S26 [Filed]

GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2011

S D

SENATE DRS75006-ME-9B (01/14)

Short Title: North Carolina Benefit Corporation Act.		(Public)
Sponsors:	Senators Vaughan, Stevens, and Kinnaird (Primary Sponsors).
Referred to:

A BILL TO BE ENTITLED

AN ACT TO ENACT THE NORTH CAROLINA BENEFIT CORPORATION ACT.

The General Assembly of North Carolina enacts:

SECTION 1. Chapter 55 of the General Statutes is amended by adding a new Article to read:

"Article 18.

"The North Carolina Benefit Corporation Act.

"Part 1. Preliminary Provisions.

"§ 55-18-1. Short title.

This Article may be cited as "The North Carolina Benefit Corporation Act."

"§ 55-18-2. Application and effect of Article.

(a) This Article applies to all benefit corporations.

(b) Benefit corporations are business corporations that have elected to become subject to this Article. The other Articles of this Chapter apply to benefit corporations, including their organization. Benefit corporations shall enjoy the powers and privileges and shall be subject to the duties, restrictions, and liabilities of other corporations under this Chapter, except as may be limited or enlarged by this Article. If any provision of this Article conflicts with the law in the rest of this Chapter, the provision of this Article shall prevail.

(c) The existence of a provision of this Article shall not of itself create an implication that a contrary or different rule of law is applicable to a business corporation that is not a benefit corporation. This Article shall not affect a statute or rule of law that is applicable to a business corporation that is not a benefit corporation.

(d) A provision of the articles or bylaws of a benefit corporation may not be inconsistent with or supersede a provision of this Article, unless specifically stated otherwise in a particular provision of this Article.

(e) A document required or permitted by this Article to be delivered to the Secretary of State for filing shall be filed under Chapter 55D of the General Statutes.

"§ 55-18-3. Definitions.

(a) As used in this Article, the following words shall, unless the context requires otherwise, have the following meanings:

(1) "Benefit corporation" means a business corporation that has elected to become subject to this Article and that has not terminated its status as a benefit corporation under G.S. 55-18-23.

(2) "Benefit director" means the director designated under G.S. 55-18-31.

(3) "Benefit enforcement proceeding" means any claim or action brought under G.S. 55-18-44 against a director or officer for any of the following:

a. Failing to pursue the general public benefit purpose of the benefit corporation or any specific public benefit purpose set forth in its articles of incorporation.

b. Violating a duty or standard of conduct under this Article.

(4) "Benefit officer" means the individual designated under G.S. 55-18-43.

(5) "General public benefit" means a material positive impact on society and the environment taken as a whole, as measured by a third-party standard, from the business and operations of a benefit corporation.

(6) "Independent" means having no material relationship with a benefit corporation or a subsidiary of the benefit corporation, either (i) directly as a shareholder of the benefit corporation or as a partner, a member, or an owner of a subsidiary of the benefit corporation or (ii) indirectly as a director, an officer, or a manager of an entity that has a material relationship with the benefit corporation or a subsidiary of the benefit corporation. The term does not include the relationship of serving as benefit director or benefit officer. A material relationship between a person and a benefit corporation or any of its subsidiaries will be conclusively presumed to exist if any of the following apply:

a. The person is, or has been within the last three years, an employee other than a benefit officer of the benefit corporation or a subsidiary of the benefit corporation.

b. An immediate family member of the person is, or has been within the last three years, an executive officer other than a benefit officer of the benefit corporation or its subsidiary.

c. There is a beneficial or record ownership of five percent (5%) or more of the outstanding shares of the benefit corporation by either of the following:

1. The person.

2. An entity in which the person (i) is a director, an officer, or a manager or (ii) the person owns beneficially or of record five percent (5%) or more of the outstanding equity interests.

This definition is subject to subsection (b) of this section.

