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In the "United States, a benefit corporation is a type of for-profit "corporate entity, authorized by 33 U.S. states and the District of Columbia that includes positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals. Benefit corporations differ from traditional "C corporations in purpose, accountability, and transparency, but not in taxation. In 2015, Italy became the first country in the world to legally recognize benefit corporations across its entire territory. Australia is in the process of drafting their own similar version as of February 2016.
The purpose of a benefit corporation is to create general public benefit, which is defined as a material positive impact on society and the environment, i.e. maximum positive externalities and minimum negative. A benefit corporation’s directors and officers operate the business with the same authority as in a traditional corporation but are required to consider the impact of their decisions not only on shareholders but also on society and the environment. In a traditional corporation, shareholders judge the company's financial performance; with a benefit corporation, shareholders judge performance based on the company's social, environmental, and financial performance. Transparency provisions require benefit corporations to publish annual benefit reports of their social and environmental performance using a comprehensive, credible, independent, and transparent third-party standard. In some states, benefit corporations must also file the reports with the "Secretary of State, although the Secretary of State does not control the content of the annual benefit report. In some states, shareholders have a private right of action, called a benefit enforcement proceeding, to enforce the company’s mission when the business has failed to pursue or create general public benefit, although, to date,["when?] no such proceeding has been instituted by benefit corporation shareholders in any U.S. court.["citation needed]["not verified in body]
There are around 12 third-party standards that satisfy the reporting requirements of most benefit corporation statutes. A benefit corporation need not be certified or audited by the third-party standard. Instead, it may use third-party standards solely as a "rubric to measure its own performance.
In April 2010, Maryland became the first U.S. state to pass benefit corporation legislation. As of July 2017, 33 states and Washington, D.C. have passed legislation allowing for the creation of benefit corporations:
|State||Date Passed||Date in Effect||Legislation|
|Arizona||April 30, 2013||December 31, 2014||SB 1238|
|Arkansas||April 19, 2013||July 18, 2013||HB 1510|
|California||October 9, 2011||January 1, 2012||AB 361|
|Colorado||May 15, 2013||April 1, 2014||HB 13-1138|
|Connecticut||April 24, 2014||October 1, 2014||SB 23, HB 5597 Section 140|
|Delaware||July 17, 2013||August 1, 2013||SB 47|
|Florida||June 20, 2014||July 1, 2014||SB 654, HB 685|
|Hawaii||July 8, 2011||July 8, 2011||SB 298|
|Idaho||April 2, 2015||July 1, 2015||SB 1076|
|Illinois||August 2, 2012||January 1, 2013||SB 2897|
|Indiana||April 30, 2015||July 1, 2015||HB 1015|
|Kansas||March 30, 2017||July 1, 2017||HB 2153|
|Kentucky||March 7, 2017||July 1, 2017||HB 35|
|Louisiana||May 31, 2012||August 1, 2012||HB 1178|
|Maryland||April 13, 2010||October 1, 2010||SB 690/HB 1009|
|Massachusetts||August 7, 2012||December 1, 2012||2012 Acts, Chapter 238|
|Minnesota||April 29, 2014||January 1, 2015||SF 2053, HF 2582|
|Montana||April 27, 2015||October 1, 2015||HB 2458|
|Nebraska||April 2, 2014||July 18, 2014||LB 751|
|Nevada||May 24, 2013||January 1, 2014||AB 89|
|New Hampshire||July 11, 2014||January 1, 2015||SB 215|
|New Jersey||January 10, 2011||March 1, 2011||S 2170|
|New York||December 12, 2011||February 10, 2012||A4692-a and S79-a|
|Oregon||June 18, 2013||January 1, 2014||HB 2296|
|Pennsylvania||October 12, 2012||January 1, 2013||HB 1616|
|Rhode Island||July 17, 2013||January 1, 2014||HB 5720|
|South Carolina||June 6, 2012||June 14, 2012||HB 4766|
|Tennessee||May 20, 2015||January 1, 2016||HB 0767/SB 0972|
|Texas||June 14, 2017||September 1, 2017||HB 3488|
|Utah||April 1, 2014||May 13, 2014||SB 133|
|Vermont||May 19, 2010||July 1, 2011||S 263|
|Virginia||March 26, 2011||July 1, 2011||HB 2358|
|Washington, D.C.||February 8, 2013||May 1, 2013||B 19-058|
|West Virginia||March 31, 2014||July 1, 2014||SB 202|
Connecticut's benefit corporation law is the first to allow "preservation clauses," which allow the corporation's founders to prevent it from reverting to a 'For Profit' entity at the will of their shareholders.
