From Wikipedia, the free encyclopedia - View original article
In United States companies law, a benefit corporation is a type 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. It is a form of for-profit charity.
The chartering of benefit corporations is an attempt to reclaim an original purpose for which many corporations were chartered in early America. 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 most corporations came to be chartered without any direct public purpose, while their purpose degraded to one of 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. As of January 2013 California, Hawaii, Illinois, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, South Carolina, Vermont, and Virginia had all passed legislation allowing benefit corporations. Additionally, benefit corporation legislation had been introduced in the District of Columbia.
On March 30, 2012, Washington enacted benefit corporation legislation (effective June 7, 2012). The inclusion of Washington state in this list is somewhat debatable, depending on how strictly one defines "benefit corporation." The Washington state law calls these entities Special Purpose Corporations and only requires firms to adhere to a third-party corporate social responsibility standard if they include that requirement in their articles of incorporation. Firms that elect to do this, therefore, are benefit corporations in every meaningful sense.
On August 2, 2012, Illinois joined the ranks of other states in adopting a "Benefit Corporation Act" which provides that a corporation may elect to become a benefit corporation by amending its articles of incorporation. The law provides that in addition to its purposes under the Business Corporation Act of 1983 and any specific purpose set forth in its articles of incorporation, a benefit corporation shall have a purpose of creating general public benefit. The law requires the preparation of an annual report for specified distribution and filing with the Secretary of State and defines key terms and contains provisions concerning accountability and transparency.
An ordinary corporation may be formed for any legal purpose, and shareholders may set forth in its charter the purpose to serve general or specific public benefits or to take into account non-financial considerations. However, the typical corporation does not take advantage of this ability and is instead operated primarily for the financial benefit of its shareholders. Even in such cases, "constituency statutes" permit directors and officers of ordinary corporations to take into account non-financial interests, such as social benefit, employee and supplier concerns, and environmental impact, but their general fiduciary duty is to maximize value for the shareholders of the business. These shareholders could be able to bring civil claims against the directors or officers if they stray from their fidicuary duties to the owners of the business.
By contrast, a benefit corporation is not just permitted to look toward public purposes but 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. A corporation, whether organized as a legal benefit corporation or as an ordinary corporation, can seek third-party certification on whether it fulfills this broader definition of fiduciary duty. A benefit corporation thus resembles a C corporation or a LLC, except for the requirements that its charter address these non-financial interests.
Typical major provisions of a benefit corporation are:
Right of Action
Change of Control/Purpose/Structure
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.
|This section appears to be written like an advertisement. (August 2012)|
Chartering as a benefit corporation is a legal process. In contrast, third-party organizations offer certification as a "B corporation". For example, the private organization B-Lab provides, for a paid fee, private third-party certification for various forms of for-profit enterprises. B Lab certification has no legal standing.