1. History

2. Differences from traditional corporations

3. Provisions

4. Benefits

5. See also

6. References

7. External links

In the United States, a benefit corporation is a type of for-profit corporate entity, authorized by 33 U.S. states and the District of Columbia^[1] that includes positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals, in that the definition of "best interest of the corporation" is specified to include those impacts. Traditional C Corporation law does not specify the definition of "best interest of the corporation" which has led to profit motivations being used as the main driver for best interests.^[2] Benefit corporations may not differ much from traditional C corporations. A C corporation may change to a B corporation merely by stating in its approved corporate bylaws that it is a benefit corporation.

A business may choose to file as a benefit corporation instead of a traditional C corporation for many reasons. A study done by MBA students at University of Maryland showed that the main reason businesses chose to file as B corporations was for recognition of their values and marketing benefits of those values.^[3] A benefit corporation's directors and officers operate the business with the same authority and behavior as in a traditional corporation, but are required to consider the impact of their decisions not only on shareholders but also on employees, customers, the community, and local and global environment. For an example of what additional impacts directors and officers are required to consider, view the [https://law.justia.com/codes/maryland/2015/article-gca/title-5/subtitle-6c/section-5-6c-07/ 2015 Maryland Code § 5-6C-07 - Duties of director]. The nature of the business conducted by the corporation does not affect their status as a benefit corporation, instead provides them protection for including public benefits in their missions and activities.

Shareholders typically judge a company's well-being on its long term financial success, in addition to public perception and quality of product, but in recent decades quarterly trading reporting has led to hyper-focus on short-term gains. As such, the perception that corporate directors are legally bound to maximize shareholder value has grown, although it is not true.^[4] The benefit corporation legislation ensures that a director is required to consider other public benefits in addition to profit, preventing shareholders from using a drop in stock value as evidence for dismissal or a lawsuit against the corporation. Transparency provisions require benefit corporations to publish annual benefit reports of their social and environmental performance using a comprehensive, credible, independent, and transparent third-party standard. However, few of the states have included provisions for removal of benefit corporation status if they fail to do so, or if those reports show below-expected ratings.

There are around 12 third-party standards that satisfy the reporting requirements of most benefit corporation statutes. A benefit corporation need not be certified or audited by the third-party standard. Instead, it may use third-party standards solely as a rubric to measure its own performance.

History

In April 2010, Maryland became the first U.S. state to pass benefit corporation legislation.^[5] As of March 2018, 35 states and Washington, D.C. have passed legislation allowing for the creation of benefit corporations:^[6]

Connecticut's benefit corporation law is the first to allow "preservation clauses," which allow the corporation's founders to prevent it from reverting to a 'For Profit' entity at the will of their shareholders.^[7]

Illinois established a new type of entity called the “benefit LLC,” making the state the first to allow limited liability companies the same opportunities afforded to Illinois corporations under the state's Benefit Corporation Law.^[8][9]

In December 2015, the Italian Parliament passed legislation recognizing a new kind of organization, named Società Benefit, which was directly modeled after Benefit Corporations in the United States. This made Italy the first country in the world to make this legal status available across its entire territory.^{[10][11][12][13][14]}

In 2018 Colombia became the first country in Latin America to introduce benefit corporation legislation.

Washington created social purpose corporations in 2012 with a similar focus and intent.^[15][16]

Differences from traditional corporations

Historically, United States corporate law has not been structured or tailored to address the situation of for-profit companies that wish to pursue a social or environmental mission.^[17] While corporations generally have the ability to pursue a broad range of activities, corporate decision-making is usually justified in terms of creating long-term shareholder value.

The idea that a corporation has as its purpose to maximize financial gain for its shareholders was first articulated in Dodge v. Ford Motor Company in 1919.^[18] Over time, through both law and custom, the concept of “shareholder primacy” has come to be widely accepted. This was reaffirmed in 2010 by the case {{cite court |litigants=eBay Domestic Holdings, Inc. v. Craig Newmark, et al. |vol= |reporter= |opinion=3705-CC |pinpoint=61 |court=Del. Ch. |date=2010 |url=http://courts.delaware.gov/Opinions/Download.aspx?id=143440 |accessdate= |quote=}}, in which the Delaware Chancery Court stated that a non-financial mission that “seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders” is inconsistent with directors’ fiduciary duties. However, the fiduciary duties do not list profit or financial gains specifically, and to date no corporate charters have been written that identify profit as one of those duties.

