Benefit Corporation Massachusetts
Benefit corporation Massachusetts is a special type of corporation formed to create a measurable positive impact on the community, the environment, and society.3 min read
2. Benefit Corporations in Massachusetts
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.
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.
If you need help with establishing a Massachusetts benefit corporation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.