An Introduction to Benefit Corporations

About the Authors:

Michael Vargas
Co-Chair, Joint Committee on Social Entrepreneurship and Social Benefit Entities

Benefit corporations, a corporate form that aligns the business with a social mission, are the new kid on the corporate scene. Some lawyers and scholars think it is a fad that will eventually die out, but the trend lines tell a different story. Thirty-one states have passed benefit corporation statutes in just the past five years, including in Delaware. Consumers are choosing socially responsible alternatives to everything from the products they consume to the services they procure. Established mega-businesses like Clorox and Amazon are being forced to compete with socially responsible startups. Young entrepreneurs and MBA grads are looking for a businesses and work environments that offer value beyond just a paycheck. More of our clients are asking about it, and more are electing to found their companies using this corporate form. And the trends suggest that this is only the beginning.

Unfortunately, most attorneys still don’t have a lot of information about how to counsel benefit corporations, their founders, their directors, or their shareholders. With no case law, limited public exposure, and only early commentary on the topic, there isn’t a whole lot of information out there, but as these business entities continue to grow more numerous, we will need more guidance on how they work. Sponsored by the ABA’s Joint Subcommittee on Social Entrepreneurship and Social Benefit Entities (SESBE), this mini-theme is designed to fill in some of the gaps in our knowledge. We have gathered the architects of these statutes and leading scholars on the issue to answer some of the important and tough questions that have arisen regarding this innovative new corporate form.

Michael Vargas, co-chair of SESBE, provides an overview of the benefit corporation statutes and their essential components, and then delves into an exploration of the entrepreneurs and companies for whom this new corporate form might be appropriate. John Montgomery, one of the architects of the benefit corporation statute in California, offers some commentary on the responsibilities of directors in benefit corporations, and offers some reassurances to directors who may feel apprehensive about joining these new innovative operations. Kim Lowe, one of the architects of the benefit corporation statute in Minnesota, discusses how benefit corporations can be a powerful tool in the hands of charitable organizations looking to capitalize on earned revenue options. Haskell Murray, assistant professor of management and business law at Belmont University, presents evidence on early trends in benefit corporation reporting, and offering recommendations for improving reporting standards, requirements, and compliance. Finally, Rick Alexander, head of legal policy for B Lab, takes a look at how benefit corporations may interact with capital markets now that at least one benefit corporation has registered for a public offering.

We sincerely hope that this mini-theme will serve as a thought-provoking introduction to a growing trend in corporate law. In the years to come, the Joint Committee on Social Entrepreneurship and Social Benefit Entities will continue to generate commentary and thought leadership on these and other important developments in the law of benefit corporations. If you are interested in being a part of this conversation, please contact Michael Vargas (michael.vargas@rimonlaw.com), Kim Lowe (klowe@jux.law), or David Levitt (levitt@adlercolvin.com) for more information.

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