CHAPTER 3

Business Sustainability and Benefit Corporation

Executive Summary

In the past decade, a number of firms (over 5,000 globally) that voluntarily focus on profit-seeking and social mission has emerged as social enterprises or hybrid corporations (HCs) in pursuing their sustainability performance in all areas of economic, governance, social, and environmental. Benefit corporations (BCs) have recently incorporated under the corporate law in many states in the United States to provide flexibility to social entrepreneurs to achieve the dual objectives of doing well and doing good by focusing on creating shared value for and protecting interests of all stakeholders. The primary goal of corporations has evolved from maximizing profit to increasing shareholder wealth. The goalpost has recently been advanced to creating shareholder value while protecting interests of other stakeholders including employees, customers, suppliers, society, and the environment. It is expected that BCs gain more attention in the aftermath of the 2020 COVID-19 pandemic as business organizations pay more attention to their continuity and sustainability in addressing their financial position and going concern and ensuring safety, health, and well-being of their employees, customers, and suppliers. This chapter presents the evolution, relevance, status, and future of BCs.

Introduction

Business sustainability as a means of improving the investment and social enterprise sectors is developing rapidly. However, for-profit entities are governed by an existing legal doctrine of “shareholder primacy and profit maximization” that does not provide incentives and opportunities for these firms to engage in social missions and activities. The BC is an alternative legal entity that addresses the requirements of entrepreneurs and investors for creating shareholder value while protecting interests of identified stakeholders including society. Benefit corporations (BCs) are intended to fill a gap between conventional corporations (CCs) and nonprofits by giving social entrepreneurs flexibility to achieve the dual objectives of doing well and doing good. BCs have emerged recently in the United States as an alternative business entity for those entrepreneurs who want to make a profit and give back something to society. In CCs, the primary goal is to create shareholder value and the main fiduciary duty of their boards of directors is to protect shareholders’ interests, oftentimes without regard for the needs of other stakeholders (social or environmental). In contrast, the fiduciary duty of the boards of directors of BCs is to protect the interests of all identified stakeholders. However, BCs are still taxed under the same corporate taxation laws and held to the same level of accountability and transparency as CCs. The existence and persistence of high-profile corporate scandals triggered by greed on the part of corporate directors and officers cause the investment community and society to embrace the creation of BCs that protect the interests of all stakeholders.

Until recently, under the corporate law and in accordance with the shareholder theory, it has been well defined and commonly accepted that shareholders are the owners of the firm and the board of directors and management have a fiduciary duty to act in their best interests.1 Public companies have traditionally focused on wealth creation for their shareholders. The voluntary focus on profit-seeking and social mission has emerged as social enterprises or hybrid corporations (HCs) in pursuing their sustainability performance in all areas of economic, governance, social, ethical, and environmental (EGSEE) activities in recent years.2 BCs are formed initially as legal entities by legislation in nine states.3 The Delaware General Corporation Law since August 1, 2013, has authorized the formation of public BCs.4 As of this writing, more than 40 states have adopted establishment of BCs.5 This pursuit of a mixed commercial and social mission creates a unique research opportunity for business organizations to obtain desired financial returns for their shareholders while achieving social and environmental impacts. BCs are new type of business structures that enables for-profit-seeking organizations to earn profits for their owners while taking society, the environment, employees, customers, and suppliers into consideration in decision making. The remainder of this chapter addresses the evolution and relevance of BCs, their status, and future.

The Evolution and Relevance of BCs

BCs are legally for-profit entities incorporated as CCs under state law, which have also chosen to adopt other ESG missions in their articles of incorporation. BCs are intended to minimize the conflicts between corporations and society, caused by differences between private and social costs and benefits, and to align corporate goals with those of society under both state corporate model and the benefit statute. Examples of conflicts between corporations and society are related to environmental issues (pollution, acid rain, and global warming), wages paid by multinational corporations in poor countries, and child labor in developing countries. In pursuing their mission of protecting interests of all stakeholders, BCs can raise companies’ awareness of the social costs and benefits of their business activities. The first BCs was initiated and implemented in Maryland in 2010 by filing the articles of incorporation with a BC that is reliant on providing a public benefit. The formation of a business corporation allows an organization and its directors and officers to make decisions that benefit shareholders as well as other stakeholders including employees, customers, suppliers, society, and the environment. Recently, the concept of stakeholder primacy has gained attention and there is a move toward institutionalizing the value of stakeholder benefits. Business organizations have implemented strategic objectives to focus on corporate social responsibility (CSR)/EESG activities to alter consumer value, enhance employee recruitment, and affect employee attachment and performance, which in turn may raise financial performance.

