How Should Benefit Corporation Directors Make Decisions?

As discussed in this post from last week, Governor Brown has signed into law two bills that each allow for-profit corporations to have purposes that have been historically pursued by non-proft corporations. AB 361 (Huffman) adds a new part to the Corporations Code relating to ”benefit corporations”.

Subdivision (b) of new Corporations Code §14620 will require directors of benefit corporations to consider the impacts of any action or proposed action on all of a long list of interests and constituencies, including the shareholders, employees, and the interests of customers as beneficiaries of the general or specific public benefit purposes of the corporation. Subdivision (d) of the same statute provides that in discharging their duties, directors will not be required to give priority to any particular factor or the interests of any particular person or group identified in subdivision (b) unless the corporation has stated its intention to give priority to a specific public benefit purpose identified in the articles. How, then, is a director supposed to reach a decision?

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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