2. What is a Benefit Corporation?
For-Profit Social Purpose Benefit Corporation
An incorporated entity that can earn and distribute profits like a
for-profit corporation and have a charitable or socially beneficial purpose
like a nonprofit corporation
Benefit corporations are based on idea that corporations can be governed
not only for their shareholders’ best interests but for the best interests of their
employees, customers, communities, and society too
3. Benefit Corporations
Address the Needs of Social Entrepreneurs
Doesn’t want to use a for-profit corporation because directors are
expected to maximize shareholder value and may be liable for making
decisions favoring interests of non-shareholders
Doesn’t want to use a nonprofit corporation because it cannot distribute
income to shareholders
Social Entrepreneur
Is an entrepreneur who wants to earn a profit and benefit society
4. The Benefit Corporation Statutes
A benefit corporation can only be formed in a state that
has passed a statute authorizing its formation
Maryland was first state to enact a Benefit Corporation law (2010)
As of 4/15/2015, 29 states plus the District of Columbia
authorize benefit corporations. Most statutes are based on
a Model Benefit Corporation Act (“Model Act”)
The “Model Act” was drafted by B Lab – a nonprofit organization that is a
leading advocate of the benefit corporation business entity type
Delaware enacted a Public Benefit Corporation Law, that differs in several
ways from the Model Act
For information on CT’s Professional Benefit Corporation Services, visit
https://ct.wolterskluwer.com/benefit-corporation
5. Forming a New Benefit Corporation
- Benefit corporation is incorporated in same manner as a
traditional for-profit corporation
- Articles of incorporation must state that it is a benefit corporation
- File articles of incorporation with Secretary of State
- In some states the name must include the term “benefit corporation”,
or an abbreviation thereof
- Subject to same compliance requirements of general corporation law
except where statute expressly provides otherwise
Must appoint and maintain a registered agent and office
Name must be distinguishable from other companies’ name
Must file documents to effect mergers, change of name, dissolution, etc.
6. Converting to a Benefit Corporation
If you already formed a regular corporation,
you can convert it into a benefit corporation in
two ways:
Shareholders must approve amendment or merger by – in most states –
a two-thirds vote
- Supermajority intended to ensure broad shareholder support for decision
By merging it into an existing benefit corporation
By amending its articles of incorporation
to add statement that it is a benefit corporation
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7. Benefit Corporation
VS
Traditional For-Profit Corporation
Corporate Purposes Director Duties Annual Reporting
Benefit corporation differs from a traditional for-profit in three main areas
8. Corporate Purposes
General Public Benefit
-Every benefit corporation has a purpose of creating a general public benefit
Is defined in most states as a “material positive impact
on society and the environment, taken as a whole, assessed against
a third party standard, from the business and operations of the
benefit corporation”
-May also have one or more specific public benefits
Must be set forth in articles of incorporation. Examples include:
Providing beneficial products or services to low-income or underserved
individuals or communities
Improving human health
Promoting the arts, sciences or advancement of knowledge
-May have any other lawful purpose a traditional corporation can have
9. Directors’ Duties
- Directors, in discharging their duties, must consider the effects of any action
or inaction upon:
-Directors may consider other factors or the interests of other groups that they
consider appropriate
Shareholders
Employees
Customers
Community and societal factors
Local and global environmental interests
Corporation’s short and long term interests
Corporation’s ability to accomplish its general and specific benefits
10. Annual Benefit Report
- Benefit corporation must prepare annual benefit report including:
Description of ways corporation pursued a general public
benefit and any specific public benefit
Extent to which benefits were created
Circumstances hindering creation
Assessment of its overall social and environmental performance measured
against a third party standard
Process and rationale for selecting third party standard
If it appoints a benefit director, his or her name and contact information
and a compliance statement
Compensation paid to each director
Statement of any connection between organization that established
third party standard and the benefit corporation
11. Annual Benefit Report
Purpose of Report
Provide shareholders with information so they can evaluate
benefit corporation’s performance in creating a public
benefit and judge whether directors have discharged
their responsibilities
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2-Reduce “green washing” – phenomenon where company falsely claims to be
environmentally and socially responsible
-Most states provide that the report must be sent to each shareholder within
120 days after end of fiscal year or at time benefit corporation delivers any other
annual reports to shareholders
-Benefit corporation must post report on public portion of website
-Some states also require delivery to Secretary of State
12. Delaware’s Public Benefit Corporation Law
158 benefit corporations were formed in
first year
Went into effect August 1, 2013
13. Delaware’s Public Benefit Corporation Law
Differs from benefit corporation law found in most states in several respects:
At least 90% of existing Delaware corporation’s shareholders must approve
transition to public benefit corporation (PBC) status by amendment or merger
Name must contain “Public Benefit Corporation”, “P.B.C.”, or “PBC”
Required to identify specific public benefit in PBC’s certificate of incorporation
Directors required to balance certain interests
Benefit report:
Only required every other year
Does not have to be made public
Third party standard for measuring performance not required
