Socially and environmentally-minded entrepreneurs who want to address societal problems through a corporate structure have a relatively new legal structure available to them. “Benefit corporations” are a new class of corporations that (1) voluntarily create a material positive impact on society, their employees and the environment, (2) expand the traditional fiduciary duty to require consideration of financial and non-financial interests when making decisions, and (3) report on their overall social and environmental performance using recognized third-party standards. In short, these are entities that operate as traditional corporations, but are accountable to the triple bottom line (i.e., people, planet, profit).
While the majority of states have passed constituency statutes, or statutes that allow directors to consider non-shareholder interests when making decisions, advocates of the benefit corporation structure claim this permissive structure does not go far enough in advancing societal and environmental goals. Eleven states have now passed benefit corporation legislation, with Illinois and Louisiana passing legislation as recently as summer 2012. Other states that recognize the corporate structure include California, Hawaii, Maryland, Massachusetts, New Jersey, New York, South Carolina, Vermont, and Virginia. Washington State has a similar law for special purpose corporations, and is debatably on this list as well.
Benefit corporations must publish an annual public benefit report that includes an assessment of their overall social and environmental performance against a third-party standard. This allows the corporation, its directors, its shareholders, and the public to determine whether the benefit corporation is meeting its statutory requirement of creating a material positive impact on society and the environment. A third-party standard is a standard for defining, reporting, and assessing overall corporate, social, and environmental performance that is comprehensive, independent, credible, and transparent. Benefit corporation legislation does not require any particular third-party standard to be adopted in preparing an annual benefit report, and the government has no role in determining the sufficiency of such standards.
This movement has been largely encouraged by B Lab, a nonprofit organization that certifies benefit corporations having a high overall standard of social and environmental performance. These certified entities are referred to as “Certified B Corporations” or “B Corps” and should not be confused with the legal distinction “benefit corporation.”
Newly formed and existing corporations can elect to become benefit corporations. A corporation may make this election in order to establish a clear mission that survives change of management or ownership. Furthermore, holding the benefit corporation distinction can help differentiate a company to investors and the public during this era when branding as green or responsible is popular.
As mentioned above as an additional advantage, benefit corporation directors are protected when basing decisions on non-financial interests. While this last point is touted by advocates as a benefit, some critics have argued that this corporate form offers another way for directors who fall down on the job to escape liability by pointing to “social benefits” as their ill-defined guideposts. Either side of the argument would agree, however, that this protection allows for a different type of decision-making.
Although benefit corporations encompass a broad array of missions — from providing chemical-free makeup to assisting in addiction recovery — this corporate form is being utilized by a variety of green energy companies and companies with green energy clients. Examples include:
- Solar Works: This private company in Sonoma, California, provides energy-efficient solutions that conserve natural resources and promote individual and community self-reliance by offering in-house design and installation of on-grid and off-grid PV systems
- SunCommon: This company’s purpose is to increase solar energy production in Vermont by eliminating upfront costs and charging a monthly fee that is the same or less than what Vermonters are currently paying their utility for electricity
- Thinkshift Communications: This California company creates strategic communications, planning, publications, and branding for sustainability-oriented enterprises
- Ethical Electric Benefit Co.: This Maryland company, set to launch in 2012, will offer clean energy from solar and wind sources to residential customers
- Clean Currents LLC: With Maryland being the only state allowing limited liability companies (LLC) to elect a benefit structure, this LLC sells green power to residential and commercial customers in the Mid-Atlantic, with solar and wind power options