SENATE 3rd Reading Unamended May 7, 2012 SENATE Amended 2nd Reading May 4, 2012Second Regular Session Sixty-eighth General Assembly STATE OF COLORADO REENGROSSED This Version Includes All Amendments Adopted in the House of Introduction LLS NO. 12-0582.01 Thomas Morris x4218 SENATE BILL 12-182 SENATE SPONSORSHIP Bacon and Mitchell, Heath, Johnston, Shaffer B., Cadman, Harvey HOUSE SPONSORSHIP Massey, Ramirez Senate Committees House Committees Judiciary Economic and Business Development Appropriations A BILL FOR AN ACT Concerning benefit corporations, and, in connection therewith, making an appropriation. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Section 1 of the bill enacts the "Invest in Colorado Act", and authorizes the creation of benefit corporations. A benefit corporation must have, as one of its purposes specified in its articles of incorporation, the goal of creating general public benefit. The bill establishes the requirements for a corporation to be created as, or to elect to become, a benefit corporation, including: The election and termination of benefit status; The promotion of general public benefit as a purpose of the corporation; Standards of accountability for the conduct of directors and officers of a benefit corporation; Designation of a benefit director; Rights of action in benefit proceedings; and The preparation and availability of annual benefit reports. Section 2 specifies dissenters' rights for shareholders of a benefit corporation. Section 3 clarifies that an offer or sale of a security of a benefit corporation is not a solicitation for purposes of the "Colorado Charitable Solicitations Act" if the offer or sale complies with the "Colorado Securities Act". Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add part 5 to article 101 of title 7 as follows: PART 5 BENEFIT CORPORATIONS 7-101-501. Short title. This part 5 shall be known and may be cited as the "Invest in Colorado Act". 7-101-502. Definitions. As used in this part 5, unless the context otherwise requires: (1) "Benefit corporation" means a corporation: (a) That has elected to become subject to this part 5; and (b) The status of which as a benefit corporation has not been terminated under section 7-101-506. (2) "Benefit director" means either: (a) The director designated as the benefit director of a benefit corporation under section 7-101-509; or (b) A person with one or more of the powers, duties, or rights of a benefit director to the extent provided in the bylaws under section 7-101-509. (3) "Benefit enforcement proceeding" means any claim or action for: (a) Failure of a benefit corporation to pursue or create general public benefit or a specific public benefit purpose set forth in its articles of incorporation; or (b) Violation of any obligation, duty, or standard of conduct under this part 5. (4) "Benefit officer" means the individual designated as the benefit officer of a benefit corporation under section 7-101-511. (5) "General public benefit" means a material positive impact on society and the environment, taken as a whole, assessed against any third-party standard, from the business and operations of a benefit corporation. The assessment does not need to be performed, audited, or certified by a third party. (6) "Independent" means having no material relationship with a benefit corporation or a subsidiary of the benefit corporation. A person who serves as a benefit director or benefit officer does not lose his or her status as independent merely by serving in that position. In determining whether a person is independent, a percentage of ownership in an entity must be calculated as if all outstanding rights to acquire equity interests in the entity had been exercised. A material relationship between a person and a benefit corporation or any of its subsidiaries will be conclusively presumed to exist if any of the following apply: (a) The person is, or has been within the last three years, an employee, other than a benefit officer, of the benefit corporation or of a subsidiary of the benefit corporation. (b) An immediate family member of the person is, or has been within the last three years, an executive officer, other than a benefit officer, of the benefit corporation or of its subsidiary. (c) Either of the following has a beneficial or record ownership of five percent or more of the outstanding shares of the benefit corporation: (I) The person; or (II) An entity: (A) Of which the person is a director, an officer, or a manager; or (B) In which the person owns beneficially or of record five percent or more of the outstanding equity interests. (7) "Minimum status vote" means: (a) In the case of a corporation, in addition to any other required approval or vote, the corporate action must be approved by the shareholders of each class or series that are entitled to vote on the action by at least two-thirds of the votes that all shareholders of the class or series are entitled to cast on the action. (b) In the case of a domestic entity other than a corporation, in addition to any other required approval, vote, or consent, the action must be approved by vote or consent of the holders of every class or series of equity interest in the entity that are entitled to vote on the action by at least two-thirds of the votes or consents that all of those holders are entitled to cast on the action. (8) "Specific public benefit" includes: (a) Providing low-income or underserved individuals or communities with beneficial products or services; (b) Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business; (c) Preserving