditions.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2017-04-03 - NOBA: House Full Approps [HF62 Detail]
Download: Iowa-2017-HF62-Introduced.html
House File 62 - Introduced HOUSE FILE BY ISENHART A BILL FOR 1 An Act allowing the formation of certain for=profit 2 corporations as benefit corporations authorized to do 3 business in this state under certain conditions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: TLSB 1346HH (4) 87 da/nh PAG LIN 1 1 Section 1. Section 490.1302, subsection 1, Code 2017, is 1 2 amended by adding the following new paragraph: 1 3 NEW PARAGRAPH. g. Consummation of a transaction requiring 1 4 at least a ninety percent vote under section 490.1803. 1 5 Sec. 2. NEW SECTION. 490.1801 Definitions. 1 6 As used in this division: 1 7 1. "Benefit corporation" means a for=profit corporation 1 8 intended to operate in a responsible and sustainable manner, to 1 9 produce a public benefit or benefits as set forth in a public 1 10 benefit provision, and to otherwise operate in a manner that 1 11 considers the best interests of those materially affected by 1 12 its conduct. 1 13 2. "Public benefit" means a positive effect, or reduction 1 14 of a negative effect, on the environment or on one or more 1 15 communities or categories of persons or entities, other than 1 16 shareholders in their capacity as shareholders, of an artistic, 1 17 charitable, economic, educational, cultural, literary, 1 18 religious, social, ecological, or scientific nature. 1 19 3. "Public benefit provision" means a provision in the 1 20 articles of incorporation that establishes one or more public 1 21 benefits to be promoted by the corporation. 1 22 Sec. 3. NEW SECTION. 490.1802 Name. 1 23 1. The name of a benefit corporation shall contain the 1 24 words "benefit corporation", or the abbreviation "B.C.", or the 1 25 designation "BC", any of which shall be deemed to satisfy the 1 26 requirements of section 490.401, subsection 1. 1 27 2. Notwithstanding subsection 1, the corporate name of a 1 28 benefit corporation that is also a professional corporation 1 29 or foreign professional corporation under chapter 496C shall 1 30 contain the words "professional benefit corporation" or the 1 31 abbreviation "P.B.C." or "PBC", any of which shall be deemed to 1 32 satisfy the requirements of section 490.401, subsection 1. 1 33 Sec. 4. NEW SECTION. 490.1803 Certain amendments, mergers, 1 34 and share exchanges ==== votes required. 1 35 1. Notwithstanding any other provisions of this chapter, 2 1 a corporation that is not a benefit corporation shall not, 2 2 without the approval of at least ninety percent of the voting 2 3 power of each class and series of the outstanding shares of the 2 4 corporation, in each case whether voting or nonvoting, do any 2 5 of the following: 2 6 a. Amend its articles of incorporation in accordance with 2 7 section 490.1003 to include a public benefit provision. 2 8 b. Merge with or into or enter into a share exchange 2 9 with another entity if, as a result of such merger or share 2 10 exchange, the shares in such corporation would become, or be 2 11 converted into or exchanged for the right to receive, shares in 2 12 a domestic benefit corporation, foreign benefit corporation, 2 13 or similar corporation. 2 14 2. Notwithstanding any other provisions of this chapter, a 2 15 benefit corporation shall not, without the approval of at least 2 16 two=thirds of the outstanding shares entitled to vote thereon, 2 17 do any of the following: 2 18 a. Amend or eliminate its public benefit provisions in 2 19 accordance with section 490.1003. 2 20 b. Merge with or into or agree to any share exchange with 2 21 any entity, unless no vote of shareholders of the corporation 2 22 would be required pursuant to section 490.1104, subsection 7. 2 23 c. Become an unincorporated entity by conversion. 2 24 Sec. 5. NEW SECTION. 490.1804 Stock certificates. 2 25 Any stock certificate issued by a benefit corporation 2 26 shall note conspicuously that the corporation is a benefit 2 27 corporation. 2 28 Sec. 6. NEW SECTION. 490.1805 Duties of directors. 2 29 1. In managing or directing the management of the 2 30 business and affairs of the benefit corporation, directors 2 31 shall consider the public benefit or benefits specified in 2 32 its articles of incorporation, the best interests of those 2 33 materially affected by the conduct of the corporation, and the 2 34 pecuniary interests of the corporation and its shareholders. 2 35 2. Directors of a benefit corporation shall not have any 3 1 duty to a person on account of any interest of such person in 3 2 the public benefit or public benefits specified in the articles 3 3 of incorporation or on account of any interest materially 3 4 affected by the conduct of the corporation in such person's 3 5 capacity as such a beneficiary. 3 6 3. Unless otherwise provided in the articles of 3 7 incorporation, any failure to consider the interests of those 3 8 materially affected by the conduct of the corporation, the 3 9 public benefit or benefits, or the pecuniary interests of the 3 10 shareholders shall not constitute an intentional infliction of 3 11 harm on the corporation or the shareholders for the purposes of 3 12 section 490.202, subsection 2, paragraph "d", subparagraph (1), 3 13 subparagraph division (b), or section 490.202, subsection 2, 3 14 paragraph "e", subparagraph (2). 