Are B-Corps Coming to Town?

CORP - May 22Texas may be on its way to joining thirty-one states that have already passed Public Benefit Corporations (B-Corps) legislation, which include Delaware, California, Florida and New York. House Bill 3488, which allows for the creation of B-Corps in Texas, has generally garnered bi-partisan support and was passed by the Texas House of Representatives earlier this month. Currently with the Texas Senate, if passed, HB 3488 is expected to become effective later this year.

What is a B-Corp?

A B-Corp is a voluntary election that allows companies to incorporate with the intention of pursuing a public benefit in addition to creating profits for its shareholders. The move to codify the requirements for corporations with a public benefit focus may be attributable to a general trend among millennials to financially support companies that make the environmental and social good a central corporate tenant. Some noteworthy B-Corps that have been formed in other jurisdictions include Etsy, Patagonia, Ben & Jerry’s, Kickstarter and This American Life.

According to the current draft of HB 3488, which will likely undergo further amendments prior to its passage, a B-Corp in Texas will be denoted by “PBC” in its corporate name. The managers of a B-Corp would be tasked with balancing not only its shareholders’ pecuniary interests, but also the interests of those materially affected by the B-Corp’s conduct and the public benefit(s) specified in the B-Corp’s certificate of formation. A director of a B-Corp would be considered to have satisfied her or his fiduciary duties to shareholders and the corporation if in balancing these interests, the director’s decisions are informed, disinterested and those that a person of ordinary, sound judgment would approve.

HB 3488 currently requires a B-Corp to deliver a statement to its shareholders at least every two years with a description of the corporation’s promotion of its specified public benefit(s) and promotion of the best interests of those materially affected by the corporation’s conduct.

A Texas B-Corp would otherwise remain subject to the same requirements as a Texas for-profit corporation.

If the legislation passes, how do I create a B-Corp?

Consult legal counsel before forming your B-Corp to ensure the certificate of formation includes adequate language designating the public benefit of the B-Corp, proper shareholder reporting practices, and directors are aware of their fiduciary duties.

How do I convert my current corporation to a B-Corp?

If the legislation passes as currently contemplated, the owners of two-thirds of the outstanding shares of the corporation entitled to vote on the matter are required to approve changes to the certificate of formation that would convert a for-profit entity into a B-Corp. Alternatively, a B-Corp could be formed by a merger or consolidation between a for-profit entity and a newly created B-Corps, with such B-Corp surviving. Any shareholder affected by a conversion or merger described above would have the rights of dissent and appraisal.

This article was written by Kim Tesarek. For more information regarding this post, she can be reached at ktesarek@gdhm.com.