What Is a Benefit Corporation?

A benefit corporation is a type of for-profit corporate entity. In addition to earning a profit, it takes society, workers, the community, and the environment into consideration before making business decisions. Originally implemented in Maryland in 2010, benefit corporations are considered a new type of business structure.

Filing the articles of incorporation will form a benefit corporation. Along with the typical fields found in the standard articles of incorporation, a benefit corporation will need to state that the formation of the business is reliant on providing a public benefit. A benefit corporation allows the organization's executives to balance stockholder profits with public benefits. Additionally, directors are responsible for making decisions that aren't geared towards larger profits.

A benefit corporation may have stockholders, easily raise capital, distribute profits, and seek profitable business goals while pursuing its social mission or public benefit. The directors in a benefit corporation must balance the interests of the following parties:

  • Stakeholders (employees).
  • Public.
  • Stockholders.

Currently, there are more than 40 states that have proposed or passed legislation acknowledging benefit corporations.

Forming a Benefit Corporation

The following states, including the District of Columbia, legally acknowledge some aberration of benefit corporations:

  • West Virginia.
  • Washington state - referred to as a "social benefit corporation."
  • Virginia.
  • Vermont.
  • Utah.
  • Tennessee.
  • South Carolina.
  • Rhode Island.
  • Pennsylvania.
  • Oregon.
  • New York.
  • New Jersey.
  • New Hampshire.
  • Nevada.
  • Nebraska.
  • Minnesota.
  • Massachusetts.
  • Maryland.
  • Louisiana.
  • Illinois.
  • Idaho.
  • Hawaii.
  • Florida.
  • Delaware.
  • Connecticut.
  • Colorado.
  • California.
  • Arkansas.
  • Arizona.

Benefit corporation legislation has been introduced in the following states:

  • Wisconsin.
  • Texas.
  • Ohio.
  • North Carolina.
  • New Mexico.
  • Montana.
  • Michigan.
  • Kentucky.
  • Kansas.
  • Iowa.
  • Indiana.
  • Georgia.
  • Alaska.
  • Alabama.

A registered agent must be appointed to all benefit corporations in the state of incorporation.

What Are the Responsibilities of Directors in a Benefit Corporation?

The director's responsibility is to question how a decision will impact not only profit, but also the environment and society. Companies don't need to be certified by B Lab in order to be considered a benefit corporation.

Public Purpose

The Model Legislation dictates that a benefit corporation is required to have the purpose of "creating a general public benefit." This is defined as "A material positive influence on the environment and society, as a whole, appraised against a third-party guideline, from the organization and operations of a benefit corporation." Additionally, many state statutes and the Model Legislation acknowledge the following public benefits:

  • Improving human health.
  • Increasing the flow of capital to entities with a public benefit purpose.
  • Promoting economic opportunity for communities or individuals beyond the creation of jobs in the ordinary course of business.
  • Promoting the advancement of knowledge, the arts, and sciences.
  • Providing underserved individuals or low-income communities with beneficial services or products.
  • Restoring, protecting, and preserving the environment.
  • The accomplishment of any other particular benefit for society or the environment.

In Delaware and Colorado, the pursuit of one or more than one specific benefit is required.

Benefit Corporation FAQs

Can a B Corp be an S Corp?

Yes, a benefit corporation is created from state law, not federal. Therefore, an S corporation, which is created under federal law, may also be a B corporation.

For example, if a corporation meets the qualifications to be an S corporation, then a benefit corporation may elect to be taxed as an S corporation.

Can I Change My Current Corporation to a Benefit Corporation?

It is possible to change from a standard corporation to a benefit corporation. There are three steps that need to be taken in order to make the change:

  1. Make sure that state in which the business is incorporated allows authorized benefit corporations.
  2. Obtain stockholder approval.
  3. File a restated or amended articles of incorporation that:
    • Provide a new business name with the appropriate entity type.
    • Outline or address the public purpose.
    • Declare that the business is a benefit corporation.

What are the Compliance Responsibilities that are Specific to Benefit Corporations?

The Model Legislation dictates that the directors of a benefit corporation must consider the effects of any inaction or action and how it will impact the best interests of the business and the following:

  • Shareholders.
  • Workforce and employees.
  • Interests of the customers.
  • Societal and community factors.
  • Global and local environment.
  • Long-term and short-term interests.
  • Ability to accomplish its general benefit purpose.

Most states will require that the report is completed annually and available publicly.

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