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House Engrossed |
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State of Arizona House of Representatives Fifty-first Legislature Second Regular Session 2014
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HOUSE BILL 2262 |
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AN ACT
amending sections 10‑301 and 10‑302, Arizona Revised Statutes; repealing section 10‑830, Arizona Revised Statutes; amending title 10, chapter 8, article 3, Arizona Revised Statutes, by adding a new section 10‑830 and section 10‑831; amending section 10‑842, Arizona Revised Statutes; amending title 10, chapter 8, article 4, Arizona Revised Statutes, by adding sections 10‑845 and 10‑846; amending sections 10‑1621 and 10‑2431, Arizona Revised Statutes; relating to corporations.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 10-301, Arizona Revised Statutes, is amended to read:
10-301. Purposes
Subject to any limitations or requirements contained in its articles of incorporation or in any other applicable law, a corporation shall have the purpose of engaging in and may engage in any lawful business activity. The purpose of benefiting the shareholders is an implied purpose of every corporation.
Sec. 2. Section 10-302, Arizona Revised Statutes, is amended to read:
10-302. General powers
Unless its articles of incorporation provide otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including power to:
1. Sue and be sued, complain and defend in its corporate name.
2. Have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing it or in any other manner reproducing it.
3. Make and amend bylaws, not inconsistent with its articles of incorporation or with the laws of this state, for managing the business and regulating the affairs of the corporation.
4. Purchase, receive, lease or otherwise acquire and to own, hold, improve, use and otherwise deal with real or personal property or any interest in property wherever located.
5. Sell, convey, mortgage, pledge, lease, exchange and otherwise dispose of all or any part of its property.
6. Purchase, receive, subscribe for or otherwise acquire, own, hold, vote, use, sell, mortgage, lend, pledge or otherwise dispose of and deal with shares or other interests in or obligations of any other entity.
7. Make contracts and guarantees, incur liabilities, borrow monies, issue its notes, bonds and other obligations, which may be convertible into or include the option to purchase other securities of the corporation, and secure any of its obligations by mortgage, deed of trust, security agreement, pledge or other encumbrance of any of its property, franchises or income.
8. Issue any bond, debenture or debt security of the corporation by causing one or more officers designated in the bylaws or by the board of directors to sign the bond, debenture or debt security either manually or in facsimile and, if deemed necessary or appropriate by the officers, by causing its authentication, countersignature or registration, either manually or in facsimile, by a trustee, transfer agent or registrar other than the corporation itself or an employee of the corporation. If an officer who has signed, either manually or in facsimile, a bond, debenture or debt security as provided in this paragraph ceases for any reason to be an officer before the security is issued, the corporation may issue the security with the same effect as if the officer were still in office at the date of issue.
9. Lend monies, invest and reinvest its monies and receive and hold real and personal property as security for repayment.
10. Be a promoter, incorporator, partner, member, associate or manager of any corporation, partnership, joint venture, trust or other entity.
11. Conduct its business, locate offices and exercise the powers granted by chapters 1 through 17 of this title within or without this state.
12. Elect directors and appoint officers, employees and agents of the corporation, define their duties, fix their compensation and lend them monies and credit.
13. Pay pensions and establish pension plans, pension trusts, profit sharing plans, share bonus plans, share option plans and benefit or incentive plans for any of its or its affiliates' current or former directors, officers, employees and agents.
14. Eliminate or limit the liability of its directors in the manner and to the extent provided by section 10‑202 and chapter 8, article 5 of this title.
15. Make donations for the public welfare or for charitable, scientific or educational purposes.
16. Transact any lawful business that will aid governmental policy.
17. Make payments or donations or do any other act that is not inconsistent with law and that furthers the business and affairs of the corporation.
18. Make a positive impact on society or the environment by doing an action that includes any of the following:
(a) Promoting the interests of any of the following:
(i) The employees and the workforce of the corporation, its subsidiaries or its suppliers.
(ii) The customers of the corporation.
(iii) The community or society, including any community in which the offices or facilities of the corporation are located or its subsidiaries or suppliers are located.
(iv) The local or global environment.
(b) Providing low-income or underserved individuals or communities with beneficial products or services.
(c) Promoting economic opportunities for individuals or communities beyond the creation of jobs in the normal course of business.
(d) Protecting or restoring the environment.
(e) Improving human health.
(f) Promoting the arts, sciences or advancement of knowledge.
(g) Increasing the flow of capital to entities with a purpose to benefit society or the environment.
(h) Conferring any other particular benefit on society or the environment.
(i) Defining, reporting and assessing the performance of the corporation in the achievement or fulfillment of its other purposes according to one or more standards of measurement of any purposes listed in this paragraph, including a third-party standard as defined in section 10-2402.
Sec. 3. Repeal
Section 10-830, Arizona Revised Statutes, is repealed.