In the past decade, over 15,000 global firms that voluntarily focus on profit-seeking and social mission have emerged as HCs and pursue sustainability performance in all areas of EGSEE activities.6 Despite the continued interest in understanding CSR/EESG and financial performance, there is very little on how required sustainability disclosures and the legal incorporation of purpose interact with performance. A 2013 joint study by the Investor Responsibility Research Center Institute (IRRCI) and the Sustainable Investments Institute (Si2) reports that only 1.4 percent of the S&P companies (seven firms) issued a stand-alone sustainability report within their regulatory filing of 10-K reports, whereas almost all S&P companies (499) indirectly disclosed at least one piece of sustainability information, 74 percent placed monetary value on their sustainability-related disclosures, and about 44 percent linked their executive compensation to some type of sustainability criteria.7 The IRRCI updated its report in 2018, which suggests that portfolio managers and investors are integrating nonfinancial EESG disclosures into their investment decisions while considering the risk of nondisclosure of EESG by public companies.8

The conventional corporate charters have traditionally focused on maximizing shareholder wealth and may discourage managements who prioritized CSR activities. Ben & Jerry’s, sold to Unilever in 2000, has been a prominent exemplar for spurring BC legislation.9 Beginning in 2008, states began framing new corporate organizational forms under the goal of facilitating and promoting businesses that seek to pursue profit and a social mission simultaneously. Among these are low-profit limited liability companies (L3Cs), which are prohibited from pursuing profit as a significant company purpose, with 1,100 active entities in eight states; BCs, which must pursue “a material positive impact on society and the environment”; and social purpose corporations (in Washington, California, and Florida—the latter two states also have BCs) that do not require third-party monitoring. Table 3.1 presents states that have adopted BC as of 2020. States with BCs: Arkansas, Arizona, California, Colorado, Delaware, New Mexico, New Hampshire, South Carolina, Utah, Virginia, West Virginia, Connecticut, District of Columbia, Florida, Hawaii, Illinois, Los Angeles, Maryland, Massachusetts, Minnesota, New Jersey, New York, Nevada, Oregon, Pennsylvania, Rhode Island, or Vermont. States where certification can be gained by amending the articles of incorporation to include stakeholders: Georgia, Indiana, Idaho, Iowa, Kentucky, Maine, Mississippi, Missouri, North Dakota, New Mexico, Ohio, South Dakota, Tennessee, Wisconsin, or Wyoming. States where certification can be gained by adopting a “term sheet” to support BC law and to consider stakeholders: Alabama, Arkansas, Kansas, Michigan, Montana, North Carolina, Oklahoma, Texas, or Washington.

Table 3.1 States with a benefit corporation legislation

State

Requirements/Legislation

URL link

Arizona

Legislation was adopted on December 31, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation with supermajority status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested. A copy of the benefit report must be sent to the Arizona Corporation Commission for filing.

https://azleg.gov/legtext/51leg/1R/adopted/H.1238-SE-COM.DOC.htm

Arkansas

Legislation was adopted on July 18, 2013. A benefit corporation can be formed under the Arkansas Business Corporation Act and must state it is a benefit corporation in its articles of incorporation with minimum status vote. Filing, service, and copying fees are collected by the Secretary of State. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. Any special transactions related to assets of the benefit corporations should be approved by minimum status vote. A benefit corporation must issue an annual franchise tax report and an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s w and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders before stated due date of annual franchise tax or on delivery date of annual financial report. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested. A copy of the benefit report must be sent to the Secretary of State for filing.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://arkleg.state.ar.us/Acts/FTPDocument?path=%-2FACTS%2F2013%2FPublic%2F&-file=1388.pdf&ddBienniumSession=2013%2F2013R

https://arkleg.state.ar.us/Bills/Detail?ddBienniumSession=2013%-2F2013R&measureno=HB1510

California

Legislation was adopted on January 1, 2012. A benefit corporation must state it is a benefit corporation in its articles of incorporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. Corporation reorganization and conversion of benefit corporation must be approved by minimum status vote. Any special transactions related to assets of the benefit corporations should be approved by minimum status vote.

A benefit corporation must issue an annual benefit report including a description of the third-party standard selection process, the ways and extent the benefit corporation created public benefits, and any hindrances, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested. Share certificates of a benefit corporation must contain the following: “This entity is a benefit corporation organized under Part 13 (commencing with Section 14600) of Division 3 of Title 1 of the California Corporations Code.”

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://admin.cdn.sos.ca.gov/reports/2013/flexible-purpose-corporations-report.pdf

https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?law-Code=CORP&division=3.&title=1.&part=13.&chapter=1.&article=

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_d=201120120AB361

Colorado

Legislation was adopted on May 5, 2013. A benefit corporation must state it is a benefit corporation and identify specific public benefits to be promoted in its articles of incorporation with approval of two-thirds of outstanding shares of each class. A public benefit corporation must note it is a public benefit corporation on its share certificates. A benefit corporation must issue an annual benefit report including a description of the third-party standard selection process, the ways and extent the benefit corporation created public benefits, and any hindrances, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report of a public benefit corporation must be sent to each shareholder. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

http://leg.state.co.us/clics/clics2013a/csl.nsf/fsbillcont3/A29836D875EF946987257AEE00574AC0?open&-file=1138_enr.pdf

