Legislature(2015 - 2016)HOUSE FINANCE 519

03/19/2015 01:30 PM FINANCE

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Heard & Held
Heard & Held
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HOUSE BILL NO. 49                                                                                                             
     "An  Act relating  to  corporations, including  benefit                                                                    
     corporations, and other entities;  and providing for an                                                                    
     effective date."                                                                                                           
2:18:44 PM                                                                                                                    
REPRESENTATIVE PAUL SEATON, SPONSOR, read the sponsor                                                                           
statement for the bill:                                                                                                         
     HB  49 expands  the options  for Alaskan  entrepreneurs                                                                    
     and  investors  by  placing a  new  type  of  corporate                                                                    
     entity, the Benefit Corporation,  in Alaskan statute. A                                                                    
     benefit corporation  is a for-profit  corporation which                                                                    
     incorporates public benefits  and community improvement                                                                    
     into its  business practices,  no matter  the principal                                                                    
     service or  product provided. 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.                                                                                        
     Corporate  law  generally  requires  a  corporation  to                                                                    
     consider the financial impact  to their shareholders as                                                                    
     the  top  priority  when making  decisions.  Under  the                                                                    
     benefit  corporate structure,  owners  and boards  have                                                                    
     the  freedom to  take actions  which positively  impact                                                                    
     their   communities  without   fear   of  violating   a                                                                    
     fiduciary   duty.  Benefit   corporations  are   formed                                                                    
     voluntarily and have  the same tax status  of any other                                                                    
     for-profit corporation.  By electing in  their articles                                                                    
     of  incorporation to  become a  benefit corporation,  a                                                                    
     business  simply  gains   the  flexibility  to  include                                                                    
     mission and social impact in their business practices.                                                                     
     Twenty-seven   other   states   have   passed   benefit                                                                    
     corporation  legislation  and  many more  have  benefit                                                                    
     bills in  process. Over 1400 benefit  corporations have                                                                    
     incorporated in those states,  including Ben & Jerry's,                                                                    
     Patagonia,  Rasmussen College,  Epic  Coffee, and  King                                                                    
     Arthur Flour Company  (America's oldest flour company).                                                                    
     Each  of these  companies works  to benefit  the public                                                                    
     and their communities  in the way that  matters most to                                                                    
     HB 49  also includes measures to  ensure accountability                                                                    
     and  transparency. Just  as  a traditional  corporation                                                                    
     provides their  shareholders with financial  reports, a                                                                    
     benefit  corporation   will  additionally   create  and                                                                    
     publish a  biennial benefit  report describing  how the                                                                    
     company has  pursued the  general public  benefit. This                                                                    
     report, which  is held against a  third party standard,                                                                    
     allows  shareholders,  investors,  and  the  public  to                                                                    
     confidently invest  in benefit corporations  that share                                                                    
     their values.                                                                                                              
     The  goal  of   HB  49  is  to   give  businesses  more                                                                    
     flexibility  and control  over their  decisions and  to                                                                    
     provide  investors  with   a  clear  social  investment                                                                    
Representative  Seaton  relayed  that   the  bill  idea  was                                                                    
brought to him by some  of his constituents who were looking                                                                    
for ways  for corporations  to be  accountable and  to allow                                                                    
mission-based   or   social  impact-based   investments   to                                                                    
advance.  He had  received feedback  from Dianne  Hughes, an                                                                    
owner from the  Earth Friendly Coffee Company  in Homer, and                                                                    
Gordon Blue,  the director  of Alaska  Sustainable Fisheries                                                                    
Trust in  Sitka. He  pointed out  letters in  member packets                                                                    
from  people   around  the  state.  He   was  available  for                                                                    
Co-Chair  Thompson mentioned  that there  were agency  folks                                                                    
available for questions.                                                                                                        
2:24:34 PM                                                                                                                    
Representative Gattis wanted to  know what corporations were                                                                    
unable to do currently without passing new legislation.                                                                         
