Public Benefit Corps in Vermont


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Public Benefit Corps in Vermont

  1. 1. The Vermont Benefit Corporations Act: A Business Corporation with the Purpose of Creating Public Benefit May 12, 2011 Spring Conference By: H. Kenneth Merritt, Jr. Copyright 2011 -H. Kenneth Merritt, Jr .
  2. 2. <ul><li>For-profit Corporation </li></ul><ul><ul><li>Benefit Corporation (7/1/11) </li></ul></ul><ul><li>Non-profit Corporation </li></ul><ul><li>Limited Liability Company </li></ul><ul><ul><li>L3C </li></ul></ul><ul><li>Limited Partnership </li></ul><ul><li>General Partnership </li></ul><ul><li>Cooperative </li></ul>Vermont Entity Choice
  3. 3. Vermont Historical Context <ul><li>Director’s Duties – 11A V.S.A. 8.30 </li></ul><ul><ul><li>Good Faith </li></ul></ul><ul><ul><li>Duty of Care-Care as ordinarily prudent person in a like position would exercise under similar circumstances </li></ul></ul><ul><ul><li>In a manner the Director reasonably believes to be in the best interests of the corporation </li></ul></ul><ul><li>The rise of constituency statutes in response to takeovers in 1980-1990s </li></ul><ul><li>11A V.S.A. Section 8.30 (3) – Amended best interests of the corporation in 1998 to provide that directors may consider to include constituencies other than shareholders </li></ul><ul><li>Applies only to public companies </li></ul><ul><li>Increasing number of companies concerned about natural (environment), human (employees), and economic environment. </li></ul><ul><ul><li>Double bottom line </li></ul></ul><ul><ul><li>Triple bottom line </li></ul></ul>
  4. 4. Vermont Historical Context <ul><li>VBSR Mission Statement: is to foster a business ethic in Vermont that recognizes the opportunity and responsibility of the business community to set a high standard for protecting the natural, human, and economic environments of our citizens. </li></ul><ul><li>Tension between corporate social responsibility and existing legal framework </li></ul><ul><li>Corporate Social Responsibility – How to measure: </li></ul><ul><ul><li>CSR Reporting </li></ul></ul><ul><ul><li>GRI </li></ul></ul><ul><ul><li>B Lab </li></ul></ul>
  5. 5. Benefit Corporations <ul><li>One of the purposes of a benefit corporation is to create general public benefit as measured by third-party standard. (21.03 (a)(4)) </li></ul><ul><ul><li>May be in addition to and may be limitation of 11A3.01(a) – any lawful business. </li></ul></ul><ul><li>The corporation may also elect to create specific public benefits. (21.08(b)) </li></ul><ul><li>Creation of general and specific public benefit is defined as being in the best interests of the corporation . (21.08(c)) </li></ul><ul><li>Note that benefit corporations are a type of business corporation and are for-profit. All other provisions of Title 11A apply. </li></ul>
  6. 6. <ul><li>The specific public benefits that a benefit corporation may elect to create include (21.03(a)(6): </li></ul><ul><ul><li>providing low-income or underserved individuals or communities with beneficial products or services. </li></ul></ul><ul><ul><li>promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business. </li></ul></ul><ul><ul><li>Preserving or improving the environment </li></ul></ul><ul><ul><li>improving human health. </li></ul></ul><ul><ul><li>promoting the arts, sciences or advancement of knowledge </li></ul></ul><ul><ul><li>increasing the flow of capital to entities with a public benefit purpose. </li></ul></ul><ul><ul><li>accomplishment of any other particular benefit for society or the environment. </li></ul></ul>Benefit Corporations
  7. 7. <ul><li>Directors SHALL consider the interests of certain constituencies – although the weight to be given those interests is not prescribed. (21.09) </li></ul><ul><ul><li>shareholders of the corporation. </li></ul></ul><ul><ul><li>employees and workforce of the corporation, subsidiaries and suppliers. </li></ul></ul><ul><ul><li>customers to the extent they are beneficiaries of the public benefit purposes of the corporation. </li></ul></ul><ul><ul><li>community and societal considerations. </li></ul></ul><ul><ul><li>local and global environment. </li></ul></ul><ul><ul><li>long-term and short-term interests, including the possibility that those interests may be best served by the continued independence of the corporation. </li></ul></ul><ul><ul><li>any other pertinent factors which the director determines are appropriate to consider. </li></ul></ul>Benefit Corporations
  8. 8. <ul><li>An officer must also consider those interests when (21.11): </li></ul><ul><ul><li>the officer has discretion in how to act or not act, and </li></ul></ul><ul><ul><li>the decision will have a material impact on the creation of public benefit by the corporation. </li></ul></ul><ul><li>Corporation may designate an officer as benefit officer (21.12) - </li></ul><ul><ul><ul><li>Authority and duties relating to public benefit purpose. </li></ul></ul></ul><ul><li>The corporation must prepare an annual benefit report on its creation of public benefit (21.14): </li></ul><ul><ul><li>report must be given to the shareholders </li></ul></ul><ul><ul><li>report must be posted on the public portion, if any, of the corporation’s website – can exclude compensation and proprietary information. </li></ul></ul>Benefit Corporations
  9. 9. <ul><li>Act provides for the designation of a “benefit director” (Section 21.01): </li></ul><ul><ul><li>must be independent </li></ul></ul><ul><ul><li>must prepare an annual evaluation of the corporation’s performance, which must be included in the annual benefit report </li></ul></ul>Benefit Corporations
  10. 10. <ul><li>Existing corporation opting in (21.05) – Requires statement of reasons for and benefit to shareholders of opting in. </li></ul><ul><li>Same requirements for opting out (21.07) 2/3 vote </li></ul><ul><li>No Third Party Right of action (21.13) Enforced in a benefit corporation proceeding. May be brought by shareholder or directors. </li></ul>Benefit Corporation Mechanics
  11. 11. Thank You By: H. Kenneth Merritt, Jr. Managing Director PO Box 5839, Burlington, VT 05402 802.658.7830 [email_address]