benefit corporation

In April 2010, Maryland became the first U.S. state to pass benefit corporation legislation.{{Cite news|url=https://www.xconomy.com/wisconsin/2017/11/29/joining-trend-wi-creates-new-business-entity-benefit-corporations/|title=Xconomy: Joining Trend, WI Creates New Business Entity: Benefit Corporations|date=November 2, 2017|work=Xconomy|access-date=October 19, 2018|language=en-US}} {{As of|2018|3}}, 36 states and Washington, D.C., have passed legislation allowing for the creation of benefit corporations:{{cite web |url=http://benefitcorp.net/policymakers/state-by-state-status |title=State by State Status of Legislation |publisher=B Lab |access-date=July 4, 2017}} and enhance corporate responsibility.{{cite journal |last1=Goldschein |first1=Perry |last2=Miesing |first2=Paul |title=How Benefit Corporations Effectively Enhance Corporate Responsibility |journal=Business and Professional Ethics Journal |date=1 October 2016 |volume=35 |issue=2/3 |pages=109–128 |doi=10.5840/bpej2016121947}}

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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.{{Cite news|url=http://www.ctnewsjunkie.com/archives/entry/social_entrepreneurs_celebrate_new_corporate_structure|title=20 Connecticut Social Entrepreneurs Convert Their Companies to Benefit Corporations|last=Stuart|first=Christine|date=October 1, 2014|work=CT News Junkie|access-date=July 17, 2017}}

A subset of benefit corporation, the public benefit LLC, allows for limited liability companies the same opportunities afforded to corporations under a state's benefit corporation law.

Similar bills have been introduced in Connecticut and Illinois.S.B. 2358, 98th Gen. Assem. (Ill. 2013).{{Cite report | date=April 2013 |title= Six Month Report|url= http://illinoistaskforce.files.wordpress.com/2013/04/task-force-six-month-report_4-22-13.pdf |publisher=Governor's Task Force on Social Innovation, Entrepreneurship, and Enterprise }}

{{Main|Social purpose corporation|Flexible purpose corporation}}

Some states have passed legislation for creating social purpose corporations (SPCs), which are more flexible in their legal requirements and responsibilities compared to benefit corporations.

{{Main|low-profit limited liability company}}

Low-profit limited liability companies (L3Cs) were created to comply with the Internal Revenue Service (IRS) program-related investments (PRIs) rules (26 U.S.C. § 170(c)(2)(B)) which allow most typically private foundations the ability to maintain tax-exempt status through investments in qualifying businesses and/or charities. They blend aspects of law regarding limited liability companies with aspects of non-profit law, but remain for-profit companies for tax purposes.

In May 2018, the leader of the British Columbia Green Party introduced a bill to amend the Business Corporations Act to permit the incorporation of "benefit companies" in British Columbia.{{Cite news|url=https://www.thestar.com/vancouver/2018/05/02/provincial-green-party-eyes-making-bc-the-first-canadian-jurisdiction-to-recognize-benefit-corporations.html|title=Provincial Green Party eyes making B.C. the first Canadian jurisdiction to recognize 'benefit corporations' {{!}} The Star|website=Toronto Star|date=May 2, 2018|language=en|access-date=September 11, 2019|last1=McKeen|first1=Alex}} On June 30, 2020, British Columbia became the first province in Canada to offer the option of incorporating as a benefit company.{{cite web | url=https://www.centreforsocialenterprise.com/benefit-company/ | title=Benefit Company BC }}{{cite web | url=https://www.dlapiper.com/en-ca/insights/publications/2022/07/benefit-companies-in-british-columbia | title=Benefit companies in British Columbia | DLA Piper }}{{cite web | url=https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/02057_00_multi#part2.3 | title=Full Multi - Business Corporations Act }}

In 2018, Colombia introduced benefit corporation legislation.{{Cite web |date=2022-06-08 |title=The Dark Side of Colombia's Benefit Corporation |url=https://www.law.ox.ac.uk/business-law-blog/blog/2022/06/dark-side-colombias-benefit-corporation |access-date=2022-08-02 |website=Oxford Law Faculty |language=en}}

