Benefit Corporation

A benefit corporation is a new corporate form designed for-profit entities that want to consider society and the environment in addition to profit in their decision making process. Benefit corporations differ from a traditional corporation in regards to their purpose, accountability and transparency. The purpose of a benefit corporation is to create general public benefit, which is defined as a material positive impact on society and the environment. A benefit corporation’s directors operate the business with the same authority as in a traditional corporation, but as with a traditional corporation shareholders who have standing on judging the companies financial or in this case qualitative performance. Shareholders in a benefit corporation determine if the benefit corporation has achieved a material positive impact. If a dispute occurs it is up to the courts to determine if the benefit corporation did achieve a material positive impact. Additionally, through the issuance of an annual benefit report to the public, consumers are provided information to determine if they agree or disagree with the benefit corporation’s methods of achieving a material positive impact on society and the environment.

The additional accountability provisions found in a benefit corporation require the director and officers to consider the impact of their decisions not only on shareholders but also on society and the environment. Benefit corporations also provide shareholders with a private right of action, called a benefit enforcement proceeding, that they can use to enforce the company’s mission when the business has failed to pursue or create general public benefit.

The added transparency provisions of a benefit corporation require that the company produce an annual benefit report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third- party standard. Benefit corporations do not need to be certified or audited by the third party standard. Instead, benefit corporations utilize third party standards similarly to how the Generally Accepted Accounting Principles (GAAP) are applied during financial reporting, solely as a rubric a company uses to measure its own performance. A benefit corporation, must also make the annual benefit report available to the public by posting it on the public portion of the company’s website and in some states the company must also submit the report to the Secretary of State. However, the Secretary of State has no governance over the annual benefit report. There are around twelve third party standards that meet the requirements of the legislation.