A benefit corporation is a class of corporation required by law to create general benefit for society as well as for shareholders. Benefit corporations must create a material positive impact on society, and consider how their decisions affect their employees, community, and the environment. Moreover, they must publicly report on their social and environmental performances using established third-party standards.[1] See also: Public-benefit corporation
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The chartering of Benefit Corporations is an attempt to reclaim the original purpose for which corporations were chartered in early America. Then, states chartered corporations to achieve a specific public purpose, such as building bridges or roads. Their legitimacy stemmed from their delegated charter, although they could still earn profits while fulfilling it.
Over time, however, corporations came to be chartered without any public purpose, while being legally bound to the singular purpose of profit-maximization for its shareholders. Advocates of Benefit Corporations assert that this singular focus has resulted in a variety of societal ills, including the thwarting of democracy, diminished social good, and negative environmental impacts.[2]
In April 2010, Maryland became the first U.S. state to pass Benefit Corporation legislation. Hawaii, Virginia, California, Vermont, and New Jersey soon followed. Additionally, as of November 2011, Benefit Corporation legislation had been introduced or partially passed in Colorado, North Carolina, Pennsylvania, and Michigan.[3]
In December of 2011, New York became the seventh state in the United States to create a new legal category of company in New York.[4]
By law, the mission of a corporation is to maximize profit for shareholders, and the totality of a corporation's activites must serve that single end. Should a corporation fail to conduct themselves in that manner—fail to fulfill what is called its "fiduciary duty"—they may be held legally liable and face civil penalties.[2] [5]
By contrast, Benefit Corporations must legally account for a variety of considerations as it pursues its mission. Fiduciary duty for benefit corporations must include non-financial interests, such as social benefit, employee and supplier concerns, and environmental impact. Whether it does such is regulated by third-party certification. A benefit corporation resembles a C corporation or a LLC, except for the distinguishing differences inherent in its chartering and agreement to be held accountable to the bounds of its charter by its third-party certifier.[2] [5]
Typical major provisions of a Benefit Corporation are:
Benefit Corporations are treated like all other corporations for tax purposes.[1]
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 mere profit-maximization for shareholders.[6]
Chartering as a Benefit Corporation is not the same as a third-party certified B corporation. The organization B Lab can provide a third-party certification for all forms of for-profit enterprises including Benefit Corporations. To be certified by B Labs, a company must achieve a minimum score of 80 points to show material positive impact, pass a phone review, submit supporting documentation, and be available for an on-site review, B Lab conducts on-site reviews on 10% of the Certified B Corporations each year.[7]