In business, particularly in United States corporate law, a benefit corporation (or in some states, a public benefit corporation) is a type of for-profit corporate entity whose goals include making a positive impact on society. Laws concerning conventional corporations typically do not define the "best interest of society", which has led to the belief that increasing shareholder value (profits and/or share price) is the only overarching or compelling interest of a corporation. Benefit corporations explicitly specify that profit is not their only goal. An ordinary corporation may change to a benefit corporation merely by stating in its approved corporate bylaws that it is a benefit corporation.
A company chooses to become a benefit corporation in order to operate as a traditional for-profit business while simultaneously addressing social, economic, and/or environmental needs. A benefit corporation's directors and officers operate the business with the same authority and behavior as in a traditional corporation, but are required to consider the impact of their decisions not only on shareholders but also on employees, customers, the community, and the local and global environment. For an example of what additional impacts directors and officers are required to consider, view the Maryland Code § 5-6C-07 – Duties of director. The nature of the business conducted by the corporation does not affect its status as a benefit corporation. Instead, it provides a justification for including public benefits in their missions and activities.
The benefit corporation legislation ensures that a director is required to consider other public benefits in addition to profit, preventing shareholders from using a drop in stock value as evidence for dismissal or a lawsuit against the corporation. 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. However, few of the states have included provisions for the removal of benefit corporation status or fines if the companies fail to publish benefit reports that comply with the state statutes.
As of 2022, 37 U.S. states authorized the creation of benefit corporations and four were working on it. Outside those jurisdictions there are no legal standards that define what constitutes a benefit corporation. With jurisdictions that recognize this form of business, a benefit corporation is intended "to merge the traditional for-profit business corporation model with a non-profit model by allowing social entrepreneurs to consider interests beyond those of maximizing shareholder wealth." In jurisdictions where regulations have not been enacted, 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.
History
United States In April 2010, Maryland became the first U.S. state to pass benefit corporation legislation. , 36 states and Washington, D.C., have passed legislation allowing for the creation of benefit corporations: and enhance corporate responsibility.
StateDate passedDate in effectLegislationAlabamaDecember 31, 2020January 1, 2021Act 2020-73, §8.ArizonaApril 30, 2013December 31, 2014SB 1238 ArkansasApril 19, 2013July 18, 2013HB 1510CaliforniaOctober 9, 2011January 1, 2012AB 361 ColoradoMay 15, 2013April 1, 2014HB 13-1138ConnecticutApril 24, 2014October 1, 2014SB 23, HB 5597 Section 140DelawareJuly 17, 2013August 1, 2013SB 47GeorgiaJuly 29, 2020January 1, 2021HB 230FloridaJune 20, 2014July 1, 2014SB 654, HB 685HawaiiJuly 8, 2011July 8, 2011SB 298IdahoApril 2, 2015July 1, 2015SB 1076IllinoisAugust 2, 2012January 1, 2013SB 2897IndianaApril 30, 2015July 1, 2015HB 1015Iowa"Benefit Corporations vs Public Benefit Corporations in Iowa" Surge Business Law. "an Iowa 'benefit corporation' may have both a profit and public benefit motive while an Iowa 'public benefit corporation' is a charitable non-profit organization."June 8, 2021June 8, 2021HB 844KansasMarch 30, 2017July 1, 2017HB 2153KentuckyMarch 7, 2017July 1, 2017HB 35 LouisianaMay 31, 2012August 1, 2012HB 1178 Maine Jun 17, 2019 Jun 17, 2019 LD 1519MarylandApril 13, 2010October 1, 2010SB 690/HB 1009MassachusettsAugust 7, 2012December 1, 20122012 Acts, Chapter 238MinnesotaApril 29, 2014January 1, 2015SF 2053, HF 2582MontanaApril 27, 2015October 1, 2015HB 2458NebraskaApril 2, 2014July 18, 2014LB 751NevadaMay 24, 2013January 1, 2014AB 89 New HampshireJuly 11, 2014January 1, 2015SB 215New JerseyJanuary 10, 2011March 1, 2011S 2170 New MexicoFebruary 18, 2020February 18, 2020HB 118, Bill HistoryNew YorkDecember 12, 2011February 10, 2012A4692-a and S79-aOhioDecember 18, 2020March 24, 2021SB 21 Oklahoma April 15, 2019 November 1, 2019 HB 2423OregonJune 18, 2013January 1, 2014HB 2296PennsylvaniaOctober 12, 2012January 1, 2013HB 1616Rhode IslandJuly 17, 2013January 1, 2014HB 5720South CarolinaJune 6, 2012June 14, 2012HB 4766TennesseeMay 20, 2015January 1, 2016HB 0767/SB 0972TexasJune 14, 2017 September 1, 2017 HB 3488UtahApril 1, 2014May 13, 2014SB 133VermontMay 19, 2010July 1, 2011S 263VirginiaMarch 26, 2011July 1, 2011HB 2358Washington, D.C.February 8, 2013May 1, 2013B 19-058 West VirginiaMarch 31, 2014July 1, 2014SB 202WisconsinNovember 27, 2017February 26, 2018SB298 Act 77
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.
