Illinois General Assembly - Full Text of SB2897
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Full Text of SB2897  97th General Assembly




State of Illinois
2011 and 2012


Introduced 2/1/2012, by Sen. Michael W. Frerichs


New Act

    Creates the Benefit Corporation Act. Provides that a corporation may elect to become a benefit corporation by amending its articles of incorporation. Provides that in addition to its purposes under the Business Corporation Act of 1983 and any specific purpose set forth in its articles of incorporation, a benefit corporation shall have a purpose of creating general public benefit. Requires the preparation of an annual report for specified distribution and filing with the Secretary of State. Defines key terms and contains provisions concerning accountability and transparency.

LRB097 13492 JLS 62053 b





SB2897LRB097 13492 JLS 62053 b

1    AN ACT concerning business.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
Article 1. General Provisions

5    Section 1. Short title. This Act may be cited as the
6Benefit Corporation Act.
7    Section 1.05. Application and effect of the Act.
8    (a) This Act shall be applicable to all benefit
10    (b) The existence of a provision of this Act shall not of
11itself create an implication that a contrary or different rule
12of law is applicable to a corporation which is not a benefit
13corporation. This Act shall not affect a statute or rule of law
14that is applicable to a business corporation that is not a
15benefit corporation.
16    (c) The Business Corporation Act of 1983, as heretofore or
17hereafter amended, shall be applicable to such benefit
18corporations, including their organization, and they shall
19enjoy the powers and privileges and be subject to the duties,
20far as the same may be limited or enlarged by this Act. If any
21provision of this Act conflicts with the Business Corporation
22Act of 1983, this Act shall take precedence.



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1    (d) A provision of the articles of incorporation or bylaws
2of a benefit corporation may not relax, be inconsistent with,
3or supersede a provision of this Act.
4    Section 1.10. Definitions. As used in this Act, unless the
5context otherwise requires, the words and phrases defined in
6this Section shall have the meanings set forth herein.
7    "Benefit corporation" means a corporation organized under
8the Business Corporation Act of 1983:
9        (1) which has elected to become subject to this Act;
10    and
11        (2) whose status as a benefit corporation has not been
12    terminated under Section 2.10.
13    "Benefit director" means either:
14        (1) the director designated as the benefit director of
15    a benefit corporation under Section 4.05; or
16        (2) a person with one or more of the powers, duties, or
17    rights of a benefit director to the extent provided in the
18    bylaws pursuant to section 4.05.
19    "Benefit enforcement proceeding" means a claim or action
21        (1) the failure of a benefit corporation to pursue or
22    create general public benefit or a specific public benefit
23    set forth in its articles of incorporation; or
24        (2) a violation of an obligation, duty, or standard of
25    conduct under this Act.



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1    "Benefit Officer" means the individual designated as the
2benefit officer of a benefit corporation under Section 4.15.
3    "General public benefit" means a material positive impact
4on society and the environment, taken as a whole, assessed
5against a third-party standard, from the business and
6operations of a benefit corporation.
7    "Independent" means having no material relationship with a
8benefit corporation or a subsidiary of the benefit corporation.
9A person serving as benefit director or benefit officer may be
10considered independent. For the purposes of this definition, a
11percentage of ownership in an entity shall be calculated as if
12all outstanding rights to acquire equity interests in the
13entity have been exercised. A material relationship between a
14person and a benefit corporation or any of its subsidiaries
15will be conclusively presumed to exist if:
16        (1) the person is, or has been within the last 3 years,
17    an employee other than a benefit officer of the benefit
18    corporation or a subsidiary of the benefit corporation;
19        (2) an immediate family member of the person is, or has
20    been within the last 3 years, an executive officer other
21    than a benefit officer of the benefit corporation or its
22    subsidiaries; or
23        (3) there is beneficial or record ownership of 5% or
24    more of the outstanding shares of the benefit corporation
25    by:
26            (A) the person; or



