Public Benefit Corporation Act of Colorado - A New Framework to Support Socially Responsible Colorado Corporations

by Sherman & Howard L.L.C.
Contact

On May 16, 2013, Governor John Hickenlooper signed the Public Benefit Corporation Act of Colorado (the "Act") into law, creating a new class of for-profit corporations in Colorado beginning April 1, 2014, called "public benefit corporations."  A public benefit corporation is a corporation that is operated in a responsible and sustainable manner and intended to produce a public benefit, which the Colorado legislature broadly defined as one or more positive effects or reduction of negative effects on persons or interests other than shareholders, "including effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature."  Legislation establishing the benefit corporation as a new type of corporate entity has already been passed and signed into law in many other states, including California and New York, and similar legislation has been introduced in the Delaware General Assembly.

An increasing number of for-profit corporations have focused on pursuing social and environmental goals in addition to the traditional corporate goals of profit maximization and shareholder wealth.  While these goals are often justified as marketing tactics that ultimately accrue to the corporation's bottom line, some corporations have pursued these goals without regard to profit maximization.  The current Colorado Business Corporation Act, Colo. Rev. Stat. §7-101-101, et seq. (the "CBCA"), does not provide a comprehensive framework for Colorado corporations to consider the interests of constituencies other than shareholders, making it difficult for directors and officers of these organizations to pursue social and environmental goals without potentially violating traditional fiduciary duties that require the maximization of shareholder value.  The Act supplements the CBCA by requiring corporate boards to manage the corporation in a manner that balances the financial interests of shareholders, the best interests of those materially affected by the corporation's conduct, and the specific public benefit identified in the corporation's articles of incorporation.  This means that directors of Colorado public benefit corporations are permitted to consider social, environmental, and other goals in addition to profit-maximization when making decisions.  The Act specifically provides that directors will be deemed to satisfy their fiduciary duties to shareholders and the corporation so long as the director's decision is informed, disinterested, "and not such that no person of ordinary, sound judgment would approve."  While the exact contours of this standard are unclear, this formulation appears to provide greater protection than the business judgment rule, which prevents judicial second-guessing of board decisions that are made on an informed basis, in good faith and in the belief that the action taken was in the best interest of the corporation and its shareholders.

In order to become a public benefit corporation, a corporation must (i) state at the beginning of its articles of incorporation that it is a public benefit corporation, (ii) identify within its articles of incorporation one or more specific public benefits to be promoted by the corporation, and (iii) include within its entity name the words "public benefit corporation", the abbreviation "P.B.C.", or the designation "PBC."  A public benefit corporation is also required to note that it is a public benefit corporation conspicuously on any share certificates issued to shareholders.  An existing Colorado corporation may amend its articles of incorporation to reflect such designation with the approval of two-thirds of the outstanding shares of each class of shares of the corporation, whether voting or non-voting.  Note that any shareholders who vote against such amendment are entitled to dissenters' rights under the CBCA, so appropriate care should be taken to ensure that any solicitation of votes on the amendment are accompanied by a notice of dissenters' rights that complies with CBCA § 7-113-201. 

Finally, the Act requires public benefit corporations to prepare a report detailing, among other things, (i) the ways in which the corporation promoted the public benefit identified in its articles of incorporation and the best interests of those materially affected by the corporation's conduct, and (ii) an assessment of the overall social and environmental performance of the corporation against an independent, third-party standard.  The report must be delivered to each shareholder of the corporation and posted on the public portion of the corporation's website (or, if the corporation does not maintain a website, the report must be furnished to any person that requests a copy).  Unlike other state benefit corporation statutes, which require the benefit report to be prepared and delivered on an annual basis, the Act is silent with respect to the time period to be covered by the report.  B Lab, a not-for-profit organization based in Berwyn, Pennsylvania, has instituted the most recognizable third party performance standard.  B Lab requires certified B corporations to undergo a recertification process every two years, so presumably certified B corporations will prepare the report on at least a biennial basis.[1]

Operating as a public benefit corporation may enhance your corporate culture and give your company greater latitude to consider social and environmental goals.  If you have any questions about the Act or would like additional information on becoming a public benefit corporation, please contact a member of our Business and Corporate Law Practice Group.


[1] Certified B corporations and benefit corporations are often confused, as both are frequently referred to as "B corps."  A certified B corporation is an entity that has received a certification conferred by B Lab, which is based on meeting B Lab's social and environmental performance measures, satisfying legal requirements appropriate for an entity's particular structure and state of formation, and paying B Lab's annual certification fee (ranging from $500 to $25,000 depending upon annual gross sales).  A benefit corporation is a legal status administered by the state in which an entity is organized, such as a Colorado public benefit corporation under the Act.  Benefit corporations do not need to be certified by B Lab, and the Act is flexible with respect to a public benefit corporation's choice of third-party standard.

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.

© Sherman & Howard L.L.C. | Attorney Advertising

Written by:

Sherman & Howard L.L.C.
Contact
more
less

Sherman & Howard L.L.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.