Nebraska Approves the Nebraska Benefit Corporation Act (LB 751)
Governor Heineman approved the Nebraska Benefit Corporation Act on April 2, 2014. Nebraska joins approximately twenty other states that have adopted benefit-corporation legislation, a list which is expected to grow as Nebraska was one of fifteen states considering such legislation this year. Introduced by Senator Danielle Conrad as Legislative Bill 751, the Act allows a new class of corporation in Nebraska, a “benefit corporation”. The general provisions of the Act are as follows:
Benefit corporations
A benefit corporation is a new class of corporation that voluntarily meets rigorous standards regarding corporate purpose, transparency, and accountability. The focus is on providing community benefits in addition to creating wealth for stockholders. A university, for example, may elect to transition from being a traditional for-profit corporation to a public-benefit corporation, to improve relations with its constituencies, including accreditors.
Under LB 751, a benefit corporation must have a purpose of creating general public benefit and may state in its articles that it has a purpose of creating a specific public benefit, such as: (1) providing low-income or underserved individuals or communities with beneficial products or services; (2) promoting economic opportunity for individuals or communities beyond job creation in the normal course of business; (3) protecting or restoring the environment; (4) improving human health; (5) promoting the arts, sciences, or the advancement of knowledge; (6) increasing the flow of capital to entities with a purpose to benefit society or the environment; and (7) conferring any other particular benefit on society or the environment.
Third-party standard
A recognized third-party standard for defining, reporting, and assessing corporate social and environmental performance, must measure the performance of the benefit corporation. The standard must be comprehensive, credible, independent, and transparent. Comprehensive means the standard assesses the effect of the business and its operations on the corporation’s shareholders, employees, subsidiaries, suppliers, and customers, each community in which the corporation has offices or facilities, and the local and global environment. Independent means an entity that is not controlled by the benefit corporation developed the standard. Credible means the standard was developed by an entity that has the necessary expertise to assess corporate social and environmental performance and that uses a balanced multi-stakeholder approach to develop the standard, including a reasonable public comment period. Finally, transparency means the development and revision of the standard must be made publicly available, including an accounting of the revenue and sources of financial support for the entity with sufficient detail to disclose relationships that could be reasonably considered to present a conflict of interest.
Transparency
A benefit corporation’s benefit director, an elected independent director, must prepare an annual benefit report, which must include, among other things: (1) the ways the corporation pursued general and specific public benefits and the extent to which those benefits were created; (2) any circumstances that hindered the creation of general or specific public benefits; (3) an overall assessment of the corporation’s social and environmental performance against the third-party standard; (4) the name of the benefit director and the address where persons may direct correspondence; (5) the compensation paid to each director; and (6) if the benefit director resigned, refused to be re-elected, or was removed, any correspondence from the director concerning the circumstances of the resignation, refusal, or removal.
The Act requires that the benefit corporation send the annual report to each shareholder, file the report with the Secretary of State, and make the report publicly available, either by posting it on the corporation’s website or by providing a copy, without charge, to any person that requests a copy. Information made available to the public need not include compensation paid to directors or other financial or proprietary information.
Accountability
Under the Act, benefit corporations are subject to benefit enforcement proceedings. A benefit enforcement proceeding is any claim, action, or proceeding for failure of a benefit corporation to pursue or create general public benefit or a specific public benefit set forth in the benefit corporation’s articles, or violation of any obligation, duty, or standard of conduct under the Act.
Only certain parties may bring a benefit enforcement proceeding. Those parties are the benefit corporation itself, a person or group that owns at least two percent (2%) of the shares of the benefit corporation at the time of the alleged act or omission, a director, a person or group that owns at least five percent (5%) of the equity interests in an entity of which the benefit corporation is a subsidiary, or other persons as specified in the benefit corporation’s articles or bylaws.
Except by a benefit enforcement proceeding, no person may bring an action against a benefit corporation or its directors or officers regarding the failure to pursue or create general public benefit or a specific public benefit or violation of an obligation, duty, or standard of conduct under the Act. A benefit corporation is not liable for monetary damages for any failure to pursue or create general public benefit or a specific public benefit.
Public benefit corporations are a new class of corporation that voluntarily commit to providing public benefits, in addition to increasing wealth for stockholders. The legislation in Nebraska provides strict requirements for transparency and accountability.
For information regarding LB 751 and a copy of the final slip law visit the Nebraska Legislature’s website.