2013 -- H 5720

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LC01642

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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:

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     SECTION 1. Title 7 of the General Laws entitled "CORPORATIONS,

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ASSOCIATIONS, AND PARTNERSHIPS" is hereby amended by adding thereto the following

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chapter:

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     CHAPTER 5.3

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BENEFIT CORPORATIONS

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     7-5.3-1. Application and effect of chapter. -- (a) This chapter shall be applicable to all

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benefit corporations.

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     (b) The existence of a provision of this chapter shall not of itself create an implication

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that a contrary or different rule of law is applicable to a corporation that is not a benefit

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corporation. This chapter shall not affect a statute or rule of law that is applicable to a corporation

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that is not a benefit corporation.

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     (c) Except as otherwise provided in this chapter, chapter 7-1.2 (The Rhode Island

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Business Corporation Act), shall be generally applicable to all benefit corporations. A benefit

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corporation may be subject simultaneously to this chapter and chapters 5.1, 6.1 or 8 of this title.

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The provisions of this chapter shall control over the provisions of any other chapter to this title to

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which a benefit corporation is subject.

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     (d) A provision of the articles of incorporation or bylaws of a benefit corporation may not

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limit, be inconsistent with, or supersede a provision of this chapter.

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     7-5.3-2. Definitions. -- As used in this chapter:

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     (1) "Benefit corporation" means a corporation that is subject to this chapter.

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     (2) "Benefit director" means either:

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     (i) The director designated as the benefit director of a benefit corporation under section 7-

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5.3-8; or

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     (ii) A person with one or more of the powers, duties or rights of a benefit director to the

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extent provided in the bylaws under subsection 7-5.3-8(f).

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     (3) "Benefit enforcement proceeding" means any claim or action or proceeding for:

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     (i) Failure of a benefit corporation to pursue or create general public benefit or a specific

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public benefit purpose set forth in its articles; or

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     (ii) Violation of any obligation, duty, or standard of conduct under this chapter.

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     (4) "Benefit officer" means the individual, if any, designated as the benefit officer of a

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benefit corporation under section 7-5.3-10.

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     (5) "General public benefit" means a material positive impact on society and the

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environment, taken as a whole, assessed against a third-party standard, from the business and

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operations of a benefit corporation.

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     (6) "Independent" means having no material relationship with a benefit corporation or a

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subsidiary of the benefit corporation. Serving as benefit director or benefit officer does not make

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an individual not independent. A material relationship between an individual and a benefit

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corporation or any of its subsidiaries will be conclusively presumed to exist if any of the

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following apply:

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     (i) The individual is, or has been within the last three (3) years, an employee other than a

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benefit officer of the benefit corporation or a subsidiary.

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     (ii) An immediate family member of the individual is, or has been within the last three (3)

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years, an executive officer other than a benefit officer of the benefit corporation or a subsidiary.

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     (iii) There is beneficial or record ownership of five percent (5%) or more of the

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outstanding shares of the benefit corporation, calculated as if all outstanding rights to acquire

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equity interests in the benefit corporation had been exercised, by:

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     (A) The individual; or

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     (B) An entity:

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     (I) Of which the individual is a director, an officer, or a manager; or

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     (II) In which the individual owns beneficially or of record five percent (5%) or more of

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the outstanding equity interests, calculated as if all outstanding rights to acquire equity interests in

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the entity had been exercised.

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     (7) "Minimum status vote" means:

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     (i) In the case of a corporation, in addition to any other required approval or vote, the

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satisfaction of the following conditions:

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     (A) The shareholders of every class or series shall be entitled to vote as a class on the

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corporate action regardless of a limitation stated in the articles of incorporation or bylaws on the

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voting rights of any class or series.

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     (B) The corporate action must be approved by vote of the shareholders of each class or

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series entitled to cast at least two-thirds (2/3) of the votes that all shareholders of the class or

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series are entitled to cast on the action.

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     (ii) In the case of a domestic entity other than a corporation, in addition to any other

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required approval, vote, or consent, the satisfaction of the following conditions:

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     (A) The holders of every class or series of equity interest in the entity that are entitled to

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receive a distribution of any kind from the entity shall be entitled to vote on or consent to the

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action regardless of any otherwise applicable limitation on the voting or consent rights of any

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class or series.

