H5720

	2013 -- H 5720
	=======
	LC01642
	=======
	STATE OF RHODE ISLAND

	IN GENERAL ASSEMBLY

	JANUARY SESSION, A.D. 2013

	____________


	A N A C T
	RELATING TO CORPORATIONS, ASSOCIATIONS AND PARTNERSHIPS


	Introduced By: Representatives Tanzi, Blazejewski, Ajello, O`Grady, and Valencia

	Date Introduced: February 28, 2013

	Referred To: House Corporations




	It is enacted by the General Assembly as follows:

1-1	SECTION 1. Title 7 of the General Laws entitled "CORPORATIONS,
1-2	ASSOCIATIONS, AND PARTNERSHIPS" is hereby amended by adding thereto the following
1-3	chapter:
1-4	CHAPTER 5.3
1-5	BENEFIT CORPORATIONS
1-6	7-5.3-1. Application and effect of chapter. -- (a) This chapter shall be applicable to all
1-7	benefit corporations.
1-8	(b) The existence of a provision of this chapter shall not of itself create an implication
1-9	that a contrary or different rule of law is applicable to a corporation that is not a benefit
1-10	corporation. This chapter shall not affect a statute or rule of law that is applicable to a corporation
1-11	that is not a benefit corporation.
1-12	(c) Except as otherwise provided in this chapter, chapter 7-1.2 (The Rhode Island
1-13	Business Corporation Act), shall be generally applicable to all benefit corporations. A benefit
1-14	corporation may be subject simultaneously to this chapter and chapters 5.1, 6.1 or 8 of this title.
1-15	The provisions of this chapter shall control over the provisions of any other chapter to this title to
1-16	which a benefit corporation is subject.
1-17	(d) A provision of the articles of incorporation or bylaws of a benefit corporation may not
1-18	limit, be inconsistent with, or supersede a provision of this chapter.
1-19	7-5.3-2. Definitions. -- As used in this chapter:
2-20	(1) "Benefit corporation" means a corporation that is subject to this chapter.
2-21	(2) "Benefit director" means either:
2-22	(i) The director designated as the benefit director of a benefit corporation under section 7-
2-23	5.3-8; or
2-24	(ii) A person with one or more of the powers, duties or rights of a benefit director to the
2-25	extent provided in the bylaws under subsection 7-5.3-8(f).
2-26	(3) "Benefit enforcement proceeding" means any claim or action or proceeding for:
2-27	(i) Failure of a benefit corporation to pursue or create general public benefit or a specific
2-28	public benefit purpose set forth in its articles; or
2-29	(ii) Violation of any obligation, duty, or standard of conduct under this chapter.
2-30	(4) "Benefit officer" means the individual, if any, designated as the benefit officer of a
2-31	benefit corporation under section 7-5.3-10.
2-32	(5) "General public benefit" means a material positive impact on society and the
2-33	environment, taken as a whole, assessed against a third-party standard, from the business and
2-34	operations of a benefit corporation.
2-35	(6) "Independent" means having no material relationship with a benefit corporation or a
2-36	subsidiary of the benefit corporation. Serving as benefit director or benefit officer does not make
2-37	an individual not independent. A material relationship between an individual and a benefit
2-38	corporation or any of its subsidiaries will be conclusively presumed to exist if any of the
2-39	following apply:
2-40	(i) The individual is, or has been within the last three (3) years, an employee other than a
2-41	benefit officer of the benefit corporation or a subsidiary.
2-42	(ii) An immediate family member of the individual is, or has been within the last three (3)
2-43	years, an executive officer other than a benefit officer of the benefit corporation or a subsidiary.
2-44	(iii) There is beneficial or record ownership of five percent (5%) or more of the
2-45	outstanding shares of the benefit corporation, calculated as if all outstanding rights to acquire
2-46	equity interests in the benefit corporation had been exercised, by:
2-47	(A) The individual; or
2-48	(B) An entity:
2-49	(I) Of which the individual is a director, an officer, or a manager; or
2-50	(II) In which the individual owns beneficially or of record five percent (5%) or more of
2-51	the outstanding equity interests, calculated as if all outstanding rights to acquire equity interests in
2-52	the entity had been exercised.
2-53	(7) "Minimum status vote" means:
3-54	(i) In the case of a corporation, in addition to any other required approval or vote, the
3-55	satisfaction of the following conditions:
3-56	(A) The shareholders of every class or series shall be entitled to vote as a class on the
3-57	corporate action regardless of a limitation stated in the articles of incorporation or bylaws on the