Connecticut

Legislation was adopted on October 1, 2014. A benefit corporation must state it is a benefit corporation and identify the public benefits to be created in a certificate of incorporation filed with the office of the Secretary of the State. A business corporation can become a benefit corporation by amending its certificate of incorporation stating it is a benefit corporation with approval from a minimum status vote. A benefit corporation may amend its certificate of incorporation for the adoption of the legacy preservation provision 24 months after becoming a benefit corporation at the earliest, with the approval from unanimous vote of shareholders of every class. When dissolved, a benefit corporation with a legacy preservation provision adopted must distribute its remaining access to charitable organizations or other benefit corporations with legacy preservation provision. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://cga.ct.gov/2014/FC/2014SB-00023-R000603-FC.htm

https://cga.ct.gov/2014/TOB/H/2014HB-05597-R00-HB.htm

Delaware

Legislation was adopted on August 1, 2013. A public benefit corporation must include “public benefit corporation” or “P.B.C” or “PBC” in its name. A public benefit corporation must state it is a public benefit corporation in its notice of the stockholders meetings. A public benefit corporation must state it is a public benefit corporation in its stock certificates and notice of stockholders’ meetings. A public benefit corporation must issue a statement about the public benefits promoted by corporation to stockholders at least twice a year. The statement includes objectives and standards established by Board of Directors and evaluation of corporation’ success.

https://legis.delaware.gov/json/BillDetail/GetHtmlDocument?fileAttachmentId=45889

District of Columbia

Legislation was adopted on May 1, 2013. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. Its articles of corporation should also specify the public benefits to be created. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://code.dccouncil.us/dc/council/code/titles/29/chapters/13/

Florida

Legislation was adopted on July 1, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://myfloridahouse.gov/Sections/Documents/loaddoc.aspx?FileName=_h0685er.docx&DocumentType=Bill&BillNumber=0685&-Session=2014

https://flsenate.gov/Session/Bill/2014/654/BillText/c2/HTML

Hawaii

Legislation was adopted on July 8, 2011. A sustainable business corporation must state it is a sustainable business corporation in its articles of corporation. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://capitol.hawaii.gov/session2011/bills/SB298_CD1_.htm

Idaho

Legislation was adopted on July 1, 2015. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://web.archive.org/web/20151003030456/http://legislature.idaho.gov//legislation/2015/S1076.pdf

https://web.archive.org/web/20150929020443/http://legislature.idaho.gov//legislation/2015/S1076.htm

Illinois

Legislation was adopted on January 1, 2013. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://ilga.gov/legislation/full-text.asp?DocName=&Session-Id=84&GA=97&DocTypeId=SB&DocNum=2897&GAID=11&LegID=63455&SpecSess=&Session=

https://ilga.gov/legislation/BillStatus.asp?DocNum=2897&GAID=11&Doc-TypeID=SB&LegId=63455&SessionID=84

Indiana

Legislation was adopted on July 1, 2015. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://iga.in.gov/static-documents/e/6/c/c/e6cc8ccd/HB1015.01.INTR.pdf

Kansas

Legislation was adopted on July 1, 2017. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://kslegislature.org/li_2018/b2017_18/measures/documents/hb2153_enrolled.pdf

https://openstates.org/ks/bills/2017-2018/HB2153/

Kentucky

Legislation was adopted on July 1, 2017. A public benefit corporation must include “public benefit corporation” or “P.B.C” or “PBC” in its name. A benefit corporation must state it is a benefit corporation in its articles of corporation or merge into a public benefit corporation with the approval of 90 percent of outstanding shareholders of each class. The stock certificates of a public benefit corporation must clearly note that it is a public benefit corporation. The public benefit corporation must issue to its stockholders an annual statement including public benefits objectives, progress standards, objective factual information, and success assessment.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://apps.legislature.ky.gov/recorddocuments/bill/17RS/hb35/bill.pdf

Louisiana

Legislation was adopted on August 1, 2012. The name of a benefit corporation must end with the phrase “A benefit corporation.” A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://legis.la.gov/legis/ViewDocument.aspx-?d=809858&n=HB1178%20Act

Maine

A public benefit corporation is recognized as exempt under the Internal Revenue Code. A public benefit corporation must state in its articles of incorporation the public or charitable purpose and the distribution of assets upon dissolution to a public benefit corporation, the United States, a state, or a person recognized as exempt under the Internal Revenue Code.

http://mainelegislature.org/legis/statutes/13-b/title13-Bsec1406.html

Maryland

Legislation was adopted on October 1, 2010. A B Corporation must include in its charter of the corporation that it is a B (“For-Benefit”) corporation with the approval of two-thirds of outstanding shareholders. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://mgaleg.maryland.gov/2010rs/bills/sb/sb0690f.pdf

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://mgaleg.maryland.gov/2010rs/amds/bil_0000/sb0690_31837001.pdf

Massachusetts

Legislation was adopted on December 1, 2012. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://malegislature.gov/Laws/Session-Laws/Acts/2012/Chapter238

