S1049

	2013 -- S 1049
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	LC02973
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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: Senator Catherine Cool Rumsey

	Date Introduced: July 03, 2013

	Referred To: Senate Commerce




	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, all provisions of the general corporation
1-13	law, including the Rhode Island Business Corporation Act, chapter 1.2 of this title, applicable to
1-14	domestic business corporations are applicable to corporations organized under this chapter. A
1-15	benefit corporation may be subject simultaneously to this chapter and chapters 5.1 of this title.
1-16	The provisions of this chapter shall control over the provisions of any other chapter to this title to
1-17	which a benefit corporation is subject.
1-18	(d) A provision of the articles of incorporation or bylaws of a benefit corporation may not
1-19	limit, be inconsistent with, or supersede a provision of this chapter.
2-20	7-5.3-2. Definitions. -- As used in this chapter:
2-21	(1) "Benefit corporation" means a corporation for profit with purposes set forth in section
2-22	7-5.3-6 that is subject to this chapter.
2-23	(2) "Benefit director" means either:
2-24	(i) The director designated as the benefit director of a benefit corporation under section 7-
2-25	5.3-8; or
2-26	(ii) A person with one or more of the powers, duties or rights of a benefit director to the
2-27	extent provided in the bylaws under subsection 7-5.3-8(f).
2-28	(3) "Benefit enforcement proceeding" means any claim or action or proceeding for:
2-29	(i) Failure of a benefit corporation to pursue or create general public benefit or a specific
2-30	public benefit purpose set forth in its articles; or
2-31	(ii) Violation of any obligation, duty, or standard of conduct under this chapter.
2-32	(4) "Benefit officer" means the individual, if any, designated as the benefit officer of a
2-33	benefit corporation under section 7-5.3-10.
2-34	(5) "General public benefit" means a material positive impact on society and the
2-35	environment, taken as a whole, assessed against a third-party standard, from the business and
2-36	operations of a benefit corporation.
2-37	(6) "Independent" means having no material relationship with a benefit corporation or a
2-38	subsidiary of the benefit corporation. Serving as benefit director or benefit officer does not make
2-39	an individual not independent. A material relationship between an individual and a benefit
2-40	corporation or any of its subsidiaries will be conclusively presumed to exist if any of the
2-41	following apply:
2-42	(i) The individual is, or has been within the last three (3) years, an employee other than a
2-43	benefit officer of the benefit corporation or a subsidiary.
2-44	(ii) An immediate family member of the individual is, or has been within the last three (3)
2-45	years, an executive officer other than a benefit officer of the benefit corporation or a subsidiary.
2-46	(iii) There is beneficial or record ownership of five percent (5%) or more of the
2-47	outstanding shares of the benefit corporation, calculated as if all outstanding rights to acquire
2-48	equity interests in the benefit corporation had been exercised, by:
2-49	(A) The individual; or
2-50	(B) An entity:
2-51	(I) Of which the individual is a director, an officer, or a manager; or
2-52	(II) In which the individual owns beneficially or of record five percent (5%) or more of
2-53	the outstanding equity interests, calculated as if all outstanding rights to acquire equity interests in
2-54	the entity had been exercised.
3-1	(7) "Minimum status vote" means:
3-2	(i) In the case of a corporation, in addition to any other required approval or vote, the
3-3	satisfaction of the following conditions:
3-4	(A) The shareholders of every class or series shall be entitled to vote as a class on the
3-5	corporate action regardless of a limitation stated in the articles of incorporation or bylaws on the
3-6	voting rights of any class or series.
3-7	(B) The corporate action must be approved by vote of the shareholders of each class or
3-8	series entitled to cast at least two-thirds (2/3) of the votes that all shareholders of the class or
3-9	series are entitled to cast on the action.