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1            (B) an entity:
2                (i) of which the person is a director, an
3            officer, or a manager; or
4                (ii) in which the person owns beneficially or
5            of record 5% or more of the outstanding equity
6            interests.
7    "Minimum status vote" means that:
8        (1) in the case of a corporation, in addition to any
9    other approval or vote required by the Business Corporation
10    Act of 1983, the bylaws, or the articles of incorporation:
11            (A) the shareholders of every class or series shall
12        be entitled to vote on the corporate action regardless
13        of a limitation stated in the articles of incorporation
14        or bylaws on the voting rights of any class or series;
15        and
16            (B) the corporate action shall be approved by vote
17        of the outstanding shares of each class or series
18        entitled to vote by at least two-thirds of the votes
19        that all shareholders of the class or series are
20        entitled to cast on the action; and
21        (2) in the case of an entity organized under the laws
22    of this State that is not a corporation, in addition to any
23    other approval, vote, or consent required by the statutory
24    law, if any, that principally governs the internal affairs
25    of the entity or any provision of the publicly filed record
26    or document required to form the entity, if any, or of any



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1    agreement binding on some or all of the holders of equity
2    interests in the entity:
3            (A) the holders of every class or series of equity
4        interest in the entity that are entitled to receive a
5        distribution of any kind from the entity shall be
6        entitled to vote on or consent to the action regardless
7        of any otherwise applicable limitation on the voting or
8        consent rights of any class or series; and
9            (B) the action must be approved by a vote or
10        consent of at least two-thirds of such holders.
11    "Specific public benefit" means:
12        (1) providing low-income or underserved individuals or
13    communities with beneficial products or services;
14        (2) promoting economic opportunity for individuals or
15    communities beyond the creation of jobs in the ordinary
16    course of business;
17        (3) preserving the environment;
18        (4) improving human health;
19        (5) promoting the arts, sciences or advancement of
20    knowledge;
21        (6) increasing the flow of capital to entities with a
22    public benefit purpose; or
23        (7) the accomplishment of any other particular benefit
24    for society or the environment.
25    "Subsidiary" of a person means an entity in which the
26person owns beneficially or of record 50% or more of the



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1outstanding equity interests. For the purposes of this
2subsection, a percentage of ownership in an entity shall be
3calculated as if all outstanding rights to acquire equity
4interests in the entity have been exercised.
5    "Third-party standard" means a standard for defining,
6reporting, and assessing overall corporate, social, and
7environmental performance that:
8        (1) is a comprehensive assessment of the impact of the
9    business and the business' operations upon the
10    considerations listed in subdivisions (a)(1)(B) through
11    (a)(1)(E) of Section 4.01;
12        (2) is developed by an entity that has no material
13    financial relationship with the benefit corporation or any
14    of its subsidiaries;
15        (3) is developed by an entity that is not materially
16    financed by any of the following organizations and not more
17    than one-third of the members of the governing body of the
18    entity are representatives of:
19            (A) associations of businesses operating in a
20            specific industry, the performance of whose
21            members is measured by the standard;
22            (B) businesses from a specific industry or an
23            association of businesses in that industry; or
24            (C) businesses whose performance is assessed
25            against the standard; and
26        (4) is developed by an entity that:



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1            (A) accesses necessary and appropriate expertise
2        to assess overall corporate social and environmental
3        performance; and
4            (B) uses a balanced multi-stakeholder approach,
5        including a public comment period of at least 30 days
6        to develop the standard; and
7        (5) makes the following information regarding the
8    standard publicly available:
9            (A) the factors considered when measuring the
10        overall social and environmental performance of a
11        business and the relative weight, if any, given to each
12        of those factors;
13            (B) the identity of the directors, officers, any
14        material owners, and the governing body of the entity
15        that developed, and controls revisions to, the
16        standard, and the process by which revisions to the
17        standard and changes to the membership of the governing
18        body are made; and
19            (C) an accounting of the sources of financial
20        support for the entity, with sufficient detail to
21        disclose any relationships that could reasonably be
22        considered to present a potential conflict of
23        interest.
Article 2. Formation of Benefit Corporations




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1    Section 2.01. Formation of benefit corporations. A benefit
2corporation must be formed in accordance with Article 2 of the
3Business Corporation Act of 1983. In addition to the formation
4requirements of that Act, the articles of incorporation of a
5benefit corporation must state that it is a benefit corporation
6in accordance with the provisions of this Article.
7    Section 2.05. Election of status.
8    (a) A corporation may become a benefit corporation under
9this Act by amending its articles of incorporation so that they
10contain a statement that the corporation is a benefit
11corporation. In order to be effective, the amendment must be
12adopted by at least the minimum status vote.
13    (b) For any entity that is a party to a merger or
14consolidation or is the exchanging entity in a share exchange,
15where the surviving, new, or resulting entity in the merger,
16consolidation, or share exchange is intended to be a benefit
17corporation, such plan of merger, consolidation, or share
18exchange must be adopted by at least the minimum status vote in
19order to be effective.
20    Section 2.10. Termination of status.
21    (a) A benefit corporation may terminate its status as such
22and cease to be subject to this Act by amending its articles of
23incorporation to remove the statement that the corporation is a
24benefit corporation. In order to be effective, the amendment