Minnesota

Legislation was adopted on January 1, 2015. A public benefit corporation must state in its articles that it is either a general benefit corporation, a general benefit corporation pursuing a specific public benefit purpose, or a specific benefit corporation pursuing a specific public benefit purpose. The name of a public benefit corporation must include “general benefit corporation” or the abbreviation “GBC” and “specific benefit corporation” or the abbreviation “SBC”. A public benefit corporation can terminate, merge, exchange, converse, or transfer the public benefit corporation status by amending its articles with minimum status vote. A public benefit corporation must file with the Secretary of State an annual benefit report no later than 90 days after the end of each calendar year and pay a $35 fee. The annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Failure to file the annual benefit report will result in the revocation of public benefit corporation status. It is not required for the annual benefit report to be audited.

https://revisor.mn.gov/bills/text.php?number=SF2053&version=0&-session=ls88&session_year=2014&session_number=0

Montana

Legislation was adopted on October 1, 2015. A corporation can become a benefit corporation by stating in its articles of incorporation that it is a benefit corporation and identify its specific public benefits with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://leg.mt.gov/bills/2015/billhtml/HB0258.htm

Nebraska

Legislation was adopted on July 18, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://nebraskalegislature.gov/FloorDocs/103/PDF/Slip/LB751.pdf

Nevada

Legislation was adopted on January 1, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation and identify its specific public benefit adopted. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://leg.state.nv.us/Session/77th2013/Bills/AB/AB89.pdf

New Hampshire

Legislation was adopted on January 1, 2015. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://gencourt.state.nh.us/legislation/2014/SB0215.pdf

New Jersey

Legislation was adopted on March 1, 2011. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested. The benefit corporation will be charged $70 fee for filing the annual benefit report by the State Treasurer.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://njleg.state.nj.us/2010/Bills/A4000/3595_I1.PDF

New York

Legislation was adopted on February 10, 2012. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://nysenate.gov/legislation/bills/2011/A4692/amendment/A

Oklahoma

Legislation was adopted on November 1, 2019. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://webserver1.lsb.state.ok.us/cf_pdf/2019-20%20ENR/hB/HB2423%20ENR.PDF

Oregon

Legislation was adopted on January 1, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://olis.leg.state.or.us/liz/2013R1/Downloads/MeasureD-ocument/HB2296/Enrolled

Pennsylvania

Legislation was adopted on January 1, 2013. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested. The Department of State will charge a $70 fee for filing a benefit report.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr-=2011&sessInd=0&billBody=H&bill-Typ=B&billNbr=1616&pn=1999

Rhode Island

Legislation was adopted on January 1, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://webserver.rilin.state.ri.us/BillText13/HouseText13/H5720.pdf

South Carolina

Legislation was adopted on June 14, 2012. A benefit corporation must state it is a benefit corporation in its articles of corporation. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://scstatehouse.gov/code/t33c038.php

Texas

Legislation was adopted on September 1, 2017. A benefit corporation must state it is a benefit corporation in its articles of corporation. A public benefit corporation must include “public benefit corporation” or “P.B.C” or “PBC” in its name. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status. A benefit corporation must issue a biennial benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. The benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

https://capitol.texas.gov/tlodocs/85R/billtext/html/HB03488I.htm

Utah

Legislation was adopted on May 13, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation with minimum status vote. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status with minimum status vote. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://le.utah.gov/~2014/bills/sbillenr/SB0133.pdf

Vermont

Legislation was adopted on July 1, 2011. A corporation can start (or terminate) benefit corporation status by amending its articles of incorporation to include (or exclude) its benefit corporation status as approved by the higher of the required votes by the articles of incorporation or two-thirds of outstanding shareholders. The approval of the amendment must come with a board of directors’ statement specifying reasons and effects of becoming a benefit corporation. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested. After reviewing, the shareholders can approve or reject the annual benefit report by majority vote.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/http://leg.state.vt.us/docs/2010/Acts/ACT113.pdf

Virginia

Legislation was adopted on July 1, 2011. A benefit corporation must state it is a benefit corporation in its articles of corporation. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://lis.virginia.gov/cgi-bin/legp604.exe?111+ful+HB2358ER+pdf

West Virginia

Legislation was adopted on July 1, 2014. A benefit corporation must state it is a benefit corporation in its articles of corporation. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard. Annual benefit report must be sent to shareholders within 120 days after the end of fiscal year of benefit corporation and at the same delivery time of other annual reports. Public portion of the benefit reports must be posted on the corporation website. If the corporation does not have a website, a copy of benefit reports must be provided as requested.

http://wvlegislature.gov/Bill_Status/bills_text.cfm?billdoc=SB202%20INTR.htm&yr=2014&sesstype=RS&i=202

Wisconsin

Legislation was adopted on February 26, 2018. A benefit corporation must state it is a benefit corporation in its articles of corporation. A benefit corporation may delete the benefit corporation statement in its articles of corporation to terminate benefit corporation status. A benefit corporation must issue an annual benefit report including a description of the ways and extent the benefit corporation created public benefits, any hindrances, and report standard, an overall evaluation of corporation’s social and environmental performance, director compensation, and connection between benefit corporation and third-party standard.

https://docs.legis.wisconsin.gov/2017/related/acts/77

BC legislation was introduced in 2010 in Vermont and Maryland; in 2011, four states followed, and by 2015, 27 states and the District of Columbia included these forms, with eight states pending legislation. One estimate is that over 1,550 BCs existed as of 2015 and they have grown substantially in recent years.10 While many of these companies are smaller firms, Patagonia, with half a billion in revenues, was one of the first California BCs to focus on mission-driven, profit-with-purpose through succession, capital raises, and even changes in ownership.11 Table 3.2 presents example of the selected BC companies.

