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May 9, 2013

A New Type of Corporation: The Benefit Corporation

What is a Benefit Corporation?

There is significant interest in state legislatures and bar associations across the United States regarding legislation to introduce a new type of corporate legal entity – the benefit corporation ("B-Corp").1 The major characteristics of the B-Corp form are: (1) the benefit corporation must have a corporate purpose to create a material positive impact on society and the environment (unlike a traditional corporation that can exist for any lawful purpose); (2) an expansion of the traditional duties of directors to require consideration of non-financial stakeholders as well as the financial interests of shareholders; and (3) an obligation to report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third-party standard.2

The traditional corporate legal framework is structured to ensure profit maximization, not social responsibility. In that regard, a basic principal of corporate law holds that the traditional corporation is organized and carried on primarily for the profit of the stockholders, and the powers of the directors are to be employed for that end. As a result, directors of a traditional corporation may expose themselves to liability for breach of their fiduciary duties if, in making a decision, they consider interests of parties other than shareholders. By contrast, under the B-Corp legal framework, directors are permitted to consider the impact their decisions will have on non-shareholders such as the community, or environment.

It is important to note, however, that B-Corps are distinct from not-for-profit corporations. Unlike not-for-profits, B-Corps maintain a profit-making model and shareholders are among the stakeholders whose interest directors of a B-Corp must consider. Additionally, B-Corps are taxed as C-Corps and are entitled to make an S-Corp election.

New York State Benefit Corporation Legislation

In December of 2011, New York State enacted legislation permitting the formation of B-Corps. This new legislation allows an existing corporation to become a B-Corp by making certain amendments to its certificate of incorporation.

While New York law requires every B-Corp to adopt a corporate purpose of creating a "general public benefit," (defined as a material positive impact on society and the environment, assessed against a third-party standard), New York law also permits a B-Corp to voluntarily adopt a corporate purpose of creating one or more "specific public benefits." Such "specific public benefits" include, for example:

  1. providing low-income or underserved individuals or communities with beneficial products or services;
  2. promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
  3. preserving the environment;
  4. improving human health;
  5. promoting the arts, sciences or advancement of knowledge;
  6. increasing the flow of capital to entities with a public benefit purpose; and
  7. the accomplishment of any other particular benefit for society or the environment.
Contact us for more information about Benefit Corporations

If you have any questions or would like our assistance, or if you are interested in a more comprehensive review of the impact of the new legislating permitting the B-Corp form, please contact Richard J. Day at (716) 566-1422 or rday@hblaw.com; Herbert J. Glose at (716) 566-1579 or hglose@hblaw.com; or Megan E. Moran at (716) 566-1532 or mmoran@hblaw.com, or any other attorney in our Corporate practice area.


1
William H. Clark, Jr., et. al, The Need and Rationale for the Benefit Corporation: Why it is the Legal Form that Best Addresses the Needs of Social Entrepreneurs, Investors, and, Ultimately, the Public, January 18, 2013.
2 Id.

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