Benefit Corporations
Benefit Corporations are required to achieve a fixed standard “general public benefit” on the environment and society as measured by an independent third-party standard, and can also pursue specific public benefits.
Like a Social Purpose Corporation, a Benefit Corporation can engage in any lawful business purpose. However, unlike a Social Purpose Corporation that permits a flexible charitable purpose, the Benefit Corporation has a fixed standard (known as a “general public benefit”). Benefit Corporations are required to achieve a “material positive impact on the environment and society, taken as a whole, as measured by an independent third-party standard.” In addition, the Benefit Corporation can have one or more specific public benefit purposes (like a SPC), but also has the obligation to create this specific general public benefit. The information provided here is based on the version of the benefit corporation adopted in Delaware (known as the “public benefit corporation”). However, social entrepreneurs should note that differences in benefit corporations exist from state to state.
Specific public benefits
Specific public benefits may include any of the following: (a) providing low income or underserved individuals or communities with beneficial products or services; (b) promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business; (c) preserving or improving the environment; (d) improving human health; (e) promoting the arts or sciences or the advancement of knowledge; (f) increasing the flow of capital to entities with a public benefit purpose; and (g) the accomplishment of any other identifiable benefit for society or the environment.
Like an SPC, changes to a Benefit Corporation’s specific public benefits can be made only by at least a 2/3 vote of each class or series of outstanding shares.
Governance and liability of directors
In addition to their normal duties, directors of Benefit Corporations must also consider the interests of employees, beneficiaries, community and societal considerations, the local and global environment; and the long-term and short-term interests of the benefit corporation. Directors may also consider the interests of any other group determined to be appropriate.
A director of the benefit corporation is not liable for monetary damages for any failure of the benefit corporation to create a general or specific public benefit. However, if the court in a benefit enforcement proceeding finds that a failure to create a public benefit was not justified, the court may award the plaintiff shareholder an amount sufficient to reimburse the plaintiff for the reasonable expenses incurred in connection with the benefit enforcement proceeding.
Shareholders can vote to remove directors, elect different directors, and in some cases bring lawsuits. When a company is either becoming a benefit corporation or opting to revert to a traditional corporation, shareholders have special rights for opting into or out of Benefit corporation status, including being able to require the corporation to purchase dissenting shares at fair market value. Shareholders and the public receive extensive reporting on the general and specific public benefits pursued by the corporation.
Like most of the hybrid statute solutions, adoption among traditional investors has been slow, due to concerns around interpretation and the cost of additional diligence. Of particular concern to many institutional investors has been the ambiguity of the general public benefit standard, the lack of existing interpretations, and the risk of shareholder litigation. Relatively few examples exist of institutional investors funding Benefit Corporations. The vast majority of B Corporations that have been funded by institutional investors were funded as traditional corporations under the grandfather provisions established by B Lab. That said, examples of institutional investments of benefit corporations do exist, and even more so for B Corporations, and the number of funders willing to consider such structures continues to increase.