The BCs structure is administered on a state-by-state basis by allowing the state’s BC statutes be placed within existing state corporation codes. The justification for BCs is that that existing law prevents boards of directors from considering the impact of corporate decisions on other stakeholders, the environment, or society at large. Thus, boards of directors of BCs are required to consider the impact of their decisions on specific corporate constituencies, including shareholders, employees, suppliers, the community, as well as on the local and global environment. In the past several years, nine states including New York, New Jersey, California, Louisiana, Maryland, Vermont, Virginia, South Carolina, and Hawaii have enacted laws allowing the creation of BCs for businesses that wish to simultaneously pursue profit and benefit society.12

The Delaware General Corporation Law since August 1, 2013, has authorized the formation of public BCs.13 This law (1) allows entrepreneurs and investors to create for-profit Delaware corporations that are charged with promoting public benefits; (2) modifies the fiduciary duties of directors of BCs by requiring them to balance public benefits with the economic interests of shareholders; and (3) requires BCs to report to their shareholders with respect to the advancement of public benefits and/ other benefits to nonshareholders. Other requirements are: (1) The certificate of incorporation of a BC must identify one or more specific public benefits to be promoted; (2) the board of directors of a BC has a fiduciary duty of establishing a right balance between shareholders’ economic interests, the specific public benefits listed in the company’s certificate of incorporation, and the best interests of those materially affected by the corporation’s conduct; (3) BCs must provide a biennial report to their shareholders disclosing the promotion of their specific public benefits and the best interests of those materially affected by their conduct; (4) the board of directors of BCs does not have fiduciary duty to any nonstockholder; and (5) CCs can opt into BC status by merger or charter amendment with approval of 90 percent of the outstanding shares of each class of stock and shareholders who do not vote in favor of the change will be entitled to appraisal rights.

Table 3.2 A selected sample of BCs

Company name

Mission statement as BCs

URL link

Ben & Jerry’s

The mission consists of three interrelated parts: economic, social, and product mission. The economic mission is to sustain financial growth. The social mission is to make the world a better place in innovative ways. The product mission is to make fantastic ice cream.

https://benjerry.com/values#:~:text=Our%20Product%20Mission%20drives%20us,the%20Earth%20and%20the%20Environment.

Change.org

The mission is to empower people everywhere to create the change they want to see. The organization is an open platform because they believe more change happens when people with different backgrounds and perspectives can participate in the conversation with safe rules.

https://change.org/policies/terms-of-service#:~:text=org’s%20mission%20is%20to%20empower,can%20participate%20in%20the%20conversation.

Etsy

The mission is to keep commerce human. The site provides a space for people to turn their creative passions into opportunity and to discover unique items made with care. Employees and community are treated with respect.

https://etsy.com/mission#:~:text=Our%20mission%20is%20to%20Keep,unique%20items%20made%20with%20care.

Kickstarter

The mission is to help bring creative projects to life as art and creative expression are essential to a healthy and vibrant society, and the space to create requires protection. They help to connect creative people directly with their community and prioritize positive outcomes for society as much as shareholders. They aim to put their values into operations, promote arts and culture, fight inequality, and help creative projects happen.

https://kickstarter.com/about#:~:text=Our%20mission%20is%20to%20help,come%20together%20to%20fund%20them.

Patagonia

The mission is to save the home planet. They also aim to build the best product, cause no unnecessary harm, use business to protect nature, and not bound by convention.

https://patagonia.com.au/pages/our-mission

Tofurky

The vision is a thriving planet, a generation of people embracing friendlier eating, and a business that is contributing to society rather than taking from it. That’s why they became a B Corp. It’s like Fair Trade, but for their entire business, not just the foods they make. Certified B Corporations have met or exceeded a set of standards for the treatment of their workers, the sourcing of their supplies, their engagement with local communities and their impact on the environment.

https://tofurky.com/our-story/a-better-world/

UncommonGoods

They’re building a sustainable business for the long term, with the mission to be friendly with environment, give back, and prioritize people

https://uncommongoods.com/our-story

Warby Parker

Warby Parker was founded with a rebellious spirit and a lofty objective: to offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses.

https://warbyparker.com/history

3Degrees Group Inc.

The firm makes it possible for businesses and their customers to take urgent action on climate change.

https://3degreesinc.com/about/

Beyond Green Sustainable Food Partners

The mission is to make sustainable, healthy food in zero-waste kitchens accessible to all. The company is devoted to customer success and is pleased to provide tools and services that help contribute to a healthier, cleaner, and more efficient food system while connecting with the communities we serve.

https://beyondgreenpartners.com/

Change Catalyst

Change Catalyst builds inclusive tech ecosystems through strategic advising, startup programs, and resources, and a series of events around the globe. Using culture and behavior change strategies, we convene and advise the tech ecosystem to drive solutions to diversity and inclusion together: across education, workplace, entrepreneurship, policy, media/entertainment and ecosystem builders.

https://changecatalyst.co/about-change-catalyst/

Kuli Kuli

Kuli Kuli is on a mission to nourish and uplift the health and well-being of women and the planet.

https://kulikulifoods.com/pages/our-impact#:~:text=Kuli%20Kuli%20is%20on%20a,of%20women%20and%20the%20planet.