Sec. 4. Title 10, chapter 8, article 3, Arizona Revised Statutes, is amended by adding a new section 10-830 and section 10-831, to read:
10-830. Standards of conduct for directors
A. Each member of the board of directors, when discharging the duties of a director, shall act in good faith and in a manner that the director reasonably believes to be in the best interests of the corporation.
B. Each member of the board of directors or of a committee of the board, when becoming informed in connection with the board's or committee's decision-making function or oversight function, shall discharge the member's duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances.
C. In discharging board or committee duties, a director shall disclose or cause to be disclosed to the other board or committee members information not already known by the other members but known by the director to be material to the discharge of their decision-making or oversight functions. The disclosure is not required if the director reasonably believes that disclosure would violate a duty imposed under law, a legally enforceable obligation of confidentiality or a professional ethics rule.
D. In discharging board or committee duties, a director may rely on any of the following unless the director has knowledge that makes reliance on any of the following unwarrented:
1. The performance by any of the persons specified in subsection e, paragraph 1 or 3 of this section to whom the board may have delegated, formally or informally by course of conduct, the authority or duty to perform one or more of the board's functions that are delegable under applicable law.
2. Information, opinions, reports or statements, including financial statements and other financial data, that are prepared or presented by any of the persons specified in subsection e of this section.
E. Pursuant to subsection d of this section, a director may rely on:
1. One or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the functions performed or the information, opinions, reports or statements provided by the officers or employees.
2. Legal counsel, public accountants or other persons retained by the corporation as to matters involving skills or expertise that the director reasonably believes are matters within the particular person's professional or expert competence or as to which the particular person merits confidence.
3. A committee of the board of directors of which the director is not a member if the director reasonably believes that the committee merits confidence.
F. To make a determination about what is in the best interests of the corporation, a director shall consider whether a proposed action may further the purposes of the corporation set forth in its articles of incorporation. If the articles of incorporation state that the purposes of the corporation include promotions of multiple interests, the best interests of the corporation do not require that any particular interests be given priority over other interests unless the articles of incorporation state an intention to give priority to particular interests. Unless the articles of incorporation or bylaws of the corporation prohibit such considerations, a director may also consider whether a proposed action may make a positive impact on society or the environment, including:
1. Promoting the interests of any of the following:
(a) The employees and the workforce of the corporation, its subsidiaries or its suppliers.
(b) The customers of the corporation.
(c) The community or society, including any community in which the offices or facilities of the corporation are located or its subsidiaries or suppliers are located.
(d) The local or global environment.
2. Providing low-income or underserved individuals or communities with beneficial products or services.
3. Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business.
4. Protecting or restoring the environment.
5. Improving human health.
6. Promoting the arts, sciences or advancement of knowledge.
7. Increasing the flow of capital to entities with a purpose to benefit society or the environment.
8. Conferring any other particular benefit on society or the environment.
9. Both short-term and long-term effects of the proposed action and whether anything listed in paragraphs 1 through 8 of this subsection may be served by the continued independence of the corporation.
10. Defining, reporting and assessing the performance of the corporation in the achievement or fulfillment of its other purposes according to one or more standards of measurement of any purposes listed in this subsection, including a third-party standard as defined in section 10‑2402.
10-831. Standards of liability for directors; presumption; exceptions
A. A director is presumed in all cases to have acted, failed to act or otherwise discharged the director's duties pursuant to section 10-830, subsections a, B and F. The burden is on the party challenging a director's action, failure to act or other discharge of duties to establish by clear and convincing evidence facts rebutting the presumption. A director is not liable to the corporation or its shareholders for any decision to take or not take action or any failure to take any action as a director unless the party asserting liability in a proceeding establishes by clear and convincing evidence that both of the following apply:
1. There is no defense set forth by the director based on any of the following:
(a) The articles of incorporation pursuant to section 10-202, subsection b, paragraph 1.
(b) Section 10-861 if the action is taken in compliance with section 10-862 or 10-863.
(c) Section 10-845.
(d) Section 10-2431, subsection C.
2. The challenged conduct consisted of or was the result of at least one of the following:
(a) An action not in good faith.
(b) A decision that the director did not reasonably believe to be in the best interests of the corporation pursuant to section 10-830 or a decision about which the director was not informed to an extent that the director reasonably believed appropriate in the circumstances.
(c) A lack of objectivity due to the director's familial, financial or business relationship with or a lack of independence due to the director's domination or control by another person having a material interest in the challenged conduct if the relationship or the domination or control could reasonably be expected to have affected the director's judgment relating to the challenged conduct in a manner adverse to the corporation and the director has not established that the challenged conduct was reasonably believed by the director to be in the best interests of the corporation.