the environment; (d) Improving human health; (e) Promoting the arts, sciences, or advancement of knowledge; (f) Increasing the flow of capital to entities with a public benefit purpose; and (g) Conferring any other particular benefit on society or the environment. (9) "Subsidiary" means, in relation to a person, an entity in which the person owns beneficially or of record fifty percent or more of the outstanding equity interests. A percentage of ownership in an entity must be calculated as if all outstanding rights to acquire equity interests in the entity had been exercised. (10) "Third-party standard" means a recognized standard for defining, reporting, and assessing corporate social and environmental performance that is: (a) Comprehensive in that it assesses the effect of a business and its operations upon the interests listed in section 7-101-508 (1) (a) (II), (1) (a) (III), (1) (a) (IV), and (1) (a) (V); (b) Developed by an organization that is independent of the benefit corporation and satisfies the following requirements: (I) Not more than one-third of the members of the governing body of the organization are representatives of any of the following: (A) An association of businesses operating in a specific industry, the performance of whose members is measured by the standard; (B) Businesses from a specific industry or an association of businesses in that industry; or (C) A business whose performance is assessed against the standard; and (II) The organization is not materially financed by an association or business described in subparagraph (I) of this paragraph (b); (c) Credible because the standard is developed by a person that both: (I) Has access to necessary expertise to assess overall corporate social and environmental performance; and (II) Uses a balanced multistakeholder approach, including a public comment period of at least thirty days, to develop the standard; and (d) Transparent because the following information is publicly available: (I) About the standard: (A) The criteria considered when measuring the overall social and environmental performance of a business; and (B) The relative weightings of those criteria, if the standard uses relative weightings of the criteria; and (II) About the development and revision of the standard: (A) The identity of the directors, officers, material owners, and governing body of the organization that developed and controls revisions to the standard; (B) The process by which revisions to the standard and changes to the membership of the governing body are made; and (C) An accounting of the sources of financial support for the organization, with sufficient detail to disclose any relationships that could reasonably be considered to present a potential conflict of interest. 7-101-503. Application and amendment of part. (1) This part 5 applies only to a benefit corporation. (2) The existence of a provision of this part 5 does not of itself create any implication that a contrary or different rule of law is or would be applicable to a corporation or other entity that is not a benefit corporation. This part 5 does not affect any statute or rule of law as it applies to a corporation or other entity that is not a benefit corporation. (3) The articles of incorporation and bylaws of a benefit corporation must be consistent with this part 5. (4) The "Colorado Business Corporation Act", articles 101 to 117 of this title, and the "Colorado Corporations and Associations Act", article 90 of this title, apply to all benefit corporations; except that this part 5 controls over any provision of the "Colorado Business Corporation Act" or the "Colorado Corporations and Associations Act" that is inconsistent with this part 5. (5) The general assembly may amend or repeal all or part of this part 5 at any time, and all domestic corporations are governed by the amendment or repeal. 7-101-504. Formation of benefit corporations. A benefit corporation must be formed in accordance with article 102 of this title and part 3 of article 90 of this title, but its articles of incorporation must also state that it is a benefit corporation. 7-101-505. Election of status. (1) An existing corporation may become a benefit corporation under this part 5 by amending its articles of incorporation so that they contain, in addition to the requirements of section 7-102-102 of the "Colorado Business Corporation Act", a statement that the corporation is a benefit corporation. In order to be effective, the amendment must be adopted by the minimum status vote. (2) If an entity that is not a benefit corporation is a party to a merger or conversion or the exchanging entity in a share exchange, and the surviving, new, or resulting entity in the merger, conversion, or share exchange is to be a benefit corporation, the plan of merger, conversion, or share exchange must be adopted by the minimum status vote. The approval of any other plan of merger, plan of conversion, or plan of share exchange must be approved by a benefit corporation or other entity as provided in article 90 of this title. 