3-10	(ii) In the case of a domestic entity other than a corporation, in addition to any other
3-11	required approval, vote, or consent, the satisfaction of the following conditions:
3-12	(A) The holders of every class or series of equity interest in the entity that are entitled to
3-13	receive a distribution of any kind from the entity shall be entitled to vote on or consent to the
3-14	action regardless of any otherwise applicable limitation on the voting or consent rights of any
3-15	class or series.
3-16	(B) The action must be approved by vote or consent of the holders described in
3-17	subparagraph (A) entitled to cast at least two-thirds (2/3) of the votes or consents that all of those
3-18	holders are entitled to cast on the action.
3-19	(8) "Publicly traded corporation" means a corporation that has shares listed on a national
3-20	securities exchange or traded in a market maintained by one or more members of a national
3-21	securities association.
3-22	(9) "Specific public benefit" includes:
3-23	(i) Providing low-income or underserved individuals or communities with beneficial
3-24	products or services;
3-25	(ii) Promoting economic opportunity for individuals or communities beyond the creation
3-26	of jobs in the normal course of business;
3-27	(iii) Protecting or restoring the environment;
3-28	(iv) Improving human health;
3-29	(v) Promoting the arts, sciences, or advancement of knowledge;
3-30	(vi) Increasing the flow of capital to entities with a purpose to benefit society or the
3-31	environment; and
3-32	(vii) Conferring any other particular benefit on society or the environment.
3-33	(10) "Subsidiary" means, in relation to a person, an entity in which the person owns
3-34	beneficially or of record fifty percent (50%) or more of the outstanding equity interests,
4-1	calculated as if all outstanding rights to acquire equity interests in the entity had been exercised.
4-2	(11) "Third-party standard" means a recognized standard for defining, reporting, and
4-3	assessing corporate social and environmental performance that is:
4-4	(i) Comprehensive because it assesses the effect of the business and its operations upon
4-5	the interests listed in paragraphs 7-5.3-7(a)(1)(ii), (iii), (iv) and (v).
4-6	(ii) Developed by an entity that is not controlled by the benefit corporation.
4-7	(iii) Credible because it is developed by an entity that both:
4-8	(A) Has access to necessary expertise to assess overall corporate social and
4-9	environmental performance; and
4-10	(B) Uses a balanced multi-stakeholder approach to develop the standard, including a
4-11	reasonable public comment period.
4-12	(iv) Transparent because the following information is publicly available:
4-13	(A) About the standard:
4-14	(I) The criteria considered when measuring the overall social and environmental
4-15	performance of a business.
4-16	(II) The relative weightings, if any, of those criteria.
4-17	(B) About the development and revision of the standard:
4-18	(I) The identity of the directors, officers, material owners, and the governing body of the
4-19	entity that developed and controls revisions to the standard.
4-20	(II) The process by which revisions to the standard and changes to the membership of the
4-21	governing body are made.
4-22	(III) An accounting of the revenue and sources of financial support for the entity, with
4-23	sufficient detail to disclose any relationships that could reasonably be considered to present a
4-24	potential conflict of interest.
4-25	7-5.3-3. Incorporation of benefit corporation. -- A benefit corporation shall be
4-26	incorporated in accordance with section 7-1.2-202, and, if applicable, chapter 7-5.1 but its articles
4-27	of incorporation must also state that it is a benefit corporation and disclose the fiscal year end of
4-28	the corporation.
4-29	7-5.3-4. Election of benefit corporation status. -- (a) An existing corporation may
4-30	become a benefit corporation under this chapter by amending its articles of incorporation so that
4-31	they contain, in addition to the requirements of section 7-1.2-202, a statement that the corporation
4-32	is a benefit corporation. In order to be effective, the amendment must be adopted by at least the
4-33	minimum status vote.
5-34	(b) If an entity that is not a benefit corporation is a party to a merger or conversion and
5-35	the surviving or resulting entity in the merger or consolidation is to be a benefit corporation, the
5-36	merger or conversion must be approved by the entity by at least the minimum status vote.