Representative Seaton  mentioned that  someone with  a stock                                                                    
portfolio  has probably  noticed a  plethora of  stockholder                                                                    
lawsuits  that  have  come  about.   He  claimed  they  were                                                                    
typically a  result of  shareholders being  disgruntled with                                                                    
the  maximization of  their returns.  House Bill  49 allowed                                                                    
corporations to  pursue a community  or statewide goal  as a                                                                    
general or specific benefit. All  of the people investing in                                                                    
a B  Corporation would  be aware that  the purpose  of their                                                                    
investment was not only to make  a profit but also to pursue                                                                    
a benefit  goal. He furthered  that often  corporations were                                                                    
held back  from doing what was  socially responsible because                                                                    
of the potential of being sued by their stockholders.                                                                           
Representative Seaton  continued that corporate  law defines                                                                    
the primary  purpose of a  C Corporation; to earn  money for                                                                    
its  shareholders.  In the  case  of  a B  Corporation,  the                                                                    
corporation,  the  board  of directors,  and  the  investors                                                                    
could pursue  mission or  social impact  investments without                                                                    
the fear  of being sued.  He spoke of  the success of  the B                                                                    
Corporation all around  the country in terms  of the pursuit                                                                    
of  sustainability.   A  large   corporate  farm,  as   a  C                                                                    
Corporation, might  not be able  to use  sustainable farming                                                                    
practices if  it meant lower  profits for  its shareholders.                                                                    
Shareholders  might sue  a corporation  if they  thought the                                                                    
farming method took away from  their bottom line. Whereas, a                                                                    
B  Corporation could  select a  general and  specific public                                                                    
Representative Gattis had a difficult  time thinking about a                                                                    
corporation that did not have  profit as a primary goal. She                                                                    
understood the concept but was struggling with the idea.                                                                        
Representative  Seaton responded  that B  Corporation's main                                                                    
mission could  be to  make a  profit but  could also  have a                                                                    
goal  of  providing  a  general or  public  benefit.  The  B                                                                    
Corporation status benefited a  corporation in certain other                                                                    
ways such as:  maintaining a certain persona,  being able to                                                                    
get  action in  the  legislature, or  providing an  economic                                                                    
advantage  to the  corporation  over others.    Many of  the                                                                    
stockholder lawsuits were based on certain kinds of things.                                                                     
2:29:12 PM                                                                                                                    
Co-Chair Thompson  referred to an  email he received  from a                                                                    
supporter of the bill. The  supporter suggested that, first,                                                                    
the  bill   provided  legal  protection  to   directors  and                                                                    
officers  to  consider  the interest  of  all  stakeholders.                                                                    
Secondly,   it   created   additional   rights   for   stake                                                                    
shareholders  to hold  directors  and officers  accountable.                                                                    
Co-Chair  Thompson believe  that  the  two ideas  conflicted                                                                    
with each other.                                                                                                                
Representative  Seaton  responded  that  the  way  in  which                                                                    
people were held accountable was  to select a public benefit                                                                    
and  to measure  themselves against  third party  standards.                                                                    
Directors   and   officers   that   did   not   pursue   the                                                                    
corporation's general  goal could  be sued. However,  a suit                                                                    
was  not limited  to the  measure of  financial benefit  but                                                                    
also to the  measure of meeting a public  purpose. People in                                                                    
B  Corporations to  make a  profit  and to  fulfil a  public                                                                    
purpose. A benefit  report had to be filed  every two years.                                                                    
Otherwise, stockholders  could claim  that the  director and                                                                    
board  members   were  not  fulfilling  the   goals  of  the                                                                    
Vice-Chair Saddler  commented that it appeared  that someone                                                                    
was  trying  to  graft  the efficiency  and  energy  of  the                                                                    
corporate capital  model with the social  idealism of public                                                                    
interest  efforts.  He  had   a  difficult  time  completely                                                                    
understanding  the  idea  because he  believed  corporations                                                                    
were in the  business to make money. He asked  about the tax                                                                    
