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NC House Rep. McGrady Introduces NC HB 616, to Enact a "NC Public Benefit Corporation Act"

NC House Rep. McGrady Introduces NC HB 616, to Enact a "NC Public Benefit Corporation Act"


B Legal Briefing
(April 11, 2017)

In the 2017 legislative session, NC House Representative Chuck McGrady (R-Henderson) has proposed NC House Bill 616 (“HB 616”), the North Carolina Public Benefit Corporation Act.  This bill is co-sponsored by Josh Dobson (R-McDowell), Steve Ross (R-Alamance), and Lee Zachary (R-Yadkin).  HB 616 is modeled on Delaware’s B Corp legislation.  Since Delaware’s B Corp legislation was enacted in 2013 (and amended in 2015), 800-plus B Corps have been formed in Delaware alone. 

According to HB 616, a NC B Corp would declare (in its articles of incorporation) a “public benefit,” which would be defined as a “positive effect or reduction of a negative effect on one or more categories of persons, entities, communities or interests.”  A “public benefit,” per HB 616, could include “effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature.”  These stated public benefits could fall anywhere on the political spectrum or be completely apolitical.  For example, Delaware’s 800-plus B Corps include companies with public benefits as diverse as supporting faith-based activities, including Christian missions and ministries; helping investors and entrepreneurs to build values-driven organizations; providing high-quality, affordable solar industry products; helping children with special needs to flourish through educational services; controlling the stray dog population; offering simple patient compliance programs for chronically ill patients; and supporting Delaware laws permitting concealed carry of firearms and responsible firearm ownership.

Like most B Corp laws, NC HB 616 would protect the officers and directors of B Corps from being sued by shareholders when the B Corp is pursuing its declared public benefit.  This protection for B Corps’ officers and directors is important because state laws generally require officers and directors to always maximize shareholder value.  HB 616 would also allow a company to protect its declared public benefit from elimination through a hostile takeover without a super-majority vote.  Specifically, like the current Delaware law, NC HB 616 would require conversion to or from B Corp status to be approved by two-thirds of the outstanding shares.   

Some states with B Corp legislation require their benefit corporations to have a third-party entity certify, annually, that they are complying with their stated mission or certain other standards. HB 616 would not do that.  HB 616 follows the Delaware model, which does not require a third-party certification but does require every B Corp to provide its shareholders with a biennial “statement” that details the company’s efforts to promote its stated public benefit.  Still, the Delaware model—and HB 616—both give companies who want to commit to third-party review the ability to include that requirement in their founding documents.  

With 32 states having already passed B Corp legislation (click here for our legislative map and chart showing the status of B Corp legislation in the U.S.), and approximately 5,000 B Corps nationwide, NC may be poised to enact its own B Corp legislation during the 2017 session.

Authors
Lisa Frye Garrison
T (336) 378-5432
F (336) 433-7436
Associated Attorneys
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