HOUSE OF REPRESENTATIVES

H.B. NO.

235

TWENTY-SIXTH LEGISLATURE, 2011

H.D. 2

STATE OF HAWAII

S.D. 2

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO LIMITED LIABILITY COMPANIES.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

SUSTAINABLE BUSINESS LIMITED LIABILITY COMPANIES

     §   -1  Purpose and findings.  This chapter authorizes a designation and code of conduct for a sustainable business limited liability company to offer entrepreneurs and investors the option to build and invest in businesses that operate in a socially and environmentally sustainable manner.  Enforcement of those responsibilities comes not from governmental oversight, but rather from enforcement by members and managers of the provisions governing transparency and accountability included in this chapter.

     §   -2  Definitions.  As used in this chapter:

     "Articles" means the articles of organization of a sustainable business limited liability company.

     "Benefit manager" means the manager designated as the benefit manager of a sustainable business limited liability company under section    ‑7.

     "Director" means the director of financial institutions.

     "General public benefit" means a material, positive impact on society and the environment, taken as a whole and as measured by a third-party standard pursuant to section    ‑10, from the business and operations of a sustainable business limited liability company.

     "Independent" means having no material relationship with a sustainable business limited liability company or any of its subsidiaries.

     "Member" means a member of a sustainable business limited liability company.

     "Subsidiary" of a person means an association in which the person owns beneficially or of record fifty per cent or more of the outstanding equity interests; provided that a percentage of ownership in an association shall be calculated as if all outstanding rights to acquire equity interests in the association had been exercised.

     "Sustainable business limited liability company" means a manager-managed domestic limited liability company, organized under chapter 428, that has elected to also become subject to this chapter and whose status as a sustainable business limited liability company has not been terminated as provided in this chapter.

     "Third-party standard" means a standard for defining, reporting, and assessing overall social and environmental performance that conforms to the requirements of this chapter.

     §   -3  Election of a domestic limited liability company to become a sustainable business limited liability company.  (a)  A manager-managed domestic limited liability company organized under chapter 428 may elect to become a sustainable business limited liability company subject to this chapter by including in its articles or amending its articles to include a statement that the limited liability company is a sustainable business limited liability company.  An amendment pursuant to this subsection shall require the consent of all members.

     (b)  If a limited liability company that is not a sustainable business limited liability company is a party to a merger, consolidation, or division, or is the exchanging limited liability company in a share exchange, and the surviving, new, or any resulting limited liability company in the merger, consolidation, division, or share exchange is to be a sustainable business limited liability company, then the plan of merger, consolidation, division, or share exchange shall require the consent of all members.

     §   -4  Termination of sustainable business limited liability company status.  (a)  A sustainable business limited liability company may terminate its status and cease to be subject to this chapter by amending its articles to delete the statement that the limited liability company is a sustainable business limited liability company.  An amendment pursuant to this subsection shall require the consent of all members.

     (b)  If a plan of merger, consolidation, division, or share exchange would have the effect of terminating the status of a limited liability company as a sustainable business limited liability company, the plan shall require the consent of all members.

     §   -5  Benefit purposes.  (a)  Every sustainable business limited liability company shall have among its purposes the creation of a general public benefit.

     (b)  In addition to the general public benefit purpose described in subsection (a), the articles of a sustainable business limited liability company may identify one or more specific public benefits for which the sustainable business limited liability company was created.  The identification of a specific public benefit pursuant to this subsection does not limit the obligation of a sustainable business limited liability company to create a general public benefit.  Allowable specific benefits for sustainable business limited liability companies subject to this chapter include:

     (1)  Providing low-income or underserved individuals or communities with beneficial products or services;

     (2)  Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;

     (3)  Preserving the environment;

     (4)  Improving human health;

     (5)  Promoting the arts, sciences, or advancement of knowledge;

     (6)  Increasing the flow of capital to entities with a public benefit purpose;

     (7)  The accomplishment of any other particular benefit for society or the environment; and

     (8)  Using the right to exclude, conferred by any and all patents in which it has an interest in this right through assignment, license, lien, security agreement, or obligation for the following purposes:

         (A)  Creating and retaining good jobs within the State and throughout the United States;

         (B)  Upholding fair labor standards nationally and internationally; provided that for purposes of this section, "fair labor standards" prohibit child labor, forced or compulsory labor, discrimination in employment, restrictions on freedom of association, and denial of the right to collective bargaining; and

         (C)  Enhancing environmental protection nationally and internationally;

          provided that if a specific public benefit is specified, section    -4 shall not apply to the limited liability company and the sustainable business limited liability company status shall be irrevocable; and provided further that if the annual statement of the benefit director reflects that the sustainable business limited liability company has failed to fulfill its stated specific public benefit, its status as a sustainable business limited liability company shall be terminated.

     (c)  The creation of general and specific public benefits as provided in subsections (a) and (b) shall be in the best interests of the sustainable business limited liability company.

