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SHOULD YOUR BUSINESS CONSIDER BECOMING A BENEFIT CORPORATION?

March 8, 2017

In 2010, Maryland became the first state to authorize benefit corporations. Since then, thirty-one states, including California, have passed benefit corporation laws, making it the most successful social purpose entity in terms of its widespread acceptance amongst companies and legislatures.

The primary aspect of the benefit corporation which makes it attractive to businesses is that its structure allows businesses to make decisions in accordance with its social purpose and beliefs, rather than requiring those decisions to be tied solely to shareholder profit maximization. The directors of a regular C-corporation owe duties of care and loyalty primarily to the shareholders of the company, whereas the duties owed by directors of a benefit corporation are different. As a benefit corporation, the company may consider the social and environmental impacts of its decisions in addition to its shareholders’ interests.

One of the largest and publicly acclaimed benefit corporations is Patagonia. Patagonia, famous for its outdoor attire and accessories, was the first company to register as a benefit corporation in 2012. Since the switch, the company has been very public about its willingness to be more socially and environmentally minded. In November 2016, CEO Rose Marcario announced that the company intended to donate all profits it realized on Black Friday 2016 to grassroots organizations working in local communities to protect the air, water, and soil for future generations—a charitable effort rarely seen by a company as large as Patagonia.

What makes benefit corporations so attractive to lawmakers and entrepreneurs alike is the backing by the nonprofit organization, B Lab, which serves as an independent third party that certifies benefit corporations. B Lab states on its website that it is building a global community of Certified B Corporations (benefit corporations) that meet the highest standards of verified, overall social and environmental performance, public transparency, and legal accountability. In reality, it is B Lab certification that holds the real public relations benefit for entrepreneurs—not just being a benefit corporation.

The process of becoming a Certified B Corporation requires companies to first convert to a benefit corporation and meet the performance requirements, part of which includes filling out a questionnaire that yields a score based on the company’s answers.  Further, B Lab requires extreme transparency and compliance with strict performance standards to qualify. Without B Lab certification, it is difficult for investors to determine whether a benefit corporation is effectively pursuing its social purpose. Ultimately, the benefit corporation functions just like any other corporation, with the sole difference being that its mission is partially socially or environmentally driven rather than economically driven.

For more information on B Labs and the process of converting to a benefit corporation, visit: http://www.bcorporation.net/become-a-b-corp/how-to-become-a-b-corp or contact our office.

By Arthur Llort, Law Clerk

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This post is for informational purposes only, and merely recites the general rules of the road. Lots of legal rules have exceptions, however, and every case is unique.  Never rely solely on a blog post in evaluating your situation — always contact an attorney when your legal rights and obligations are on the line.

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