Benefit corporation

In the United States, a benefit corporation (or in several jurisdictions including Delaware, a public-benefit corporation or PBC) is a type of for-profit corporate entity, authorized by 35 U.S. states and the District of Columbia[1] that includes positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals, in that the definition of "best interest of the corporation" is specified to include those impacts. Traditional C corporation law does not specify the definition of "best interest of the corporation" which has led to profit motivations being used as the main driver for best interests.[2] Benefit corporations may not differ much from traditional C corporations.[3] A C corporation may change to a B corporation merely by stating in its approved corporate bylaws that it is a benefit corporation;[3] however in certain jurisdictions (especially Delaware), the terms "public benefit corporation" or "PBC" are also required to be in the legal name of B corporations.

Map of US states which have passed laws allowing the formation of benefit corporations.

Passed into law.
No law on the books.
Bill failed a vote in the state's legislature.

A business may choose to file as a benefit corporation instead of a traditional C corporation for many reasons; for example, a 2013 study done by MBA students at the University of Maryland showed that one main reason businesses in Maryland had chosen to file as benefit corporations was for community recognition of their values.[4] A benefit corporation's directors and officers operate the business with the same authority and behavior as in a traditional corporation, but are required to consider the impact of their decisions not only on shareholders but also on employees, customers, the community, and local and global environment. For an example of what additional impacts directors and officers are required to consider, view the 2015 Maryland Code § 5-6C-07 – Duties of director. The nature of the business conducted by the corporation does not affect their status as a benefit corporation, instead providing them protection for including public benefits in their missions and activities.

Deciding to become a benefit corporation is the choice of a company that wants to make a profit while simultaneously addressing social, economical, and environmental needs, or to operate as a traditional for-profit business corporation model. Both have their own benefits and costs.[5]

Shareholders typically judge a company's well-being on its long term financial success, in addition to public perception and quality of product, but in recent decades quarterly trading reporting has led to hyper-focus on short-term gains. As such, the perception that corporate directors are legally bound to maximize shareholder value has grown, although it is not true.[6] The benefit corporation legislation ensures that a director is required to consider other public benefits in addition to profit, preventing shareholders from using a drop in stock value as evidence for dismissal or a lawsuit against the corporation. Transparency provisions require benefit corporations to publish annual benefit reports of their social and environmental performance using a comprehensive, credible, independent, and transparent third-party standard. However, few of the states have included provisions for removal of benefit corporation status if they fail to do so, or if those reports show below-expected ratings.

There are around 12 third-party standards that satisfy the reporting requirements of most benefit corporation statutes.[citation needed] A benefit corporation need not be certified or audited by the third-party standard. Instead, it may use third-party standards solely as a rubric to measure its own performance. In this case, some authors have examined and pointed out that in the current 36 states who recognize benefit corporations as legal business forms the law regarding the requirement of certifications for operation differs from state to state.[7] For example, in the state of Indiana, there is no requirement of certifications from a third party needed to operate as a benefit corporation.[8] It has also been suggested that other organizations that choose to operate under the business formation of a benefit corporation may also want to engage in receiving a B Corp certification from a third party, such as B Lab.[9] Other research promotes the synergy between a benefit corporation and employee ownership.[10]

As a matter of law, in the 36 states who recognize this type of business form, a benefit corporation is used "to merge the traditional for-profit business corporation model with a non-profit model by allowing social entrepreneurs to consider interests beyond those of maximizing shareholder wealth."[3]