Key Takeaways

  • A benefit corporation in Massachusetts is formed under Chapter 156E and must balance profit-making with creating a public benefit.
  • These entities must consider multiple stakeholder impacts, including workforce, environment, and community.
  • Massachusetts benefit corps must file annual benefit reports using a recognized third-party standard.
  • Directors are protected from liability for failing to achieve specific social goals but must still uphold their public benefit purpose.
  • Differences between benefit corporations and traditional corporations or nonprofits include profit distribution, mission alignment, and accountability mechanisms.
  • Filing requires drafting a specific purpose statement, appointing a benefit director, and securing shareholder approval if converting an existing corporation.

A benefit corporation Massachusetts is a special type of corporation formed to create a measurable positive impact on the community, the environment, and society. Its corporate fiduciary duty is augmented with consideration of social interests. Recognized third-party standards are used to measure the societal and environmental impact of benefit corporations.

Background on Benefit Corporations

Benefit corporations, sometimes called B corps, were first used in the U.S. after 2010 legislation passed in Maryland. Since that time, New York, New Jersey, Vermont, California, Hawaii, Massachusetts, and Virginia all passed laws to allow B corps in their states. North Carolina, Pennsylvania, and Michigan are in the process of passing B corp legislation.

The benefit corporation was popularized by a Pennsylvania non-profit called B Lab, which states a mission to solve environmental and social issues. This type of business can provide a wide range of public benefits, such as promoting arts, preserving the environment, or assisting the elderly.

Many community developers are still unfamiliar with this relatively new business entity, which combines a traditional corporation with a non-profit. Atayne, a business that recycles trash to make athletic clothing, is one example of a B corp.

While traditional corporations are focused on creating the largest possible financial returns for their shareholders, the officers and directors of B corps must also consider the community impact of the decisions they make. For this reason, it's a good choice for a corporation that wants to shift focus to social responsibility.

Fledgling benefit corporations must go through the B Impact Assessment and Report process, which considers the business's governance, environmental and community impact, and commitment to employee rights.

Benefit corporations are increasingly popular because of their ability to create profit beyond grants and government programs, while traditional nonprofits are often limited to grassroots fundraising and can't earn money by selling stock shares.

Critics of this type of entity say that B corps are too close to regular for-profit corporations and that evaluation criteria for their impact is not clearly defined.

Comparing Benefit Corporations to Other Entity Types

Benefit corporations differ significantly from traditional corporations, nonprofits, and hybrid entities like L3Cs. Traditional corporations prioritize shareholder profit, while benefit corporations must legally consider societal and environmental impacts alongside profit. Unlike nonprofits, benefit corporations can distribute profits to shareholders, making them a viable option for mission-driven entrepreneurs seeking capital investment. Compared to L3Cs, which are designed to attract program-related investments (PRIs) from foundations, benefit corporations have broader flexibility and recognition in state laws. These distinctions help clarify whether a benefit corporation or another structure is the best fit for a business’s mission and funding goals.

Benefit Corporations in Massachusetts

When Massachusetts passed Chapter 156E, it became the 11th state to allow the creation of benefit corporations. This law took effect in December 2012, after which date benefit corporations could be established and existing corporations could convert to this status.

Under Chapter 156E, benefit corps must consider the following when making important decisions that will impact shareholders:

  • The impact on the corporation's workforce
  • The best interest of clients
  • The impact on the local community as well as potential far-reaching implications
  • The impact on the global, regional, and local environment
  • The interest of the corporation in both the short and long-term
  • The ability to create benefit for others

Although nonprofit and benefit corporations have similar missions, they are actually quite different. A benefit corporation can distribute its profits to shareholders as dividends and otherwise prioritize its shareholders, while a nonprofit organization must use its profits for the public good.

Under Chapter 156E, new benefit corporations can be created and existing corporations can become benefit corporations, provided the latter has the approval of two-thirds of each stock class offered. The law also sets requirements for the new entity type, including the need for a benefits director who is responsible for reporting on public benefit goals and their implementation.

Massachusetts benefit corps must submit annual reports that detail their progress toward creating public benefit and detailing activities to this end. These documents must also use the established third-party standard to assess the company's environmental and social impact. This standard must be completely transparent, thorough, responsible, and independent. It must measure the impact of the B corp on its customers, employees, global and local environment, and the society and community where its offices and suppliers are located.

In some states, officers and directors of benefit corps have been criticized by shareholders for focusing too much on social benefit and not enough on financial benefit. However, Chapter 156E protects directors and officers by protecting them from liability for monetary damages or failure to create a public benefit, either general or specific. Provisions are also detailed for shareholders or directors to enforce proceedings against the company if it shirks its duty to provide public benefit.

How to Form a Benefit Corporation in Massachusetts

To form a benefit corporation in Massachusetts, follow these steps:

  1. Incorporate under Chapter 156E – File Articles of Organization designating your entity as a benefit corporation.
  2. State your public benefit purpose – This must go beyond profit and should include a general or specific public benefit.
  3. Appoint a benefit director – Responsible for overseeing public benefit creation and preparing the annual benefit report.
  4. Adopt bylaws – Ensure these include the benefit corporation’s commitment to creating public benefit.
  5. Conversion from an existing corporation – Requires a two-thirds vote of each class of shareholders.
  6. Register and file documents – Submit forms to the Massachusetts Secretary of the Commonwealth.
  7. Comply with annual reporting – File a benefit report using a recognized third-party standard to assess your impact.

Professional guidance is often advisable during the formation process to ensure compliance with state laws.

Annual Benefit Report Requirements in Massachusetts

Every Massachusetts benefit corporation must prepare and deliver an annual benefit report to shareholders and make it publicly available. This report must:

  • Describe the public benefit objectives and whether they were achieved.
  • Assess performance using a third-party standard (e.g., B Lab's B Impact Assessment).
  • Disclose the process by which the benefit director evaluated performance.
  • List any circumstances that hindered benefit performance.

The report promotes transparency and accountability, ensuring the business remains aligned with its mission. Noncompliance may expose the business to legal challenges from shareholders, although Chapter 156E protects directors from liability for failing to achieve specific benefits.

Frequently Asked Questions

  1. What is a benefit corporation in Massachusetts?
    A benefit corporation in Massachusetts is a legal entity that pursues both profit and a public benefit, regulated under Chapter 156E.
  2. How does a benefit corporation differ from a nonprofit?
    Unlike nonprofits, benefit corporations can earn profits and distribute them to shareholders while still pursuing a social or environmental mission.
  3. What must be included in the annual benefit report?
    It must assess public benefit goals, use a third-party standard, and report on the company's overall social and environmental impact.
  4. Can an existing Massachusetts corporation convert to a benefit corporation?
    Yes. It requires a two-thirds vote from each class of shareholders to amend its governing documents accordingly.
  5. Are directors of a benefit corporation liable if the company fails to meet its social goals?
    No. Chapter 156E provides legal protection from monetary liability for failure to create a public benefit, provided directors act in good faith.

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