Benefit Corporations

Historically, in the United States, the main goal of the corporations was to maximize economic value for its shareholders. This goal was first explicitly stated in Dodge v. Ford Motor Company in 1919. Then many other legal precedents confirmed this principle. Actually it is the primary fiduciary duty of the corporate directors and all their actions must be done with this consideration.

 

Companies that wish to pursue any public purpose, other than material value for its shareholders, are, traditionally, not-for-profit corporations. These corporations do not have shareholders, do not distribute profits to individuals, but are managed by the board of directors or trustees and all earnings are devoted to the public purpose, such as charitable, educational, social, religious and alike. Upon dissolution of the not-for-profit all assets of the company must be transferred to another qualified not-for-profit.

 

There was no legal structure that would allow entrepreneurs to receive profits and at the same time accomplish their social or environmental missions. To fill this void a benefit corporation was created. Presently this legal structure is accepted in 30 US states and the District of Columbia.

 

A benefit corporation is a legal structure best suited for businesses that have a public purpose and positive impact on society, community and environment in addition to earning profits. Benefit corporations function like regular corporations, are allowed to engage in all kinds of business activities, treated like a regular corporation for tax purposes, but the fiduciary duty of directors is expanded allowing them to consider not only financial interests of its shareholders, but the interests of other constituencies, to pursue the mission the company was created for besides earning financial profits.  If in a traditional corporation, shareholders judge the company's financial performance, in a benefit corporation, shareholders judge performance based on the company's social, environmental, and financial performance.

 

Usual major provisions of a benefit corporation are:

 

Purpose - shall create general public benefit.

 

Accountability - directors' and officers’ duties are to make decisions in the best interests of the corporation while considering the effects of their decisions on shareholders, employees, customers, community, environment, etc.

 

Transparency - shall issue yearly Benefit Report in accordance with  third party standards. The report must be available for review to all shareholders and on the public website with exclusion of proprietary data

 

Right of Action - only shareholders and directors have right to bring a legal action in the court, which can be for 1) violation of or failure to pursue general or specific public benefit or 2) violation of duty or standard of conduct

 

Change of Control/Purpose/Structure - shall require a minimum vote, which is a 2/3 vote in most states, but slightly higher in a few states

 

Benefit corporation laws were created for the entrepreneurs who wish to raise capital and grow their businesses while pursuing social or environmental mission.

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