3-58	voting rights of any class or series.
3-59	(B) The corporate action must be approved by vote of the shareholders of each class or
3-60	series entitled to cast at least two-thirds (2/3) of the votes that all shareholders of the class or
3-61	series are entitled to cast on the action.
3-62	(ii) In the case of a domestic entity other than a corporation, in addition to any other
3-63	required approval, vote, or consent, the satisfaction of the following conditions:
3-64	(A) The holders of every class or series of equity interest in the entity that are entitled to
3-65	receive a distribution of any kind from the entity shall be entitled to vote on or consent to the
3-66	action regardless of any otherwise applicable limitation on the voting or consent rights of any
3-67	class or series.
3-68	(B) The action must be approved by vote or consent of the holders described in
3-69	subparagraph (A) entitled to cast at least two-thirds (2/3) of the votes or consents that all of those
3-70	holders are entitled to cast on the action.
3-71	(8) "Publicly traded corporation" means a corporation that has shares listed on a national
3-72	securities exchange or traded in a market maintained by one or more members of a national
3-73	securities association.
3-74	(9) "Specific public benefit" includes:
3-75	(i) Providing low-income or underserved individuals or communities with beneficial
3-76	products or services;
3-77	(ii) Promoting economic opportunity for individuals or communities beyond the creation
3-78	of jobs in the normal course of business;
3-79	(iii) Protecting or restoring the environment;
3-80	(iv) Improving human health;
3-81	(v) Promoting the arts, sciences, or advancement of knowledge;
3-82	(vi) Increasing the flow of capital to entities with a purpose to benefit society or the
3-83	environment; and
3-84	(vii) Conferring any other particular benefit on society or the environment.
3-85	(10) "Subsidiary" means, in relation to a person, an entity in which the person owns
3-86	beneficially or of record fifty percent (50%) or more of the outstanding equity interests,
3-87	calculated as if all outstanding rights to acquire equity interests in the entity had been exercised.
4-88	(11) "Third-party standard" means a recognized standard for defining, reporting, and
4-89	assessing corporate social and environmental performance that is:
4-90	(i) Comprehensive because it assesses the effect of the business and its operations upon
4-91	the interests listed in paragraphs 7-5.3-7(a)(1)(ii), (iii), (iv) and (v).
4-92	(ii) Developed by an entity that is not controlled by the benefit corporation.
4-93	(iii) Credible because it is developed by an entity that both:
4-94	(A) Has access to necessary expertise to assess overall corporate social and
4-95	environmental performance; and
4-96	(B) Uses a balanced multi-stakeholder approach to develop the standard, including a
4-97	reasonable public comment period.
4-98	(iv) Transparent because the following information is publicly available:
4-99	(A) About the standard:
4-100	(I) The criteria considered when measuring the overall social and environmental
4-101	performance of a business.
4-102	(II) The relative weightings, if any, of those criteria.
4-103	(B) About the development and revision of the standard:
4-104	(I) The identity of the directors, officers, material owners, and the governing body of the
4-105	entity that developed and controls revisions to the standard.
4-106	(II) The process by which revisions to the standard and changes to the membership of the
4-107	governing body are made.
4-108	(III) An accounting of the revenue and sources of financial support for the entity, with
4-109	sufficient detail to disclose any relationships that could reasonably be considered to present a
4-110	potential conflict of interest.
4-111	7-5.3-3. Incorporation of benefit corporation. -- A benefit corporation shall be
4-112	incorporated in accordance with section 7-1.2-202, but its articles of incorporation must also state
4-113	that it is a benefit corporation.
4-114	7-5.3-4. Election of benefit corporation status. -- (a) An existing corporation may
4-115	become a benefit corporation under this chapter by amending its articles of incorporation so that
4-116	they contain, in addition to the requirements of section 7-1.2-202, a statement that the corporation
4-117	is a benefit corporation. In order to be effective, the amendment must be adopted by at least the
4-118	minimum status vote.
4-119	(b) If an entity that is not a benefit corporation is a party to a merger or conversion and