implications  for  the  State  of  Alaska.  He  wondered  if                                                                    
benefit  corporations would  be  exempt from  or subject  to                                                                    
paying taxes.                                                                                                                   
Representative Seaton  responded that there would  be no tax                                                                    
implications.   As  a   for-profit  corporation   a  benefit                                                                    
corporation  would be  subject  to  the same  taxes  as a  C                                                                    
Corporation without credits or benefits.                                                                                        
2:31:56 PM                                                                                                                    
Vice-Chair  Saddler asked  Representative Seaton  if he  had                                                                    
any idea how many existing  C Corporations would switch to a                                                                    
benefit corporation structure if the legislation passed.                                                                        
Representative Seaton  responded that Nevada  passed similar                                                                    
legislation in  January 2014. Since that  time 499 companies                                                                    
had either formed or converted  to a benefit corporation. He                                                                    
relayed that it  took a two-thirds vote of  stock holders to                                                                    
convert. Conversion standards were outlined in the bill.                                                                        
Vice-Chair Saddler anticipated  that more corporations would                                                                    
start out as a benefit corporation  and make a change to a C                                                                    
Corporation later.  He asked about  the practical  impact on                                                                    
the state economy with the passage of HB 49.                                                                                    
Representative  Seaton  responded  there was  a  significant                                                                    
amount  of   money  invested   in  social   responsible  and                                                                    
sustainable companies that would  not invest in corporations                                                                    
in  Alaska  if they  were  not  sustainable. There  was  6.6                                                                    
billion in  capital available,  according to  Pew Charitable                                                                    
Trusts,   for   the   investment   in   social   responsible                                                                    
corporations. Some of the money  could be brought to Alaska,                                                                    
but he did not know an amount.                                                                                                  
Vice-Chair  Saddler spoke  of  seeing  some non-profits  had                                                                    
taken  advantage  of  public   laws  such  as  water  rights                                                                    
reservations with  an avowed  purpose not  to use  the water                                                                    
but to prevent other development  projects from using it. He                                                                    
was concerned  whether a benefit  corporation might  use the                                                                    
tools  available  to  a for-profit  corporation  to  deprive                                                                    
other  for-profit  corporations   from  developing  Alaska's                                                                    
resources.  He would  address  additional  questions in  the                                                                    
Representative  Seaton  suggested  that becoming  a  benefit                                                                    
corporation  did not  establish additional  rights to  state                                                                    
resources. However,  it did allow  a benefit  corporation to                                                                    
define its investment parameters  to include a social impact                                                                    
element as part of its general purpose.                                                                                         
Vice-Chair Saddler emphasized wanting  be sure of the answer                                                                    
to  his   question  prior   to  creating   a  new   type  of                                                                    
2:35:29 PM                                                                                                                    
Representative Gara  told a  story of  a law  case regarding                                                                    
Buster Brown Shoe Company. They  wanted to attract employees                                                                    
by providing daycare at their  business. The corporation was                                                                    
challenged by  a shareholder  that claimed  that it  was not                                                                    
maximizing  profits  under  standard corporate  law.  Buster                                                                    
Brown lost in court. He  asked if owners and shareholders of                                                                    
the benefit corporations were given notice of a change.                                                                         
Representative  Seaton responded  positively.  As a  benefit                                                                    
corporation, a  corporate structure, was established  in law                                                                    
with  reporting  requirements.  There   was  a  much  higher                                                                    
threshold to  convert to a  B Corporation because  of having                                                                    
to have an agreement among stockholders.                                                                                        
Representative Gara  wondered if  one of the  motivations in                                                                    
establishing a benefit corporation was to avoid litigation.                                                                     
Representative  Seaton believed  it was  one motivation.  He                                                                    
elaborated  that the  purpose was  to allow  corporations to                                                                    
have a specific  public benefit as well as  making money for                                                                    
shareholders without fear of a lawsuit.                                                                                         
2:38:29 PM                                                                                                                    
