Benefit corporation

A benefit corporation is a class of corporation required by law to create general benefit for society as well as for shareholders. Benefit corporations must create a material positive impact on society, and consider how their decisions affect their employees, community, and the environment. Moreover, they must publicly report on their social and environmental performances using established third-party standards.

History

States that have passed benefit corporation legislation as of January 31, 2012

The chartering of benefit corporations is an attempt to reclaim the original purpose for which corporations were chartered in early America. Then, states chartered corporations to achieve a specific public purpose, such as building bridges or roads. Their legitimacy stemmed from their delegated charter, although they could still earn profits while fulfilling it.

Over time, however, corporations came to be chartered without any public purpose, while being legally bound to the singular purpose of profit-maximization for its shareholders. Advocates of benefit corporations assert that this singular focus has resulted in a variety of societal ills, including the thwarting of democracy, diminished social good, and negative environmental impacts.

In April 2010, Maryland became the first U.S. state to pass benefit corporation legislation. Hawaii, Virginia, California, Vermont, and New Jersey soon followed. Additionally, as of November 2011, benefit corporation legislation had been introduced or partially passed in Colorado, North Carolina, Pennsylvania, and Michigan. In December 2011, New York became the seventh state in the United States to pass benefit corporation legislation.

Benefit corporations and corporations contrasted in law

By law, the mission of a corporation is to maximize profit for shareholders, and the totality of a corporation's activities must serve that single end. Should a corporation fail to conduct themselves in that manner—fail to fulfill what is called its "fiduciary duty"—they may be held legally liable and face civil penalties.

By contrast, benefit corporations must legally account for a variety of considerations as it pursues its mission. Fiduciary duty for benefit corporations must include non-financial interests, such as social benefit, employee and supplier concerns, and environmental impact. Whether it does such is regulated by third-party certification. A benefit corporation resembles a C corporation or a LLC, except for the distinguishing differences inherent in its chartering and agreement to be held accountable to the bounds of its charter by its third-party certifier.

Provisions

Typical major provisions of a benefit corporation are:

Purpose

• Shall create general public benefit
• Shall have right to name specific public benefit purposes (e.g. 50% profits to charity)
• The creation of public benefit is in the best interests of the benefit corporation

Accountability

• Directors' duties are to make decisions in the best interests of the corporation
• Directors and officers shall consider effect of decisions on shareholders and employees, suppliers, customers, community, environment (together the "stakeholders")

Transparency

• Shall publish annual Benefit Report in accordance with recognized third party standards for defining, reporting, and assessing social and environmental performance
• Benefit Report delivered to: 1) all shareholders; and 2) public website with exclusion of proprietary data

Right of Action

• Only shareholders and directors have right of action
• Right of Action can be for 1) violation of or failure to pursue general or specific public benefit; 2) violation of duty or standard of conduct

Change of Control/Purpose/Structure

• Shall require a minimum status vote which is a 2/3 vote in most states, but slightly higher in a few states

Benefit corporations are treated like all other corporations for tax purposes.

Benefits

Benefit corporation laws address concerns held by entrepreneurs who wish to raise growth capital but fear losing control of the social or environmental mission of their business. In addition, the laws provide companies the ability to consider factors other than the highest purchase offer at the time of sale, in spite of the ruling on Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. Chartering as a benefit corporation also allows companies to distinguish themselves as businesses with a social conscience, and as one that aspires to a standard they consider higher than mere profit-maximization for shareholders.

Third-party certification

Chartering as a benefit corporation is not the same as a third-party certified "B corporation". The organization B-Lab provides, for a paid fee, private third-party certification for various forms of for-profit enterprises. To be certified by B Labs, a company must achieve a minimum score of 80 points to show "positive impact", pass a phone review, submit supporting documentation on a portion of their application, and be available for a possible on-site review, for which it will receive advance notice. B Lab conducts on-site reviews of only 10% of the Certified businesses each year. B Lab certification has no legal standing. B Lab is run by business people for business people.

See also

• Public-benefit corporation
• Socially responsible investing
• Impact investing

External links

• BenefitCorp.net - Information about creating and running benefit corporations
• B Lab - the largest organization providing benefit corporation certification
• Vermont benefit corporation statute - an example of legislation