BUSINESS-ENTITIES (CORPORATION - BENEFIT

Business-Entities (Corporation – Benefit)

A “benefit corporation” is a special type of for-profit entity authorized by a state – the first benefit corporation was apparently originally chartered in Maryland in April of 2010 – or the District of Columbia, with the expressed dual purpose of promoting the public good and making a profit (although it may be debatable which may be the primary purpose and which may be the ancillary purpose), the directors, executives and owners of which must make whatever particular written representations the authorizing state or District may require in the articles of incorporation regarding not only their standard commitments to uphold their various fiduciary duties to the benefit corporation shareholders when making business decisions, but also to consider certain required corporate social responsibility (CSR) and sustainability principles involving the physical impact of those business decisions on the environment, as well as the social impact of those business decisions on a vast contingent of non-owners such as the consumers of the corporation’s products, the employees, general public, local community and the global community, in exchange for which the authorizing state or District may grant various benefits (such as indemnification for directors and officers from lawsuits by shareholders objecting to the reduced profitability of the corporation resulting from business decisions related to valid and verifiable CSR and sustainability considerations) to the benefit corporation that are within the particular powers of the particular authorizing state or District to grant.

The term “benefit corporation” – and related terms such as: B Corp; B Corporation; general benefit corporation; mutual benefit corporation; public benefit corporation; social benefit corporation; and the like – refer to variations of the benefit corporation concept authorized by states and the District of Columbia, and must not be confused with similar terms relating to certifications or designations issued by industry-recognized third-party for-profit or not-for-profit private non-governmental entities, such as: “Benefit Corporation For Good”; “Benefit Legal Liability Company” (BLLC); “Certified B Corporation”, which refers to a proprietary certificate designation awarded only by the non-profit B Lab Corporation (which may charge up to $50,000 per year for a Certified B Corporation to maintain their certification, depending upon the Certified B Corporation’s annual revenue); Global Reporting Initiative (GRI); “Green America”; low-profit limited liability company (L3C); “Public Benefit Legal Liability Company” (PBLLC); and the like – however, depending on the particular requirements of the particular state or District in which the benefit corporation is located, certification or designation by some industry-recognized third-party for-profit or not-for-profit private non-governmental entity may actually be a prerequisite for authorization by the particular state or District as a benefit corporation.

When considering whether to incorporate a new venture as a benefit corporation (or to convert an existing standard corporation to benefit corporation status), the incorporators must understand that in general they may be required by the requirements imposed by the particular state or District in which they want to incorporate as a benefit corporate – particularly if there is a requirement for certification or designation by some industry-recognized third-party for-profit or not-for-profit private non-governmental entity is a prerequisite for authorization be the particular state or District as a benefit corporation – to make a demonstrable and sincere attempt to adhere to many socially-oriented, completely non-business concepts with which they may not be familiar, and which may be antithetical to the pure, profit-oriented, shareholder-pleasing, time-tested, stereotypical approach to business with which they may be familiar, such as: altruism; corporate social responsibility (CSR); environmental social governance (ESG); global-oriented goals, such as the seventeen (17) United Nations (UN) sustainable development goals (SDGs); philanthropy; sustainability; triple bottom line (consideration of the “3 Ps” – people, planet, profit – in that order, rather than just a profit-oriented bottom line); and the like.

Incorporators must also remember that there are much higher accountability and transparency standards in benefit corporations than in standard corporations, and so the incorporators must be prepared for many more interactions with activist shareholders (and perhaps even from third-party, non-owner stakeholders) in benefit corporations than may occur in standard corporations; the authorizing state or jurisdiction may even allow for special enforcement actions to be commenced against directors and officers of a benefit corporation by shareholders.

The benefit corporation may have all the other attributes of a standard private or publicly-traded corporation in the particular authorizing state or District, but differs from the standard corporation in that the CSR and sustainability impacts noted above on a vast group of non-owners – generally “stakeholders” (including consumers, employees, the local community, the general public and the world at large) – must be considered when making business decisions, even though the impact of such considerations on the bottom line of the benefit corporation may result in reduced profitability.

Generally, benefit corporations may elect to be taxed as a standard corporation, and may elect C corporation or S corporation taxation status.

To date, more than forty-four (44) states, and the District of Columbia, have already authorized, or are in the process of authorizing, some variation of benefit corporation, including: Alabama; Alaska; Arizona; Arkansas; California; Colorado; Connecticut; Delaware; District of Columbia; Florida; Georgia; Hawaii; Idaho; Illinois; Indiana; Iowa; Kansas; Kentucky; Louisiana; Maine; Maryland; Massachusetts; Michigan; Minnesota; Montana; Nebraska; Nevada; New Hampshire; New Jersey; New Mexico; New York; North Carolina; Ohio; Oregon; Pennsylvania; Rhode Island; South Carolina; Tennessee; Texas; Utah; Vermont; Virginia; Washington; West Virginia; Wisconsin.

There are also benefit limited liability companies (BLLCs) and pubic benefit limited liability companies (PBLLCs) –benefit versions of a legal liability company (LLC) – that are currently-authorized in five (6) states: Delaware; Kansas; Maryland: Oregon; Pennsylvania; Utah.

Another version is the low-profit limited liability company (L3C) in nine (9) states: Illinois; Louisiana; Maine; Michigan; North Carolina; Rhode Island; Utah; Vermont; Wyoming.

Assuming that the existing state or District in which an existing standard corporation is located allows for conversion from a standard corporation to a benefit corporation, an existing standard corporation may choose to seek benefit corporation status within that existing state or District – or even a S corporation, which is an entity under Federal law – in which it is located, by obtaining shareholder and director approval as may be required pursuant to the bylaws, and then filing amended or restated articles of incorporation that amend or restate the bylaws, corporate name and statement of purpose as may be required by the authorizing state of District; thereafter, such new benefit corporation must comply (generally annually) with the particular state or District compliance requirements applicable to benefit corporations in the particular state or District in which the new benefit corporation is located (such as, for example, the preparation and dissemination to all shareholders of an annual benefit report).

Compiling information for, drafting, filing and negotiating all documents and forms – including all documents and forms to satisfy any requirement by a state or District for prerequisite certification or designation by some industry-recognized third-party for-profit or not-for-profit private non-governmental entity, particularly any requirement to achieve a minimum rating from a third-party rating entity, such as the preparation of the B Lab B Impact Assessment (BIA) – related to benefit corporations (whether as an original benefit corporation, or converting from standard corporation status to benefit corporation status), such as the: annual benefit report; articles of incorporation; bylaws; mission statement; statement of purpose.

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