3 15 Sec. 7. NEW SECTION. 490.1806 Periodic statements and 3 16 reports. 3 17 1. A benefit corporation shall include in every notice of a 3 18 meeting of shareholders a statement to the effect that it is 3 19 a benefit corporation. 3 20 2. A benefit corporation shall, no less than biennially, 3 21 provide its shareholders with a report addressing the public 3 22 benefit or benefits specified in the articles of incorporation, 3 23 and the interests of those materially affected by its conduct. 3 24 The report shall include all of the following: 3 25 a. The objectives the board of directors has established to 3 26 address such public benefit or public benefits and interests. 3 27 b. The standards the board of directors has adopted to 3 28 measure the corporation's progress in addressing such public 3 29 benefit or public benefits and interests. 3 30 c. Factual information based on those standards regarding 3 31 the corporation's success in meeting the objectives for 3 32 addressing such public benefit or public benefits and 3 33 interests. 3 34 d. An assessment of the corporation's success in meeting 3 35 the objectives and addressing such public benefit or public 4 1 benefits and interests. 4 2 3. The articles of incorporation of a benefit corporation 4 3 may require that the corporation do any of the following: 4 4 a. Provide its report more frequently than biennially. 4 5 b. Make the report described in subsection 2 available to 4 6 the public. 4 7 c. Use a third=party standard in connection with or 4 8 attain a periodic third=party certification addressing the 4 9 public benefit or public benefits identified in the public 4 10 benefit provision in the articles of incorporation or the best 4 11 interests of those materially affected by the corporation's 4 12 conduct. 4 13 Sec. 8. NEW SECTION. 490.1807 Derivative suits. 4 14 1. In any derivative suit instituted by a shareholder of a 4 15 benefit corporation to enforce the public benefit requirements 4 16 set forth in section 490.1805, subsection 1, the complaint must 4 17 state all of the following: 4 18 a. Each plaintiff was a shareholder of the corporation at 4 19 the time the complaint states the directors failed to properly 4 20 perform their obligations, or that such plaintiff's stock 4 21 thereafter devolved upon such plaintiff by operation of law, 4 22 and thereafter remained a shareholder of the corporation until 4 23 the lawsuit was commenced. 4 24 b. At the time the lawsuit was commenced, the plaintiff 4 25 individually or the plaintiffs collectively owned at least five 4 26 percent of any class of the corporation's shares. 4 27 2. The complaint shall also allege with particularity the 4 28 efforts, if any, made by the plaintiff to obtain the action the 4 29 plaintiff desires from the directors or comparable authority 4 30 and the reasons for the plaintiff's failure to obtain the 4 31 action or for not making the effort. 4 32 3. No such derivative suit may be maintained by any 4 33 plaintiff who fails to continue as a shareholder during the 4 34 pendency thereof or if the plaintiff individually or the 4 35 plaintiffs collectively fail to continue to own at least five 5 1 percent of any class of the corporation's shares. 5 2 Sec. 9. NEW SECTION. 490.1808 Other business corporations 5 3 == application and effect of division. 5 4 The existence of a provision in this division shall not of 5 5 itself create an implication that a contrary or different rule 5 6 of law is applicable to a corporation that is not a benefit 5 7 corporation. Unless expressly stated otherwise, this division 5 8 shall not affect a statute or rule of law that is applicable to 5 9 a corporation that is not a benefit corporation. 5 10 Sec. 10. Section 496C.5, Code 2017, is amended to read as 5 11 follows: 5 12 496C.5 Corporate name. 5 13 1. The corporate name of a professional corporation, the 5 14 corporate name of a foreign professional corporation or its 5 15 name as modified for use in this state, and any fictitious name 5 16 or trade name adopted by a professional corporation or foreign 5 17 professional corporation shall contain the words "professional 5 18 corporation" or the abbreviation "P. C." or "PC", and except 5 19 for the addition of such words or abbreviation, shall be a name 5 20 which could lawfully be used by a licensed individual or by a 5 21 partnership of licensed individuals in the practice in this 5 22 state of a profession which the corporation is authorized to 5 23 practice. 5 24 1A. Notwithstanding subsection 1, the corporate name of a 5 25 professional corporation that is also a benefit corporation 5 26 under chapter 490, division VIII, shall comply with section 5 27 490.1802. 5 28 2. Each regulating board may by rule or regulation 5 29 adopt additional requirements as to the corporate names and 5 30 fictitious or trade names of professional corporations and 5 31 foreign professional corporations which are authorized to 5 32 practice a profession which is within the jurisdiction of the 5 33 regulating board. 