(d) A sustained failure of the director to devote attention to the ongoing oversight of the business and affairs of the corporation or a failure to devote timely attention by making or causing to be made appropriate inquiry when particular facts and circumstances of significant concern materialize that would alert a reasonably attentive director to the need for action.
(e) The receipt of a financial benefit to which the director is not entitled or any other breach of the director's duties to deal fairly with the corporation and its shareholders that is actionable under applicable law.
B. The party seeking to hold the director liable:
1. For money damages shall establish by clear and convincing evidence that:
(a) The corporation or its shareholders have suffered harm.
(b) The harm suffered was proximately caused by the director's challenged conduct.
2. For other money payment under a legal remedy, such as compensation for the unauthorized use of corporate assets, shall establish by clear and convincing evidence that the payment sought is appropriate in the circumstances.
3. For other money payment under an equitable remedy, such as profit recovery by or disgorgement to the corporation, shall establish by clear and convincing evidence that the equitable remedy sought is appropriate in the circumstances.
1. In any instance where fairness is at issue, such as consideration of the fairness of a transaction to the corporation pursuant to section 10‑861, subsection b, paragraph 3, alter the burden of proving the fact or lack of fairness otherwise applicable.
2. Alter the existence or lack of liability of a director under another section of this chapter, such as the provisions governing the consequences of an unlawful distribution under section 10-833 or a transactional interest under section 10-861.
3. Affect any rights to which the corporation or a shareholder may be entitled under another law of this state or the united states.
Sec. 5. Section 10-842, Arizona Revised Statutes, is amended to read:
10-842. Standards of conduct for officers; presumption
A. If an officer has discretionary authority with respect to any duties, an the officer's duties shall be discharged under that authority:
1. In good faith.
2. With the care an ordinarily prudent a person in a like position would exercise reasonably believe appropriate under similar circumstances.
3. In a manner the officer reasonably believes to be in the best interests of the corporation.
B. In discharging duties, an officer is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by either:
1. One or more directors, officers or employees of the corporation whom the officer reasonably believes to be reliable and competent in the matters presented.
2. Legal counsel, public accountants or other persons as to matters the officer reasonably believes are within the person's professional or expert competence.
C. An officer is not acting in good faith if the officer has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection B of this section unwarranted.
D. An officer is not liable for any action taken as an officer or any failure to take any action if the officer's duties were performed in compliance with this section. In any proceeding commenced under this section or any other provision of this chapter, an officer has all of the defenses and presumptions ordinarily available to an officer. An officer is presumed in all cases to have acted, failed to act or otherwise discharged such officer's duties in accordance with subsection A of this section. The burden is on the party challenging an officer's action, failure to act or other discharge of duties to establish by clear and convincing evidence facts rebutting the presumption.
E. To make a determination about what is in the best interests of the corporation, an officer shall consider whether a proposed action will further the purposes of the corporation set forth in its articles of incorporation. If the articles of incorporation state that the purposes of the corporation include promotions of multiple interests, the best interests of the corporation do not require that any particular interests be given priority over other interests unless the articles of incorporation state an intention to give priority to particular interests. Unless the articles of incorporation or bylaws of the corporation prohibit such considerations, an officer may also consider whether a proposed action will make a positive impact on society or the environment, including:
1. Promoting the interests of any of the following:
(a) The employees and workforce of the corporation, its subsidiaries or its suppliers.
(b) The customers of the corporation.
(c) The community or society, including any community in which the offices or facilities of the corporation are located or its subsidiaries or suppliers are located.
(d) The local or global environment.
2. Providing low-income or underserved individuals or communities with beneficial products or services.
3. Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business.
4. Protecting or restoring the environment.
5. Improving human health.
6. Promoting the arts, sciences or advancement of knowledge.
7. Increasing the flow of capital to entities with a purpose to benefit society or the environment.
8. Conferring any other particular benefit on society or the environment.
9. Both short-term and long-term effects of the proposed action and whether anything listed in paragraphs 1 through 8 of this subsection may be served by the continued independence of the corporation.
10. Defining, reporting and assessing the performance of the corporation in the achievement or fulfillment of its other purposes according to one or more standards of measurement of any purposes listed in this subsection, including a third-party standard as defined in section 10‑2402.
Sec. 6. Title 10, chapter 8, article 4, Arizona Revised Statutes, is amended by adding sections 10-845 and 10-846, to read:
10-845. Taking advantage of business opportunities; directors
A. A director's taking advantage, directly or indirectly, of a business opportunity may not be the subject of equitable relief or give rise to an award of damages or other sanctions against the director whether in a direct action or in a proceeding by or in the right of the corporation on the ground that the opportunity should have first been offered to the corporation, if before becoming legally obligated as a result of the opportunity the director brings the opportunity to the attention of the corporation and either of the following applies:
1. Pursuant to section 10-862, action by qualified directors disclaiming the corporation's interest in the opportunity is taken as if the decision being made concerned a director's conflicting interest transaction.
