Benefit Corporation – Legal Provisions and FAQs

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Four states, Maryland, Vermont, New Jersey, and Virginia have recently passed legislation creating a new kind of corporation, a Benefit Corporation, giving entrepreneurs and investors an additional choice when determining which corporate form is most suitable to achieve their objectives.

A Benefit Corporation: 1) has a corporate purpose to create a material positive impact on society and the environment; 2) has an expanded fiduciary duty that requires consideration of non-financial interests when making decision; and 3) reports on its overall social and environmental performance as assessed against a third party standard.

Benefit Corporation — Major Provisions

Purpose 

  • shall create general public benefit defined as a material positive impact on society and the environment, taken as a whole, as assessed against a third party standard
  • shall have right to name specific public benefit purposes (e.g. 50% profits to charity, carbon neutral, 100% local sourcing, beneficial product to customers in poverty)
  • the creation of public benefit is in the best interests of the Benefit Corporation

Accountability 

  • directors’ duties are to make decisions in the best interests of the corporation
  • directors and officers shall consider effect of decisions on shareholders and employees, suppliers, customers, community, environment (together the “Stakeholders”)
  • not required to give priority to any particular stakeholder
  • have discretion to give priority to particular stakeholders consistent with general and any specific public benefit purposes
  • the same fiduciary duty must be met for day to day operating decisions and questions of liquidity/change of control