Representative Gara asked if  the proposed legislation would                                                                    
allow a group to donate  profits to, for example, a veterans                                                                    
group  or a  faith-based cause  as a  for-profit corporation                                                                    
and still adhere to its values.                                                                                                 
Representative  Seaton  confirmed that  Representative  Gara                                                                    
was  correct.  He  relayed  it  was  not  a  non-profit  and                                                                    
therefore  could make  money but  could have  a specific  or                                                                    
general public benefit. The examples  given were well within                                                                    
the aspects of the legislation.                                                                                                 
Representative   Munoz  believed   her  question   had  been                                                                    
answered  regarding the  proposed requirements  to gain  the                                                                    
approval of  the existing shareholders  of a  C Corporation.                                                                    
She recalled  a two-third  majority vote of  a corporation's                                                                    
shareholders  was necessary  to  institute a  change to  the                                                                    
status  of  a  benefit  corporation. She  was  wondering  if                                                                    
percentages were defined in statute.                                                                                            
Representative Seaton deferred to his staff.                                                                                    
TANEEKA HANSEN, STAFF, REPRESENTATIVE  PAUL SEATON, asked if                                                                    
Representative Munoz was referring to a specific statute.                                                                       
Representative Munoz  referred to page  2, Section 2  of the                                                                    
bill  where it  outlined the  minimum voting  requirement to                                                                    
establish  a  benefit  corporation.   She  felt  the  voting                                                                    
prerequisites were  not laid  out clearly  in the  bill. She                                                                    
mentioned  Representative Seaton  alluding to  the necessity                                                                    
of a two-thirds vote. Ms.  Hansen confirmed that there was a                                                                    
two-thirds   vote  requirement.   She   would  provide   the                                                                    
information to the committee.                                                                                                   
Representative   Munoz  wanted   to  make   sure  that   the                                                                    
requirement was referenced in the bill.                                                                                         
2:42:03 PM                                                                                                                    
Representative Wilson wanted to  better understand why a new                                                                    
type  of  corporation would  be  necessary  in order  for  a                                                                    
corporation to  change its vision. She  suggested conferring                                                                    
with  shareholders but  making changes  within the  already-                                                                    
established laws.                                                                                                               
Representative Seaton responded  that without establishing a                                                                    
benefit  corporation  a  C   Corporation  would  be  without                                                                    
protection  from shareholder  litigation having  to do  with                                                                    
pursuing  anything  other  than   profit.  In  forming  a  B                                                                    
Corporation a  company would  be able to  pursue not  only a                                                                    
profit   but  also   an  identified   public  benefit.   All                                                                    
shareholders would  be aware  of what  they were  buying and                                                                    
what  benefits  were being  invested  in.  The filing  of  a                                                                    
benefit report by all B Corporations would be required.                                                                         
Representative  Wilson  was  referring  to  the  process  of                                                                    
communicating  with shareholders  to inform  them as  to the                                                                    
goals  of  the  company  outside of  making  a  profit.  She                                                                    
wondered if a  C Corporation could operate in such  a way as                                                                    
long as shareholders were aware of the terms.                                                                                   
Representative  Seaton  explained  that the  reason  benefit                                                                    
corporations  were  springing  up was  because  of  lawsuits                                                                    
resulting from  shareholders not  agreeing to new  terms. He                                                                    
furthered that  unless there was a  corporate structure that                                                                    
specifically defined  terms and  a corporation  was required                                                                    
to produce benefit reports then  the people in a corporation                                                                    
were  at  risk.  He  believed that  within  a  closely  held                                                                    
operation,  such as  a  business with  only  five people,  a                                                                    
group  might  be able  to  reach  an agreement.  However,  a                                                                    
corporation   pursuing  the   $6.6   billion  in   available                                                                    
investment monies  designated for  sustainable corporations,                                                                    
would  purchase  stock  rather  than  negotiating  around  a                                                                    
2:45:53 PM                                                                                                                    