Israeli law defines a public benefit company in chapter 9 of its Companies Law, with the current definition stemming from a 2007 amendment. Public benefit companies may only draw their stated goals from a closed list codified in law, and are prohibited from distributing dividends.Companies Law, Chapter 9, Clause 1a

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.Italian financial Act for 2016– L. nr. 208/2015{{cite web | author=Daniel | title=Italian Parliament approves Benefit Corporation legal status | location=Amsterdam, Netherlands | publisher=B Lab | date=December 22, 2015 | url=http://bcorporation.eu/blog/italian-parliament-approves-benefit-corporation-legal-status | access-date=July 19, 2017 | archive-url=https://web.archive.org/web/20170704231038/http://bcorporation.eu/blog/italian-parliament-approves-benefit-corporation-legal-status | archive-date=July 4, 2017 | url-status=dead }}{{cite journal | title=Disposizioni per la formazione del bilancio annuale e pluriennale dello Stato | journal=Gazzetta Ufficiale | date=December 30, 2015 | publisher=Republic of Italy |url=http://www.gazzettaufficiale.it/eli/id/2015/12/30/15G00222/sg | language=it | access-date=July 19, 2017}}{{Cite web|url=http://www.ecclblog.law.ed.ac.uk/2017/03/31/the-legacy-of-b-lab-italys-societa-benefit/|title=The Legacy of B Lab: Italy's Società Benefit {{!}} The ECCLblog|date=March 31, 2017|publisher=University of Edinburgh|language=en-US|access-date=October 19, 2018}}{{Cite news|url=https://www.lifegate.com/people/news/what-are-benefit-corporations|title=What are benefit corporations, the companies doing good for society – LifeGate|date=July 1, 2017|work=LifeGate|access-date=October 19, 2018|language=it-IT}}

In the United Kingdom, Community Interest Companies (CIC) were introduced in 2005, intended "for people wishing to establish businesses which trade with a social purpose..., or to carry on other activities for the benefit of the community".{{Cite book |last=Regulator of Community Interest Companies |url=https://assets.publishing.service.gov.uk/media/5a82d997e5274a2e8ab59aad/cic-12-1333-community-interest-companies-guidance-chapter-1-introduction.pdf |title=Office of the Regulator of Community Interest Companies: Information and guidance notes. Chapter 1: Introduction |publisher=Department for Business, Energy & Industrial Strategy |year=2016 |pages=8}}

Historically, U.S. 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.{{cite web|title=Balancing purpose and profit: Legal mechanisms to lock in social mission for "profit with purpose" businesses across the G8|url=http://www.trust.org/contentAsset/raw-data/1d3b4f99-2a65-49f9-9bc0-39585bc52cac/file|website=Trust Law|access-date=September 3, 2015}} 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 Co. in 1919.{{Cite news|url=https://www.the-american-interest.com/2018/03/21/the-corporate-conscience/|title=The Corporate Conscience – The American Interest|date=March 2, 2018|work=The American Interest|access-date=October 26, 2018|language=en-US}} Over time, through both law and custom, the concept of "shareholder primacy" has come to be widely accepted. This was reaffirmed in 2010 for Delaware corporations by the case {{cite court |litigants=eBay Domestic Holdings, Inc. v. Craig Newmark, et al. |opinion=3705-CC |pinpoint=61 |court=Del. Ch. |year=2010 |url=http://courts.delaware.gov/Opinions/Download.aspx?id=143440 }}, 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.

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.

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.{{cite web |title= Emerging Legal Forms Allow Social Entrepreneurs to Blend Mission And Profits|url= http://www.triplepundit.com/2014/03/emerging-legal-forms-allow-social-entrepreneurs-blend-mission-profits/ |author=Marc J. Lane |date= March 11, 2014|publisher=Triple Pundit }} This gives directors and officers of mission-driven businesses the legal protection to pursue an additional mission and consider additional stakeholders.{{cite web |url = http://www.aspenpublishers.com/product.asp?catalog_name=Aspen&category_name=&product_id=0735598088&promoID=EM95&cookie_test=1 |title = Representing Corporate Officers and Directors | author = Marc J. Lane | publisher= Aspen Publishers: Wolters Kluwer Law & Business |access-date = August 8, 2012}}{{cite web |url = http://www.americanbar.org/publications/young_lawyer/2011-12/december_2011/social_enterprises_new_business_form_driving_social_change.html |title = Social Enterprises: A New Business Form Driving Social Change | author = Marc J. Lane | publisher= The Young Lawyer |access-date = November 18, 2014}} 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.

