Maryland Benefit Corporations: Benefiting the Public Without Going Non-Profit

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12/17/2010 8:22 AM

On October 1, 2010, the Maryland Benefit Corporation Act – the first law of its kind in the United States – went into effect. The Act creates the "benefit corporation," a new corporate form that unites two formerly incompatible concepts: making a profit and advancing social and environmental goals. Benefit corporations can focus on the so-called "triple bottom line" of people, planet, and profit.

The success of benefit corporations is founded on transparency. Here’s how it works: a benefit corporation must include a plain statement in its charter and on each stock certificate that it is a benefit corporation. An existing corporation without such statements can become a benefit corporation by following its procedure for amending its charter (through shareholder approval) and issuing new stock certificates.

A benefit corporation must also have a "general public benefit" purpose in its charter. A general public benefit is anything that has "a material, positive impact on society and the environment" – so long as that impact is measurable by an objective, third party standard, like the certification requirements of established by B Lab, a non-profit that certifies triple bottom line companies. Benefit corporations can also include a "specific public benefit" purpose in their charters. Such specific public benefits, also measured by the third party standard, range from preserving the environment to improving human health to promoting the arts, sciences, or advancement of knowledge.

Under traditional corporate law, directors are subject to liability if they take into account the interests of others to the detriment of shareholders. The Act permits directors of benefit corporations to consider the interests of a number of stakeholders when making business decisions, including the community, environment, employees, and customers. At the same time, directors are not liable to any beneficiaries of the corporation’s stated public benefit purpose.

In order to maintain transparency, benefit corporations have heightened reporting requirements, including reporting how the corporation pursued its general and/or specific benefit purposes, any circumstances that hindered the corporation in achieving its purposes, and an assessment of the corporation’s performance in accordance with the third-party standard. The third-party standard by which the corporation’s success is measured must be developed by an independent person or entity, and the factors used to measure the performance of the business, the weighting of the factors, and the identity of the standard’s developer must be publicly available. This annual report must be provided to shareholders and posted on the corporation’s public website if any.

This new corporate form bridges the gap between non-profits and corporations, by allowing businesses to make a profit while doing social good. Benefit corporations, if willing to comply with the heightened reporting requirements, should appeal to the ever-growing pool of socially conscious investors. For assistance in setting up a benefit corporation, contact Lee Lundy at llundy@tydingslaw.com or 410.752.9705.

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