As of January 1, 2015, California flexible purpose corporations will be deemed “social purpose corporations” to more appropriately reflect their purpose. The Corporate Flexibility Act of 2011 will be renamed the Social Purposes Corporation Act. The major substantive law change is that previously directors did not have to consider the social purpose of the corporation when making decisions. As I explained in my 2012 journal article on FPCs (Can an Old Dog Learn New Tricks? found here), consideration of the social purpose was permissive. The amendment now requires directors of FPCs/SPCs to consider the social purpose of the corporation in making decisions. The prior statute also exempted FPCs with less than 100 shareholders from providing a special purpose report; that exemption is now gone. The full amendment to the California FPC statute can be found here. Overall, these amendments make the new California social purpose corporations look a lot more like Delaware public benefit corporations. Indeed, Delaware public benefit corporations are now more similar to CA SPCs. Although not widely known, Delaware PBCs have a lot less in common with benefit corporation in other states (such as NY or DC).
LEGAL SYMPOSIUM ON IMPACT INVESTING
You Are Invited…
Building a Legal Community of Practice to Add Still More Value to Impact Investments
Bingham, in conjunction with the International Transactions Clinic of the University of Michigan Law School, Aspen Network of Development Entrepreneurs (ANDE) Legal Working Group and Impact Investing Legal Working Group, is proud to present a legal symposium on Building a Legal Community of Practice to Add Still More Value to Impact Investments.
Panel One: Building a Legal Community of Practice for Impact Investing
∙ Ana Demel, Adjunct Professor of Law, New York University Law School
∙ Chloe Holderness, Managing Director, Lex Mundi Pro Bono Foundation
∙ Jonathan Ng, Global Legal Director, Ashoka
∙ Keren Raz, Associate, Paul Weiss
∙ Deborah Burand, Clinical Assistant Professor and Director, International Transactions Clinic, University of Michigan Law School (Moderator)
This panel will discuss impact investing and how lawyers add value to it, but also ways to grow the community of lawyers ready to serve impact investors and social enterprises in the U.S. and globally.
Panel Two: Aggregating Capital for Impact Investing
∙ Donald Crane, Independent Legal Consultant
∙ Alyssa Grikscheit, Partner, Sidley Austin
∙ Jim Mercadante, Partner, Reed Smith
∙ Kevin Saunders, Deputy General Counsel, ACCION
∙ Carl Valenstein, Partner, Bingham McCutchen LLP (Moderator)
This panel will discuss what organization structures for aggregating capital best accommodate the needs of impact investors and social enterprises that are intent on achieving double bottom line returns. How can impact investment funds attract a broader range of investors and achieve greater scale?
Panel Three: Embedding Mission Goals Into Impact Investment Documentation
∙ Aaron Bourke, Associate, Reed Smith
∙ Edward Marshall, Chief Counsel & Compliance Officer, Developing World Markets
∙ Lynn Roland, General Counsel, Acumen Fund
∙ Ben Stone, Director of Strategy & General Counsel, MCE Social Capital
∙ Mary Rose Brusewitz, Partner, Strasburger (Moderator)
This panel will discuss how the missions of impact investors and social enterprises are shaping investment documentation as well as how social impact goals are shaping the life cycle of impact investments.
Thursday, October 2, 2014
8:00 – 8:30 am — Coffee and Registration
8:30 – Noon — Panel Discussions
Bingham McCutchen LLP
399 Park Avenue
New York, NY 10022
RSVP (for in person or online participation)
To attend in person, please rsvp by September 29 to firstname.lastname@example.org.
To attend virtually and view the proceedings online, please register at:
Bingham McCutchen LLP is an accredited provider of California (#2874) and New York continuing legal education. This program is approved for 2.75 general hours of CA MCLE and 3.0 NY CLE credits in Areas of Professional Practice. The content is appropriate for attorneys of all experience levels. CLE credit in all other jurisdictions is pending.
SOCIAL ENTERPRISE LAW UPDATE AND MAP
For those keeping count: Currently, twenty-two states plus D.C. authorize benefit corporations. Four more benefit corporation states are scheduled to come online by January 1, 2015. In addition, four states authorize flexible/social purpose corporations, and eight states authorize low-profit limited liability companies. Thus, since January 1, 2014, the number of benefit corporation states has increased by seven while the number of flexible/social purpose corporation states has increased by one. There has been no increase in low-profit limited liability company states. In the aggregate, the US now has 31 states with some form of social enterprise legislation on the books. (But for North Carolina’s 2014 repeal of L3C legislation, there would be 32 states with social enterprise legislation on the books.)
For ease of reference, I have listed below each state that has passed social enterprise legislation thus far this year, and in each case I have included a hyperlink to brief but helpful commentary. Moreover, I highlight below certain unique aspects of each state’s new law. [Professor Haskell Murray's chart provides much more detail in this regard as does a legislative status map and chart prepared by Smith Moore Leatherwood.]
As previously reported on SocEntLaw, Connecticut’s benefit corporation legislation contains a unique “legacy-preservation provision” that is similar to the “asset lock” required for UK community interest companies. Invoking Connecticut’s legacy-preservation provision theoretically assures that a Connecticut benefit corporation’s assets are forever dedicated to charitable purposes or to other benefit corporations with similar “legacy-preservation provisions.” Connecticut’s benefit corporation statute is not effective until October 1, 2014.
Florida adopted both benefit corporation and a social purpose corporation statutes effective July 1, 2014. Thus, Florida becomes the fourth state with a flexible/social purpose corporation statute.
Minnesota joins Delaware and Colorado as one of the states that requires a special designation in the name of a general benefit corporation or a specific benefit corporation. Minnesota’s special designations are as follows: “GBC” or “SBC.” So, along with Delaware and Colorado “PBCs,” we now will have “GBCs,” “SBCs,” and “PBCs” in the social enterprise world. Minnesota’s statute becomes effective January 1, 2015.
The Nebraska benefit corporation statute follows very closely the B-Lab model legislation and took effect on April 2, 2014.
A New Hampshire benefit corporation may be administratively dissolved if it neglects to file is required annual benefit report. The New Hampshire statute becomes effective January 1, 2015.
Utah’s benefit corporation statute also follows closely the B-Lab model legislation and is effective immediately. Moreover, the Utah Department of Commerce has created a very user-friendly guide to forming benefit corporations in Utah.
Effective July 1, 2014, West Virginia’s benefit corporation statute generally follows the B-Lab model legislation, but among other things relaxes the “independence” tests for adopting third-party standards and does not require the annual benefit report to disclose director compensation.
Finally, I have updated and posted to SSRN my social enterprise entity comparison chart listing all states with any form of social enterprise legislation (including citations to the relevant statutes).
Stay tuned: It will be interesting to see where the US stands as of the end of 2014 with regard to social enterprise legislation.
A REAL LIFE BATTLE OVER SHAREHOLDER VERSUS STAKEHOLDER PRIMACY
A real life battle over shareholder versus stakeholder primacy is playing out in New England. Market Basket, a family-owned supermarket chain with 71 stores and $4.6 billion in sales, reportedly is at the center of a “bet the company” dispute between management and shareholders. The dispute is particularly interesting for followers of social enterprise because it is being framed as a battle between the “shareholder model” and the “stakeholder model” of the corporation. I suspect that we will be learning much more about Market Basket in the coming days, but for now you can view NPR News Hour’s coverage here.