Typical major provisions of a benefit corporation are:{{cite web|title=Maryland First State in Union to Pass Benefit Corporation Legislation|url=http://www.csrwire.com/press_releases/29332-Maryland-First-State-in-Union-to-Pass-Benefit-Corporation-Legislation|publisher=CSRWire USA|date=April 14, 2010}}

Purpose

• Shall create general public benefit.
• Shall have the right to name specific public benefit purposes
• 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.

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.[http://neweconomicsinstitute.org/publications/new-economy-movement New-Economy Movement] {{webarchive |url=https://web.archive.org/web/20110807214604/http://neweconomicsinstitute.org/publications/new-economy-movement |date=August 7, 2011 }} article by Gar Alperovitz, also appeared in the June 13, 2011, edition of The Nation 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."{{Cite web|url=https://www.patagonia.com/stories/benefit-corporation-update-patagonia-passes-b-impact-assessment-improves-score-to-116/story-17871.html|title=Benefit Corporation Update: Patagonia Passes B Impact Assessment, Improves Score to 116 - Patagonia|date=October 24, 2014|website=www.patagonia.com}}

Oregon House Bill 3572, signed by the governor of Oregon in July 2023,{{Cite web |title=HB 3572 Enrolled |url=https://olis.oregonlegislature.gov/liz/2023R1/Measures/Overview/HB3572 |access-date=26 December 2023 |website=Oregon State Legislature}} allows public contracting agencies to award contracts to benefit corporations if the goods and services are not more than 5% higher than the goods and services available from another company.{{Cite web |last=Krizanac |first=Antonija |date=14 November 2023 |title=Building in 2024: Recent Oregon Legislative Changes Impacting the Construction Industry |url=https://www.dwt.com/blogs/government-contracts-insider/2023/11/oregon-construction-contract-law-changes-2023 |access-date=26 December 2023 |website=Davis Wright Tremaine LLP}}

There is a difference between being filing as a benefit corporation in a state, and being a certified benefit corporation also known as a B Corporation. B Corporations voluntarily promise to run their firm with social and environmental causes as a concern.The Alliance Center. "What Is the Difference between a Certified B Corporation and a Public Benefit Corporation (PBC)?" The Alliance Center Organization, http://www.thealliancecenter.org/wp-content/uploads/2019/11/Benefit-Corporation-101-Reduced.pdf. To receive their certification from B Lab they must score a minimum of 80 out of 200 on a survey called the B impact assessment. Next, they will have to pass through an audit process. Finally, the firms wishing to remain certified will be required to pay an annual fee to B Lab. Furthermore, companies will pledge to incorporate as a benefit corporation before their re-certification.

Benefit corporations are not synonymous with cooperatives, which are a type of corporate governance in which the governance and shares are equally held by their members, such as all employees or all consumers. However, a benefit corporation may also be organized as a cooperative or vice versa.

A public benefit corporation is a legal entity that is organized and taxed as either an S corporation or C corporation. An S or C corporation will not change its tax status upon transferring to a public benefit corporation, while an LLC, partnership or sole proprietorship will have to. While public benefit corporations are taxed the same as their underlying corporation status, there is added benefit to taxation on charitable contributions. If a firm makes donations to a qualifying non-profit, the charitable contributions receive a tax-deductible status. This will lower a firm's taxes compared to a typical C-corporation that is not donating money and only focusing on short term profits.