5-37	7-5.3-5. Termination of benefit corporation status. -- (a) A benefit corporation may
5-38	terminate its status as such and cease to be subject to this chapter by amending its articles of
5-39	incorporation to delete the provision required by section 7-5.3-3 or section 7-5.3-4 to be stated in
5-40	the articles of a benefit corporation. In order to be effective, the amendment must be adopted by
5-41	at least the minimum status vote.
5-42	(b) If a merger or conversion would have the effect of terminating the status of a business
5-43	corporation as a benefit corporation, the merger or conversion must be adopted by at least the
5-44	minimum status vote in order to be effective. Any sale, lease, exchange, or other disposition of all
5-45	or substantially all of the assets of a benefit corporation, unless the transaction is in the usual and
5-46	regular course of business, shall not be effective unless the transaction is approved by at least the
5-47	minimum status vote.
5-48	7-5.3-6. Corporate purposes. -- (a) A benefit corporation shall have a purpose of
5-49	creating general public benefit. This purpose is in addition to its purpose under section 7-1.2-301
5-50	(b) The articles of incorporation of a benefit corporation may identify one or more
5-51	specific public benefits that it is the purpose of the benefit corporation to create in addition to its
5-52	purposes under section 7-1.2-301 and subsection (a). The identification of a specific public
5-53	benefit under this subsection does not limit the purpose of a benefit corporation to create general
5-54	public benefit under subsection (a).
5-55	(c) The creation of general public benefit and specific public benefit under subsections
5-56	(a) and (b) is in the best interests of the benefit corporation.
5-57	(d) A benefit corporation may amend its articles of incorporation to add, amend, or delete
5-58	the identification of a specific public benefit that it is the purpose of the benefit corporation to
5-59	create. In order to be effective, the amendment must be adopted by at least the minimum status
5-60	vote.
5-61	7-5.3-7. Standard of conduct for directors. -- (a) In discharging the duties of their
5-62	respective positions and in considering the best interests of the benefit corporation, the board of
5-63	directors, committees of the board, and individual directors of a benefit corporation:
5-64	(1) Shall consider the effects of any action or inaction upon:
5-65	(i) The shareholders of the benefit corporation;
5-66	(ii) The employees and work force of the benefit corporation, its subsidiaries, and its
5-67	suppliers;
6-68	(iii) The interests of customers as beneficiaries of the general public benefit or specific
6-69	public benefit purposes of the benefit corporation;
6-70	(iv) Community and societal factors, including those of each community in which offices
6-71	or facilities of the benefit corporation, its subsidiaries, or its suppliers are located;
6-72	(v) The local and global environment;
6-73	(vi) The short-term and long-term interests of the benefit corporation, including benefits
6-74	that may accrue to the benefit corporation from its long-term plans and the possibility that these
6-75	interests may be best served by the continued independence of the benefit corporation; and
6-76	(vii) The ability of the benefit corporation to accomplish its general public benefit
6-77	purpose and any specific public benefit purpose; and
6-78	(2) May consider other pertinent factors or the interests of any other group that they deem
6-79	appropriate; but
6-80	(3) Need not give priority to the interests of a particular person or group referred to in
6-81	subdivision (1) or (2) over the interests of any other person or group unless the benefit
6-82	corporation has stated in its articles of incorporation its intention to give priority to certain
6-83	interests related to its accomplishment of its general public benefit purpose or of a specific public
6-84	benefit purpose identified in its articles.
6-85	(b) The consideration of interests and factors in the manner required by subsection (a)
6-86	does not constitute a violation of section 7-1.2-801.
6-87	(c) Except as provided in the articles of incorporation, a director is not personally liable
6-88	for monetary damages for:
6-89	(1) Any action or inaction in the course of performing the duties of a director under
6-90	subsection (a) if the director performed the duties of office in compliance with section 7-1.2-801
6-91	and this section; or
6-92	(2) Failure of the benefit corporation to pursue or create a general public benefit or a
6-93	specific public benefit.
