Legal

What is a Benefit Corporation?

Legal

You may have heard about them – a B Corporation, or Benefit Corporation. Patagonia, Whole Foods, Ben and Jerry’s, Warby Parker, and Etsy are all examples of them.

A benefit corporation has the same legal framework as a traditional for-profit corporation. A benefit corporation has a board of directors, officers, and shareholders who share ownership in the company.  The officers and directors manage the company, and the shareholders can hold them accountable for their decisions, including by filing a shareholder lawsuit.

The difference between the two is the purpose of the corporation.

How Does It Differ From a Traditional Organization?

In a traditional for-profit corporation, the board of directors and officers have a fiduciary duty to the shareholders to raise share value and make profits.  This means that the people running the corporation are duty bound to make decisions that will make the company money.  In fact, directors and officers of a traditional company can face a shareholder lawsuit if their decisions do not fulfill this duty.  For example, if they choose to do something that sacrifices profits for a social or public goal.

In a benefit corporation, the board of directors and officers still have a profit-making goal.  They are able and required to take steps to ensure that the company has financial success.  However, what makes a benefit corporation different is that is has a larger purpose for the public benefit.  For example, to make a positive impact on the community and the environment.  This purpose is ingrained into the corporate structure, and the people running the company are required to balance the profits with the public purposes that the corporation supports.

What Does a Benefit Corporation Benefit?

For example, say there are two corporations – one traditional and one benefit corporation.  The leadership of the traditional corporation is presented with two options:  option A increases share value, but harms the environment, and option B, decreases share value, but helps the environment.  The leadership of the traditional corporation could face a civil lawsuit if she chooses option B, even though it serves a public good.  On the other hand, if the leadership of a benefit corporation was presented with the same options, she would be free to choose option B and in fact be required to report how her choice of option B supported the corporate mission.

Benefit corporations are a really great sign of how the law is supporting new ways of approaching business, and supporting upcoming generation’s dedication to achieving social good.  If you want to learn more about what a benefit corporation is and how it might be a good fit for you business, head over to the scheduler page and let’s discuss!

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