(7) "Specific public benefit" means conferring any particular benefit on society or the environment, including, but not limited to, any of the following:

a. Providing low-income or underserved individuals or communities with beneficial products or services.

b. Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business.

c. Preserving the environment.

d. Improving human health.

e. Promoting the arts, sciences, or advancement of knowledge.

f. Increasing the flow of capital to entities with a public benefit purpose.

(8) "Subsidiary" of a person means an entity in which the person owns beneficially or of record fifty percent (50%) or more of the outstanding equity interests. This definition is subject to subsection (b) of this section.

(9) "Third-party standard" means a recognized standard for defining, reporting, and assessing corporate social and environmental performance that meets the following requirements:

a. The standard is developed by a person that is independent of the benefit corporation.

b. The standard is transparent because the following information about the standard is publicly available:

1. The factors considered when measuring the performance of a business.

2. The relative weightings of those factors.

3. The identity of the persons that develop and control changes to the standard and the process by which those changes are made.

(b) For purposes of the definitions of "independent" and "subsidiary" in subsection (a) of this section, a percentage of ownership in an entity shall be calculated as if all outstanding rights to acquire equity interests in the entity had been exercised."Part 2. Formation and Change of Status.

"§ 55-18-20. Formation of benefit corporation.

A benefit corporation must be formed in accordance with the other Articles of this Chapter, but its articles of incorporation must also state it is a benefit corporation.

"§ 55-18-21. Heightened voting requirements for some actions.

Some actions and changes within benefit corporations are subject to heightened voting requirements that are in addition to any other approval or vote required by any other Articles in this Chapter, the articles of incorporation, or the bylaws. When a provision of this Article references a heightened voting requirement under this section, those votes are subject to the following conditions:

(1) The shareholders of every class or series must be entitled to vote on the corporate action regardless of a limitation stated in the articles of incorporation or bylaws on the voting rights of any class or series.

(2) The corporate action must be approved by vote of the shareholders of each class or series entitled to cast at least two-thirds of the votes that all shareholders of the class or series are entitled to cast on the action.

"§ 55-18-22. Election of benefit corporation status.

(a) A business corporation may become a benefit corporation under this Article by amending its articles of incorporation so that they contain, in addition to the requirements of G.S. 55-2-02(a), a statement that the corporation is a benefit corporation. In order to be effective, the amendment must be adopted under the heightened voting requirements in G.S. 55-18-21.

(b) If a corporation that is not a benefit corporation is a party to a merger or share exchange, and the surviving or new corporation in the merger or share exchange is to be a benefit corporation, the plan of merger or share exchange shall not be effective unless it is adopted under the heightened voting requirements in G.S. 55-18-21.

"§ 55-18-23. Termination of benefit corporation status.

(a) A benefit corporation may terminate its status and cease to be subject to this Article by amending its articles of incorporation to delete the provision required by G.S. 55-18-20 to be stated in the articles of a benefit corporation. In order to be effective, the amendment must be adopted by the heightened voting requirements in G.S. 55-18-21.

(b) If a plan of merger or share exchange would have the effect of terminating the status of a business corporation as a benefit corporation, the plan, in order to be effective, must be adopted under the heightened voting requirements in G.S. 55-18-21.

"Part 3. Corporate Purposes.

"§ 55-18-30. Corporate purposes.

(a) A benefit corporation shall have the purpose of creating general public benefit. This purpose is in addition to the purpose of engaging in any lawful business as described in G.S. 55-3-01(a).

(b) The articles of incorporation of a benefit corporation may also identify as its purpose one or more specific public benefits. The identification of a specific public benefit under this subsection does not limit the obligation of a benefit corporation under subsection (a) of this section.

(c) The creation of general or specific public benefit as provided under subsections (a) and (b) of this section is in the best interests of the benefit corporation.

(d) A benefit corporation may amend its articles of incorporation to add, amend, or delete the identification of a specific public benefit that it is the purpose of the benefit corporation to create. In order to be effective, the amendment must be adopted under the heightened voting requirements in G.S. 55-18-21.