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1must be adopted by at least the minimum status vote.
2    (b) If a plan of merger, conversion, or share exchange
3would have the effect of terminating the status of a
4corporation as a benefit corporation, in order to be effective,
5the plan must be adopted by at least the minimum status vote.
6    (c) A sale, lease, exchange or other disposition of all or
7substantially all of the assets of a benefit corporation,
8unless the transaction is in the usual and ordinary course of
9business, shall not be effective unless the transaction is
10adopted by at least the minimum status vote.
Article 3. Corporate Purposes

12    Section 3.01. Corporate purposes.
13    (a) A benefit corporation shall have a purpose of creating
14general public benefit. This purpose is in addition to its
15purposes under Section 3.05 of the Business Corporation Act of
161983 and any specific purpose set forth in its articles of
17incorporation in accordance with subsection (b).
18    (b) The articles of incorporation of a benefit corporation
19may identify one or more specific public benefits the creation
20of which is a purpose of the benefit corporation in addition to
21its purposes under Section 3.05 of the Business Corporation Act
22of 1983 and subsection (a). The identification of a specific
23public benefit under this subsection does not limit the
24obligation of a benefit corporation under subsection (a).



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1    (c) The creation of general public benefit and specific
2public benefit under subsections (a) and (b) is in the best
3interests of the benefit corporation.
4    (d) A benefit corporation may amend its articles of
5incorporation to add, change, or remove a specific public
6benefit. In order to be effective, the amendment must be
7adopted by at least the minimum status vote.
8    (e) A professional corporation that is a benefit
9corporation does not violate Sections 3.4 or 6 of the
10Professional Service Corporation Act by having the purpose to
11create general public benefit or a specific public benefit.
Article 4. Accountability

13    Section 4.01. Standard of Conduct for Directors.
14    (a) Without regard to whether the benefit corporation is
15subject to Section 8.85 of the Business Corporation Act of
161983, in discharging the duties of their respective positions,
17the board of directors, committees of the board, and individual
18directors of a benefit corporation in considering the best
19interests of the benefit corporation:
20        (1) shall consider the effects of any action upon:
21            (A) the shareholders of the benefit corporation;
22            (B) the employees and work force of the benefit
23        corporation, its subsidiaries, and its suppliers;
24            (C) the interests of customers as beneficiaries of



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1        the general public benefit or specific public benefit
2        purposes of the benefit corporation;
3            (D) community and societal considerations,
4        including those of each community in which offices or
5        facilities of the benefit corporation, its
6        subsidiaries or its suppliers are located;
7            (E) the local and global environment;
8            (F) the short-term and long-term interests of the
9        benefit corporation, including benefits that may
10        accrue to the benefit corporation from its long-term
11        plans and the possibility that these interests may be
12        best served by the continued independence of the
13        benefit corporation; and
14            (G) the ability of the benefit corporation to
15        accomplish its general public benefit purpose and any
16        specific public benefit purpose; and
17        (2) may consider:
18            (A) considerations listed in Section 8.85 of the
19        Business Corporation Act of 1983; and
20            (B) any other pertinent factors or the interests of
21        any other group that they deem appropriate; but
22        (3) need not give priority to the interests of a
23    particular person or group referred to in paragraphs (1) or
24    (2) over the interests of another person or group unless
25    the benefit corporation has stated in its articles of
26    incorporation its intention to give priority to certain



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1    interests related to its accomplishment of its general
2    public benefit purpose or a specific public benefit purpose
3    identified in its articles of incorporation.
4    (b) The consideration of interests and factors in the
5manner required by subsection (a) is in addition to the ability
6of directors to consider interests and factors as provided in
7Section 8.85 of the Business Corporation Act of 1983.
8    (c) A director is not personally liable for monetary
9damages for:
10        (1) any action taken as a director if the director
11    performed the duties of office in compliance with Article 8
12    of the Business Corporation Act of 1983 and this Section;
13    or
14        (2) a failure of the benefit corporation to pursue or
15    create general public benefit or a specific public benefit.
16    (d) A director does not have a duty to a person that is a
17beneficiary of the general public benefit purpose or a specific
18public benefit purpose of a benefit corporation arising from
19the status of the person as a beneficiary.
20    Section 4.05. Benefit director.
21    (a) The board of directors of a benefit corporation shall
22include a director, who:
23        (1) is designated as the benefit director; and
24        (2) has, in addition to the powers, duties, rights, and
25    immunities of the other directors of the benefit



