Benefit Corporation White Paper
Below is a list of authors, table of contents, and executive summary of a white paper on the need and rationale for benefit corporation legislation. For the full white paper, click here.
THE NEED AND RATIONALE FOR THE BENEFIT CORPORATION: WHY IT IS THE LEGAL FORM THAT BEST ADDRESSES THE NEEDS OF SOCIAL ENTREPRENEURS, INVESTORS, AND, ULTIMATELY, THE PUBLIC
Principal Authors: William H. Clark, Jr., Drinker Biddle & Reath LLP; Larry Vranka, Canonchet Group LLC
Contributing Authors: Joshua Berick, Linklaters LLP; H. Kenneth Merritt, Jr., Merritt & Merritt & Moulton; John Montgomery, Montgomery & Hansen; Peter W. Sheehan Jr., Whiteford Taylor Preston; Sabrena Silver, Linklaters LLP; Donald S. Simon, Wendel Rosen Black & Dean; Jonathan S. Storper, Hanson & Bridgett
Drafting Authors: Elizabeth Babson, Drinker Biddle & Reath LLP; Matthew J. Brinker, Drinker Biddle & Reath LLP; David M. Carboni, Drinker Biddle & Reath LLP; Elizabeth Hang, University of Virginia School of Law, Class of 2011; Steven J. Haymore, Vanderbilt Law School, Class of 2011; Dennis P. O’Reilly, Drinker Biddle & Reath LLP; Dirk R. Sampselle, JD/MBA Candidate, Pepperdine University, 2013
Reviewers and Supporters: Allen Bromberger, Perlman & Perlman, LLP; A.P. Carlton, Jr., Allen, Pinnix & Nichols, P.A.; Laura Jordan, The Capital Law Firm, PLLC; Jenny Kassan, Katovich & Kassan Law Group; John Katovich, Katovich & Kassan Law Group; Peter Roth, Varnum Attorneys at Law; Kyle Westaway, Westaway Law; Robert I. Wexler, Greenberg & Traurig LLP; Jeff D. Woodward, Stites & Harbison PLLC
TABLE OF CONTENTS
- Executive Summary1
- Market Demand by Consumers, Investors and Social Entrepreneurs2
- Existing Legal Frameworks Do Not Accommodate For-Profit Mission-Driven Companies7
- Benefit Corporations14
- Drafting Analysis of Particular Benefit Corporation Statutory Provisions21
- Appendix A Model Benefit Corporation Legislation
- Appendix B State by State Comparison of Benefit Corporation Legislation
- Appendix C Alternative Corporate Structures Intended to Address the Legal Issues Described Above
There is significant interest in state legislatures and bar associations across the United States regarding legislation to introduce a new type of corporate legal entity – the benefit corporation. Legislation establishing the benefit corporation as a new type of corporate entity has already been passed and signed into law in California, Hawaii, Illinois, Louisiana, Massachusetts, Maryland, New Jersey, Pennsylvania, South Carolina, Vermont, and Virginia and has been introduced in several other states.
The sustainable business movement, impact investing and social enterprise sectors are developing rapidly but are constrained by an outdated legal framework that is not equipped to accommodate for-profit entities whose social benefit purpose is central to their existence. The benefit corporation is the most comprehensive yet flexible legal entity devised to address the needs of entrepreneurs and investors and, ultimately, the general public. Benefit corporations offer clear market differentiation, broad legal protection to directors and officers, expanded shareholder rights, and greater access to capital than current alternative approaches. As a result, the benefit corporation is also attracting broad support from entrepreneurs, investors, legal experts, citizens, and policy makers interested in new corporate form legislation.
The major characteristics of the benefit corporation form are: 1) a requirement that a benefit corporation must have a corporate purpose to create a material positive impact on society and the environment; 2) an expansion of the duties of directors to require consideration of non-financial stakeholders as well as the financial interests of shareholders; and 3) an obligation to report on its overall social and environmental performance using a comprehensive, credible, independent and transparent third-party standard. The enacting state's benefit corporation statutes are placed within existing state corporation codes so that the enacting state's existing corporation code applies to benefit corporations in every respect except those explicit provisions unique in the benefit corporation form.
The purpose of this white paper is to set out the need and rationale for this legislative initiative. The paper includes a brief discussion of demand in the market by business leaders and investors, an analysis of why current legal frameworks do not accommodate the activities of mission-driven private sector entities, a discussion of the benefit corporation form, why the model legislation is drafted the way it is and why it is the legal form that best addresses the needs of social entrepreneurs, investors and, ultimately, the public.