To meet the transparency provisions of the model legislation, benefit corporations are required to publish an annual benefit report.
These transparency provisions serve not only to inform the public about the overall social and environmental performance of the benefit corporation, but also to inform directors so they are better able to meet their duties and shareholders so they are better able to exercise their rights.
In a benefit enforcement proceeding, judges may also look to a benefit report, or series of annual benefit reports, to determine if the benefit corporation has met its statutory requirement to meet its general, and any named specific, public benefit purpose.
The benefit report must be sent to shareholders within 120 days of the end of the fiscal year, or at the same time the benefit corporation delivers any other annual report to shareholders. In the model legislation, the report must be filed concurrently with the appropriate department of the state of incorporation of the benefit corporation. The report must be posted on the benefit corporation’s website, or if one does not exist, provided upon request free of charge to any person that requests a copy.
What should be reported in a benefit report?
According to the model legislation, the annual benefit report must include all of the following:
(1) A narrative description of:
(i) The ways in which the benefit corporation pursued general public benefit during the year and the extent to which general public benefit was created.
(ii) The ways in which the benefit corporation pursued a specific public benefit that the articles state it is the purpose of the benefit corporation to create.
(iii) Any circumstances that have hindered the creation by the benefit corporation of general public benefit or specific public benefit.
(iv) The process and rationale for selecting or changing the third-party standard used to prepare the benefit report. If applicable, a statement of any connection between the organization that established the third-party standard, or its directors, officers or material owners, and the benefit corporation or its directors, officers or material shareholders, including any financial or governance relationship which might materially affect the credibility of the use of the third-party standard.
(2) An assessment of the overall social and environmental performance of the benefit corporation against a third-party standard:
(i) Applied consistently with any application of that standard in prior benefit reports; or
(ii) Accompanied by an explanation of the reasons for any inconsistent application.
(3) The name of the benefit director and the benefit officer, if any, and the address to which correspondence to each of them may be directed.
(i) The compensation paid by the benefit corporation during the year to each director in the capacity of a director.
(ii) A statement from the benefit director as to whether the benefit corporation acted in accordance with its general, and any named specific, public benefit purpose, and whether directors complied with their duty to consider the impact of decisions on stakeholders, and if in the opinion of the benefit director they did not, a description of the ways in which they did not comply.
(4) The name of each person that owns 5% or more of the outstanding shares of the benefit corporation either beneficially, to the extent known to the benefit corporation without independent investigation or of record.