4-120	the surviving or resulting entity in the merger or consolidation is to be a benefit corporation, the
4-121	merger or conversion must be approved by the entity by at least the minimum status vote.
5-122	7-5.3-5. Termination of benefit corporation status. -- (a) A benefit corporation may
5-123	terminate its status as such and cease to be subject to this chapter by amending its articles of
5-124	incorporation to delete the provision required by section 7-5.3-3 or section 7-5.3-4 to be stated in
5-125	the articles of a benefit corporation. In order to be effective, the amendment must be adopted by
5-126	at least the minimum status vote.
5-127	(b) If a merger or conversion would have the effect of terminating the status of a business
5-128	corporation as a benefit corporation, the merger or conversion must be adopted by at least the
5-129	minimum status vote in order to be effective. Any sale, lease, exchange, or other disposition of all
5-130	or substantially all of the assets of a benefit corporation, unless the transaction is in the usual and
5-131	regular course of business, shall not be effective unless the transaction is approved by at least the
5-132	minimum status vote.
5-133	7-5.3-6. Corporate purposes. -- (a) A benefit corporation shall have a purpose of
5-134	creating general public benefit. This purpose is in addition to its purpose under section 7-1.2-301
5-135	(b) The articles of incorporation of a benefit corporation may identify one or more
5-136	specific public benefits that it is the purpose of the benefit corporation to create in addition to its
5-137	purposes under section 7-1.2-301 and subsection (a). The identification of a specific public
5-138	benefit under this subsection does not limit the purpose of a benefit corporation to create general
5-139	public benefit under subsection (a).
5-140	(c) The creation of general public benefit and specific public benefit under subsections
5-141	(a) and (b) is in the best interests of the benefit corporation.
5-142	(d) A benefit corporation may amend its articles of incorporation to add, amend, or delete
5-143	the identification of a specific public benefit that it is the purpose of the benefit corporation to
5-144	create. In order to be effective, the amendment must be adopted by at least the minimum status
5-145	vote.
5-146	7-5.3-7. Standard of conduct for directors. -- (a) In discharging the duties of their
5-147	respective positions and in considering the best interests of the benefit corporation, the board of
5-148	directors, committees of the board, and individual directors of a benefit corporation:
5-149	(1) Shall consider the effects of any action or inaction upon:
5-150	(i) The shareholders of the benefit corporation;
5-151	(ii) The employees and work force of the benefit corporation, its subsidiaries, and its
5-152	suppliers;
5-153	(iii) The interests of customers as beneficiaries of the general public benefit or specific
5-154	public benefit purposes of the benefit corporation;
5-155	(iv) Community and societal factors, including those of each community in which offices
5-156	or facilities of the benefit corporation, its subsidiaries, or its suppliers are located;
6-1	(v) The local and global environment;
6-2	(vi) The short-term and long-term interests of the benefit corporation, including benefits
6-3	that may accrue to the benefit corporation from its long-term plans and the possibility that these
6-4	interests may be best served by the continued independence of the benefit corporation; and
6-5	(vii) The ability of the benefit corporation to accomplish its general public benefit
6-6	purpose and any specific public benefit purpose; and
6-7	(2) May consider other pertinent factors or the interests of any other group that they deem
6-8	appropriate; but
6-9	(3) Need not give priority to the interests of a particular person or group referred to in
6-10	subdivision (1) or (2) over the interests of any other person or group unless the benefit
6-11	corporation has stated in its articles of incorporation its intention to give priority to certain
6-12	interests related to its accomplishment of its general public benefit purpose or of a specific public
6-13	benefit purpose identified in its articles.
6-14	(b) The consideration of interests and factors in the manner required by subsection (a)
6-15	does not constitute a violation of section 7-1.2-801.
6-16	(c) Except as provided in the articles of incorporation, a director is not personally liable
6-17	for monetary damages for:
6-18	(1) Any action or inaction in the course of performing the duties of a director under
