The Changes Will Make Compliance Easier for Benefit Corporations

Amendments to the Pennsylvania law on benefit corporations will make compliance with the law by a benefit corporation significantly less burdensome, without compromising the integrity of the corporation’s commitment to having a material positive impact on society and the environment. The changes, which go into effect on September 7, 2013[1], are as follows:

  1. Benefit Director. As originally enacted, the Pennsylvania benefit corporation law required every benefit corporation to have an independent benefit director. That requirement has been made optional for benefit corporations that are not publicly traded. This change removes a troublesome provision for privately owned corporations that would prefer not to have outsiders involved in the running of the business.
  2. Professional Corporations. The requirement that a benefit corporation have an independent benefit director was particularly problematic for professional corporations electing to be benefit corporations because all of the directors of professional corporations practicing certain professions are required to be licensed individuals and finding an independent director in such a situation is difficult, if not impossible. The requirement that the benefit director of a professional corporation be independent has been eliminated. Thus, if a professional corporation elects to be a benefit corporation and to have a benefit director, any of the directors will be eligible to serve as the benefit director.
  3. Benefit Enforcement Proceedings. The provisions of the benefit corporation law may be enforced only in a lawsuit called a “benefit enforcement proceeding.” The right of shareholders to bring a benefit enforcement proceeding has been limited to shareholders owning at least 2% of the total number of shares of a class or series outstanding at the time of the act complained of. This will make it less likely that a small shareholder will start a benefit enforcement proceeding that is not supported by other shareholders.
  4. Annual Benefit Report. The requirement that the annual benefit report disclose the name of each person that owns 5% or more of the outstanding shares of a benefit corporation has been deleted. The deletion of this requirement addresses a concern expressed by some benefit corporations who were reluctant to disclose publicly the identity of their significant owners.

We are available to assist Pennsylvania benefit corporations that wish to amend their bylaws to eliminate the position of benefit director or the requirement that the benefit director of a professional corporation be independent. The changes to the law with respect to benefit enforcement proceedings and annual reports will apply automatically to Pennsylvania benefit corporations and we are not aware of any benefit corporations that need to amend their bylaws with respect to those issues.