Public benefit LLCs A subset of benefit corporation, the public benefit LLC, allows for limited liability companies the same opportunities afforded to corporations under a state's benefit corporation law. State Date passedDate in effectLegislation Delaware July 23, 2018 August 1, 2018 SB 183, 149th Gen. Assem. Kansas April 18, 2019 July 1, 2019 HB 2039 Maryland May 19, 2011 June 1, 2011 HB 1511, SB 595 Oregon June 18, 2013January 1, 2014HB 2296 Pennsylvania November 21, 2016 February 19, 2017 HB 1398 Utah March 19, 2018 March 19, 2018 HB 186
Similar bills have been introduced in Connecticut and Illinois.S.B. 2358, 98th Gen. Assem. (Ill. 2013).
Social purpose corporations
Some states have passed legislation for creating social purpose corporations (SPCs), which are more flexible in their legal requirements and responsibilities compared to benefit corporations. +StateDate passedDate in effectLegislationCaliforniaOctober 9, 2011January 1, 2012SB 201 and SB 1532 for FPCs; revised and renamed as SPCs in 2015 via SB 1301FloridaJune 20, 2014July 1, 2014SB 654, HB 685WashingtonMarch 30, 2012June 7, 2012HB 2239
Low-profit limited liability companies
Low-profit limited liability companies (L3Cs) were created to comply with the Internal Revenue Service (IRS) program-related investments (PRIs) rules (26 U.S.C. § 170(c)(2)(B)) which allow most typically private foundations the ability to maintain tax-exempt status through investments in qualifying businesses and/or charities. They blend aspects of law regarding limited liability companies with aspects of non-profit law, but remain for-profit companies for tax purposes. StateDate passedDate in effectLegislationIllinoisAugust 4, 2009January 1, 2010SB 239LouisianaJune 21, 2011June 21, 2011HB 1421MaineJune 8, 2009June 8, 2009LD 1265MichiganJanuary 15, 2009January 15, 2009SB 1446Rhode IslandJune 8, 2011January 1, 2012SB 0353UtahApril 1, 2013May 14, 2013SB 21VermontApril 30, 2008April 30, 2008HB 775WyomingFebruary 26, 2009July 1, 2009HB 0182
Public benefit cooperatives In Colorado, all four types of cooperatives (worker, producer, consumer and multi-stakeholder/limited-liability cooperatives) may register as benefit corporations under the Colorado Public Benefit Corporations Act while retaining their cooperative status.
Outside of the United States Canada In May 2018, the leader of the British Columbia Green Party introduced a bill to amend the Business Corporations Act to permit the incorporation of "benefit companies" in British Columbia. On June 30, 2020, British Columbia became the first province in Canada to offer the option of incorporating as a benefit company.
Colombia In 2018, Colombia introduced benefit corporation legislation.
Israel Israeli law defines a public benefit company in chapter 9 of its Companies Law, with the current definition stemming from a 2007 amendment. Public benefit companies may only draw their stated goals from a closed list codified in law, and are prohibited from distributing dividends.Companies Law, Chapter 9, Clause 1a
Italy 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.Italian financial Act for 2016– L. nr. 208/2015
United Kingdom In the United Kingdom, Community Interest Companies (CIC) were introduced in 2005, intended "for people wishing to establish businesses which trade with a social purpose..., or to carry on other activities for the benefit of the community".
Differences from traditional corporations Historically, U.S. 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.
The idea that a corporation has as its purpose to maximize financial gain for its shareholders was first articulated in Dodge v. Ford Motor Co. in 1919. Over time, through both law and custom, the concept of "shareholder primacy" has come to be widely accepted. This was reaffirmed in 2010 for Delaware corporations by the case , 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. However, the fiduciary duties do not list profit or financial gains specifically, and to date no corporate charters have been written that identify profit as one of those 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.
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.