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     (B) The action must be approved by vote or consent of the holders described in

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subparagraph (A) entitled to cast at least two-thirds (2/3) of the votes or consents that all of those

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holders are entitled to cast on the action.

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     (8) "Publicly traded corporation" means a corporation that has shares listed on a national

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securities exchange or traded in a market maintained by one or more members of a national

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securities association.

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     (9) "Specific public benefit" includes:

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     (i) Providing low-income or underserved individuals or communities with beneficial

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products or services;

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     (ii) Promoting economic opportunity for individuals or communities beyond the creation

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of jobs in the normal course of business;

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     (iii) Protecting or restoring the environment;

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     (iv) Improving human health;

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     (v) Promoting the arts, sciences, or advancement of knowledge;

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     (vi) Increasing the flow of capital to entities with a purpose to benefit society or the

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environment; and

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     (vii) Conferring any other particular benefit on society or the environment.

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     (10) "Subsidiary" means, in relation to a person, an entity in which the person owns

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beneficially or of record fifty percent (50%) or more of the outstanding equity interests,

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calculated as if all outstanding rights to acquire equity interests in the entity had been exercised.

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     (11) "Third-party standard" means a recognized standard for defining, reporting, and

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assessing corporate social and environmental performance that is:

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     (i) Comprehensive because it assesses the effect of the business and its operations upon

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the interests listed in paragraphs 7-5.3-7(a)(1)(ii), (iii), (iv) and (v).

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     (ii) Developed by an entity that is not controlled by the benefit corporation.

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     (iii) Credible because it is developed by an entity that both:

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     (A) Has access to necessary expertise to assess overall corporate social and

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environmental performance; and

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     (B) Uses a balanced multi-stakeholder approach to develop the standard, including a

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reasonable public comment period.

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     (iv) Transparent because the following information is publicly available:

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     (A) About the standard:

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     (I) The criteria considered when measuring the overall social and environmental

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performance of a business.

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     (II) The relative weightings, if any, of those criteria.

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     (B) About the development and revision of the standard:

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     (I) The identity of the directors, officers, material owners, and the governing body of the

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entity that developed and controls revisions to the standard.

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     (II) The process by which revisions to the standard and changes to the membership of the

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governing body are made.

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     (III) An accounting of the revenue and sources of financial support for the entity, with

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sufficient detail to disclose any relationships that could reasonably be considered to present a

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potential conflict of interest.

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     7-5.3-3. Incorporation of benefit corporation. -- A benefit corporation shall be

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incorporated in accordance with section 7-1.2-202, but its articles of incorporation must also state

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that it is a benefit corporation.

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     7-5.3-4. Election of benefit corporation status. -- (a) An existing corporation may

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become a benefit corporation under this chapter by amending its articles of incorporation so that

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they contain, in addition to the requirements of section 7-1.2-202, a statement that the corporation

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is a benefit corporation. In order to be effective, the amendment must be adopted by at least the

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minimum status vote.

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     (b) If an entity that is not a benefit corporation is a party to a merger or conversion and

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the surviving or resulting entity in the merger or consolidation is to be a benefit corporation, the

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merger or conversion must be approved by the entity by at least the minimum status vote.

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     7-5.3-5. Termination of benefit corporation status. -- (a) A benefit corporation may

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terminate its status as such and cease to be subject to this chapter by amending its articles of

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incorporation to delete the provision required by section 7-5.3-3 or section 7-5.3-4 to be stated in

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the articles of a benefit corporation. In order to be effective, the amendment must be adopted by

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at least the minimum status vote.

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     (b) If a merger or conversion would have the effect of terminating the status of a business

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corporation as a benefit corporation, the merger or conversion must be adopted by at least the

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minimum status vote in order to be effective. Any sale, lease, exchange, or other disposition of all

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or substantially all of the assets of a benefit corporation, unless the transaction is in the usual and

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regular course of business, shall not be effective unless the transaction is approved by at least the

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minimum status vote.

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     7-5.3-6. Corporate purposes. -- (a) A benefit corporation shall have a purpose of

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creating general public benefit. This purpose is in addition to its purpose under section 7-1.2-301

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     (b) The articles of incorporation of a benefit corporation may identify one or more

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specific public benefits that it is the purpose of the benefit corporation to create in addition to its

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purposes under section 7-1.2-301 and subsection (a). The identification of a specific public

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benefit under this subsection does not limit the purpose of a benefit corporation to create general

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public benefit under subsection (a).