     (d)  A sustainable business limited liability company may, subject to sections 428-204 through 428-204.6, amend its articles to add, amend, or delete the identification of a specific public benefit for which the sustainable business limited liability company was created.  An amendment pursuant to this subsection shall require the consent of all members.

     §   -6  Standard of conduct for managers and members.  (a)  In discharging the duties of their respective positions, the managers and members of a sustainable business limited liability company, in considering the best interests of the sustainable business limited liability company:

     (1)  Shall consider the effects of any action of the sustainable business limited liability company upon:

         (A)  The members of the sustainable business limited liability company; and

         (B)  The accomplishment of general and specific public benefits set forth in the sustainable business limited liability company's purposes; and

     (2)  May consider the effect of any action of the sustainable business limited liability company upon:

         (A)  The employees and workforce of the sustainable business limited liability company and its subsidiaries and suppliers;

         (B)  The interests of customers as beneficiaries of the general or specific public benefit purposes of the sustainable business limited liability company;

         (C)  Community and societal considerations, including those of any community in which offices or facilities of the sustainable business limited liability company or its subsidiaries or suppliers are located;

         (D)  The local and global environment;

         (E)  The short-term and long-term interests of the sustainable business limited liability company, including benefits that may accrue to the sustainable business limited liability company from its long-term plans and the possibility that these interests may be best served by the continued independence of the sustainable business limited liability company;

         (F)  The ability of the sustainable business limited liability company to accomplish its general public benefit purpose and any specific public benefit purpose;

         (G)  The resources, intent, and conduct of any person seeking to acquire control of the limited liability company; and

         (H)  Any other pertinent factors or the interests of any other group that the managers or members deem appropriate.

     (b)  A manager or member shall not be personally liable for monetary damages for any action taken as a manager or member if the manager or member performed the duties of office in compliance with the general standards of conduct pursuant to section 428-409.

     §   -7  Benefit manager.  (a)  One manager of a sustainable business limited liability company shall be designated the benefit manager and shall have, in addition to all of the powers, duties, rights, and immunities of the other managers, if any, of the sustainable business limited liability company, the powers, duties, rights, and immunities provided in this section.

     (b)  The benefit manager shall be designated, appointed, elected, replaced, or removed pursuant to section 428-404(b).  The articles or operating agreement of a sustainable business limited liability company may prescribe additional qualifications of the benefit manager consistent with this section.

     (c)  The benefit manager shall prepare, and the sustainable business limited liability company shall include in the annual benefit report required by section    -9, a statement of whether, in the opinion of the benefit manager, the sustainable business limited liability company acted in accordance with its general and specific public benefit purposes in all material respects during the period covered by the report and whether the managers and members complied with section    -6(a).  If in the opinion of the benefit manager the sustainable business limited liability company, its members, or its managers failed to act according to the requirements of this chapter, then the statement of the benefit manager shall include a description of the ways in which the sustainable business limited liability company, its members, or its managers failed to act according to the requirements of this chapter.  The benefit manager's statement included in the final draft of the benefit report shall include formal responses to all questions, concerns, comments, and suggestions raised through the public comment period required by section    -9.

     (d)  A benefit manager shall be independent of and shall have no material relationship with the sustainable business limited liability company.  For purposes of this section, a material relationship shall exist between a benefit manager and a sustainable business limited liability company if the benefit manager is:

     (1)  An employee other than a benefit manager of the sustainable business limited liability company or any of its subsidiaries or has been an employee within the previous three years;

     (2)  Related by blood, marriage, or adoption to; is a party to a civil union with; is a reciprocal beneficiary or household member of; or resides with a member or manager of the sustainable business limited liability company or any of its subsidiaries; or

     (3)  An owner of the sustainable business limited liability company; a director, officer, or manager of an association; or an association in which the manager owns beneficially or of record five per cent or more of the outstanding equity interests or the outstanding shares is a member of the sustainable business limited liability company; provided that percentage ownership in an association shall be calculated as if all outstanding rights to acquire equity interests in the association had been exercised.

     §   -8  Right of action.  The members and managers of a sustainable business limited liability company shall have the right, pursuant to section 428-410, to bring direct or derivative claims to enforce the general or specific public benefit purposes of the sustainable business limited liability company and the standard of conduct for managers and members established by section    -6(a)(1).