Representative Wilson  commented that they would  not all be                                                                    
around a table, the majority  would rule, 50 percent plus 1.                                                                    
She asked  if a benefit  corporation and B  Corporation were                                                                    
the same thing. She asked if there was a difference.                                                                            
Representative Seaton  indicated that a  benefit corporation                                                                    
was  statutorily  designated.  He volunteered  that  B  Lab,                                                                    
similar to  Pew Charitable  Trust, provided a  B Corporation                                                                    
certification which had  no force in law.  He provided other                                                                    
examples such  as sustainable  salmon labels,  and certified                                                                    
LEED buildings  that have no  official recognition  in state                                                                    
statute.  He clarified  that B  Corporation was  generally a                                                                    
shorthand for a benefit corporation.                                                                                            
Representative Edgmon  referred to page  2, lines 22  to 24,                                                                    
which  allowed  a  corporation  to  amend  its  articles  of                                                                    
incorporation to  add an extra layer  of indemnification. He                                                                    
clarified  that  when  the   board  of  directors  purchased                                                                    
directors  and officers  insurance they  would be  protected                                                                    
from  an errant  lawsuit.  Otherwise, as  a corporation,  it                                                                    
could spin off of subsidiaries,  or form a limited liability                                                                    
corporation, or  incorporate as  a non-for  profit. However,                                                                    
as a for-profit  corporation it would allow  for a provision                                                                    
such  as  day care  like  in  Representative Gara's  earlier                                                                    
example. He saw the bill  being complicated in terms of many                                                                    
pages in length, but he felt the substance was one theme.                                                                       
Representative Seaton agreed  that Representative Edgmon was                                                                    
correct in his interpretation.                                                                                                  
2:48:58 PM                                                                                                                    
Representative Pruitt  relayed a  scenario in  which instead                                                                    
of  being   sued  by  a   shareholder  who  felt   that  the                                                                    
corporation  was not  effectively  running  the business  to                                                                    
make them money they sued  the corporation because they felt                                                                    
the corporation  was not investing  enough capital  into the                                                                    
public benefit. He  suggested that at any  point an investor                                                                    
of a  benefit corporation could  take issue with  the amount                                                                    
being invested in  the benefit. He asked if  a B Corporation                                                                    
could be sued for a reason opposite of making a profit.                                                                         
Representative  Seaton directed  his  attention  to page  9,                                                                    
Article 5.  He confirmed  that claims against  a corporation                                                                    
for failing  to pursue  or create  a general  public benefit                                                                    
could be  filed but  not for monetary  damages. He  used the                                                                    
example  of a  retail sports  complex that  was supposed  to                                                                    
benefit  little league  but had  not  spent money  on it  as                                                                    
reflected on a benefit  report. A shareholder could litigate                                                                    
against  the corporation  influencing the  entity to  invest                                                                    
money to benefit little league.                                                                                                 
2:52:11 PM                                                                                                                    
Representative  Pruitt was  uncertain that  litigation would                                                                    
be avoided  by establishing a  new type of B  Corporation in                                                                    
Alaska. He opined  that litigation would still  occur but on                                                                    
another footing.                                                                                                                
Representative  Seaton  responded  that the  difference  was                                                                    
that someone could sue but not for a financial gain.                                                                            
Representative Pruitt  argued that  a shareholder  could sue                                                                    
for financial  gain even  if they  were not  receiving money                                                                    
directly. They could  claim that not enough  money was being                                                                    
directed to an  entity or organization of which  they were a                                                                    
Representative Seaton  indicated that  Representative Pruitt                                                                    
was correct.  He pointed out  that it was  totally voluntary                                                                    
for a B  Corporation to have a general  or specific benefit.                                                                    
The bill  provided protection for a  corporation that wanted                                                                    
to have a general or public  benefit as part of its mission.                                                                    
There   was   nothing  requiring   a   change   to  or   the                                                                    
establishment  of  a  B Corporation.  He  furthered  it  was                                                                    
