In recent years, consumers have become more conscious of climate change, income inequality, health care disparities, unfair labor practices, and gender inequity. This increased awareness has led to businesses embracing practices aimed at societal good. In 2019, approximately 90% of the companies listed on the S&P 500 index released a Sustainability report.
A benefit corporation is a for-profit corporate entity authorized by 35 U.S. states and the District of Columbia. Benefit corporations are similar to traditional corporations but must consider their decisions’ impact on shareholders, society, and the environment. This is a legally defined goal, meaning corporate directors are legally required to consider these factors when making decisions.
Here are some key characteristics of benefit corporations:
- Purpose: Benefit corporations have an expanded purpose beyond maximizing shareholder value to explicitly include general and specific public benefits. The general public benefit is defined as a material positive impact on society and the environment. Public benefits can include providing supportive products or services to lower-income or disadvantaged groups, increasing economic opportunities beyond creating jobs, protecting the environment, and enhancing health.
- Accountability: Directors and officers of benefit corporations are required to consider the impact of their decisions on all stakeholders, not just shareholders. This could include employees, customers, the local community, and the environment.
- Transparency: Benefit corporations are required to utilize a comprehensive, reliable, independent, and transparent third-party standard to provide an annual report on their social and environmental performance.
- Legal protection: Benefit corporations provide legal assurance that directors and officers will take into account the interests of stakeholders beyond just their shareholders when making decisions.
A benefit corporation is distinct from a “B Corp.”
It’s important to note that being a benefit corporation is not the same as being a “B Corp.” “B Corp” is a certification provided by the nonprofit B Lab, and companies must meet rigorous social and environmental performance standards to achieve this certification. A company can be a benefit corporation, a B Corp, both, or neither.
It’s also worth noting that while benefit corporations are a relatively new type of business structure, they are growing in popularity as more and more companies seek to balance profit with purpose. However, the specific rules and requirements for benefit corporations can vary by state, so it’s important for businesses to consult with legal counsel when considering this business structure.
Why would a business choose to become a benefit corporation?
There are many reasons a business may choose to file as a benefit corporation instead of a traditional C corporation. Some companies may seek community recognition for their values. Furthermore, directors and officers of benefit corporations are required to consider the impact of their decisions on a broader set of stakeholders, including employees, customers, the community, and the local and global environment. This allows for more holistic decision-making that aligns with a company’s mission.
What are the legal implications for a company that becomes a benefit corporation?
Benefit corporations operate similarly to traditional corporations, but the directors and officers are legally required to consider the impacts of their decisions on a broader set of stakeholders. This includes considering the social and environmental implications of the corporation’s activities, as well as financial profitability. The legislation surrounding benefit corporations ensures that directors are required to consider other public benefits in addition to profit. This prevents shareholders from using a drop in stock value as evidence for dismissal or a lawsuit against the corporation.
Are there different types of benefit corporations?
Yes, different states recognize different types of benefit corporations. Some states, such as Illinois, have established a new type of entity called the “benefit LLC,” which allows limited liability companies the same opportunities afforded to corporations under the state’s benefit corporation law. Similarly, other countries like Italy and Colombia have introduced their forms of benefit corporations.
How do benefit corporations differ from traditional corporations?
Benefit corporations, unlike regular corporations, are legally mandated to factor in societal and environmental issues when making decisions, in addition to pursuing profit. This stands in contrast to traditional corporations, where the primary focus is usually maximizing shareholder value. Benefit corporations also expand the fiduciary duty of directors to consider non-financial stakeholders as well as the interests of shareholders, providing legal protection for those who wish to pursue a mission beyond profit maximization.
What are the specific provisions of a benefit corporation?
Key provisions of a benefit corporation include creating general public benefits and considering decisions’ effects on various stakeholders. They must publish an annual Benefit Report per recognized third-party standards and deliver it to all shareholders and a public website, excluding proprietary data. Control, purpose, or structure changes require a minimum status vote, which varies.
How does a C corporation change to a Benefit corporation?
A C corporation can transition to a Benefit corporation simply by stating in its approved corporate bylaws that it is a benefit corporation. However, in certain jurisdictions, especially Delaware, the terms “public benefit corporation” or “PBC” must also be included in the legal name of B corporations.
Why would a business choose to become a benefit corporation?
There are several reasons a business might choose to become a benefit corporation. Some companies prefer this legal structure for community recognition of their values. The directors and officers of a benefit corporation operate the business with the same authority as in a traditional corporation. Still, they must consider their decisions’ impact on shareholders, employees, customers, the community, and the local and global environment.
