The April Lane Report provided a brief introduction to Benefit Corporations as a tool that, among its other attributes, enables a business to signal to the public that it prioritizes corporate responsibility and sustainability.

Benefit corporations are a recognized legal entity form in the majority of states, though the specific details discussed below may not apply in every case, as state laws vary.

To elect, or convert to, benefit corporation status, a corporation simply needs to state in its Articles of Incorporation that it is a benefit corporation, though existing corporations will need to first obtain shareholder approval, which generally requires approval from at least 2/3 of all classes of shares. Once an election is made, the corporation will be subject to a specific statutory framework that will make certain characteristics and requirements inherent to its purposes and governance.

Immediately, a benefit corporation will be required to declare in its Articles its purpose of “creating a general public benefit,” which is defined as “a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.”

The “third-party standard” provides benefit corporations with a method of comprehensively defining, reporting, and assessing its overall corporate, social and environmental performance that the public can rely on, as it must be developed in a transparent manner by an independent organization.

Even so, this “general public benefit” requirement may appear to be too expansive and vague to distinguish corporations that are sustainable and responsible from those that are not.

To commit to any targeted social-impact purpose, a benefit corporation may also include in its Articles one or more additional “specific public benefit” purposes, which include, but are not limited to, purposes such as preserving the environment and improving human health.

Either way, the foundation of benefit corporation statutes is not their required or permitted purposes, but rather the transparency, accountability and decision-making requirements that integrate the interests of various stakeholders into the corporation’s governance design and structure. In fact, benefit corporations were created to counter the “shareholder primacy” assumption that the primary responsibility of those who run a corporation is to maximize the financial value of its shares.

Consequently, in discharging their fiduciary duties to the corporation that they serve, the directors of a benefit corporation are statutorily required to consider the effects that a corporate action will have on not only its shareholders, but also on:

• The employees and work force of the benefit corporation, its subsidiaries, and its suppliers;
• The interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation;
• Community and societal considerations, including those of each community in which offices or facilities of the benefit corporation, its subsidiaries or its suppliers are located;
• The local and global environment; the short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation; and
• The ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose.

Benefit corporation statutes allow for the enforcement of the directors’ obligations to non-shareholder stakeholders by authorizing shareholders or even socially conscious directors to initiate “benefit enforcement proceedings.” But another feature of benefit corporation laws helps ensure that benefit corporations are accountable and transparent – their obligation to prepare and make publicly available an annual benefit report.

The benefit report must provide a narrative description of how the benefit corporation pursued its general or any specific public benefits over the last year and the extent to which it was successful. In addition, the benefit report must include an assessment of the overall social and environmental performance of the benefit corporation. That assessment must be based on the benefit corporation’s chosen third-party standard, which itself must provide a comprehensive assessment of the impact that the business and its operations had upon the variety of considerations listed above that must be incorporated into director decision-making.

Taken as a whole, the benefit corporation form provides the public with the confidence that:

• The business is legally committed to purposes that at least create a material positive impact on society and the environment.
• The business makes decisions only after considering the impact that they will have on a variety of stakeholders and societal interests.
• The business has a credible and reliable way of defining, measuring and assessing its impact on a variety of stakeholders and societal interests.
• The business provides anyone with the ability to confirm its level of commitment to sustainability and responsibility and to assess its success at achieving those objectives.

The benefit corporation form provides businesses with a valuable tool that not only ensures that it operates sustainably and responsibly, but that the public is aware of its commitment to those practices. If you would like to explore whether your business should become a benefit corporation, please reach out to Marc Lane in confidence at MLane@MarcJLane.com or 312/800/372-1040.

Jeremy Kritt is an Associate Attorney with The Law Offices of Marc J. Lane., P.C.