Metropolitan Group

Metropolitan Group crafts strategic and creative services to amplify the power of voice of change agents in building a just and sustainable world.

https://metgroup.com/about/#:~:text=We%20are%20all%20in%20for,a%20just%20and%20sustainable%20world.

Delaware Department of State’s Division of Corporations maintains a searchable online database of all entities registered in Delaware. A user of the database can search for a single entity by names, but the database does not allow searches by entity type—that is, a list of public BCs is not available or searchable on the Delaware entities database. The Delaware General Corporation Law (DGCL) was amended in 2013 to provide such alternative for a public BC. However, until the most recent DGCL amendments in July 2020, a public BC was mostly unattractive alternative for CCs and in most cases an impractical or unavailable alternative.14 Delaware Conventional for-profit corporations can become public benefit corporations (PBC) with only a majority stockholder vote and without triggering appraisal rights. PBCs can be a new platform for corporations to integrate matters of public interest and social values into the corporate form and meet the challenges brought on by the COVID-19 pandemic and social movements addressing racial inequality and unrest. It is expected that the 2020 DGCL amendments relevant to PBCs are favorable to all CCs and are widely adopted by them.

In 2013, DGCL allows the specific public benefit or public benefits identified in its certificate of incorporation for the traditional Delaware corporations that enable them to choose to opt into a new set of obligations and become PBCs. The PBCs and their board of directors and executives are allowed manage the affairs of the company “in a manner that balances the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct.”15

The 2013 Delaware’s PBC legislation was in response to a waiver of BC statutes suggesting of B Lab, a nonprofit organization promoting the idea of social entrepreneurship and social enterprises, and offering them “B Corp” certification to entities that meet its standards. Delaware requires that at least 90 percent of the outstanding shares of each class of stock (voting or nonvoting) to approve an amendment of a traditional corporation’s certificate of incorporation to opt into PBC provisions, or to allow a merger with another entity to become a PBC. Any stockholders who did not vote in favor of the change to a PBC would be entitled to appraisal rights seek an award of the fair value of their stock by cashing out of the company. By cross-referencing the B Lab list with the Delaware entities database, one can confirm the entities that are, in fact, incorporated as a PBC in Delaware and eliminated entities from the B Lab list that are not. Cross-referencing these two lists, however, does not capture PBCs that may indeed have incorporated or converted in the first three months of the amended statute’s effective date, but did not publicize their incorporation or conversion on the B Lab website.

Some of these barriers were reduced in 2015 by the statute amendment that (1) requires only approval of two-thirds of the voting power of the outstanding voting stock to approve a conversion to PBC status and (2) eliminates the appraisal requirement for publicly traded companies to become PBCs. The 2020 Delaware amendments to the DGCL, continuing with this trend, now totally eliminates the supermajority stockholder vote requirement and the applicability of appraisal rights for all Delaware corporations (public or private) that want to become PBCs.16

Status of BCs

BCs should be viewed in a broader framework of the free enterprise system by considering firms as a nexus of contracts between the company and its stakeholders with often conflicting interests. Potential conflicts of interest can create information asymmetries and unique empirical settings to investigate differences among three groups of firms; (1) those with mandatory disclosures of their financial reports under the legal doctrine of “shareholder primacy and wealth maximization” and no disclosure of their environmental, social, and governance (ESG) sustainability performance beyond financial reporting disclosures (CCs); (2) those with mandatory disclosures of financial performance as well as voluntary disclosures of their ESG disclosures (HCs); and (3) those with mandatory disclosures of both financial and nonfinancial sustainability key performance indicators (KPIs) under BC law.

PBCs have grown in recent years despite these barriers and as of this writing there are thousands of Delaware PBCs, and many more PBCs are incorporated in various states and countries as various venture funds, private equity firms, and other investors have shown interest in investing in these PBCs. However, publicly traded Delaware corporations have yet to take advantage of the opportunity to become a PBC without triggering appraisal rights since 2015. Several examples of PBCs are Laureate Education, Inc. that went public in 2017 as a PBC, each of New York-based Amalgamated Bank and French packaged goods producer Danone have recently approved BC-like provisions, and Lemonade Inc. and Vital Farms, Inc. are in the process of going public as a PBC. It is expected that the initial reduction and ultimate elimination of the vote standard may prompt more public and private companies to consider opting into a PBC structure. The recent move toward business sustainability of creating shared value for all stakeholders based on the concept of the “do well by doing good” and the profit-with-purpose mission make strong cases for PBCs. In addition, the adoption of the new statement of purpose for corporations suggested by the Business Roundtable in August 2019 and the requirement of taking care of safety, health, and well-being of employees, suppliers, and customers during and in the aftermath of the 2020 COVID-19 pandemic, many business organizations should be interested in the PBC structure.