6-94	(d) A director does not have a duty to a person that is a beneficiary of the general public
6-95	benefit purpose or a specific public benefit purpose of a benefit corporation arising from the
6-96	status of the person as a beneficiary.
6-97	(e) A director who makes a business judgment in good faith fulfills the duty under this
6-98	section if the director:
6-99	(1) Is not interested in the subject of the business judgment;
6-100	(2) Is informed with respect to the subject of the business judgment to the extent the
6-101	director reasonably believes to be appropriate under the circumstances; and
7-102	(3) Rationally believes that the business judgment is in the best interests of the benefit
7-103	corporation.
7-104	7-5.3-8. Benefit director. -- (a) The board of directors of a benefit corporation that is a
7-105	publicly traded corporation shall, and the board of any other benefit corporation may, include a
7-106	director, who:
7-107	(1) Shall be designated the benefit director; and
7-108	(2) Shall have, in addition to the powers, duties, rights, and immunities of the other
7-109	directors of the benefit corporation, the powers, duties, rights, and immunities provided in this
7-110	chapter.
7-111	(b) The benefit director shall be elected, and may be removed, in the manner provided by
7-112	chapter 7-1.2. Except as provided in subsections (f) and (g), the benefit director shall be an
7-113	individual who is independent. The benefit director may serve as the benefit officer at the same
7-114	time as serving as the benefit director. The articles of incorporation or bylaws of a benefit
7-115	corporation may prescribe additional qualifications of the benefit director not inconsistent with
7-116	this subsection.
7-117	(c) The benefit director shall prepare, and the benefit corporation shall include in the
7-118	annual benefit report to shareholders required by section 7-5.3-12, the opinion of the benefit
7-119	director on all of the following:
7-120	(1) Whether the benefit corporation acted in accordance with its general public benefit
7-121	purpose and any specific public benefit purpose in all material respects during the period covered
7-122	by the report.
7-123	(2) Whether the directors and officers complied with subsection 7-5.3-7(a) and 7-5.3-
7-124	9(a), respectively.
7-125	(3) If, in the opinion of the benefit director, the benefit corporation or its directors or
7-126	officers failed to act or comply in the manner described in subdivisions (1) and (2), a description
7-127	of the ways in which the benefit corporation or its directors or officers failed to act or comply.
7-128	(d) The act or inaction of an individual in the capacity of a benefit director shall
7-129	constitute for all purposes an act or inaction of that individual in the capacity of a director of the
7-130	benefit corporation.
7-131	(e) Regardless of whether the articles of incorporation of a benefit corporation include a
7-132	provision eliminating or limiting the personal liability of directors authorized by subdivision 7-
7-133	1.2-202(b)(3), a benefit director shall not be personally liable for an act or omission in the
7-134	capacity of a benefit director unless the act or omission constitutes self-dealing, willful
7-135	misconduct, or a knowing violation of law.
8-136	(f) If the articles of incorporation of a benefit corporation provide that the powers and
8-137	duties conferred or imposed upon the board of directors shall be exercised or performed by a
8-138	person other than the directors as permitted by subsection 7-1.2-801(a), the articles must provide
8-139	that the persons or shareholders who perform the duties of the board of directors include a person
8-140	with the powers, duties, rights and immunities of a benefit director. A person that exercises one or
8-141	more of the powers, duties or rights of a benefit director under this subsection:
8-142	(1) Does not need to be independent of the benefit corporation;
8-143	(2) Shall have the immunities of a benefit director; and
8-144	(3) May share the powers, duties, and rights of a benefit director with one or more other
8-145	persons.
8-146	(g) The benefit director of a professional corporation or consumer cooperative does not
8-147	need to be independent.