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1    corporation, the powers, duties, rights, and immunities
2    provided in this Section.
3    (b) The benefit director shall be elected, and may be
4removed, in the manner provided by Article 8 of the Business
5Corporation Act of 1983 and shall be an individual who is
6independent, as defined in Section 1.10. The benefit director
7may serve as the benefit officer at the same time as serving as
8the benefit director. The articles of incorporation or bylaws
9of a benefit corporation may prescribe additional
10qualifications of the benefit director not inconsistent with
11this Section.
12    (c) The benefit director shall prepare, and the benefit
13corporation shall include in the annual benefit report to
14shareholders required by Section 5.01 of this Act, the opinion
15of the benefit director on:
16        (1) whether the benefit corporation acted in
17    accordance with its general public benefit purpose and any
18    specific public benefit purpose in all material respects
19    during the period covered by the report; and
20        (2) whether the directors and officers complied with
21    subsection (a) of Section 4.01 and subsection (a) of
22    Section 4.10, respectively, and if, in the opinion of the
23    benefit director, the directors and officers did not so
24    comply, a description of the failure to comply.
25    (d) The acts of an individual in the capacity of a benefit
26director shall constitute, for all purposes, acts of that



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1individual in the capacity of a director of the benefit
3    (e) If the bylaws of a benefit corporation provide that the
4powers and duties conferred or imposed upon the board of
5directors shall be exercised or performed by a person or
6persons other than the directors, in contrast to subsection (a)
7of Section 8.05 of the Business Corporation Act of 1983, or if
8the bylaws of a close corporation that is a benefit corporation
9provide that the business and affairs of the corporation shall
10be managed by or under the director of the shareholders, then
11the bylaws of the benefit corporation must provide that the
12person, persons, or shareholders who perform the duties of a
13board of directors shall include a person with the powers,
14duties, rights, and immunities of a benefit director.
15    A person who exercises one or more of the powers, duties,
16or rights of a benefit director pursuant to this subsection:
17        (i) does not need to be independent of the benefit
18    corporation;
19        (ii) shall have the immunities of a benefit director;
20        (iii) may share the powers, duties, and rights of a
21    benefit director with one or more other persons; and
22        (iv) shall not be subject to the procedures for
23    election or removal of directors in Article 8 of the
24    Business Corporation Act of 1983 unless the person is also
25    a director of the benefit corporation or the bylaws make
26    those procedures applicable.



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1    (f) Regardless of whether the bylaws of a benefit
2corporation include a provision eliminating or limiting the
3personal liability of directors authorized by paragraph (3) of
4subsection (b) of Section 2.10 of the Business Corporation Act
5of 1983, a benefit director shall not be personally liable for
6an act or omission in the capacity of a benefit director unless
7the act or omission constitutes self-dealing, willful
8misconduct, or a knowing violation of law.
9    Section 4.10. Standard of conduct for officers.
10    (a) Each officer of a benefit corporation shall consider
11the interests and factors described in subsection (a) of
12Section 4.01 in the manner provided in that subsection if:
13        (1) the officer has discretion to act with respect to a
14    matter; and
15        (2) it reasonably appears to the officer that the
16    matter may have a material effect on the creation by the
17    benefit corporation of general public benefit or a specific
18    public benefit identified in the articles of incorporation
19    by the benefit corporation.
20    (b) Exoneration from personal liability. An officer is not
21personally liable for monetary damages for:
22        (1) action taken as an officer if the officer performed
23    the duties of the position in compliance with this Section;
24    or
25        (2) failure of the benefit corporation to pursue or



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1    create general public benefit or specific public benefit.
2    (c) Limitation on standing. An officer does not have a duty
3to a person that is a beneficiary of the general public benefit
4purpose or a specific public benefit purpose of a benefit
5corporation arising from the status of the person as a
7    Section 4.15. Benefit officer.
8    (a) A benefit corporation may have an officer designated as
9the benefit officer.
10    (b) A benefit officer shall have:
11        (1) powers and duties relating to the purpose of the
12    benefit corporation to create general public benefit or
13    specific public benefit provided:
14            (A) by the bylaws of the benefit corporation; or
15            (B) absent controlling provisions in the bylaws,
16        by resolutions or orders of the board of directors; and
17        (2) the duty to prepare the benefit report required by
18    Section 5.01 of this Act.
19    Section 4.20. Right of action; benefit enforcement
21    (a) No person may bring an action or assert a claim against
22a benefit corporation or its directors or officers with respect
23to failure to pursue or create general public benefit or a
24specific public benefit set forth in its articles of