Illinois established a new type of entity called the “benefit LLC,” making the state the first to allow "limited liability companies the same opportunities afforded to Illinois corporations under the state’s Benefit Corporation Law.
In December 2015, the Italian Parliament passed legislation recognizing a new kind of organization, named Società Benefit, which was directly modeled after Benefit Corporations in the United States. This made Italy the first country in the world to make this legal status available across its entire territory.
Historically, United States corporate law has not been structured or tailored to address the situation of for-profit companies that wish to pursue a social or environmental mission. While corporations generally have the ability to pursue a broad range of activities, corporate decision-making is usually justified in terms of creating long-term shareholder value. A commitment to pursuing a goal other than profit as an end for itself may be viewed in many states as inconsistent with the traditional perspective that a corporation’s purpose is to maximize profits for the benefit of its shareholders.
The idea that a corporation has as its purpose to maximize financial gain for its shareholders was first articulated in "Dodge v. Ford Motor Company in 1919. Over time, through both law and custom, the concept of “"shareholder primacy” has come to be widely accepted. This point was recently reaffirmed by the case eBay Domestic Holdings, Inc. v. Craig Newmark, et al., 3705-CC, 61 (Del. Ch. 2010). , in which the Delaware Chancery Court stated that a non-financial mission that “seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders” is inconsistent with directors’ fiduciary duties.
In the ordinary course of business, decisions made by a corporation’s directors are generally protected by the business judgment rule, under which courts are reluctant to second-guess operating decisions made by directors. In a takeover or change of control situation, however, courts give less deference to directors’ decisions and require that directors obtain the highest price in order to maximize shareholder value in the transaction. Thus a corporation may be unable to maintain its focus on social and environmental factors in a change of control situation because of the pressure to maximize shareholder value. Of course, if a company does change ownership and the result is no longer in adherence to its initially described benefit goals, the sale could be challenged in court.
Mission-driven businesses, impact investors, and social entrepreneurs are constrained by this legal framework, which is not equipped to accommodate for-profit entities whose mission is central to their existence.
Even in states that have passed “constituency” statutes, which permit directors and officers of ordinary corporations to consider non-financial interests when making decisions, legal uncertainties make it difficult for mission-driven businesses to know when they are allowed to consider additional interests. Without clear case law, directors may still fear civil claims if they stray from their fiduciary duties to the owners of the business to maximize profit.
By contrast, benefit corporations expand the fiduciary duty of directors to require them to consider non-financial stakeholders as well as the financial interests of shareholders. This gives directors and officers of mission-driven businesses the legal protection to pursue an additional mission and consider additional stakeholders besides profit. The enacting state's benefit corporation statutes are placed within existing state corporation codes so that the codes apply to benefit corporations in every respect except those explicit provisions unique to the benefit corporation form.
In the rest of the world, the corporate law position is sometimes very different. In the UK, for example, the "Community Interest Company ensures profit and purpose can both be prioritised.["citation needed]
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.
|Wikiversity has learning resources about Benefit corporation|
As of June 7, 2012, a new type of profit corporation will exist in Washington. ..[T]his law...would allow a corporation’s shareholders and directors to put a social purpose (such as saving the environment or saving the whales) above the purpose of making a profit.