8-148	7-5.3-9. Standard of conduct for officers. -- (a) Each officer of a benefit corporation
8-149	shall consider the interests and factors described in subsection 7-5.3-7(a) in the manner provided
8-150	in that subsection if:
8-151	(1) The officer has discretion to act with respect to a matter; and
8-152	(2) It reasonably appears to the officer that the matter may have a material effect on the
8-153	creation by the benefit corporation of general public benefit or a specific public benefit identified
8-154	in the articles of incorporation of the benefit corporation.
8-155	(b) The consideration by an officer of interests and factors in the manner described in
8-156	subsection (a) shall not constitute a violation of the duties of the officer.
8-157	(c) Except as provided in the articles of incorporation, an officer is not personally liable
8-158	for monetary damages for:
8-159	(1) An action or inaction as an officer in the course of performing the duties of an officer
8-160	under subsection (a) if the officer performed the duties of the position in compliance with
8-161	subsection 7-1.2-812(b) and this section; or
8-162	(2) Failure of the benefit corporation to pursue or create a general public benefit or a
8-163	specific public benefit.
8-164	(d) An officer does not have a duty to a person that is a beneficiary of the general public
8-165	benefit purpose or a specific public benefit purpose of a benefit corporation arising from the
8-166	status of the person as a beneficiary.
8-167	(e) An officer who makes a business judgment in good faith fulfills the duty under this
8-168	section if the officer:
8-169	(1) Is not interested in the subject of the business judgment;
9-170	(2) Is informed with respect to the subject of the business judgment to the extent the
9-171	officer reasonably believes to be appropriate under the circumstances; and
9-172	(3) Rationally believes that the business judgment is in the best interests of the benefit
9-173	corporation.
9-174	7-5.3-10. Benefit officer-- (a) A benefit corporation may have an officer designated as
9-175	the benefit officer.
9-176	(b) A benefit officer shall have:
9-177	(1) The powers and duties relating to the purpose of the corporation to create general
9-178	public benefit or specific public benefit provided:
9-179	(i) By the bylaws; or
9-180	(ii) Absent controlling provisions in the bylaws, by resolutions or orders of the board of
9-181	directors.
9-182	(2) The duty to prepare the benefit report required by section 7-5.3-12.
9-183	7-5.3-11. Right of action. -- (a) Except in a benefit enforcement proceeding, no person
9-184	may bring an action or assert a claim against a benefit corporation or its directors or officers with
9-185	respect to:
9-186	(1) Failure to pursue or create general public benefit or a specific public benefit set forth
9-187	in its articles of incorporation; or
9-188	(2) Violation of an obligation, duty, or standard of conduct under this chapter.
9-189	(b) A benefit corporation shall not be liable for monetary damages under this chapter for
9-190	any failure of the benefit corporation to pursue or create general public benefit or a specific public
9-191	benefit.
9-192	(c) A benefit enforcement proceeding may be commenced or maintained only:
9-193	(1) Directly by the benefit corporation; or
9-194	(2) Derivatively in accordance with the procedures in section 7-1.2-711 by:
9-195	(i) A person or group of persons that owned beneficially or of record at least two percent
9-196	(2%) of the total number of shares of a class or series outstanding at the time of the act or
9-197	omission complained of;
9-198	(ii) A director;
9-199	(iii) A person or group of persons that owned beneficially or of record five percent (5%)
9-200	or more of the outstanding equity interests in an entity of which the benefit corporation is a
9-201	subsidiary at the time of the act or omission complained of; or
9-202	(iv) Other persons as specified in the articles of incorporation or bylaws of the benefit
9-203	corporation.
10-204	(d) For purposes of this section, a person is the beneficial owner of shares or equity
10-205	interests if the shares or equity interests are held in a voting trust or by a nominee on behalf of the
10-206	beneficial owner.
10-207	7-5.3-12. Preparation of annual benefit report. -- (a) A benefit corporation shall
10-208	prepare an annual benefit report including all of the following:
10-209	(1) A narrative description of:
10-210	(i) The ways in which the benefit corporation pursued general public benefit during the
10-211	year and the extent to which general public benefit was created.
