Posted by:
Steve Dubb
B-corp. statute aims to foster socially responsible business
On April 13th, Maryland became the first state in the nation to pass a law establishing a new corporation category: the benefits corporation. Maryland’s law has received great press coverage, including reports from such national publications as Business Week and the Chronicle of Philanthropy. Sponsored by Maryland State Senator Jamie Raskin and Maryland Delegate Brian Feldman, the law lets businesses commit their for-profit ventures to a specific public good, and requires them to report on contributions to that goal and submit to auditing of their impact. Raskin touted the historic nature of the bill: “"This is a great moment in the evolution of commercial life in Maryland and America. We are giving companies a way to do good and do well at the same time. The benefit corporations will tie public and private purposes together,” Raskin said. The bill passed the State House on a vote of 135-5 and passed the State Senate on a vote of 44-0. The Maryland law falls on the heels of a similar law passed by the City of Philadelphia last December.
The Maryland law takes effect October 1, 2010. Text of the legislation is available here. Efforts to imitate the Maryland law are already under consideration in seven other states, according to this Philadelphia Inquirer article. Among these states, not surprisingly, is Pennsylvania. Vermont, which was the first state to enact legislation (in 2008) for low-profit limited liability companies or L3Cs is also among these seven, where Vermont company Seventh Generation is a leader of the effort. Other states considering similar legislation are New York, North Carolina, Oregon and Colorado. A recent Chronicle of Philanthropy article suggested the legislation might even have federal implications: “We might see the emergence of some proposals to establish what I’ll call, for the lack of a better term, a for-benefit corporation—something that is in-between a private taxable company that’s under our rules of C corporations or S corporations and partnerships but also not under our rules having to do with charities,” said Russell Sullivan, staff director of the U.S. Senate Finance Committee.
At Community-Wealth.org, we have been following the development of both B corporations and low-profit limited liability companies (L3Cs) for some time.
The Maryland law builds on considerable energy to develop “hybrid” for-profit/non-profit business. The Maryland benefits corporation law shares some features with a related movement for low-profit limited liability companies or L3Cs. The first L3C law passed in Vermont in 2008. Other states have followed: namely, Illinois, Michigan, Utah, and Wyoming. And bills to create L3Cs have been introduced in another dozen states. Details on these laws are available here. The “benefits corporation” appears to differ from a L3C in two aspects: 1) unlike the L3C, the benefits corporation could be adopted by C corps.; and 2) unlike the L3C, there seems to be little-to-no emphasis on using the benefits corporation to obtain foundation program-related investment (i.e., long-term, low-interest loans).
Instead, the focus of the official “benefit corporation” status is to establish stakeholder rights. Specifically, a benefits corporation is allowed to promote the interests of employees, communities, or the environment in corporate decisions, even if doing so decreases profits. Under existing corporate law in Delaware (where half of all U.S. corporations are chartered) and many other states, company directors can face lawsuits if considering outside stakeholders is seen to damage the financial interest of shareholders. Part of the reason why Ben & Jerry’s accepted Unilever’s buy-out offer, for example, was because company directors feared being sued if they turned the offer down, according to this Times-Argus article.
Another interesting feature of the benefits corporation law is that is a product of a movement. Organized in part by the Philadelphia-based nonprofit B-Lab, to date over 200 companies in 28 states with $1.1 billion in sales and $6.8 billion in assets have made the commitment to be “B corporations.” For example, Seventh Generation, mentioned above, is a B-corporation company. Absent legislation until now, the “B-corporation” status, despite requiring qualifying companies to amend their corporate governing documents “to incorporate the interests of employees, community and the environment,” has largely served as little more than a “good housekeeping” seal of approval for social responsible businesses. Now, however, given the already existing network of B-corporation businesses, the potential take-up rate of the beenfits corporation law may well prove to occur faster than it has been with the L3C.