totally up to the vote of the shareholders.                                                                                     
Representative Pruitt understood that  a two-thirds vote was                                                                    
required to  establish a B  Corporation. He wondered  if the                                                                    
voting requirement  was the same  for a  corporation wanting                                                                    
to   convert  from   a  B   Corporation   to  a   for-profit                                                                    
Representative  Seaton  responded  positively.  He  conveyed                                                                    
that he had to leave  the committee meeting to chair another                                                                    
but his staff would remain to answer any further questions.                                                                     
2:56:36 PM                                                                                                                    
Co-Chair Neuman pointed  out the simplicity of  the bill. He                                                                    
highlighted  that the  bill allowed  a company  to structure                                                                    
itself  as a  B Corporation  and outlined  that a  specified                                                                    
percentage  would  be given  to  a  public purpose  or  non-                                                                    
profit.  A  benefit  corporation  paid taxes  on  its  total                                                                    
profits  but was  required to  inform its  stockholders what                                                                    
portion  of the  profits would  go to  a certain  non-profit                                                                    
company upon  the approval of  the board. He wondered  if he                                                                    
was accurate.                                                                                                                   
Representative  Seaton confirmed  that  Co-Chair Neuman  was                                                                    
correct in his interpretation.                                                                                                  
Co-Chair  Thompson  stated  that   the  committee  would  be                                                                    
hearing  more complicated  bills than  HB 49  indicating the                                                                    
potential need to hold morning meetings.                                                                                        
Ms.  Hansen provided  additional  information. She  reported                                                                    
that the  bill allowed a  corporation to define  its purpose                                                                    
in the  articles of incorporation  so that  the shareholders                                                                    
were  informed.  It   was  not  only  for   the  purpose  of                                                                    
contributing  to non-profits.  There were  many corporations                                                                    
that  did  things such  as  paying  for volunteer  hours  to                                                                    
promote employee  and community  wellness. There  were other                                                                    
options but corporations needed  to articulate them in their                                                                    
benefit  report  and  to their  shareholders  through  their                                                                    
articles of incorporation.                                                                                                      
Co-Chair  Neuman  opined   that  further  involving  private                                                                    
industry  was   essential  based   on  the   state's  fiscal                                                                    
situation.  The  legislation  before  the  committee  helped                                                                    
towards that  end. He reiterated that  shareholders expected                                                                    
to have a maximum profit  and the bill established that part                                                                    
of the  profit would  go towards a  non-profit. He  used Ben                                                                    
and Jerry's as an example. He  did not believe the ice cream                                                                    
company had ever been sued.                                                                                                     
Ms. Hansen indicated that Ben  and Jerry's was the model for                                                                    
the legislation.  She reported that  they would have  been a                                                                    
benefit  corporation but  they were  currently a  subsidy of                                                                    
Unilever.  Ben and  Jerry's pursued  their status  through a                                                                    
certification process.  They did not have  legal protection.                                                                    
Upon being  taken over there  was a requirement to  seek the                                                                    
best  financial offer  but  somehow the  board  was able  to                                                                    
remain part  of the decision  making process to  protect its                                                                    
social benefit. HB 49 would  protect a corporation's mission                                                                    
and upon a change in  ownership social benefit could be part                                                                    
of the consideration.                                                                                                           
Co-Chair  Neuman talked  about  public  radio seeking  other                                                                    
funding   sources  other   than  through   the  state.   The                                                                    
legislation  would allow  a corporation  to help  non-profit                                                                    
corporations. He reiterated that  there were budgetary costs                                                                    
that the  state could no  longer support like  public radio.                                                                    
He  commended  Representative  Seaton  for  bringing  HB  49                                                                    
3:01:14 PM                                                                                                                    
Vice-Chair  Saddler  asked if  there  was  an exclusion  for                                                                    
making  money under  a benefit  corporation. He  asked if  a                                                                    
benefit corporation was  a solution to a  problem in Alaska.                                                                    
