Legislature(2015 - 2016)HOUSE FINANCE 519
04/03/2015 01:30 PM FINANCE
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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." 2:57:41 PM REPRESENTATIVE PAUL SEATON, SPONSOR, explained the bill. He stated that 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 them. 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. 3:00:36 PM Representative Wilson wondered why the legislation was needed. Co-Chair Thompson provided his understanding of the current system related to corporations. He stated that the shareholders currently had a sizeable profit in the corporation, but the corporation gave 80 percent of its earning to charity. The bill would protect the corporation from being sued by a shareholder. Representative Seaton agreed, but felt it was an extreme example. The legislation was intended to benefit the community. Co-Chair Neuman asked if corporations could currently give a percentage of their profits to other entities, even though there was a risk of being sued by the shareholders. Representative Seaton replied in the affirmative. Co-Chair Neuman pointed out how this legislation could be a "two-edged sword." He felt that there could be a conflict of interest. He furthered that the bill made the corporation identify who receives the benefit, and how much was given. Representative Seaton replied in the affirmative. He stated that the corporation must file a benefit report. Co-Chair Neuman asked if they had to pay any taxes, before the benefits were paid. Representative Seaton replied that it was like a C corporation. 3:06:28 PM Representative Pruitt queried the rights of the shareholders. Representative Seaton looked at page 14, and noted the stockholders dissent language. TANEEKA HANSEN, STAFF, REPRESENTATIVE PAUL SEATON, responded that the shareholders had the ability to dissent, at the time a corporation may decide to become a benefit corporation. Establishing a benefit corporation requires a two-thirds vote of the board of directors to become established. She looked at a section that allowed the shareholders the right to bring action, as related to the specific benefit purpose. If that shareholder felt that the benefit corporation was not perusing its public benefit purpose, they could bring corrective action. 3:09:16 PM Representative Pruitt surmised that the shareholder could sue, if they felt that the corporation had not provided enough benefit. Mr. Hansen replied that the shareholder could bring action, but not for monetary damages. They could only bring corrective action. 3:10:26 PM ERIC TROJIAN, DIRECTOR OF POLICY, B-LABS, explained that B- Labs worked to bring investors and social entrepreneurs. He stated that there was an impediment in corporate law that inhibited the stakeholders from receiving the full revenue. He stressed that the purpose of the legislation would protect the legislature, by allowing the shareholder to sue, if the company was not considering the social mission. He stated that Idaho had recently enacted an almost identical bill. He shared that there were currently 2200 benefit corporations nationwide, and there were several million dollar deals within those companies. He felt that the bill was a deregulation of a purpose of a corporation from a sole requirement to maximize profits to deregulating by allowing the market direct the company's action. The shareholder will then understand the direction of the company, via the specific style of the corporation as outlined in the corporation certificate. He stressed that there were some benefit corporations that were thriving. 3:17:22 PM Co-Chair Thompson asked if the federal government treated a B corporation any differently than the C corporations. Mr. Trojian responded in the negative, because the bill did not address any tax issues. Representative Wilson wondered what would occur if only 60 percent of the shareholders wanted to contribute to a local nonprofit. She asked if the other 40 percent had a right to sue. Mr. Trojian responded that the board of directors made those decisions. The shareholders had a right to vote out the board of directors. He explained that the benefit corporations did not give large amounts of money to nonprofits. The benefit corporations wanted to instill a certain moral or mission within the company. He used the example of Patagonia and King Arthur Flour using organic materials. He stated that the benefit corporations made decisions with the community and shareholders in mind. Representative Wilson wondered if the same concept could occur within the shareholders, versus creating an entirely new corporation. Mr. Trojian indicated no. He reported that no because the purpose of that corporation was to maximize profits. Representative Pruitt queried the goal of B-Labs. Mr. Trojian responded that his entity's mission was to use the power of business to solve social and environmental problems. His organization felt that there were too many problems in the world for only government to solve. Representative Pruitt asked for examples of companies where shareholders may have sued, because they did not believe that the company went far enough to contribute to society. Mr. Trojian responded that there was not any case law at present related to the legislation. 3:24:13 PM Representative Gara stressed that the law did not require a specific social cause. Mr. Trojian responded in the affirmative. Representative Gattis surmised that the bill allowed for a greater participation by the consumer to contribute to a greater cause. Representative Seaton agreed, but stressed that the corporations would pay taxes and benefit the community. Co-Chair Thompson CLOSED public testimony. Co-Chair Neuman MOVED to report CSHB 49(L&C) out of Committee with individual recommendations and the accompanying fiscal note. Representative Pruitt OBJECTED. He felt as if the state would be opening up the doors to a problem to greater environmental attacks on Alaska. He focused his concerns on environmental taxes. A roll call vote was taken on the motion. IN FAVOR: Gara, Guttenberg, Kawasaki, Munoz, Neuman, Thompson OPPOSED: Gattis, Pruitt, Wilson The MOTION PASSED (6/3). CSHB 49(L&C) was REPORTED out of committee with a "do pass" recommendation and with a new fiscal impact note from the Department of Commerce, Community and Economic Development. Co-Chair Thompson discussed the agenda for the following meeting.