7-101-506. Termination of status. (1) A benefit corporation may terminate its status as such and cease to be subject to this part 5 by amending its articles of incorporation to delete the provision required by section 7-101-504 to be stated in the articles of incorporation of a benefit corporation. In order to be effective, the amendment must be adopted by the minimum status vote. (2) If a plan of merger, conversion, or share exchange would have the effect of terminating the status of a corporation as a benefit corporation, in order to be effective, the plan must be adopted by the minimum status vote. Any sale, lease, exchange, or other disposition of all or substantially all of the assets of a benefit corporation, unless the transaction is in the usual and regular course of business, is not effective unless the transaction is approved by at least the minimum status vote. The approval of any other plan of merger, plan of conversion, or plan of share exchange must be approved by a benefit corporation or other entity as provided in article 90 of this title. 7-101-507. Corporate purposes. (1) A benefit corporation must have a purpose of creating general public benefit. This purpose is in addition to its purpose under section 7-103-101. (2) The articles of incorporation of a benefit corporation may identify one or more specific public benefits that it is the purpose of the benefit corporation to create in addition to its purposes under section 7-103-101 and subsection (1) of this section. The identification of a specific public benefit under this subsection (2) does not limit the obligation of a benefit corporation under subsection (1) of this section. (3) The creation of general public benefit and specific public benefit under subsections (1) and (2) of this section is in the best interests of the benefit corporation. (4) A benefit corporation may amend its articles of incorporation to add, amend, or delete the identification of a specific public benefit that it is the purpose of the benefit corporation to create. In order to be effective, the amendment must be adopted by the minimum status vote. 7-101-508. Standard of conduct for directors. (1) In discharging the duties of their respective positions and in considering the best interests of the benefit corporation, the board of directors, committees of the board, and individual directors of a benefit corporation: (a) Shall consider the effects of any action or inaction upon: (I) The shareholders of the benefit corporation; (II) The employees and work force of the benefit corporation, its subsidiaries, and its suppliers; (III) The interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation; (IV) Community and societal factors, including those of each community in which offices or facilities of the benefit corporation, its subsidiaries, or its suppliers are located; (V) The local and global environment; (VI) The short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation; and (VII) The ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose; and (b) May consider other pertinent factors or the interests of any other group that they deem appropriate; but (c) Need not give priority to the interests of a particular person or group referred to in paragraph (a) or (b) of this subsection (1) over the interests of any other person or group unless the benefit corporation has stated in its articles of incorporation its intention to give priority to certain interests related to its accomplishment of its general public benefit purpose or of a specific public benefit purpose identified in its articles of incorporation. (2) The consideration of interests and factors in the manner required by subsection (1) of this section does not constitute a violation of section 7-108-401. (3) A director is not personally liable for monetary damages for: (a) Any action taken as a director if the director performed the duties of office in compliance with section 7-108-401; or (b) Failure of the benefit corporation to pursue or create general public benefit or a specific public benefit. (4) A director does not owe a duty to a person that is a beneficiary of the general public benefit purpose or a specific public benefit purpose of a benefit corporation arising from the status of the person as a beneficiary. 7-101-509. Benefit director. (1) The board of directors of a benefit corporation must include at least one director, who: (a) Is designated the benefit director; and (b) Has, in addition to the powers, duties, rights, and immunities of the other directors of the benefit corporation, the powers, duties, rights, and immunities provided in this part 5. (2) The benefit director must be elected, and may be removed, in the manner provided by part 1 of article 108 of this title, and must be an individual who is independent. The benefit director may serve as the benefit officer at the same time as serving as the benefit director. The articles of incorporation or bylaws of a benefit corporation may prescribe additional qualifications of the benefit director not inconsistent with this subsection (2). (3) The benefit director shall prepare, and the benefit corporation shall include in the annual benefit report to shareholders required by section 7-101-513, the opinion of the benefit director on all of the following: (a) Whether the benefit corporation acted in accordance with its general public benefit purpose and any specific public benefit purpose in all material respects during the period covered by the report; (b) Whether the directors and officers complied with sections 7-101-508 (1) and 7-101-510 (1), respectively; (c) If, in the opinion of the benefit director, the benefit corporation or its directors or officers failed to comply with the standards specified in paragraphs (a) and (b) of this subsection (3), a description of the ways in which the benefit corporation or its directors or officers failed to comply. (4) The act or inaction of an individual in the capacity of a benefit director