Colorado Makes the Public Benefit Corporation Act Better
In the three years since Colorado’s Public Benefit Corporation Act went into effect, lawyers who work with PBCs have seen a few ways it could be improved. This year a group of lawyers in the B Corp community, along with the Colorado Bar Association and bipartisan sponsors, proposed some amendments. The amendments were enacted, and will go into effect on August 9, 2017.
For the uninitiated, a PBC is a for-profit corporation that also has a purpose to produce one or more public benefits. Where a traditional corporation has a mandate to maximize shareholder wealth, a PBC is required to balance the financial interest of shareholders with the company’s public benefit purpose, and with its impact on all those materially affected by its conduct.
HB17-1200 updates the current law in three main ways:
- it makes using the PBC identifier in the name optional,
- it allows all types of cooperatives to form as PBCs, and
- it broadens the requirement for a two-thirds shareholder vote to convert a PBC into a traditional corporation.
Name Requirement Becomes Optional
The previous law required PBCs to use the words “public benefit corporation” or an abbreviation such as “PBC” in the entity name. The amendments make using the identifier in the corporate name optional, and limit use of that identifier to entities organized as PBCs.
A privately held PBC that does not use the identifier in its name must inform investors of its PBC status before selling them shares.
Use of the identifier has made it difficult for entities to do business in states where the identifier is not recognized or means something different than public benefit corporation. This change will make it easier for Colorado businesses to operate across state lines, and will simplify life for corporations that want to become a PBC, but would find the process of changing their name burdensome.
PBC Status Available to Limited Cooperative Associations
Under previous law, PBC status was available to some Colorado cooperatives but not others, depending on which of three statutes the co-op was organized under. The amendments make the PBC form available to all Colorado co-ops.
Colorado entity statutes authorize three forms of co-op:
- Article 56, under which most co-ops are organized, including consumer, worker and producer co-ops;
- Article 58 (added in 2011), which allows co-ops to adopt more flexible capital structures; and
- Article 55, primarily used for utility and electric co-ops.
In an apparent oversight, the previous PBC Act allowed Article 55 and Article 56 cooperatives to organize as PBCs, but not Article 58 cooperatives. Cooperatives organizing under Article 58 have expressed a desire to use the PBC form – and will now be allowed to do so.
Two-thirds Vote Requirement For All (Not Just Some) Opt Out Transactions
A PBC can become a traditional corporation by amending its articles of incorporation, or by selling to a buyer that is not a PBC. Shareholders who care about the company’s social mission have an interest in whether or not that is allowed to happen.
In order to protect that interest, the law requires a two-thirds shareholder vote to approve certain transactions that would result in the PBC becoming a traditional corporation.
This requirement applies if the change is accomplished by amending the articles, or by a conversion, or by a stock-for-stock merger. But under previous law, it didn’t apply if the change is accomplished via a cash merger or a sale of assets. So before the amendments, directors could avoid this shareholder protection by choosing a different form of transaction when they act to sell the company.
The amendments expand the requirement of a two-thirds shareholder vote to cover these two situations.
We at Blue Dot are already proud of Colorado’s PBC Act. We think it helps keep Colorado in the vanguard of the global movement of companies and investors seeking to use business as a tool for the common good. And, we think these amendments will make it even better.