Reorganizing as a public benefit corporation affords a corporation's directors and founders protection from shareholder lawsuits when pursuing decisions that benefit the public at the expense of short-term profits. Furthermore, firms that transition typically experience advantages in retaining employees, increasing their customer loyalty and attracting prospective talent that will mesh well into the company culture.

Changing status to a public benefit corporation requires several steps. First, the firm should choose one or more specific public benefit projects that it will pursue. Next, the articles of incorporation should be amended to state at the beginning that the firm is a public benefit corporation. The term public benefit corporation (PBC) or another abbreviation may be added to the entity's name if the founders choose. Finally the share certificates that are issued by the entity should state that the firm is a public benefit corporation. A shareholder vote is required to amend the articles which must include "non-voting" shares. The vote must gain a two-thirds majority to pass, depending on the Articles of Incorporation. Shareholders should be notified early that dissenter's rights apply. Dissenter's rights mean that those that vote against the amendment and qualify, may require the company to buy back their shares at fair value before the change. Firms making the transition should also perform a "due diligence review" of their business contracts, affairs and status in order to avoid any unforeseen liability associated with changing the form of the entity.

The transition process is different state by state but for Colorado it is as follows. First, the firm must prepare the aforementioned amended articles. Then, they also amend their bylaws and assign responsibilities to the board of directors. Next, the amendments must be approved by the directors before going to a shareholder vote. Finally they file the amended articles of incorporation with the secretary of the state.

If the prior entity is an LLC or partnership there is an extra step required. For these entities the articles of incorporation themselves and the related bylaws must first be prepared and filed with the state secretary. Only then will it be possible to merge or transition the previous form into the benefit corporation.

According to William Mitchell Law Review journal, about 68 million US customers have a preference for making decisions about their purchases based on a sense of environmental or social responsibility.Babson, William H. Clark Jr. & Elizabeth K. "How Benefit Corporations Are Redefining the Purpose of Business Corporations." William Mitchell Law Review (2012): 818-842. Some individuals even go as far as using their purchases to "punish" companies for bad corporate behavior when it pertains to environmental or social cause. While others do the opposite, and use their purchasing power to reward firms that they believe are doing social or environmental good. The Mitchell Law Review also states that around 49% of Americans have at some point in time boycotted firms whose behavior they see as "not in the best interest of society." Recent research also suggests that when variables like price and quality are held constant, 87% of customers would switch from a less socially responsible brand to a more socially responsible competitor.

{{Portal|Business|Law|United States}}

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• {{Annotated link |B Corporation (certification)|B corporation (certification)}}
• {{Annotated link |Charitable organization}}
• {{Annotated link |Community interest company}}
• {{Annotated link |Community organization}}
• {{Annotated link|Conscious business}}
• Examples of Delaware benefit corporations (known legally as public benefit corporations or PBCs):
• {{Annotated link |Kickstarter}}
• {{Annotated link |Change.org}}
• {{Annotated link |TED (conference)}}
• {{Annotated link |Flexible purpose corporation}}
• {{Annotated link |Green America}}
• {{Annotated link |Impact investing}}
• {{Annotated link |Low-profit limited liability company}}
• {{Annotated link |Public-benefit nonprofit corporation}}
• {{Annotated link |Social enterprise}}
• {{Annotated link |Social purpose corporation}}
• {{Annotated link |Socially responsible investing}}
• {{Annotated link |Stakeholder theory}}
• {{Annotated link|Sustainable business}}
• {{Annotated link |Workplace spirituality}}

{{div col end}}

{{Reflist}}

{{Wikiversity}}

• [http://www.socentlawtracker.org/#/bcorps Social Enterprise Law Tracker] – Interactive map visualizing the progression of benefit corporation legislation across the United States
• [http://www.benefitcorp.net BenefitCorp.net] {{Webarchive|url=https://web.archive.org/web/20200820043515/http://www.benefitcorp.net/ |date=August 20, 2020 }} – Information about creating and running benefit corporations
• [https://legislature.vermont.gov/statutes/fullchapter/11a/021 Vermont benefit corporation statute] – an example of legislation
• [https://web.archive.org/web/20130130003520/http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=14001-15000&file=14600-14604 California benefit corporation statute]

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