In April 2010, the State of Maryland became the first U.S. state to pass “Benefit Corporation” legislation, thus permitting the formation of a new type of corporate entity structure in that state. Since that time, several other states – including California, New York and Delaware – have either passed or are considering similar legislation.
Benefit corporations share many of the traits of traditional for-profit corporations. However, while the main goal of traditional for-profit corporations is to maximize financial returns for their investors, benefit corporations are expressly permitted to consider and prioritize the social and environmental impacts of their corporate decision-making, in tandem with maximizing financial returns for investors. This blog will discuss the purpose, transparency and accountability of Benefit Corporations.
As mentioned above, the purpose of the Benefit Corporation is to not only maximize profits but also to create a general public benefit. Benefit Corporations can also choose or pursue a particular public purpose – for instance, helping underserved individuals or communities. In most states, the Benefit Corporation must also designate at least one member of its board as a “Benefit Director” to oversee the general and/or particular public purpose and the company’s adherence to it.
Transparency is afforded to shareholders of a Benefit Corporation through a mandatory annual audit of the corporation’s social and environmental performance. This audit must utilize a comprehensive and independent third-party standard to assess overall social and/or environmental performance.
In most states, results of the assessment must be posted to the company’s website, and made viewable to the public. Finally, Benefit Corporations have a high degree of accountability to their shareholders because they not only must consider the wealth of the shareholders, but also the ramifications of their decisions that benefit the public.
For instance, actions that may affect workers, the community or the environment must be balanced against maximizing profit for shareholders. Both are focal points for the company, and a Benefit Corporation’s failure to adhere to either may leave the company exposed to lawsuits brought by shareholders.
For further information on this, or other related topics, please contact us at [email protected] or (619)298-2880.
