CONNECTICUT WELCOMES “BENEFIT CORPORATIONS”
If you haven’t seen it yet, there’s a new choice for socially-minded entrepreneurs – Benefit Corporations. This new form of entity gives socially-minded businesses a better opportunity to pursue and promote both more traditional, “for-profit” ideologies along with other important “non-profit”, philanthropic, social and environmental missions. Connecticut along with a growing number of other states recently adopted legislation permitting this new form of legal structure.
The idea isn’t really that new. Many companies, in addition to having clear for-profit objectives, support any number of important local, national and international missions. A growing number of companies across the U.S. (like Patagonia – one of the first U.S. companies to convert to a benefit corporation) wanted to do more by closely examining and improving the impact their products and services had on their employees, communities and the environment. The key difference between this new concept and more traditional corporations is a deliberate move from purely, profit-driven decision-making to taking into account environmental impacts, employee well-being, service to under-served populations, human health, economic opportunity for less-privileged, or promoting the arts, sciences or education. Benefit corporations are essentially “for-profit” companies committed to adopting measurable ways of improving their impacts on society. And there’s accountability for how well they do in meeting these objectives.
The new Connecticut law allows companies (like C-corps., S-corps, LLCs and other types of business entities) to convert to or create a newly formed “Benefit Corporation”. A main feature of the Benefit Corporation is the requirement for it to exercise a new and different type of “business judgment” that includes a statement of its “social” or “environmental” goals with some transparency in measuring whether those goals are met. In addition, Benefit Corporations must appoint a “Benefit Director” responsible for an annual report on whether the “public benefit” stated by the company has been met and, if not, how the directors failed to meet their stated goals. This new legal structure carries a higher burden than its more traditional counter-parts by imposing additional, transparency and reporting requirements. For organizations with important missions to carry out ranging from philanthropy to environmental sustainability (in addition to making a profit), benefit corporations may be the right choice.
(Additional Note: Companies choosing this form of new business structure may also want to consider obtaining the additional “B-corporation certification” offered by B-lab, an international, non-profit company based in the U.S. that certifies compliance. The author has no relationship with B-lab and offers this note to point out that the certification by this lab is not required, but may be beneficial for some entities.)