"Part 4. Accountability.

"§ 55-18-40. Standard of conduct for directors.

(a) In discharging the duties of their respective positions and in considering the best interests of the benefit corporation, the board of directors, committees of the board, and individual directors of a benefit corporation shall consider the effects of any action or decision not to act upon the following:

(1) The shareholders of the benefit corporation.

(2) The employees and workforce of the benefit corporation, its subsidiaries, and suppliers.

(3) The interests of customers as beneficiaries of the general or specific public benefit purposes of the benefit corporation.

(4) The local community and society, including the interests of each community in which offices or facilities of the benefit corporation, its subsidiaries, or suppliers are located.

(5) The local and global environment.

(6) The short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation.

(7) The ability of the benefit corporation to accomplish its general, and any specific, public benefit purpose.

(b) In addition to the required considerations in subsection (a) of this section, the board of directors, committees of the board, and individual directors may consider the effects of any action or decision not to act upon the following:

(1) The resources, intent, and conduct (past, stated, and potential) of any person seeking to acquire control of the benefit corporation.

(2) Other pertinent factors or the interests of any other group that the directors deem appropriate.

(c) The board of directors, committees of the board, and individual directors need not give priority to the interests of a particular person or group referred to in subsections (a) and (b) of this section over the interests of any other person or group unless the benefit corporation has stated its intention to give priority to interests related to a specific public benefit purpose identified in its articles of incorporation.

(d) The consideration of interests and factors in the manner required by this section does not constitute a violation of G.S. 55-8-30.

(e) A director is not liable for monetary damages for either of the following:

(1) Any action taken as a director, or any failure to take any action, if the director performed the duties of office in compliance with G.S. 55-8-30 and this section.

(2) Failure of the benefit corporation to create general or specific public benefit.

"§ 55-18-41. Benefit director.

(a) The board of directors of a benefit corporation shall include one director who shall be designated the benefit director. This benefit director shall have, in addition to the powers, duties, rights, and immunities of the other directors of the benefit corporation, the powers, duties, rights, and immunities provided in this section.

(b) The benefit director shall be elected, and may be removed, in the manner provided by Part 1 of Article 8 of this Chapter, and shall be an individual who is independent. The benefit director may serve as the benefit officer at the same time as serving as the benefit director. The articles of incorporation or bylaws of a benefit corporation may prescribe additional qualifications of the benefit director not inconsistent with this subsection.

(c) The benefit director shall prepare, and the benefit corporation shall include in the annual benefit report to shareholders required by G.S. 55-18-50, the opinion of the benefit director on the following:

(1) Whether the benefit corporation acted in accordance with its general, and any specific, public benefit purpose in all material respects during the period covered by the report.

(2) Whether the directors and officers complied with G.S. 55-18-40 and G.S. 55-18-42, respectively.

If the benefit director finds a failure under subdivision (1) or (2) of this subsection, the benefit director shall include in the annual benefit report a description of the ways in which the benefit corporation, its directors, or its officers failed to act or comply.

(d) The acts of an individual in the capacity of a benefit director shall constitute for all purposes acts of that individual in the capacity of a director of the benefit corporation.

(e) If a benefit corporation dispenses with a board of directors pursuant to G.S. 55-8-01(c), the articles of incorporation of the benefit corporation must provide that the persons who perform the duties of the board of directors include a person with the powers, duties, rights, and immunities of a benefit director.

(f) Regardless of whether the articles of incorporation or the bylaws of a benefit corporation include a provision limiting or eliminating the personal liability of directors authorized by G.S. 55-2-02(b)(3) or G.S. 55-2-06, a benefit director shall not be personally liable for an act or omission in the capacity of the benefit director unless the act or omission constitutes (i) a transaction from which the director derived an improper personal benefit, (ii) willful misconduct, or (iii) a knowing violation of law.

"§ 55-18-42. Standard of conduct for officers.