6-19	subsection (a) if the director performed the duties of office in compliance with section 7-1.2-801
6-20	and this section; or
6-21	(2) Failure of the benefit corporation to pursue or create a general public benefit or a
6-22	specific public benefit.
6-23	(d) A director does not have a duty to a person that is a beneficiary of the general public
6-24	benefit purpose or a specific public benefit purpose of a benefit corporation arising from the
6-25	status of the person as a beneficiary.
6-26	(e) A director who makes a business judgment in good faith fulfills the duty under this
6-27	section if the director:
6-28	(1) Is not interested in the subject of the business judgment;
6-29	(2) Is informed with respect to the subject of the business judgment to the extent the
6-30	director reasonably believes to be appropriate under the circumstances; and
6-31	(3) Rationally believes that the business judgment is in the best interests of the benefit
6-32	corporation.
6-33	7-5.3-8. Benefit director. -- (a) The board of directors of a benefit corporation that is a
6-34	publicly traded corporation shall, and the board of any other benefit corporation may, include a
7-1	director, who:
7-2	(1) Shall be designated the benefit director; and
7-3	(2) Shall have, in addition to the powers, duties, rights, and immunities of the other
7-4	directors of the benefit corporation, the powers, duties, rights, and immunities provided in this
7-5	chapter.
7-6	(b) The benefit director shall be elected, and may be removed, in the manner provided by
7-7	chapter 7-1.2. Except as provided in subsections (f) and (g), the benefit director shall be an
7-8	individual who is independent. The benefit director may serve as the benefit officer at the same
7-9	time as serving as the benefit director. The articles of incorporation or bylaws of a benefit
7-10	corporation may prescribe additional qualifications of the benefit director not inconsistent with
7-11	this subsection.
7-12	(c) The benefit director shall prepare, and the benefit corporation shall include in the
7-13	annual benefit report to shareholders required by section 7-5.3-12, the opinion of the benefit
7-14	director on all of the following:
7-15	(1) Whether the benefit corporation acted in accordance with its general public benefit
7-16	purpose and any specific public benefit purpose in all material respects during the period covered
7-17	by the report.
7-18	(2) Whether the directors and officers complied with subsection 7-5.3-7(a) and 7-5.3-
7-19	9(a), respectively.
7-20	(3) If, in the opinion of the benefit director, the benefit corporation or its directors or
7-21	officers failed to act or comply in the manner described in subdivisions (1) and (2), a description
7-22	of the ways in which the benefit corporation or its directors or officers failed to act or comply.
7-23	(d) The act or inaction of an individual in the capacity of a benefit director shall
7-24	constitute for all purposes an act or inaction of that individual in the capacity of a director of the
7-25	benefit corporation.
7-26	(e) Regardless of whether the articles of incorporation of a benefit corporation include a
7-27	provision eliminating or limiting the personal liability of directors authorized by subdivision 7-
7-28	1.2-202(b)(3), a benefit director shall not be personally liable for an act or omission in the
7-29	capacity of a benefit director unless the act or omission constitutes self-dealing, willful
7-30	misconduct, or a knowing violation of law.
7-31	(f) If the articles of incorporation of a benefit corporation provide that the powers and
7-32	duties conferred or imposed upon the board of directors shall be exercised or performed by a
7-33	person other than the directors as permitted by subsection 7-1.2-801(a), the articles must provide
7-34	that the persons or shareholders who perform the duties of the board of directors include a person
8-1	with the powers, duties, rights and immunities of a benefit director. A person that exercises one or
8-2	more of the powers, duties or rights of a benefit director under this subsection:
8-3	(1) Does not need to be independent of the benefit corporation;
8-4	(2) Shall have the immunities of a benefit director; and
8-5	(3) May share the powers, duties, and rights of a benefit director with one or more other
8-6	persons.
8-7	(g) The benefit director of a professional corporation or consumer cooperative does not
8-8	need to be independent.
8-9	7-5.3-9. Standard of conduct for officers. -- (a) Each officer of a benefit corporation
8-10	shall consider the interests and factors described in subsection 7-5.3-7(a) in the manner provided