In the ordinary course of business, decisions made by a corporation's directors are generally protected by the business judgment rule, under which courts are reluctant to second-guess operating decisions made by directors. In a takeover or change of control situation, however, courts give less deference to directors’ decisions and require that directors obtain the highest price in order to maximize shareholder value in the transaction. Thus a corporation may be unable to maintain its focus on social and environmental factors in a change of control situation because of the pressure to maximize shareholder value. If a company does change ownership and the result is no longer in adherence to its initially described benefit goals, the sale could be challenged in court.

Mission-driven businesses, impact investors, and social entrepreneurs are constrained by this legal framework, which is not equipped to accommodate for-profit entities whose mission is central to their existence.

Even in states that have passed “constituency” statutes, which permit directors and officers of ordinary corporations to consider non-financial interests when making decisions, legal uncertainties make it difficult for mission-driven businesses to know when they are allowed to consider additional interests. Without clear case law, directors may still fear civil claims if they stray from their fiduciary duties to the owners of the business to maximize profit. However, studies have found that most companies chose to file as benefit corporations not for the legal protections, but for the marketing benefits.^[3]

By contrast, benefit corporations expand the fiduciary duty of directors to require them to consider non-financial stakeholders as well as the interests of shareholders.^[19] This gives directors and officers of mission-driven businesses the legal protection to pursue an additional mission and consider additional stakeholders.^[20][21] The enacting state's benefit corporation statutes are placed within existing state corporation codes so that the codes apply to benefit corporations in every respect except those explicit provisions unique to the benefit corporation form.

Provisions

Typical major provisions of a benefit corporation are:

• Shall create general public benefit.
• Shall have right to name specific public benefit purposes
• The creation of public benefit is in the best interests of the benefit corporation.

• 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")

• 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

• 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

• 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.^[22]

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 profit-maximization for shareholders.^[23] Yvon Chouinard, Founder of Patagonia, has written “Benefit Corporation legislation creates the legal framework to enable companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership, by institutionalizing the values, culture, processes, and high standards put in place by founding entrepreneurs.” ^[24]

See also

• Flexible purpose corporation
• B Corporation (certification)
• Low-profit limited liability company
• Community interest company
• Impact investing
• Public-benefit corporation
• Socially responsible investing
• Stakeholder theory
• Social Purpose Corporation
• Workplace spirituality

References

External links

• Social Enterprise Law Tracker - Interactive map visualizing the progression of benefit corporation legislation across the United States
• BenefitCorp.net - Information about creating and running benefit corporations
• Vermont benefit corporation statute - an example of legislation
• California Benefit Corporation Statute - scroll down to Part 13, law begins at §14600.
• Benefit Corporation Gateway - DePaul University-sponsored resource that aggregates and organizes benefit corporation research and guides.

• Constitution of the Republic of Bashkortostan
• Constitution of the Republic of Egypt
• Constitution of the Republic of India
• Constitution of the Republic of Indonesia
• Constitution of the Republic of Iraq
• Constitution of the Republic of Korea
• Constitution of the Republic of Slovenia
• Constitution of the Republic of South Africa Amendment Act, 1994
• Constitution of the Republic of South Africa Amendment Act, 1995
• Constitution of the Republic of South Africa Amendment Act, 1996
• Constitution of the Republic of South Africa Amendment Act, 1997
• Constitution of the Republic of South Africa Amendment Act, 1998
• Constitution of the Republic of South Africa Amendment Act, 1999
• Constitution of the Republic of South Africa Amendment Act, 2001
• Constitution of the Republic of South Africa Amendment Act, 2002
• Constitution of the Republic of South Africa Amendment Act, 2003
• Constitution of the Socialist Republic of Romania
• Constitution of the Somali Democratic Republic
• Constitution of the South Pacific Tourism Organisation
• Constitution of the Spanish Republic
• Constitution of the State of Colorado
• Constitution of the State of Jalisco
• Constitution of the State of Mexico
• Constitution of the State of New Mexico
• Constitution of the State of Tabasco