Ms. Hansen  indicated that it  was more prominent  in states                                                                    
that had a greater  number of publically owned corporations.                                                                    
She referred  to Gordon  Blue of  Sitka. She  explained that                                                                    
his company  was currently  a Limited  Liability Corporation                                                                    
(LLC) which  functioned somewhat  to protect its  mission of                                                                    
being  community centered.  The company  needed to  generate                                                                    
profit in  order to do what  it did but had  a very specific                                                                    
community  goal. The  LLC  functioned for  Mr.  Blue but  in                                                                    
previous  testimony he  indicated it  limited the  company's                                                                    
profits quite  a bit  which in turn  limited its  ability to                                                                    
have funds to carry out  its mission. She furthered that Mr.                                                                    
Blue was closely tied to  a non-profit which was complicated                                                                    
with the LLC. He had  expressed that the benefit corporation                                                                    
structure could  potentially be much simpler  way to achieve                                                                    
the same goal of protecting a community benefit.                                                                                
Vice-Chair Saddler  asked about page  12, lines 8 to  11. He                                                                    
thought there  would be  public interest  in seeing  to what                                                                    
extent  a  benefit  corporation was  achieving  its  benefit                                                                    
mission. However, this section would  limit the results of a                                                                    
benefit audit  to someone with  a connection to  the benefit                                                                    
corporation.  He  wondered  if   a  person  with  a  benefit                                                                    
corporation was a  shareholder. In other words,  he asked if                                                                    
someone would have access to  a benefit audit if they bought                                                                    
only one share of a stock.                                                                                                      
Ms.  Hansen  explained that  the  section  clarified that  a                                                                    
benefit  corporation was  not required  to have  its benefit                                                                    
report  audited. However,  there were  third-party standards                                                                    
that  the report  was required  to meet.  The report  had to                                                                    
include  the   third-party  standards  the   company  chose,                                                                    
explain  why  the company  selected  them,  and clarify  any                                                                    
financial connection  between the third-party  standards and                                                                    
the  benefit  corporation.  There was  no  requirement  that                                                                    
corporation  select a  particular  third-party standard.  It                                                                    
was  dependent  upon  the  focus  of  the  corporation.  She                                                                    
reported  that Global  Reporting Initiative  was one  of the                                                                    
third-party  standards.  She  mentioned a  sustainable  farm                                                                    
standards, more  appropriate for a business  in agriculture.                                                                    
The core of the  third-party standard was currently accepted                                                                    
best  practice policy  for employment  and worker  wellbeing                                                                    
and community support.                                                                                                          
3:05:23 PM                                                                                                                    
Vice-Chair Saddler  commented that in the  following section                                                                    
of the  bill it indicated  that a benefit  corporation shall                                                                    
send  a  report to  each  shareholder.  Therefore, a  person                                                                    
purchasing  only one  share received  a  report. Ms.  Hansen                                                                    
relayed  that it  was required  that the  benefit report  be                                                                    
available to  the public. If  the company had a  website the                                                                    
report had to be on the site.                                                                                                   
Co-Chair   Thompson  asked   if  there   were  any   further                                                                    
Representative Pruitt wondered what  kind of entity would be                                                                    
interested   in   forming    a   benefit   corporation.   He                                                                    
specifically asked if non-profits  had expressed an interest                                                                    
in moving  from a non-profit  structure to a  B Corporation.                                                                    
Ms. Hansen  responded that although  it was possible  that a                                                                    
non-profit  would  want to  make  the  shift it  would  also                                                                    
require a shift in philosophy.  An entity would no longer be                                                                    
a  non-profit changing  one of  its main  goals to  making a                                                                    
profit. Mostly  she had seen  new corporations or  current C                                                                    
Corporations  that  had   nurtured  certain  social  values.                                                                    
Creating  a  benefit  corporation   was  an  opportunity  to                                                                    
protect what were already goals held by corporations.                                                                           
Representative  Pruitt did  not  see the  simplicity of  the                                                                    
bill. He believed  the legislation created a  loophole for a                                                                    