8-11	in that subsection if:
8-12	(1) The officer has discretion to act with respect to a matter; and
8-13	(2) It reasonably appears to the officer that the matter may have a material effect on the
8-14	creation by the benefit corporation of general public benefit or a specific public benefit identified
8-15	in the articles of incorporation of the benefit corporation.
8-16	(b) The consideration by an officer of interests and factors in the manner described in
8-17	subsection (a) shall not constitute a violation of the duties of the officer.
8-18	(c) Except as provided in the articles of incorporation, an officer is not personally liable
8-19	for monetary damages for:
8-20	(1) An action or inaction as an officer in the course of performing the duties of an officer
8-21	under subsection (a) if the officer performed the duties of the position in compliance with
8-22	subsection 7-1.2-812(b) and this section; or
8-23	(2) Failure of the benefit corporation to pursue or create a general public benefit or a
8-24	specific public benefit.
8-25	(d) An officer does not have a duty to a person that is a beneficiary of the general public
8-26	benefit purpose or a specific public benefit purpose of a benefit corporation arising from the
8-27	status of the person as a beneficiary.
8-28	(e) An officer who makes a business judgment in good faith fulfills the duty under this
8-29	section if the officer:
8-30	(1) Is not interested in the subject of the business judgment;
8-31	(2) Is informed with respect to the subject of the business judgment to the extent the
8-32	officer reasonably believes to be appropriate under the circumstances; and
8-33	(3) Rationally believes that the business judgment is in the best interests of the benefit
8-34	corporation.
9-1	7-5.3-10. Benefit officer-- (a) A benefit corporation may have an officer designated as
9-2	the benefit officer.
9-3	(b) A benefit officer shall have:
9-4	(1) The powers and duties relating to the purpose of the corporation to create general
9-5	public benefit or specific public benefit provided:
9-6	(i) By the bylaws; or
9-7	(ii) Absent controlling provisions in the bylaws, by resolutions or orders of the board of
9-8	directors.
9-9	(2) The duty to prepare the benefit report required by section 7-5.3-12.
9-10	7-5.3-11. Right of action. -- (a) Except in a benefit enforcement proceeding, no person
9-11	may bring an action or assert a claim against a benefit corporation or its directors or officers with
9-12	respect to:
9-13	(1) Failure to pursue or create general public benefit or a specific public benefit set forth
9-14	in its articles of incorporation; or
9-15	(2) Violation of an obligation, duty, or standard of conduct under this chapter.
9-16	(b) A benefit corporation shall not be liable for monetary damages under this chapter for
9-17	any failure of the benefit corporation to pursue or create general public benefit or a specific public
9-18	benefit.
9-19	(c) A benefit enforcement proceeding may be commenced or maintained only:
9-20	(1) Directly by the benefit corporation; or
9-21	(2) Derivatively in accordance with the procedures in section 7-1.2-711 by:
9-22	(i) A person or group of persons that owned beneficially or of record at least two percent
9-23	(2%) of the total number of shares of a class or series outstanding at the time of the act or
9-24	omission complained of;
9-25	(ii) A director;
9-26	(iii) A person or group of persons that owned beneficially or of record five percent (5%)
9-27	or more of the outstanding equity interests in an entity of which the benefit corporation is a
9-28	subsidiary at the time of the act or omission complained of; or
9-29	(iv) Other persons as specified in the articles of incorporation or bylaws of the benefit
9-30	corporation.
9-31	(d) For purposes of this section, a person is the beneficial owner of shares or equity
9-32	interests if the shares or equity interests are held in a voting trust or by a nominee on behalf of the
9-33	beneficial owner.
10-34	7-5.3-12. Preparation of annual benefit report. -- (a) A benefit corporation shall
10-35	prepare an annual benefit report including all of the following:
10-36	(1) A narrative description of:
10-37	(i) The ways in which the benefit corporation pursued general public benefit during the
10-38	year and the extent to which general public benefit was created.
10-39	(ii) Both:
10-40	(A) The ways in which the benefit corporation pursued a specific public benefit that the
10-41	articles of incorporation state it is the purpose of the benefit corporation to create; and
10-42	(B) The extent to which that specific public benefit was created.