     §   -9  Annual benefit report.  (a)  A sustainable business limited liability company shall deliver to each member an annual benefit report, including:

     (1)  A narrative description of:

         (A)  The ways in which the sustainable business limited liability company pursued general public benefits during the year and the extent to which general public benefits were created;

         (B)  The ways in which the sustainable business limited liability company pursued each specific public benefit that the articles state as a purpose of the sustainable business limited liability company and the extent to which each specific public benefit was created; and

         (C)  Any circumstances that have hindered the creation by the sustainable business limited liability company of general or specific public benefits;

     (2)  An assessment of the overall social and environmental performance of the sustainable business limited liability company, prepared in accordance with a third-party standard under section    -10 that is applied consistently with any application of that standard in prior benefit reports or accompanied by an explanation of the reasons for any inconsistent application;

     (3)  The name of the benefit manager and the address to which correspondence to the benefit manager may be directed;

     (4)  The compensation paid by the sustainable business limited liability company during the year to each manager in the person's capacity as manager;

     (5)  The name of each member of the sustainable business limited liability company;

     (6)  The statement of the benefit manager described in section    -7(c);

     (7)  A statement of any connection to the third-party standard under section    -10, or its directors, officers, or material owners from the sustainable business limited liability company, its members, or its managers including any financial or governance relationship that might materially affect the credibility of the objective assessment of the third-party standard; and

     (8)  A statement that, as a private limited liability company under the direction of its members and managers and governed by the articles and operating agreement of the sustainable business limited liability company, including those governing the general or specific public benefit purpose and the activities of the sustainable business limited liability company, the sustainable business limited liability company and its activities in creating a general or specific public benefit are subject to the oversight of the members and managers of the sustainable business limited liability company and are not subject to the direct oversight, regulation, or endorsement of any governmental body.

     (b)  A sustainable business limited liability company shall post a draft of its benefit report on the public section of its website or make it otherwise available to the public for a sixty-day public comment period prior to final publication of the benefit report.  The deadline to submit comments shall be published in a publicly accessible manner.

     (c)  The benefit report shall be sent annually to each member and shall be delivered to the director according to the schedule established for filing annual reports by section 428‑210.

     (d)  A sustainable business limited liability company shall post its most recent benefit report on the public portion of its website, if any; provided that the compensation paid to managers and any financial or proprietary information included in the benefit report may be omitted from the benefit report as posted.  If a sustainable business limited liability company does not have a public website, it shall deliver a copy of its most recent benefit report upon request and without charge to any person who requests a copy.

     §   -10  Third-party standard.  A third-party standard for purposes of defining, reporting, and assessing overall social and environmental performance of a sustainable business limited liability company subject to this chapter shall be:

     (1)  Comprehensive in its assessment of the effect of the business and its operations upon the interests listed in section    -6(a);

     (2)  Developed by an organization that is independent of the sustainable business limited liability company; and

     (3)  Transparent because the following information is publicly available:

         (A)  The criteria considered when measuring the overall social and environmental performance of a sustainable business limited liability company, as well as the relative weightings of those criteria;

         (B)  The identity of the directors, officers, any material owners, and the governing body of the organization that developed and controls revisions to the standard;

         (C)  The process by which revisions to the standard are made;

         (D)  The process by which changes to the membership of the governing body of the organization that developed and controls revisions to the standard are made; and

         (E)  An accounting of the sources of financial support for the organization that developed and controls revisions to the standard that includes sufficient detail to disclose any relationships that could reasonably be considered to present a potential conflict of interest.

     §   -11  Ministerial role of director.  Sections 428-206 through 428-209 shall apply to annual benefit reports delivered to the director pursuant to section    -9 by a sustainable business limited liability company."

     SECTION 2.  Section 428-404, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

     "(c)  The only matters of a limited liability company's business that require the consent of all the members are:

     (1)  Amendments to the operating agreement under section 428-103;

     (2)  Authorization or ratification of acts or transactions under section 428-103(b)(2)(B) which would otherwise violate the duty of loyalty;

     (3)  Amendments to the articles of organization under section 428-204;

     (4)  Compromising an obligation to make a contribution under section 428-402(b);

     (5)  Compromising among members, an obligation of a member to make a contribution or return money or other property paid or distributed in violation of this chapter;

     (6)  Making interim distributions under section 428-405(a);

     (7)  Admission of a new member;

     (8)  Use of the company's property to redeem an interest subject to a charging order;

     (9)  Consent to dissolve the company under section 428‑801(2);

    (10)  Waiving of the right to have the company's business wound up and the company terminated under section 428‑802(b);

    (11)  Merging the company with another entity under section [[]428-904(e)(1)[]]; [and]

    (12)  Selling, leasing, exchanging, or otherwise disposing of all, or substantially all, of the company's property with or without goodwill[.];

    (13)  Election of the company to become a sustainable business limited liability company pursuant to section    -3;

    (14)  Termination of the company's status as a sustainable business limited liability company pursuant to section    -4; and

    (15)  Amendment of the company's articles of organization to add, amend, or delete the identification of a specific public benefit pursuant to section    -5."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

    

     SECTION 4.  This Act shall take effect on July 1, 2112.

 



 

Report Title:

Sustainable Business Limited Liability Companies

 

Description:

Establish a new chapter in the Hawaii Revised Statutes to authorize the creation of and establish policies and procedures for the governance of sustainable business limited liability companies.  Effective July 1, 2112.  (SD2)

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.