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     (c) The creation of general public benefit and specific public benefit under subsections

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(a) and (b) is in the best interests of the benefit corporation.

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     (d) A benefit corporation may amend its articles of incorporation to add, amend, or delete

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the identification of a specific public benefit that it is the purpose of the benefit corporation to

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create. In order to be effective, the amendment must be adopted by at least the minimum status

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vote.

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     7-5.3-7. Standard of conduct for directors. -- (a) In discharging the duties of their

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respective positions and in considering the best interests of the benefit corporation, the board of

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directors, committees of the board, and individual directors of a benefit corporation:

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     (1) Shall consider the effects of any action or inaction upon:

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     (i) The shareholders of the benefit corporation;

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     (ii) The employees and work force of the benefit corporation, its subsidiaries, and its

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suppliers;

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     (iii) The interests of customers as beneficiaries of the general public benefit or specific

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public benefit purposes of the benefit corporation;

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     (iv) Community and societal factors, including those of each community in which offices

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or facilities of the benefit corporation, its subsidiaries, or its suppliers are located;

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     (v) The local and global environment;

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     (vi) The short-term and long-term interests of the benefit corporation, including benefits

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that may accrue to the benefit corporation from its long-term plans and the possibility that these

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interests may be best served by the continued independence of the benefit corporation; and

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     (vii) The ability of the benefit corporation to accomplish its general public benefit

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purpose and any specific public benefit purpose; and

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     (2) May consider other pertinent factors or the interests of any other group that they deem

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appropriate; but

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     (3) Need not give priority to the interests of a particular person or group referred to in

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subdivision (1) or (2) over the interests of any other person or group unless the benefit

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corporation has stated in its articles of incorporation its intention to give priority to certain

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interests related to its accomplishment of its general public benefit purpose or of a specific public

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benefit purpose identified in its articles.

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     (b) The consideration of interests and factors in the manner required by subsection (a)

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does not constitute a violation of section 7-1.2-801.

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     (c) Except as provided in the articles of incorporation, a director is not personally liable

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for monetary damages for:

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     (1) Any action or inaction in the course of performing the duties of a director under

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subsection (a) if the director performed the duties of office in compliance with section 7-1.2-801

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and this section; or

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     (2) Failure of the benefit corporation to pursue or create a general public benefit or a

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specific public benefit.

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     (d) A director does not have a duty to a person that is a beneficiary of the general public

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benefit purpose or a specific public benefit purpose of a benefit corporation arising from the

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status of the person as a beneficiary.

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     (e) A director who makes a business judgment in good faith fulfills the duty under this

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section if the director:

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     (1) Is not interested in the subject of the business judgment;

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     (2) Is informed with respect to the subject of the business judgment to the extent the

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director reasonably believes to be appropriate under the circumstances; and

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     (3) Rationally believes that the business judgment is in the best interests of the benefit

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corporation.

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     7-5.3-8. Benefit director. -- (a) The board of directors of a benefit corporation that is a

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publicly traded corporation shall, and the board of any other benefit corporation may, include a

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director, who:

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     (1) Shall be designated the benefit director; and

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     (2) Shall have, in addition to the powers, duties, rights, and immunities of the other

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directors of the benefit corporation, the powers, duties, rights, and immunities provided in this

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chapter.

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     (b) The benefit director shall be elected, and may be removed, in the manner provided by

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chapter 7-1.2. Except as provided in subsections (f) and (g), the benefit director shall be an

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individual who is independent. The benefit director may serve as the benefit officer at the same

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time as serving as the benefit director. The articles of incorporation or bylaws of a benefit

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corporation may prescribe additional qualifications of the benefit director not inconsistent with

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this subsection.

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     (c) The benefit director shall prepare, and the benefit corporation shall include in the

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annual benefit report to shareholders required by section 7-5.3-12, the opinion of the benefit

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director on all of the following:

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     (1) Whether the benefit corporation acted in accordance with its general public benefit

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purpose and any specific public benefit purpose in all material respects during the period covered

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by the report.

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     (2) Whether the directors and officers complied with subsection 7-5.3-7(a) and 7-5.3-

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9(a), respectively.

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     (3) If, in the opinion of the benefit director, the benefit corporation or its directors or

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officers failed to act or comply in the manner described in subdivisions (1) and (2), a description

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of the ways in which the benefit corporation or its directors or officers failed to act or comply.

