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  • June 30, 2017

    Round Three: Another Crack at Benefit Corporations

    The Wisconsin Legislature is considering adopting a new chapter of the Wisconsin statutes pertaining to benefit corporations. James DeCleene discusses the proposed legislation and how the Benefit Corporations Act, if adopted, would impact Wisconsin businesses.

    James DeCleene

    Benefit Corporations photo

    July 19, 2017 - Wisconsin has yet another opportunity to pass legislation creating benefit corporations.

    On May 31, 2017, Assembly Bill 354 (Benefit Corporations Act) was introduced to the State Assembly and referred to the Committee on Financial Institutions. The Benefit Corporations Act would create a new chapter of the Wisconsin statutes and allow corporations to elect to be treated as “benefit corporations.”

    This is Wisconsin’s third go-around to pass legislation in this area. 2011 Assembly Bill 742 and 2015 Assembly Bill 59, prior versions of the Benefit Corporations Act, were both previously dismissed due to inaction.

    What are Benefit Corporations?

    Generally, benefit corporations are for-profit corporations (notably not partnerships or limited liability companies) that opt to generate a benefit for the public at large in addition to serving their shareholders’ interests. These corporations are still formed under Chapter 180 of the Wisconsin statutes; however, provisions in the Benefit Corporations Act that are inconsistent with Chapter 180 will take precedence over their counterparts.

    To demonstrate, the board of directors, its committees, and individual directors of a benefit corporation would be required to consider societal and environmental factors when determining what is in the best interests of the corporation. Similarly, an officer would be required to consider those same factors when his or her actions could materially affect whether the benefit corporation creates a general public benefit.

    By contrast, the default rules under Chapter 180 are permissive and do not allow directors and officers to consider as many factors that are not shareholder-centric. Wis. Stat. § 180.0827(1)-(3).

    What Would the Benefit Corporations Act Require?

    Again, legislation to create benefit corporations is still pending at this time. However, in the event the Benefit Corporations Act becomes law, an existing corporation opting in to the Act would need to amend its articles of incorporation to explicitly state that it is a benefit corporation. Similarly, in the event a benefit corporation would want to terminate its “benefit” status, the corporation would simply need to amend its articles of incorporation to eliminate that provision.

    By opting in to these provisions, a benefit corporation would have to strive to create a “general public benefit.” This would require the corporation’s operations to be conducted so that, as a whole, the corporation has a material positive impact on society and the environment.

    To have such an impact, the benefit corporation must undertake activities that promote one or more of the following specific public benefits:

    • Providing low-income or underserved individuals or communities with beneficial products or services

    • Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business

    • Preserving the environment

    • Improving human health

    • Promoting the arts, sciences, or advancement of knowledge

    • Increasing the flow of capital to entities with a public benefit purpose

    • The accomplishment of any other particular benefit to society or the environment

    The Benefit Corporations Act would also change the calculus used in determining whether a certain action is in the “best interests” of the corporation.

    As set forth in the Act, the board of directors, its committees, and individual directors would have to consider the following factors in making that determination:

    • The shareholders of the benefit corporation

    • The employees and workforce of the benefit corporation and its subsidiaries and suppliers

    • The interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation

    • Community and societal factors, including those of any community in which offices or facilities of the benefit corporation or its subsidiaries or suppliers are located

    • The local and global environment

    • 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 corporate independence of the benefit corporation

    • The ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose

    Notably, the Act specifically states that creating a general or specific public benefit is “in the best interests of the benefit corporation.” To assist a benefit corporation in achieving its best interest, the Benefit Corporations Act requires at least one director to be a “benefit director” and allows for the appointment of a “benefit officer.”

    Even the other officers of a benefit corporation would have some new obligations under this regime. For example, the Benefit Corporations Act would require all officers to consider the same factors the board of directors, its committees, and its directors do when considering the “best interests” of the benefit corporation (see the most recent bulleted list).

    James W. DeCleene James W. DeCleene, Marquette 2015, is an associate attorney with Meissner Tierney Fisher & Nichols, S.C. in Milwaukee, where he specializes in the areas of corporate and tax law.

    This obligation, however, is only triggered when it “reasonably appears” to that officer that his or her actions could have a “material effect on the creation of general or specific public benefit by the benefit corporation.” Assumedly, where there would be no material effect on the creation of a public benefit, these other officers would not have to take the same factors into account.

    Last, a benefit corporation would be required to provide an annual statement to its shareholders setting out the corporation’s objectives, the standards used to measure its progress with respect to those objectives, factual information regarding its results, and an assessment of the benefit corporation’s performance in promoting the general public benefit.

    Will Other Wisconsin Corporations be Affected by the Benefit Corporations Act?

    They won’t – or rather, they shouldn’t. Obviously, the addition of benefit corporations as a new way of doing business would significantly alter the modus operandi for corporations choosing that treatment.

    As discussed above, the purposes for which a benefit corporation operates and the decision-making processes of its officers and directors differ from that of a standard corporation. That being said, the Benefit Corporations Act clearly tries not to muddy the waters under Chapter 180.

    For example, the Benefit Corporations Act provides that nothing within it affects a “statute or rule” applicable to other corporations. Additionally, the Benefit Corporations Act also provides that its inclusion of a provision does not imply that a different rule should be applicable under Chapter 180. Together, these provisions should undercut any collateral damage the Act may otherwise have had.

    What Can a Wisconsin Corporation Do in the Meantime?

    Wisconsin corporations wishing to become a benefit corporation have three options for the time being:

    1. They could simply wait until (and if) the Benefit Corporations Act is passed before altering their corporate structure.

    2. They could, in consultation with an attorney, work to amend their articles of incorporation, bylaws, and other organizational documents to try to achieve the same effect that the Benefit Corporations Act would have.

    3. They could become a Certified B CorporationTM by obtaining certification through B Lab, a nonprofit organization.

    There is a considerable amount of momentum behind passing benefit corporation legislation. Since first appearing on the scene in 2010, 30 states and the District of Columbia have passed laws allowing corporations to be treated as benefit corporations. See Social Enterprise Law Tracker. Along with Wisconsin, nine other states currently have bills under consideration that would allow corporations to elect to be treated as benefit corporations. Id.

    We will soon see whether Wisconsin joins this trend.

    This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section web pages to learn more about the benefits of section membership.

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