How does becoming a benefit corporation affect a company’s relationship with its shareholders?
Shareholders in a benefit corporation still judge a company’s well-being on its long-term financial success, public perception, and product quality. However, the benefit corporation legislation ensures that a director must consider other public benefits besides profit. This safeguards the corporation from potential shareholder lawsuits or dismissals based on a decrease in stock value.
How are benefit corporations held accountable for their social and environmental impacts?
Benefit corporations must provide transparent documentation of their social and environmental performance each year, supervised by an independent, reputable third-party. However, the specifics of these requirements can vary from state to state.
Do benefit corporations need to be certified by a third party?
No, a benefit corporation does not need to be certified or audited by the third-party standard. Instead, it may use third-party standards solely as a rubric to measure its performance.
How is a benefit corporation different from a traditional corporation?
Unlike traditional corporations, benefit corporations are legally protected to pursue an additional mission and consider additional stakeholders. The directors’ fiduciary duties are expanded to benefit corporations by requiring them to consider non-financial stakeholders as well as the interests of shareholders.
How does being a benefit corporation affect taxation?
Benefit corporations do not receive special tax benefits and are taxed similarly to other for-profit entities. Whether a benefit corporation is taxed as an S or C Corp, or an alternative pass-through entity, depends on its specific setup.
Can a non-U.S. company become a benefit corporation?
The concept of a benefit corporation is a specific legal structure in the United States. However, the principles of social and environmental responsibility, transparency, and accountability underpinning the benefit corporation can be applied internationally depending on your country’s laws. There are international equivalents of benefit corporations, and companies outside of the U.S. can also seek B Corp certification from B Lab.
What are some examples of benefit corporations?
Some well-known examples of benefit corporations include Patagonia, Method Products, and Kickstarter. These companies have chosen to become benefit corporations as a way to officially incorporate their commitments to social and environmental responsibility into their business structures.
Are benefit corporations non-profit organizations?
No, benefit corporations are not non-profit organizations. They are for-profit entities, but they have a legal mandate to consider their impact on society and the environment in addition to making a profit.
Can a benefit corporation issue stock?
Yes, a benefit corporation can issue stock. However, the legislation ensures that a director is required to consider other public benefits in addition to profit. This prevents shareholders from using a drop in stock value as evidence for dismissal or a lawsuit against the corporation.
How can I start a benefit corporation?
To start a benefit corporation, you must file articles of incorporation with your state that include a statement of purpose that the corporation is a benefit corporation. You must also include any specific public benefit purposes in the articles. It’s also important to note that benefit corporations require additional transparency measures, such as annual benefit reports, so you must be prepared to commit to these requirements.
How does a benefit corporation protect its mission through a sale or change of control?
In the event of a sale or change of control, a benefit corporation maintains its mission because the mission is embedded in the company’s legal structure. This ensures that any new owners or controllers of the company are legally obligated to uphold the company’s commitment to positively impacting society in addition to generating profit.
Can a benefit corporation lose its status?
A Benefit Corporation can lose its status if it does not comply with the legal requirements stated in its Articles of Incorporation. This could include failing to publish an annual benefit report, failing to consider the impacts of decisions on stakeholders, or failing to create a general public benefit.
How can a benefit corporation return to being a traditional corporation?
To revert back to being a traditional corporation, a benefit corporation would need to amend its articles of incorporation to remove the statement of purpose that the corporation is a benefit corporation. This would need to be approved by a vote of the shareholders.
As we come to the close of this insightful exploration of benefit corporations, let us remember that every business, regardless of its structure, has the power to enact positive change in society and the environment. Benefit corporations represent a new way of balancing profit with purpose, but the journey to corporate responsibility is open to all.
If you are a business leader considering how to better align your company with the principles of societal and environmental responsibility, consider whether the legal structure of a benefit corporation could be right for you. Take your commitment to sustainability, equity, and corporate responsibility to the next level by joining the ranks of those who have already made the leap.
As an environmental marketing company, A.R. Marketing House is here to guide you on this journey. We provide expert advice and strategies to help you leverage your company’s environmental initiatives for maximum marketing impact.
Contact us today to learn more about how we can help you turn your commitment to sustainability into a powerful marketing tool. Together, we can create a greener, fairer world through the power of business.
Remember, the road to corporate responsibility is a journey, not a destination. Every step you take toward a more sustainable and equitable business model makes a difference.
Join us on this journey, and let’s make a difference together.
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