In April 2010, Maryland was the first state in the country to pass Benefit Corporation legislation, which will go into effect October 1. The Chesapeake Sustainable Business Alliance held a session Monday to inform business owners about the legislation and how a Benefit Corporation is formed. Here are some of the basics you need to know about new class of corporation:
What is a Benefit Corporation?
“A Benefit Corporation is a new class of corporation that meets higher standards of purpose, accountability and transparency,” Jay Gilbert, co-founder of B Lab said at Monday’s meeting.
A Benefit Corporation creates a material positive impact on society and the environment; redefines fiduciary duty to require consideration of non-financial interests when making decisions; and reports on its overall social and environmental performance using an independent and transparent third party standard.
How is a Benefit Corporation formed?
In order to become a B Corporation, a business must achieve a passing score on the B Ratings System, which assesses a company’s social and environmental performance. It must also agree to legally expand the responsibilities of the corporation to include the interests of its employees, suppliers, consumers, community, and environment.
To incorporate a Benefit Corporation, a new company can simply incorporate as a Benefit Corporation in Maryland or Vermont, and follow the incorporation procedure, which is identical to that followed by all other corporate structures. An existing company can elect to become a Benefit Corporation by amending the governing documents, which requires a 2/3-majority vote of shareholders.
Who certifies and audits Benefit Corporations?
An organization called B Lab, a 501(c)3 non-profit, supports B Corporations by certifying and rating B Corporations through the B Rating System; developing and disseminating a legal framework to institutionalize stakeholder interests within existing corporate law; recruiting and promoting B Corporations and helping B Corporations access purpose-driven capital markets.
B Lab’s Board of Directors has convened a nine person Standards Advisory Council that oversees the certification ratings and auditing requirements for B Corporations.
How does becoming a Benefit Corporation benefit a business?
Becoming a B Corporation gives a business the opportunity to differentiate itself from other companies that claim to be socially responsible. The transparent standards allow people “to tell the difference between a ‘good company’ and just good marketing.” It also provides clarity that fiduciary duty includes both making money, and making a difference, and offers legal protection to consider non-financial interests, even in liquidity scenarios.
For more information about Benefit Corporations, the B Ratings System, or B Lab, visit www.bcorporation.net. Download the original legislation here (PDF).
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