The major characteristics of the BC form are: (1) a requirement of a corporate purpose to create a material positive impact on society and the environment; (2) an expansion of the duties of directors to require the consideration of nonfinancial stakeholders as well as the financial interests of shareholders; (3) focus on impact investing of generating financial returns for investors while having social and environmental impacts; and (4) an obligation to report on overall social and environmental performance using a comprehensive, credible, independent, and transparent third-party standard. Expected benefits of BCs include: (1) the attention and market share of the socially conscious investors; (2) the power of business resources to solve social and environmental challenges; (3) more trust in businesses by the public, shareholders, potential employees, and customers; (4) improved business, operational, and investment efficacy; (5) generating desired financial returns for investors while protecting interests of other stakeholders including employees, customers, suppliers, society, and the environment; and (6) disclosure requirements that will improve the assessment, management, and minimization of strategic, operational, financial, reputational, and compliance risks.

Theoretical Reasoning for BCs

Lack of global acceptance of BCs is, to a large extent, due to less convincing theoretical framework and robust empirical setting as explained below. There are two theories that can explain the economic function of BCs in maximizing positive and minimizing negative externalities of sustainability activities. First, the stakeholder theory that suggests BCs’ sustainability activities and performance enhance the long-term profits of the firm by promoting corporate governance effectiveness, CSR policies, and environmental initiatives. For example, BCs that employ robust internal and external corporate governance mechanisms are managed more effectively and ethically, which enables them to be sustainable. Likewise, any environmental initiatives pertaining to reducing pollution levels or saving energy costs may reduce contingent and actual environmental liabilities. Similarly, CSR activities may generate profit by establishing a better work environment and creating goodwill and reputation with consumers and society. More importantly, BCs can attract socially responsible investors (SRI). The stakeholder theory can be aligned with the profit-maximization philosophy if management of BCs considers the interests of all stakeholders and society at large. The shareholders’ theory of CCs, on the other hand, suggests that management maximizes the interests of shareholders by engaging in activities that create shareholder value. Under the shareholder theory, management invests in all projects with the expected return of the higher cost of capital. However, under the stakeholder theory, management of BCs is required to balance interests of all stakeholders in such a way to maximize a firm’s aggregate welfare of all stakeholders assuming that maximizing welfare is in line with maximizing firm long-term value.

The shareholder theory clearly stipulates that shareholders are the owners of CCs and their board of directors and management have a fiduciary duty to act in their best interests. The separation of ownership and control under the shareholder theory for CCs has worked well in the United States and the UK and many other Anglo-Saxon countries for many years. However, the shareholder theory may not work in the BC setting where the board of directors of BCs is legally obligated to protect interests of all stakeholders and thus shareholder wealth maximization is not the only goal of the board of directors.

It should be noted that in some European countries (e.g., Germany), firms are legally required to protect the interests of all stakeholders according to the system of codetermination that enables employees and shareholders to have an equal number of seats on the supervisory board of the company.17 In the United States, the main objective function is to maximize firm value in creating wealth for shareholders.18 Given that the objective function of a manager is well defined under the shareholder theory for CCs and to some extent for HCs as creating shareholder value, management incentives and related performance-based compensation are better defined and determined. However, such objective function is not well defined in stakeholder theory for BCs and thus management performance becomes unaccountable, which may result in a less performance-based managerial compensation contracts.

Structure of Benefit Corporations

Business corporations are established to minimize the conflicts between corporations and society caused by differences between private and social costs and benefits and to align corporate goals with those of society. Examples of conflicts between corporations and society include: environmental issues (pollution, acid rain, and global warming), wages paid by multinational corporations to employees in poor countries, and child labor in developing countries. In pursuing their mission of protecting the interests of all stakeholders through their CSR programs, BCs can raise companies’ awareness of the social costs and benefits of their business activities. The Organisation of Economic Co-operation and Development (OECD) defines the purpose of a CSR program as being “to encourage the positive contributions that multinational enterprises can make to economics, environmental and social progress and to minimize the difficulties to which their various operations may give rise.”19 This definition focuses on two important aspects of a CSR program, namely creation of social value through corporate activities (social value-added activities) and avoidance of conflicts between corporate goals and societal goals (societal consensus). The BC structure is administered on a state-bystate basis. The enacting state’s BC statutes are placed within the existing state corporation codes. This is done so that the enacting state’s existing corporation code applies to BCs in every respect, except for those explicit provisions unique in the BC form.

Creating a New Company in the BC Form

A business organization needs to file for incorporation with the specific statement of being a BC, as specified in its corporate charter. Then the organization needs to specifically state the predefined and quantifiable impact the business is committed to for society and/or the environment. This type of statement will then appear in the “Purposes” section of the charter, along with all the other typical corporation purposes that are stated.