10-212	(ii) Both:
10-213	(A) The ways in which the benefit corporation pursued a specific public benefit that the
10-214	articles of incorporation state it is the purpose of the benefit corporation to create; and
10-215	(B) The extent to which that specific public benefit was created.
10-216	(iii) Any circumstances that have hindered the creation by the benefit corporation of
10-217	general public benefit or specific public benefit.
10-218	(iv) The process and rationale for selecting or changing the third-party standard used to
10-219	prepare the benefit report.
10-220	(2) An assessment of the overall social and environmental performance of the benefit
10-221	corporation against a third-party standard:
10-222	(i) Applied consistently with any application of that standard in prior benefit reports; or
10-223	(ii) Accompanied by an explanation of the reasons for:
10-224	(A) Any inconsistent application; or
10-225	(B) The change to that standard from the one used in the immediately prior report.
10-226	(3) The name of the benefit director and the benefit officer, if any, and the address to
10-227	which correspondence to each of them may be directed.
10-228	(4) The compensation paid by the benefit corporation during the year to each director in
10-229	the capacity of a director.
10-230	(5) The statement of the benefit director described in subsection 7-5.3-8(c).
10-231	(6) A statement of any connection between the organization that established the third-
10-232	party standard, or its directors, officers or any holder of five percent (5%) or more of the
10-233	governance interests in the organization, and the benefit corporation or its directors, officers or
10-234	any holder of five percent (5%) or more of the outstanding shares of the benefit corporation,
10-235	including any financial or governance relationship which might materially affect the credibility of
10-236	the use of the third-party standard.
10-237	(7) If the benefit corporation has dispensed with, or restricted the discretion or powers of,
10-238	the board of directors, a description of:
11-1	(i) The persons that exercise the powers, duties, and rights and who have the immunities
11-2	of the board of directors; and
11-3	(ii) The benefit director, as required by subsection 7-5.3-8(f).
11-4	(b) If, during the year covered by a benefit report, a benefit director resigned from or
11-5	refused to stand for reelection to the position of benefit director, or was removed from the
11-6	position of benefit director, and the benefit director furnished the benefit corporation with any
11-7	written correspondence concerning the circumstances surrounding the resignation, refusal, or
11-8	removal, the benefit report shall include that correspondence as an exhibit.
11-9	(c) Neither the benefit report nor the assessment of the performance of the benefit
11-10	corporation in the benefit report required by subdivision (a)(2) needs to be audited or certified by
11-11	a third party.
11-12	7-5.3-13. Availability of annual benefit report. -- (a) A benefit corporation shall send
11-13	its annual benefit report to each shareholder on the earlier of:
11-14	(1) One hundred twenty (120) days following the end of the fiscal year of the benefit
11-15	corporation; or
11-16	(2) The same time that the benefit corporation delivers any other annual report to its
11-17	shareholders.
11-18	(b) A benefit corporation shall post all of its benefit reports on the public portion of its
11-19	Internet website, if any, but the compensation paid to directors and financial or proprietary
11-20	information included in the benefit reports may be omitted from the benefit reports as posted.
11-21	(c) If a benefit corporation does not have an Internet website, the benefit corporation shall
11-22	provide a copy of its most recent benefit report, without charge, to any person that requests a
11-23	copy, but the compensation paid to directors and financial or proprietary information included in
11-24	the benefit report may be omitted from the copy of the benefit report provided.
11-25	(d) Concurrently with the delivery of the benefit report to shareholders under subsection
11-26	(c), the benefit corporation shall deliver a copy of the benefit report to the secretary of state for
11-27	filing, but the compensation paid to directors and financial or proprietary information included in
11-28	the benefit report may be omitted from the benefit report as delivered to the secretary of state.
11-29	The secretary of state shall charge a fee of ten dollars ($10.00) for filing a benefit report.
11-30	SECTION 2. This act shall take effect upon passage.

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	LC02973
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	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.

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	LC02973
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S1049