non-profit  corporation   to  make  a   profit,  potentially                                                                    
competing  against for-profit  entities. If  a corporation's                                                                    
goal was  to have a  benefit and was shielded  from lawsuits                                                                    
for placing  company profits into a  benefit, the non-profit                                                                    
essentially and legally made  money. Whereas, previously the                                                                    
corporation  had  to be  a  non-profit.  He reiterated  that                                                                    
there was more  to the bill than the committee  was aware of                                                                    
as well as potential ramifications.                                                                                             
Co-Chair  Thompson commented  that  a  corporation would  be                                                                    
responsible for paying  taxes if it moved away  from being a                                                                    
non-profit to becoming a for-profit corporation.                                                                                
Representative Pruitt  responded that a  benefit corporation                                                                    
could take all  of its profits and place them  into a public                                                                    
purpose benefit to avoid paying  taxes. He believed that the                                                                    
taxes  would offset  profits. Ms.  Hansen  relayed that  the                                                                    
bill did  not allow  for any special  tax exemptions  of any                                                                    
sort. The  only way that  the money going towards  a benefit                                                                    
would  be  tax exempt  was  whatever  was currently  allowed                                                                    
under corporate law for a charitable donation.                                                                                  
Representative  Pruitt used  the  example of  running a  day                                                                    
care, which  he claimed was  the cost of doing  business. He                                                                    
suggested that  income monies [from  a B  Corporation] could                                                                    
be  placed  into  a  benefit  [purpose]  claiming  it  as  a                                                                    
business expense,  leaving the  B Corporation without  a tax                                                                    
liability. Therefore,  he surmised  the B  Corporation would                                                                    
be  competing with  other  for-profit  businesses but  would                                                                    
have the ability to write-off  tax liability. He referred to                                                                    
a  B Corporation  as a  for-profit  non-profit. He  stressed                                                                    
that  he bill  was  not  simply to  donate  money towards  a                                                                    
certain benefit.                                                                                                                
Co-Chair   Thompson   commented   that   there   were   more                                                                    
complications  in  moving  from  a non-profit  to  a  profit                                                                    
corporation. He  mentioned assets  and loans  and speculated                                                                    
that  it  would not  be  advantageous  for a  non-profit  to                                                                    
become  a B  Corporation.  The entity  would  end up  paying                                                                    
taxes one way or another.                                                                                                       
3:09:44 PM                                                                                                                    
Representative Gara said there were  a million ways to avoid                                                                    
paying taxes.  He provided examples  such as  increasing the                                                                    
compensation for  executives or managers who  would then pay                                                                    
taxes on  their income. He saw  the bill as an  extension of                                                                    
freedom to decide about what  type of corporations they want                                                                    
to form  and for what purpose.  The bill added a  new option                                                                    
to   choose  their   investment.  Like   any  part   of  the                                                                    
marketplace a  person had the  freedom to go  somewhere else                                                                    
if they wanted. The legislation  did not take away taxes nor                                                                    
would it shrink businesses.                                                                                                     
Co-Chair Thompson commented that  executives would be paying                                                                    
more money in taxes. He pointed  out that the bill had a new                                                                    
fiscal note  dated 3/13/15. He  commented that  the original                                                                    
note had  a misprint and  the new fiscal note  reflected the                                                                    
HB  49  was   HEARD  and  HELD  in   committee  for  further                                                                    
Co-Chair Thompson  announced that  the meeting  scheduled on                                                                    
Friday, March 20, 2015 was canceled.                                                                                            

Document Name Date/Time Subjects
HB049 Explanation of changes_H to E.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB049 Sectional Analysis Ver E.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB049 Sponsor Statement.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB049 Supporting Document-2015 Legal FAQS-B Lab.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB049 Supporting Document-2015 Sampling of Benefit Corporations.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB049 Supporting Document-2015 States with Benefit Corporations.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB049 Supporting Document-Letter Diane E. Hughes 2-4-2014.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB049 Supporting Document-Letter Grodon Blue 2-2-2015.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB116 Supporting Documents - Legislative Audit 05-30-14.pdf HFIN 3/19/2015 1:30:00 PM
HB 116
HB116 Sponsor Statement.pdf HFIN 3/19/2015 1:30:00 PM
HB 116
HB 49 New FN DCCED.pdf HFIN 3/19/2015 1:30:00 PM
HB 49
HB 49 Support Letter.pdf HFIN 3/19/2015 1:30:00 PM
HB 49