Establishment of BCs

BCs can be established in two ways: (i) creating new startups or (ii) converting from CCs to BCs. According to benefitcorp.net/for-business/how-to-become-a-benefit-corp, the first step to becoming a BC is to commit to a variety of groups of stakeholders and a mindset of what the company can do for society and the environment in conjunction with the overall profitability of the company’s business ventures. Furthermore, there a clear distinction between a registered BC and a certified, registered BC. Certification can be achieved through B Lab, a third party, nonprofit company. This certification is similar to the Leadership in Energy and Environmental Design (LEED) and Fair Trade certifications for corporations.

Passing Legislation to Create B-Corps

The justification for BCs is that existing law prevents boards of directors from considering the impact of corporate decisions on other stakeholders, the environment, or society at large. Boards of directors of BCs are required to consider the impact of their decisions on specific corporate constituencies, including shareholders, employees, suppliers, and the community, as well as on the local and global environment. In the past several years, New York, New Jersey, and California have enacted laws creating a new hybrid type of corporation designed for businesses that want to simultaneously pursue profit and benefit society.

On August 1, 2013, the Delaware General Corporation Law authorized the formation of PBCs.

The new provisions will allow entrepreneurs and investors to create for-profit Delaware corporations that are charged with promoting public benefits.

These provisions modify the fiduciary duties of directors of PBCs by requiring them to balance such benefits with the economic interests of stockholders.

The new provisions will require PBCs to report to their stockholders with respect to the advancement of such nonstockholder interests.

Specific benefit: The certificate of incorporation of a PBC must identify one or more specific public benefits to be promoted.

Balancing requirement: The board of directors of a PBC will be required to manage the business and affairs of the corporation in a manner that balances (1) the stockholders’ economic interests, (2) the specific public benefits listed in the company’s certificate of incorporation, and (3) the best interests of those materially affected by the corporation’s conduct.

Reporting obligations: The new statute will require a PBC to provide a biennial report to its stockholders discussing the corporation’s promotion of its specific public benefits and the best interests of those materially affected by its conduct.

Lawsuits and balancing decisions: Notwithstanding the balancing requirement, directors of PBCs will not owe duties to any nonstockholder.

Identification of PBC status: Because the new PBC provisions will be a significant change from the traditional law of Delaware corporations, the new statute ensures that PBC status is clear to stockholders and prospective investors.

High votes to opt in or opt out: Existing corporations that are not public BCs can opt into PBC status by merger or charter amendment, but approval of 90 percent of the outstanding shares of each class of stock of the corporation is required. Stockholders who do not vote in favor of the change will be entitled to appraisal rights.

BC legislation not only gives businesses the freedom and legal protection to pursue the triple bottom line, but it also gives individual citizens something positive for which to advocate. Delaware has amended the PBC statute twice since its inception in 2013 to address concerns that limited its utility. Most recently, in July 2020, Delaware amended the PBC statute to: (1) reduce the stockholder approval threshold necessary for becoming a PBC, and for exiting the PBC regime from the 90 percent approval to majority voting unless the certificate of incorporation provides otherwise; (2) eliminate statutory appraisal rights in connection with the conversion of a CC to a PBC as of now there no longer is a specific statutory appraisal right if a CC converts to a PBC; and (3) strengthen the protections for directors by clarifying that a director’s ownership of stock or other interests in the PBC does not create a conflict of interest, unless the ownership of the interests would create a conflict of interest in a CC.20

In a world of largely economically driven and motivated companies, BCs can continue to exist and produce favorable financial returns as long as they are perceived to pursue their environmental and social purposes. Conceivably, without any real financial advantages justifying the growth of BCs, this will be an uphill task. Without the tax advantages enjoyed by 501(C)(3) corporations and the additional expense and documentation required to remain a BC, the desire for many will be lackluster at best. Many are in a state of confusion regarding BC certification, which is not legally binding, versus BCs, which are recognized by only a few states, but still legally binding.

Conclusions

Currently, the BC universe is dispersed across state databases and subject to a wide range of certifying entities. However, the B-Corps dataset can be collected from the nonprofit B Lab, which requires its certified companies to seek BC status in those states with these laws and holds the remaining firms to the same certification standards in other states. BCs are established to take initiatives to advance some social good beyond their own interests and be in compliance with applicable laws, rules, and regulations. BCs are intended to maximize positive impacts, minimize negative effects and harm on society and environment, and create positive impacts on the community, environment, employees, customers, and suppliers. The true measure of success for BCs should not only be determined by reported earnings but also by their governance, social responsibility, ethical behavior, and environmental initiatives. BCs have received considerable attention from policy makers, regulators, and the business and investment community during the past decade and it is expected to remain the main theme of the 21st century.

Chapter Takeaway

In the past several years, more than 33 states, including Delaware, New York, New Jersey, Tennessee, and California, have enacted laws creating a new hybrid type of corporation designed for businesses that want to simultaneously pursue profit and benefit society.

BCs are intended to fill a gap between traditional corporations and nonprofits by giving social entrepreneurs flexibility to achieve the dual objectives of doing well and doing good.

The justification for BCs is that that existing law prevents boards of directors from considering the impact of corporate decisions on other stakeholders, the environment, or society at large.

Boards of directors of BCs are required to consider the impact of their decisions on specific corporate constituencies, including shareholders, employees, suppliers, the community, as well as on the local and global environment.

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