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     (d) The act or inaction of an individual in the capacity of a benefit director shall

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constitute for all purposes an act or inaction of that individual in the capacity of a director of the

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benefit corporation.

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     (e) Regardless of whether the articles of incorporation of a benefit corporation include a

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provision eliminating or limiting the personal liability of directors authorized by subdivision 7-

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1.2-202(b)(3), a benefit director shall not be personally liable for an act or omission in the

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capacity of a benefit director unless the act or omission constitutes self-dealing, willful

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misconduct, or a knowing violation of law.

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     (f) If the articles of incorporation of a benefit corporation provide that the powers and

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duties conferred or imposed upon the board of directors shall be exercised or performed by a

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person other than the directors as permitted by subsection 7-1.2-801(a), the articles must provide

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that the persons or shareholders who perform the duties of the board of directors include a person

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with the powers, duties, rights and immunities of a benefit director. A person that exercises one or

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more of the powers, duties or rights of a benefit director under this subsection:

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     (1) Does not need to be independent of the benefit corporation;

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     (2) Shall have the immunities of a benefit director; and

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     (3) May share the powers, duties, and rights of a benefit director with one or more other

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persons.

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     (g) The benefit director of a professional corporation or consumer cooperative does not

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need to be independent.

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     7-5.3-9. Standard of conduct for officers. -- (a) Each officer of a benefit corporation

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shall consider the interests and factors described in subsection 7-5.3-7(a) in the manner provided

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in that subsection if:

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

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     (2) It reasonably appears to the officer that the matter may have a material effect on the

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creation by the benefit corporation of general public benefit or a specific public benefit identified

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in the articles of incorporation of the benefit corporation.

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     (b) The consideration by an officer of interests and factors in the manner described in

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subsection (a) shall not constitute a violation of the duties of the officer.

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     (c) Except as provided in the articles of incorporation, an officer is not personally liable

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for monetary damages for:

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     (1) An action or inaction as an officer in the course of performing the duties of an officer

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under subsection (a) if the officer performed the duties of the position in compliance with

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subsection 7-1.2-812(b) and this section; or

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     (2) Failure of the benefit corporation to pursue or create a general public benefit or a

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specific public benefit.

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     (d) An officer does not have a duty to a person that is a beneficiary of the general public

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benefit purpose or a specific public benefit purpose of a benefit corporation arising from the

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status of the person as a beneficiary.

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     (e) An officer who makes a business judgment in good faith fulfills the duty under this

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section if the officer:

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     (1) Is not interested in the subject of the business judgment;

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     (2) Is informed with respect to the subject of the business judgment to the extent the

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officer reasonably believes to be appropriate under the circumstances; and

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     (3) Rationally believes that the business judgment is in the best interests of the benefit

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corporation.

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     7-5.3-10. Benefit officer-- (a) A benefit corporation may have an officer designated as

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the benefit officer.

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     (b) A benefit officer shall have:

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     (1) The powers and duties relating to the purpose of the corporation to create general

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public benefit or specific public benefit provided:

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     (i) By the bylaws; or

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     (ii) Absent controlling provisions in the bylaws, by resolutions or orders of the board of

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directors.

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     (2) The duty to prepare the benefit report required by section 7-5.3-12.

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     7-5.3-11. Right of action. -- (a) Except in a benefit enforcement proceeding, no person

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may bring an action or assert a claim against a benefit corporation or its directors or officers with

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respect to:

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     (1) Failure to pursue or create general public benefit or a specific public benefit set forth

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in its articles of incorporation; or

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     (2) Violation of an obligation, duty, or standard of conduct under this chapter.

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     (b) A benefit corporation shall not be liable for monetary damages under this chapter for

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any failure of the benefit corporation to pursue or create general public benefit or a specific public

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benefit.

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     (c) A benefit enforcement proceeding may be commenced or maintained only:

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     (1) Directly by the benefit corporation; or

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     (2) Derivatively in accordance with the procedures in section 7-1.2-711 by:

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     (i) A person or group of persons that owned beneficially or of record at least two percent

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(2%) of the total number of shares of a class or series outstanding at the time of the act or

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omission complained of;

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     (ii) A director;

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     (iii) A person or group of persons that owned beneficially or of record five percent (5%)

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or more of the outstanding equity interests in an entity of which the benefit corporation is a

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subsidiary at the time of the act or omission complained of; or

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     (iv) Other persons as specified in the articles of incorporation or bylaws of the benefit

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corporation.

