New Benefit Corporation Proposal Takes Different Direction

A revised benefit corporation proposal, HB 13-1138 has been introduced in the Colorado House. The measure is much slimmed down from some earlier versions proposed during the past couple of years, and makes some departures from those earlier proposals (which were largely built off model legislation available at B Labs website .  Here is a brief breakdown of the new proposal’s key changes:

  • General public benefit. It allows a benefit corporation to have a general public benefit purpose (defined as a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard) or a specific public benefit purpose (e.g., protecting the environment, improving human health, or providing low-income housing), or both. Prior versions required a general public benefit purpose, with the specific public benefit piece being optional.
  • Permissive standard of conduct. It allows directors of a benefit corporation that has elected to pursue or create general public benefit to consider the effects of any action or inaction on various constituents, including the shareholders, employees, customers and the local and global environment (the listed potential constituents for specific public benefit purposes are fewer). This is a fundamental change from previous proposals, which required the consideration of many various interests.
  • No benefit director. It does not include the concept of a benefit director, which was a position under previous proposals that was tasked with preparing, in conjunction with the annual benefit report, statements of opinion on whether the organization acted in accordance with its benefit purpose and whether directors and officers complied with the standard of conduct.
  • Benefit report not always required. If required by the articles of incorporation or shareholder resolution, the organization needs to prepare a benefit report describing the ways in which the organization pursued public benefit; circumstances that may have hindered its performance; an assessment of the overall social and environmental performance of the organization against a third-party standard; and  the process for selecting or changing the third-party standard used. Previous proposals required a benefit report for all benefit corporations each year.

At first blush, this proposal may represent a hybrid of another sort: While it retains many of the benefit corporation facets, it also bears some resemblance to a flexible-purpose corporation (in existence in California) , the hallmark of which is the permissive authority to consider special purposes (as opposed to mandatory consideration of various interests). An informative article on the flexible-purpose corporation can be downloaded here.

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At Leaffer Law Group, we will continue to monitor developments around benefit corporations and social enterprise in general. If you have any questions on this topic, contact Karen Leaffer at kleaffer@leafferlaw.com or Becky Seidel at bseidel@leafferlaw.com.

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