Corporations have been around for hundreds of years. Over time, the law has made it clear that a corporation exists only to make money for its shareholders. In fact, the primary duty of any corporate officer, director or manager is to increase profits for shareholders. When making decisions for the corporation, how to enhance shareholder value is the sole consideration. If a corporate official takes anything else into account, the official can be sued by the corporation for failing to put its interests first. Such constrained decision-making can result in harm to society. For example, if a corporation can increase productivity only if it is willing to pollute the air, then productivity is the only choice under traditional corporate law. But there is a recent alternative: Benefit corporations.
About Benefit Corporations
Recognizing that corporations should have more social responsibility, a group of entrepreneurs organized what they dubbed the B Lab. B Lab explains its vision on its website:
"Our vision is that one day all companies will compete to be not just best in the world but also best for the world, and as a result society will enjoy a more shared and durable prosperity."
To implement that vision, the entrepreneurs developed “benefit corporations” in 2006. A benefit corporation explicitly allows corporate officials to take into account considerations other than enhancing shareholder value when making decisions for a corporation. In the air pollution example, an official of a benefit corporation could opt for cleaner air over increased productivity without fear of liability because clean air would have the same priority as increasing corporate profits. A benefit corporation may, but is not required to, obtain certification as a benefit corporation through B Lab.
The fundamental change in corporate law to allow corporations to opt for benefit status requires legislation. The inventors of benefit corporations drew up model legislation for state legislatures to consider. The model legislation requires that benefit corporations seek “a positive impact on society and the environment.” A benefit corporation also may, but is not required to, choose among seven different categories of social good to advance. These categories are:
providing low-income or underserved individuals or communities with beneficial products or services;
promoting economic opportunity for individuals or communities beyond jobs in the normal course of business;
increasing the flow of capital to entities with a purpose to benefit society or the environment; andconferring any other particular benefit on society or the environment.
In one form or another, a majority of states has passed legislation allowing benefit corporations as optional formats for business entities. Among those states are both Oregon and Washington.
Oregon’s benefit corporation statute allows both corporations and limited liability companies to choose the benefit entity format. The statute requires a corporation or a limited liability company to take or follow these steps:
Include a statement in the articles of incorporation or organization that says the corporation or LLC is a benefit company subject to ORS 60.750 - ORS 60.770.
Prepare an annual benefit report identifying: (1) The actions and methods used to provide a general or specific public benefit. (2) Any circumstances that hindered or prevented a benefit. (3) How well the benefit company met or exceeded the third-party standard.
Distribute the annual benefit report to the owners and post it on the company’s website.
Washington’s version of a benefit corporation is called a social purpose corporation. Under the Washington statute, the corporation
"must be organized to carry out its business purposes . . . in a manner intended to promote positive short-term or long-term effects of, or minimize adverse short-term or long-term effects of, the corporation’s activities upon any or all of (1) the corporation’s employees, suppliers, or customers; (2) the local, state, national, or world community; or (3) the environment."
The general social purposes must be included in the Articles organizing the corporation. In addition, instead of “Co.” or “Company” or “Inc.” or “Incorporated” or the like, the benefit corporations’ names must end with Social Purpose Corporation or SPC. The following statement also is required:
"The mission of this social purpose corporation is not necessarily compatible with and may be contrary to maximizing profits and earnings for shareholders, or maximizing shareholder value in any sale, merger, acquisition, or other similar actions of the corporation."
There are several optional provisions as well.
Choosing the Entity
If entrepreneurs want solely to pursue profit for shareholders, they should organize as an ordinary corporation. But if they want a legal directive requiring corporate officials to take social goods and goals into account when making corporate decisions, without fear of liability to the shareholders for failing to maximize corporate profits above all else, they can choose to organize as a benefit corporation.