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1incorporation or violation of a duty or standard of conduct
2under this Act except in a benefit enforcement proceeding.
3    (b) A benefit enforcement proceeding may be commenced or
4maintained only:
5        (1) directly by the benefit corporation; or
6        (2) derivatively by:
7            (A) a shareholder;
8            (B) a director;
9            (C) a person or group of persons that owns
10        beneficially or of record 5% or more of the equity
11        interests in an entity of which the benefit corporation
12        is a subsidiary; or
13            (D) other persons as specified in the articles of
14        incorporation or bylaws of the benefit corporation.
15    (c) A benefit corporation shall not be liable for monetary
16damages under this Act for any failure of the benefit
17corporation to pursue or create general public benefit or a
18specific public benefit.
Article 5. Transparency

20    Section 5.01. Annual benefit report.
21    (a) A benefit corporation shall prepare an annual benefit
22report including all of the following:
23        (1) A narrative description of:
24            (A) the process and rationale for selecting the



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1        third party standard used to prepare the benefit
2        report;
3            (B) the ways in which the benefit corporation
4        pursued general public benefit during the year and the
5        extent to which general public benefit was created;
6            (C) the ways in which the benefit corporation
7        pursued a specific public benefit that the articles
8        state it is the purpose of the benefit corporation to
9        create and the extent to which that specific public
10        benefit was created; and
11            (D) any circumstances that have hindered the
12        pursuit by the benefit corporation of its general
13        public benefit purpose and any specific public benefit
14        purpose or the creation by the benefit corporation of
15        general public benefit and any specific public
16        benefit.
17        (2) An assessment of the overall social and
18    environmental performance of the benefit corporation
19    against a third-party standard:
20            (A) applied consistently with any application of
21        that standard in prior benefit reports; or
22            (B) accompanied by an explanation of the reasons
23        for any inconsistent application.
24        (3) The name of the benefit director and the benefit
25    officer, if any, and the address to which correspondence to
26    each of them may be directed.



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1        (4) The compensation paid by the benefit corporation
2    during the year to each director in the capacity of a
3    director.
4        (5) The name of each person that owns 5% or more of the
5    outstanding shares of the benefit corporation either:
6            (A) beneficially, to the extent known to the
7        benefit corporation without independent investigation;
8        or
9            (B) of record.
10        (6) The statement of the benefit director required by
11    subsection (c) of Section 4.05.
12        (7) A statement of any connection between the
13    organization that established the third-party standard, or
14    its directors, officers, or material owners, and the
15    benefit corporation or its directors, officers or material
16    owners, including any financial or governance relationship
17    that might materially affect the credibility of the use of
18    the third-party standard.
19        (8) If the benefit corporation has dispensed with, or
20    restricted the discretion or powers of, the board of
21    directors, its annual benefit report must describe the
22    persons who exercise the powers, duties, and rights, and
23    have the immunities of the board of directors and the
24    benefit director as required by subsection (e) of Section
25    4.05.
26    (b) The benefit corporation shall send a benefit report



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1annually to each shareholder:
2        (1) within 120 days following the end of the fiscal
3    year of the benefit corporation; or
4        (2) at the same time that the benefit corporation
5    delivers any other annual report to its shareholders.
6    (c) A benefit corporation shall post all of its benefit
7reports on the public portion of its Internet website, if any,
8but the compensation paid to directors and financial or
9proprietary information included in the benefit reports may be
10omitted from the benefit reports as posted.
11    (d) If a benefit corporation does not have an Internet
12website, the benefit corporation shall provide a copy of its
13most recent benefit report, without charge, to any person that
14requests a copy.
15    (e) Concurrently with the delivery of the benefit report to
16shareholders under subsection (c), the benefit corporation
17shall deliver a copy of the benefit report to the Secretary of
18State for filing, but the compensation paid to directors and
19financial or proprietary information included in the benefit
20report may be omitted from the benefit report as delivered to
21the Secretary of State.