(a) Each officer of a benefit corporation shall consider the interests and factors described in G.S. 55-18-40 in the manner provided in that section, provided that the following are true:

(1) The officer has discretion to act with respect to a matter.

(2) It reasonably appears to the officer that the matter may have a material effect on the creation of general or specific public benefit by the benefit corporation.

(b) The consideration of interests and factors in the manner described in subsection (a) of this section shall not constitute a violation of G.S. 55-8-42.

(1) Any action taken, or any failure to take any action, as an officer, provided that the officer complied with the standards of conduct in G.S. 55-8-42 and in this section.

(2) The failure of the benefit corporation to create general or specific public benefit.

"§ 55-18-43. Benefit officer.

(a) A benefit corporation may have an officer designated the benefit officer.

(b) A benefit officer shall do the following:

(1) Perform duties relating to the purpose of the corporation to create general or specific public benefits, as required by either of the following:

a. Bylaws.

b. Resolutions or orders of the board of directors, absent controlling provisions in the bylaws.

(2) Prepare the annual benefit report required by G.S. 55-18-50.

"§ 55-18-44. Right of action; benefit enforcement proceeding.

(a) The duties of directors and officers under this Article may be enforced only in a benefit enforcement proceeding. No person may bring an action or assert a claim against a benefit corporation or its directors or officers with respect to the duties of directors and officers under this Article, except in a benefit enforcement proceeding.

(b) A benefit enforcement proceeding may be commenced or maintained by only the following:

(1) Directly, by the benefit corporation.

(2) Derivatively, by any of the following:

a. A shareholder.

b. A director.

c. A person or group of persons that owns beneficially or of record ten percent (10%) or more of the outstanding equity interests in an entity of which the benefit corporation is a subsidiary.

d. Other persons specified in the articles of incorporation or bylaws of the benefit corporation.

"Part 5. Transparency.

"§ 55-18-50. Annual benefit report.

(a) A benefit corporation shall prepare an annual benefit report that includes all of the following:

(1) A narrative description of all of the following:

a. The ways in which the benefit corporation pursued general public benefit during the year and the extent to which general public benefit was created.

b. Both (i) the ways in which the benefit corporation pursued a specific public benefit stated in the articles of incorporation and (ii) the extent to which that specific public benefit was created.

c. Any circumstances that have hindered the creation by the benefit corporation of general or specific public benefit.

(2) An assessment of the social and environmental performance of the benefit corporation, prepared (i) in accordance with a third-party standard applied consistently with any application of that standard in prior benefit reports or (ii) accompanied by an explanation of the reasons for any inconsistent application.

(3) The name of the benefit director and the benefit officer and the address to which correspondence to each of them may be directed.

(4) The compensation paid by the benefit corporation during the year to each director in the capacity of a director.

(5) The name of each person that owns five percent (5%) or more of the outstanding shares of the benefit corporation either (i) beneficially, to the extent known to the benefit corporation without independent investigation or (ii) of record.

(6) The statement of the benefit director described in G.S. 55-18-41(c).

(b) The benefit report must be sent annually to each shareholder (i) within 120 days following the end of the fiscal year of the benefit corporation or (ii) at the same time that the benefit corporation delivers any other annual report to its shareholders, whichever occurs first.

(c) A benefit corporation shall post all of its annual benefit reports on the public portion of its Internet Web site, if any. The compensation paid to directors and any financial or proprietary information included in the benefit report may be omitted from the benefit report as posted.

(d) The annual report that a benefit corporation is required to deliver to the Secretary of Revenue or, in the alternative, to the Secretary of State pursuant to G.S. 55-16-22 must include the most recent benefit report delivered to shareholders pursuant to G.S. 55-18-50(b), except that the compensation paid to directors and any financial or proprietary information included in the benefit report may be omitted from the benefit report delivered to the Secretary of Revenue or Secretary of State under this section."

SECTION 2. This act becomes effective December 1, 2011.