SENATE PCS 26:

North Carolina Benefit Corporation Act

2011-2012 General Assembly
Committee: Senate Judiciary I Date: March 7, 2011
Introduced by: Sens. Vaughan, Stevens, Kinnaird Prepared by: Karen Cochrane-Brown
Analysis of: PCS to First Edition Committee Counsel
S26-CSME-2

SUMMARY: Senate Bill 26 would establish the North Carolina Benefit Corporation Act. The act
authorizes the creation of a benefit corporation which must include within its corporate purposes a
general public benefit that has a material positive impact on society and the environment. A benefit
corporation may also include one or more specific public benefit purposes in addition to its general
public benefit. The benefit corporation must appoint an independent benefits director who must
prepare an annual benefit report, as provided by the act. The act also authorizes a right of action
against the directors of the corporation to enforce the directors' duties under the act.

BILL ANALYSIS:
Part 1. Preliminary Provisions
This part of the act authorizes the creation of benefit corporations in North Carolina. A benefit
corporation is a domestic corporation that elects to become subject to the requirements of the act. All
other provisions of the Business Corporation Act apply to benefit corporations as well. Part 1 also
includes the definitions section.
Part 2. Adoption and Change of Status
This part of the act describes the method by which a corporation may incorporate as a benefit
corporation or transition to benefit corporation status. The transition, conversion, merger, or share
exchange of an existing corporation requires an affirmative vote of at least 66 2/3% of the outstanding
shares of each class or series of stock.
In addition, a benefit corporation can terminate its status by amending its articles of incorporation to
delete the provisions identifying it as a benefit corporation. The termination also must be adopted by a
vote of 66 2/3% of the outstanding shares.
Part 3. Corporate Purposes.
A benefit corporation must have as one of its corporate purposes the creation a general public benefit,
which is defined as a "material positive impact on society and the environment, taken as a whole, as
measured by an independent third-party standard, from the business and operations of a benefit
corporation."
A benefit corporation may include as a corporate purpose one or more specific public benefit purposes
in addition to its general public benefit. Specific public benefit purposes include:
Providing low-income or underserved individuals or communities with
beneficial products or services.
Promoting economic opportunity for individuals or communities beyond
creation of jobs in the normal course of business.

Research Division O. Walker Reagan, Director (919) 733-2578

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Preserving or improving 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.

Part 4. Accountability.
This part establishes the standards of conduct for directors. Benefit corporation directors are required to
consider the effects of any action or decision not to act upon the following:
Shareholders of the benefit corporation.
Employees of the corporation, it subsidiaries and suppliers.
Customers, to the extent they are beneficiaries of the general or specific
purposes.
The local community and society.
The local and global environment.
The short and long-term interests of the benefit corporation.
The ability of the benefit corporation to accomplish its general and any specific
purposes.
Directors are not required to give priority to any of the interests or groups. Consideration of these factors
is not deemed inconsistent with the general standards of conduct required of all business corporations. A
director is not liable for monetary damages for any act or omission taken as a director other than acts or
omissions the director knew or believed to be clearly in conflict with the benefit corporations general or
specific public benefit purpose. The director is also not liable for failure of the benefit corporation to
create a general or specific public benefit.
The board of directors must designate one director who is an independent person to be the benefit
director. The benefit director must prepare an opinion regarding the actions and success of the benefit
corporation in meeting its benefit purposes over the year, as well as whether the directors complied with
the required standard of conduct.
The corporation may also designate a benefit officer to monitor the corporations benefit activities,
perform other assigned duties, and prepare the annual benefit report to the shareholders.
The duties of directors may be enforced in a benefit enforcement proceeding. The proceeding may be
commenced or maintained only by the corporation directly, or derivatively, by a shareholder, director,
owner of at least 5% voting interest or by other persons specified in the articles of incorporation.
Part 5. Annual Reporting.
A benefit corporation is required to prepare an annual report that includes:
A narrative of the manner in which the corporation has pursued its general and
specific public benefit purposes, and the circumstances that have hindered the
pursuit of the purposes.

Research Division O. Walker Reagan, Director (919) 733-2578

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An assessment of the social and environmental performance of the corporation

prepared in accordance with a third-party standard.
The name and address of the benefit director and the benefit officer.
The compensation paid to each director by the benefit corporation.
The name of each person that owns 5% or more of the outstanding shares.
The required statement of the benefit director.
A statement of any relationship between the benefit corporation and the entity
that developed the third-party standard.
The report must be sent annually to each shareholder within 120 days following the end of the fiscal
year or when the corporation delivers any other annual report, whichever occurs first. The benefit
corporation must also post the report on a publically accessible section of its internet website. The report
must also be sent with the annual report that the corporation must deliver to the Secretary of Revenue, or
in the alternative to the Secretary of State, except that director compensation and any financial or
proprietary information may be excluded.

EFFECTIVE DATE: This act becomes effective December 1, 2011.

S26-SMRO-4(CSME-2) v2

Research Division O. Walker Reagan, Director (919) 733-2578