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     (d) For purposes of this section, a person is the beneficial owner of shares or equity

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interests if the shares or equity interests are held in a voting trust or by a nominee on behalf of the

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beneficial owner.

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     7-5.3-12. Preparation of annual benefit report. -- (a) A benefit corporation shall

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prepare an annual benefit report including all of the following:

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     (1) A narrative description of:

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     (i) The ways in which the benefit corporation pursued general public benefit during the

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year and the extent to which general public benefit was created.

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     (ii) Both:

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     (A) The ways in which the benefit corporation pursued a specific public benefit that the

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articles of incorporation state it is the purpose of the benefit corporation to create; and

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     (B) The extent to which that specific public benefit was created.

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     (iii) Any circumstances that have hindered the creation by the benefit corporation of

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general public benefit or specific public benefit.

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     (iv) The process and rationale for selecting or changing the third-party standard used to

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prepare the benefit report.

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     (2) An assessment of the overall social and environmental performance of the benefit

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corporation against a third-party standard:

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     (i) Applied consistently with any application of that standard in prior benefit reports; or

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     (ii) Accompanied by an explanation of the reasons for:

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     (A) Any inconsistent application; or

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     (B) The change to that standard from the one used in the immediately prior report.

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     (3) The name of the benefit director and the benefit officer, if any, and the address to

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which correspondence to each of them may be directed.

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

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the capacity of a director.

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     (5) The statement of the benefit director described in subsection 7-5.3-8(c).

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     (6) A statement of any connection between the organization that established the third-

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party standard, or its directors, officers or any holder of five percent (5%) or more of the

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governance interests in the organization, and the benefit corporation or its directors, officers or

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any holder of five percent (5%) or more of the outstanding shares of the benefit corporation,

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including any financial or governance relationship which might materially affect the credibility of

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the use of the third-party standard.

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     (7) If the benefit corporation has dispensed with, or restricted the discretion or powers of,

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the board of directors, a description of:

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     (i) The persons that exercise the powers, duties, and rights and who have the immunities

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of the board of directors; and

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     (ii) The benefit director, as required by subsection 7-5.3-8(f).

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     (b) If, during the year covered by a benefit report, a benefit director resigned from or

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refused to stand for reelection to the position of benefit director, or was removed from the

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position of benefit director, and the benefit director furnished the benefit corporation with any

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written correspondence concerning the circumstances surrounding the resignation, refusal, or

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removal, the benefit report shall include that correspondence as an exhibit.

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     (c) Neither the benefit report nor the assessment of the performance of the benefit

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corporation in the benefit report required by subdivision (a)(2) needs to be audited or certified by

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a third party.

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     7-5.3-13. Availability of annual benefit report. -- (a) A benefit corporation shall send

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its annual benefit report to each shareholder on the earlier of:

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     (1) One hundred twenty (120) days following the end of the fiscal year of the benefit

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corporation; or

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     (2) The same time that the benefit corporation delivers any other annual report to its

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shareholders.

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     (b) A benefit corporation shall post all of its benefit reports on the public portion of its

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Internet website, if any, but the compensation paid to directors and financial or proprietary

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information included in the benefit reports may be omitted from the benefit reports as posted.

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     (c) If a benefit corporation does not have an Internet website, the benefit corporation shall

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provide a copy of its most recent benefit report, without charge, to any person that requests a

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copy, but the compensation paid to directors and financial or proprietary information included in

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the benefit report may be omitted from the copy of the benefit report provided.

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     (d) Concurrently with the delivery of the benefit report to shareholders under subsection

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(c), the benefit corporation shall deliver a copy of the benefit report to the secretary of state for

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filing, but the compensation paid to directors and financial or proprietary information included in

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the benefit report may be omitted from the benefit report as delivered to the secretary of state.

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The secretary of state shall charge a fee of ten dollars ($10.00) for filing a benefit report.

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     SECTION 2. This act shall take effect upon passage.

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LC01642

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO CORPORATIONS, ASSOCIATIONS AND PARTNERSHIPS

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12-1

     This act would allow for the creation of benefit corporations.

12-2

     This act would take effect upon passage.

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LC01642

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