2. Pursuant to section 10-863, shareholders' action disclaiming the corporation's interest in the opportunity is taken as if the decision being made concerned a director's conflicting interest transaction except that, instead of making required disclosure as defined in section 10-860, the directoR shall make prior disclosure to those acting on behalf of the corporation of all material facts concerning the business opportunity that are then known to the director.
B. In any proceeding seeking equitable relief or other remedies based on an alleged improper taking advantage of a business opportunity by a director, the fact that the director did not employ the procedure described in subsection a of this section before taking advantage of the opportunity does not create an inference that the opportunity should have been first presented to the corporation or alter the burden of proof otherwise applicable to establish that the director breached a duty to the corporation in the circumstances.
10-846. Enforcement proceedings; liability for monetary damages; definition
A. Except as provided in subsection B of this section, a person may not bring an action or assert a claim against a corporation or its directors or officers with respect to either of the following:
1. The failure of the corporation to pursue a nonmonetary purpose set forth in its articles of incorporation.
2. A director's or officer's violation of an obligation, duty or standard of conduct to consider the effect of an act, omission or decision by a corporation on a nonmonetary purpose set forth in its articles of incorporation.
B. An enforcement proceeding against a corporation or its directors or officers with respect to subsection A of this section may be commenced or maintained only as follows:
1. Derivatively in accordance with chapter 7, article 4 of this title by a shareholder of the corporation.
2. By other persons as specified in the articles of incorporation or bylaws of the corporation.
C. A corporation is not liable for monetary damages resulting from any failure of the corporation to pursue any nonmonetary purpose whether or not set forth in the articles of incorporation.
D. For the purposes of this section, "nonmonetary purpose" means any purpose other than to benefit the economic or financial interests of the shareholders of the corporation.
Sec. 7. Section 10-1621, Arizona Revised Statutes, is amended to read:
10-1621. Other reports to shareholders
A. If a corporation indemnifies or advances expenses to a director under sections 10‑851 through 10‑854, the corporation shall report the indemnification or advance in writing to the shareholders with or before the annual financial statements required under section 10‑1620. Failure to report under this section subsection does not invalidate otherwise valid indemnification. This section subsection does not apply to a corporation whose shares are listed on a national securities exchange or are regularly traded in a market maintained by one or more members of a national or affiliated securities association.
B. A corporation may, and if required in its articles of incorporation shall, mail or transmit to each shareholder an annual report assessing the performance of the corporation in the achievement or fulfillment of its purposes as stated in its articles of incorporation according to any standards set forth in the articles of incorporation. If the report is required, it must be provided within one hundred twenty days after the close of each fiscal year or within another period as provided in the articles of incorporation. On written request from a shareholder, the corporation shall mail or transmit to that shareholder the latest report.
Sec. 8. Section 10-2431, Arizona Revised Statutes, is amended to read:
10-2431. Standard of conduct for directors
A. In discharging the duties of their respective positions and in considering the best interests of the benefit corporation, the board of directors, committees of the board and individual directors of a benefit corporation:
1. Shall consider the effects of any action or inaction on:
(a) The shareholders of the benefit corporation.
(b) The employees and workforce of the benefit corporation, its subsidiaries and its suppliers.
(c) The interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation.
(d) Community and societal factors, including those of each community in which offices or facilities of the benefit corporation, its subsidiaries or its suppliers are located.
(e) The local and global environment.
(f) The short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long‑term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation.
(g) The ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose.
2. May consider the interests referred to in section 10‑2702 and other pertinent factors or the interests of any other group that they deem appropriate except that they do not have to give priority to the interests of a particular person or group referred to in this subsection over the interests of any other person or group unless the benefit corporation has stated in its articles of incorporation its intention to give priority to certain interests related to its accomplishment of its general public benefit purpose or of a specific public benefit purpose identified in its articles.
B. The consideration of interests and factors in the manner required by subsection A of this section does not constitute a violation of section 10-830.
C. Except as provided in the articles of incorporation or bylaws and in subsection E of this section, a director is not personally liable for monetary damages for:
1. Any action or inaction in the course of performing the duties of a director under subsection A of this section if the director performed the duties of office in compliance with section 10-830 and this section.
2. failure of the benefit corporation to pursue or create general public benefit or a specific public benefit. The standards of conduct and presumptions set forth in chapter 8 of this title apply to directors and officers of benefit corporations.
D. A director does not have a duty to a person that is a beneficiary of the general public benefit purpose or a specific public benefit purpose of a benefit corporation arising from the status of the person as a beneficiary.
E. Subsection C of this section does not apply to a director's conflicting interest transaction, as defined in section 10-860, in which the director has directly or indirectly benefitted.
Sec. 9. Effective date
This act is effective from and after December 31, 2014.