Alerts

To B or Not to B

Making an appearance in 2010, benefit corporations are a fairly new type of business entity. Currently recognized in thirty-four states, as well as D.C. and Puerto Rico, benefit corporations pursue a mission that goes beyond that of the traditional corporation of solely making money for the shareholders. A benefit corporation’s leadership is required to achieve a public purpose while balancing shareholder interests with those of the employees, community, and environment.

In the jurisdictions that recognize such entities, a benefit corporation is formed by filing traditional articles of incorporation that include a statement that the corporation is formed to provide for a general public benefit. With shareholder approval, an existing corporation can change to a benefit corporation by filing amended or restated articles of incorporation. In jurisdictions that have not passed legislation, corporations have the option of domesticating or forming a new benefit corporation altogether.

A benefit corporation must be formed for the purpose of creating a general public benefit. Most jurisdictions define general public benefit as one having a material, positive impact on the environment or society. A few jurisdictions require a more specific public benefit, while some permit a combination with the addition of one or more specific benefits. Each jurisdiction defines or gives examples of permissible specific public benefits in its statute.

Subject to the same legal requirements as other for-profit entities, benefit corporations additionally have to voluntarily and formally meet higher standards of corporate purpose, accountability, and transparency. One such transparency provision requires benefit corporations to publish annual benefit reports of their social and environmental performance as assessed by an independent, third-party standard. Legislation does not specify a particular standard, but guidelines provide that the standard be comprehensive, credible, transparent, and developed by an independent entity that has no material or financial interest in the use of the standard. Some jurisdictions have dropped the third-party standard requirement entirely. Currently there are several companies available to perform these third-party standard assessments, including some that cater to benefit corporations only.

In addition to the requirement that the annual benefit report be posted on the company’s website, some jurisdictions require the annual benefit report be filed along with the regular annual report at the Secretary of State. This extra filing requirement often includes a fee. When the additional filing is required, noncompliance ranges from no penalty whatsoever to loss of status as a benefit corporation.

Benefit corporations are often referred to as “B Corps.” However, note the difference between a benefit corporation and a Certified B Corp. The benefit corporation is a business entity created under state law, similar to a traditional corporation. A Certified B Corp is a business of any type that has been certified by B Lab, a non-profit organization. A business does not need to acquire a B Lab certification to form or convert to a benefit corporation.

Continuing to gain momentum, with legislation introduced in another six states, a benefit corporation can provide a safe harbor for directors to pursue social and environmental benefits over profit. Additionally, they allow for the duration and protection of company values through unforeseen leadership change or acquisition. However, because not all jurisdictions recognize benefit corporations, and because of the varied laws of those that do, there is still much unchartered legal territory.

The jurisdictions that currently recognize benefit corporations or a similar type of social purpose corporation are: AR, AZ, CA, CO, CT, DC, DE, FL, HI, ID, IL, IN, KS, KY, LA, MA, MD, MN, MT, NE, NH, NJ, NV, NY, OR, PA, PR, RI, SC, TX, UT, VA, VT, WA, WI, and WV.

Arizona House Bill 2447

Publication can be time-consuming and costly so it brings great joy to the masses when this requirement is removed or simplified!

Effective January 1, 2017, Arizona entities with a known place of business in the two most populous counties, Maricopa and Pima, are no longer required to publish in a newspaper. Instead, the Arizona Corporation Commission now posts the required publications within a new database on their website: http://ecorp.azcc.gov/ under “Public Notice”. There is no fee associated with the posting and it is automatic when applicable documents are approved for filing. Entities with businesses located in all other Arizona counties must still publish as they have in the past.

Post-Closing UCC Searches

Did you know that following the filing of your financing statement, there are key events that could put your perfection and priority at risk? Because there is always a gap between the through date of an initial UCC search and the filing date of your filing, it’s important to run a post-closing search to make sure another secured creditor didn’t beat you to the front of the line.

This search to reflect is also an opportunity to verify that your financing statement was indexed correctly by the filing office, which is crucial to the perfection of a security interest.

If a transaction also involves an interest in after-acquired collateral, you’ll want to do more than just one post-closing UCC search. In order to maintain perfection, secured parties need to search their debtor’s corporate records regularly. If an entity debtor files a name change amendment in the public record, secured parties have only months to amend their financing statement before they become at risk of losing priority in after-acquired collateral. The same risks apply if a debtor re-organizes in a different state. Setting up recurring searches to monitor the corporate records should be standard practice for asset based lenders and factors dealing with revolving assets.

Make a List. Check it Twice.

The Office of Foreign Assets Control (OFAC), part of the U.S. Treasury Department, administers and enforces the United States’ trade and economic sanctions programs.  The objective is to prevent business activity which directly or indirectly finances terrorist, narcotics, or human trafficking activities.  OFAC regulations apply to all U.S. citizens and permanent resident aliens, all persons and entities within the U.S. law and their foreign branches.

The regulations prohibit doing business with anyone included on the lists maintained by OFAC including (i) individuals and entities designated as “Specially Designated Nationals” (SDNs); and (ii) banned countries.  The SDN List is updated regularly and can be searched via the U.S. Treasury’s website:  https://sanctionssearch.ofac.treas.gov/

In order to ensure compliance, law firms and businesses should check the names of potential and existing customers against the SDN List on a regular basis.  If a valid match is determined, OFAC should be contacted as required by law.  There are many OFAC reporting and record keeping requirements with which to comply.  Failure to do so can result in stiff penalties.

In addition to OFAC regulations, financial organizations are governed by other anti-money laundering laws.  Under the Bank Secrecy Act, the USA Patriot Act, and related anti-money laundering laws, banks must develop and maintain risk-based anti-money laundering, customer due diligence, and customer identification programs.  Banks must also screen customers against additional government lists and establish a suspicious activity monitoring process.

The Long and Short of it

It’s common to refer to status certificates as “Good Standings” across all 50 states, although their technical name does vary by jurisdiction. There may also be an option to obtain a long form certificate versus a regular certificate. Long Form Good Standing Certificates are, very simply, status certificates that also list the titles and file dates of all corporate documents on file for the entity. Copies do not accompany a Long Form and, if required, must be ordered separately. Of the 33 states that offer Long Forms, many only do so for domestic entities. While the additional information might be preferred to the limited information provided on the standard certificate, Long Forms often take several days to receive and the statutory fees are typically much higher than those for the standard certificate. For more information on what states offer the Long Form or for a proposal of fees, please contact Capitol Services at: info@capitolservices.com

News of the Weird: UCC Edition

Did you know that Georgia doesn’t have a central filing office? Pick your favorite county and your lien will be added to a central indexing system for searching purposes! Same goes for Louisiana parishes.

Did you know that Wyoming has a non-uniform ten-year effective period for their financing statements?

Did you know that Tennessee requires the filer pay a recordation tax in addition to their standard filing fees?

Did you know that Delaware will expedite your UCC filings with a one- hour turnaround for the cool cost of $1,000 in addition to their standard filing fees?

Did you know that South Dakota still requires the inclusion of social security numbers and federal tax IDs on their UCCs? But be careful! It’s illegal to include this information in other jurisdictions!

Did you know that Illinois requires the use of ten-point font on its financing statements?

Did you know that Delaware, New Jersey, North Dakota, West Virginia, Colorado, Mississippi, and Vermont no longer accept paper submissions of UCC filings? These states strictly e-file now.

Did you know that our online UCC Filing Manager remembers all of these oddities so that you don’t have to?