10-43	(iii) Any circumstances that have hindered the creation by the benefit corporation of
10-44	general public benefit or specific public benefit.
10-45	(iv) The process and rationale for selecting or changing the third-party standard used to
10-46	prepare the benefit report.
10-47	(2) An assessment of the overall social and environmental performance of the benefit
10-48	corporation against a third-party standard:
10-49	(i) Applied consistently with any application of that standard in prior benefit reports; or
10-50	(ii) Accompanied by an explanation of the reasons for:
10-51	(A) Any inconsistent application; or
10-52	(B) The change to that standard from the one used in the immediately prior report.
10-53	(3) The name of the benefit director and the benefit officer, if any, and the address to
10-54	which correspondence to each of them may be directed.
10-55	(4) The compensation paid by the benefit corporation during the year to each director in
10-56	the capacity of a director.
10-57	(5) The statement of the benefit director described in subsection 7-5.3-8(c).
10-58	(6) A statement of any connection between the organization that established the third-
10-59	party standard, or its directors, officers or any holder of five percent (5%) or more of the
10-60	governance interests in the organization, and the benefit corporation or its directors, officers or
10-61	any holder of five percent (5%) or more of the outstanding shares of the benefit corporation,
10-62	including any financial or governance relationship which might materially affect the credibility of
10-63	the use of the third-party standard.
10-64	(7) If the benefit corporation has dispensed with, or restricted the discretion or powers of,
10-65	the board of directors, a description of:
10-66	(i) The persons that exercise the powers, duties, and rights and who have the immunities
10-67	of the board of directors; and
11-68	(ii) The benefit director, as required by subsection 7-5.3-8(f).
11-69	(b) If, during the year covered by a benefit report, a benefit director resigned from or
11-70	refused to stand for reelection to the position of benefit director, or was removed from the
11-71	position of benefit director, and the benefit director furnished the benefit corporation with any
11-72	written correspondence concerning the circumstances surrounding the resignation, refusal, or
11-73	removal, the benefit report shall include that correspondence as an exhibit.
11-74	(c) Neither the benefit report nor the assessment of the performance of the benefit
11-75	corporation in the benefit report required by subdivision (a)(2) needs to be audited or certified by
11-76	a third party.
11-77	7-5.3-13. Availability of annual benefit report. -- (a) A benefit corporation shall send
11-78	its annual benefit report to each shareholder on the earlier of:
11-79	(1) One hundred twenty (120) days following the end of the fiscal year of the benefit
11-80	corporation; or
11-81	(2) The same time that the benefit corporation delivers any other annual report to its
11-82	shareholders.
11-83	(b) A benefit corporation shall post all of its benefit reports on the public portion of its
11-84	Internet website, if any, but the compensation paid to directors and financial or proprietary
11-85	information included in the benefit reports may be omitted from the benefit reports as posted.
11-86	(c) If a benefit corporation does not have an Internet website, the benefit corporation shall
11-87	provide a copy of its most recent benefit report, without charge, to any person that requests a
11-88	copy, but the compensation paid to directors and financial or proprietary information included in
11-89	the benefit report may be omitted from the copy of the benefit report provided.
11-90	(d) Concurrently with the delivery of the benefit report to shareholders under subsection
11-91	(c), the benefit corporation shall deliver a copy of the benefit report to the secretary of state for
11-92	filing, but the compensation paid to directors and financial or proprietary information included in
11-93	the benefit report may be omitted from the benefit report as delivered to the secretary of state.
11-94	The secretary of state shall charge a fee of ten dollars ($10.00) for filing a benefit report.
11-95	SECTION 2. This act shall take effect upon passage.

	=======
	LC01642
	=======

	EXPLANATION
	BY THE LEGISLATIVE COUNCIL
	OF
	A N A C T
	RELATING TO CORPORATIONS, ASSOCIATIONS AND PARTNERSHIPS
	***

12-1	This act would allow for the creation of benefit corporations.
12-2	This act would take effect upon passage.

	=======
	LC01642
	=======

H5720