constitutes for all purposes an act or inaction of that individual in the capacity of a director of the benefit corporation. (5) Regardless of whether the articles of incorporation of a benefit corporation include a provision eliminating or limiting the personal liability of directors authorized by section 7-108-402, a benefit director is not personally liable for an act or omission in the capacity of a benefit director unless the act or omission constitutes self-dealing, willful misconduct, or a knowing violation of law. (6) If the articles of incorporation of a benefit corporation provide that the powers and duties conferred or imposed upon the board of directors must be exercised or performed by a person other than the directors under section 7-108-101, then the articles of incorporation must provide that the persons or shareholders who perform the duties of the board of directors include a person with the powers, duties, rights, and immunities of a benefit director. (7) A person that exercises one or more of the powers, duties, or rights of a benefit director under subsection (6) of this section: (a) Does not need to be independent of the benefit corporation; (b) Has the immunities of a benefit director; (c) May share the powers, duties, and rights of a benefit director with one or more other persons; and (d) Is not subject to the procedures for election or removal of directors in part 1 of article 108 of this title unless: (I) The person is also a director of the benefit corporation; or (II) The bylaws make those procedures applicable. 7-101-510. Standard of conduct for officers. (1) Each officer of a benefit corporation shall consider the interests and factors described in section 7-101-508 (1) in the manner provided in that section if: (a) The officer has discretion to act with respect to a matter; and (b) It reasonably appears to the officer that the matter may have a material effect on the creation by the benefit corporation of general public benefit or a specific public benefit identified in the articles of incorporation of the benefit corporation. (2) The consideration of interests and factors in the manner described in subsection (1) of this section does not violate section 7-108-401. (3) An officer is not personally liable for monetary damages for: (a) An action or omission as an officer if the officer performed the duties of the position in compliance with section 7-108-401 and this section; or (b) Failure of the benefit corporation to pursue or create general public benefit or a specific public benefit. (4) An officer does not have a duty to a person that is a beneficiary of the general public benefit purpose or a specific public benefit purpose of a benefit corporation arising from the status of the person as a beneficiary. 7-101-511. Benefit officer. (1) A benefit corporation may have an officer designated as the benefit officer. (2) A benefit officer has: (a) The powers and duties relating to the purpose of the benefit corporation to create general public benefit or specific public benefit provided: (I) By the bylaws; or (II) Absent controlling provisions in the bylaws, by resolutions or orders of the board of directors; and (b) The duty to prepare the benefit report required by section 7-101-513. 7-101-512. Right of action. (1) Except in a benefit enforcement proceeding, no person may bring an action or assert a claim against a benefit corporation or its directors or officers with respect to: (a) Failure to pursue or create general public benefit or a specific public benefit set forth in its articles of incorporation; or (b) Violation of a duty or standard of conduct under this part 5. (2) A benefit enforcement proceeding may be commenced or maintained only: (a) Directly by the benefit corporation; or (b) Derivatively by: (I) A shareholder; (II) A director; (III) A person or group of persons that owns beneficially or of record five percent or more of the equity interests in an entity of which the benefit corporation is a subsidiary; or (IV) Other persons as specified in the articles of incorporation or bylaws of the benefit corporation. (3) A benefit corporation is not liable for monetary damages under this part 5 for any failure of the benefit corporation to pursue or create general public benefit or a specific public benefit. 7-101-513. Annual benefit report. (1) A benefit corporation, or a benefit officer if one has been designated, shall prepare an annual benefit report that includes all of the following: (a) A narrative description of: (I) The ways in which the benefit corporation pursued general public benefit during the year and the extent to which general public benefit was created; (II) Both: (A) The ways in which the benefit corporation pursued a specific public benefit that the articles of incorporation state is the purpose of the benefit corporation to create; and (B) The extent to which that specific public benefit was created; (III) Any circumstances that have hindered the creation by the benefit corporation of general public benefit or specific public benefit; and (IV) The process and rationale for selecting or changing the third-party standard used to prepare the benefit report; (b) An assessment of the overall social and environmental performance of the benefit corporation against a third-party standard: (I) Applied consistently with any application of that standard in prior benefit reports; or (II) Accompanied by an explanation of the reasons for any inconsistent application. The assessment does not need to be performed, audited, or