5 34 EXPLANATION 5 35 The inclusion of this explanation does not constitute agreement with 6 1 the explanation's substance by the members of the general assembly. 6 2 GENERAL. This bill amends the "Iowa Business Corporation 6 3 Act" codified in Code chapter 490, by allowing a for=profit 6 4 corporation to either incorporate as or become a benefit 6 5 corporation with the purpose of operating in a responsible and 6 6 sustainable manner, that promotes one or more public benefits, 6 7 and that operates in a manner that considers the best interests 6 8 of persons materially affected by its conduct (new Code 6 9 section 490.1801(1)). A public benefit may be of an artistic, 6 10 charitable, cultural, economic, educational, cultural, 6 11 literary, religious, social, ecological, or scientific nature 6 12 (new Code section 490.1801(2)). Both the Code chapter and the 6 13 bill's amendments creating new division XVIII are based on 6 14 model legislation prepared by the American bar association. 6 15 DECLARATION. In order to be regarded as a benefit 6 16 corporation, the corporation's articles of incorporation 6 17 (articles) must include a public benefit provision that 6 18 expressly describes the corporation's public benefit (new Code 6 19 section 490.1801(3)). Moreover, the corporation's benefit 6 20 status must be identified in its corporate name (new Code 6 21 section 490.1802). Consequently, a professional corporation 6 22 which is also a benefit corporation must also identify itself 6 23 as a form of benefit corporation (amended Code section 496C.5). 6 24 In addition, stock issued by the benefit corporation must state 6 25 its benefit status (new Code section 490.1804), as must any 6 26 shareholder meeting notice (Code section 490.1806(1)). 6 27 CHOICE TO FORM AS OR BECOME A BENEFIT ENTITY. A new 6 28 corporation may choose to form as a benefit corporation at 6 29 the time of incorporation by filing its articles with the 6 30 secretary of state, and an existing corporation may choose to 6 31 become a benefit corporation by amending its filed articles. 6 32 An existing corporation may also choose to become a benefit 6 33 corporation by combining through merger or share exchange 6 34 with a benefit corporation or similar foreign public benefit 6 35 entity (new Code section 490.1803(1)). In any case, at least 7 1 90 percent of the existing corporation's outstanding voting 7 2 and nonvoting shares of each class and series must approve 7 3 the choice. Dissenting shareholders are entitled to exercise 7 4 ordinary appraisal rights (amended Code section 490.1302(1)). 7 5 However, the approval of at least two=thirds (66 2/3 percent) 7 6 of a benefit corporation's outstanding shares entitled to vote 7 7 on the question is required to amend or eliminate a public 7 8 benefit provision from its articles, or to merge with or agree 7 9 to a share exchange with a nonbenefit entity (new Code section 7 10 490.1803(2)). 7 11 MANAGEMENT. When making a decision affecting the business 7 12 affairs of a benefit corporation, its board of directors 7 13 must balance three criteria: its public benefit provision, 7 14 the best interests of persons materially affected by the 7 15 benefit corporation's conduct, and the traditional factor 7 16 of its stockholders' pecuniary interests (new Code section 7 17 490.1805(1)). A director does not have a duty to account for 7 18 a business decision (new Code section 490.1805(2)), and a 7 19 director's failure to consider a factor does not constitute 7 20 an intentional infliction of harm on the corporation or the 7 21 shareholders, unless otherwise provided in the corporation's 7 22 articles (new Code section 490.1805(3)). However, at least 7 23 5 percent of the corporation's shareholders may institute a 7 24 derivative suit to enforce compliance with the corporation's 7 25 public benefit provision, in part by alleging that the 7 26 directors failed to properly perform their duties (new Code 7 27 section 490.1807). 7 28 REPORT. The benefit corporation must prepare and deliver a 7 29 report to shareholders that addresses how its public benefit 7 30 provision is being promoted and persons materially affected 7 31 by the corporation's conduct (new Code section 490.1806(2)). 7 32 The benefit corporation's directors are responsible for the 7 33 report's preparation. The corporation's articles may require 7 34 the involvement by a third party, who may be responsible for 7 35 certifying how the corporation addressed the public benefit 8 1 or the best interests of those materially affected by the 8 2 corporation's conduct. The report is not required to be 8 3 disclosed to the public, or delivered more frequently than once 8 4 every two years, unless otherwise specified in the benefit 8 5 corporation's articles (new Code section 490.1806(3)). 8 6 APPLICATION. The special designation of a corporation as a 8 7 benefit corporation does not by itself create an implication 8 8 that different rules apply to nonbenefit corporations. 8 9 However, a specific provision governing a benefit corporation 8 10 also does not affect any other provision that applies to a 8 11 nonbenefit corporation unless otherwise expressly stated (new 8 12 Code section 490.1808). LSB 1346HH (4) 87 da/nh
