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Two New Types of Corporations in New York: Benefit Corporations and Design Professional Service Corporations

By: Teri Mayor, COGENCY GLOBAL on Mon, Apr 16, 2012

NYC-1.jpegThe state of New York has recently authorized two new types of corporations with the enactment of Senate Bill 79-A and Senate Bill 2987:

Benefit Corporations

In allowing the formation of benefit corporations in Senate Bill 79-A, New York joins California, Hawaii, Maryland, New Jersey, Vermont and Virginia, which have all passed laws creating this entity type. Benefit corporations are designed to allow for-profit corporations to promote goals which create a material positive impact on society and specific public benefits without risking claims by disgruntled shareholders that they are not fulfilling their fiduciary responsibilities by pursuing an objective that diminishes financial return.

In New York State, Article 17 has been added to the New York Business Corporation Law. This article provides that:

    • Existing corporations formed under the BCL can become benefit corporations by amending their Certificate of Incorporation to include a statement that the corporation is a benefit corporation, while new benefit corporations must include that statement on the Certificate of Incorporation.
    • Every benefit corporation will have a purpose of creating a general public benefit in addition to its other purposes. Additionally, the corporation may list one or more specific benefits.
    • Benefit corporations must deliver to each shareholder an annual benefit report that:
      - indicates the ways in which the corporation pursued general public benefit purposes and any specific public benefit purposes listed in its certificate of incorporation.
      - provides an assessment of the performance of the corporation, relative to its general or specific public benefit purposes, based on a third party standard.
      - indicates the director’s compensation and the names of all shareholders that own five percent or more of the outstanding shares (beneficially or of record).
    • The above report must also be posted on the company’s website and filed with the Department of State, except that compensation and financial or proprietary information may be omitted from these filings.

View the full text of Senate Bill 79-A.

Design Professional Service Corporations

The amendments to Article 1500 of the Business Corporation Law contained in Senate Bill 2987 create a new type of entity, the design professional corporation. These entities are unique in that they can practice one or more* professions in the fields of architecture, engineering and design and are allowed to issue shares to employees who are not licensed professionals. The justification provided for the change is to permit design firms the flexibility of offering an ownership interest in the corporation to their employees who are not licensed professionals, bringing the practice in New York in line with other states and allowing New York to be more competitive both nationally and internationally.

A number of restrictions have been imposed to ensure that professionals maintain ownership, management and control of the entity:

    • The provisions apply only to specific professional corporations. The professions to be practiced by these corporations are restricted to professional engineering, architecture, landscape architecture or land surveying or any combination of these professions.
    • More than 75% of the outstanding shares must be owned by design professionals (persons authorized to practice one of the above professions).
    • Shares must be issued to design professionals, employees of the company or an ESOP (Employee Stock Option Plan).
    • An ESOP cannot constitute part of the 75% of shares required to be owned by design professionals.
    • More than 75% of the directors and officers must be design professionals.
    • The president, chairperson of the board, chief executive officer must all be design professionals.
    • The single largest shareholder is either a design professional or an ESOP where 75% of the voting trustees and 75% of the committee members are design professionals.

The new statute also stipulates that a certificate of incorporation of a design professional service corporation shall also have attached a Certificate from the Department of Education certifying that each of the shareholders, officers, directors and owners has been deemed to have been of good moral character as may be established by the regulations of the Commissioner of Education.

When the Office of the Professions was asked how this was to be established, especially for non-professionals, they indicated that they were not yet sure what procedures would apply. Currently Regulation 28 of the Rules of the Board of Regents provides procedures for establishing “good moral character” for licensed professionals, but it is unknown if these regulations will apply to design professional service corporations.

The names of these corporations must end in either the words “Design Professional Corporation” or D.P.C. There are no provisions which allow an existing professional corporation to convert into a design professional corporation. A design professional corporation can merge with a professional corporation if the professional corporation practices one of the design professions.

View the full text of New York Senate Bill 2987.

*Other than these corporations, no professional service corporation may be formed to practice more than one of the other professions unless it is a single-shareholder Professional Corporation where the only shareholder is licensed in more than one profession.

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Company Formation and Filing Considerations