certified by a third party. (c) The name of the benefit director and the benefit officer, if any, and the address to which correspondence to each of them may be directed; (d) The compensation paid by the benefit corporation during the year to each director in the capacity of a director; (e) The name of each person that owns five percent or more of the outstanding shares of the benefit corporation either: (I) Beneficially, to the extent known to the benefit corporation without independent investigation; or (II) Of record; (f) The statement of the benefit director described in section 7-101-509 (3); and (g) A statement of any connection between the organization that established the third-party standard, or its directors, officers, or any holder of five percent or more of the governance interests in the organization, and the benefit corporation or its directors, officers, or any holder of five percent or more of the outstanding shares of the benefit corporation, including any financial or governance relationship that might materially affect the credibility of the use of the third-party standard. (2) If the benefit corporation has dispensed with, or restricted the discretion or powers of, the board of directors, the benefit corporation, or a benefit officer if one has been designated, shall include in the annual report a description of: (a) The persons that exercise the powers, duties, and rights and who have the immunities of the board of directors; and (b) The benefit director, as required by section 7-101-509 (6). (3) A benefit corporation shall send a benefit report annually to each shareholder: (a) Within one hundred twenty days after the end of the fiscal year of the benefit corporation; or (b) At the same time that the benefit corporation delivers any other annual report to its shareholders. (4) A benefit corporation shall post all of its benefit reports on the public portion of its web site, if any, but the benefit corporation may omit from the posted benefit report the compensation paid to directors and financial or proprietary information included in the benefit reports. (5) If a benefit corporation does not have a web site, the benefit corporation shall provide a copy of its most recent benefit report, without charge, to any person that requests a copy, but the benefit corporation may omit the compensation paid to directors and financial or proprietary information from the copy of the benefit report so provided. SECTION 2. In Colorado Revised Statutes, 7-113-102, amend (1) (d) and (1) (e); and add (1) (f), (1) (g), and (1) (h) as follows: 7-113-102. Right to dissent. (1) A shareholder, whether or not entitled to vote, is entitled to dissent and obtain payment of the fair value of the shareholder's shares in the event of any of the following corporate actions: (d) Consummation of a sale, lease, exchange, or other disposition of all, or substantially all, of the property of an entity controlled by the corporation if the shareholders of the corporation were entitled to vote upon the consent of the corporation to the disposition pursuant to section 7-112-102 (2); and (e) Consummation of a conversion in which the corporation is the converting entity as provided in section 7-90-206 (2); (f) Consummation of a plan by which a corporation becomes a benefit corporation by merger or conversion into a corporation that has elected benefit corporation status as provided in section 7-101-505; (g) Consummation of a plan by which a benefit corporation terminates benefit corporation status by merger or conversion into a corporation that has not elected benefit corporation status as provided in section 7-101-505; and (h) An amendment to the corporation's articles of incorporation to elect benefit corporation status as provided in section 7-101-505 or to terminate benefit corporation status as provided in section 7-101-506. SECTION 3. In Colorado Revised Statutes, add 7-116-110 as follows: 7-116-110. Applicability of the "Colorado Charitable Solicitations Act" - rules. (1) The offer or sale of a security of a benefit corporation, as that term is defined in section 7-101-502 (1), is not a solicitation, as that term is defined in section 6-16-103 (10), C.R.S., if the offer or sale complies with the requirements of the "Colorado Securities Act", article 51 of title 11, C.R.S. (2) If a benefit corporation is within the definition of a charitable organization, as that term is defined in section 6-16-103 (1), C.R.S., and intends to solicit contributions in this state or to have contributions solicited in this state on its behalf by any other person or entity, in either case by any means other than the offer or sale of a security of the benefit corporation as specified in subsection (1) of this section, the benefit corporation shall comply with the obligations of a charitable organization under the "Colorado Charitable Solicitations Act", article 16 of title 6, C.R.S., as the secretary of state may by rule require. SECTION 4. Appropriation. In addition to any other appropriation, there is hereby appropriated, out of any moneys in the department of state cash fund created in section 24-21-104 (3) (b), Colorado Revised Statutes, not otherwise appropriated, to the department of state, for the fiscal year beginning July 1, 2012, the sum of $52,688, or so much thereof as may be necessary, for allocation to the information technology services division for contract programming related to the implementation of this act. SECTION 5. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.