New Maryland B-CORP

This year Maryland became the first state to recognize a new form of corporation known as a Benefit Corporation when a new law was passed on April 13, 2010 which allows corporations to pursue socially responsible purposes in addition to profits. The new law will take effect on October 1, 2010.

What is a Benefit Corporation?
The purpose of the new statute is to provide general public benefits through the formation of Benefit Corporations. General public benefit is defined in the statute as a “material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits.” Specific public benefit is defined as the following:

  1. Providing individuals or communities with beneficial products or services;
  2. Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
  3. Preserving the environment;
  4. Improving human health;
  5. Promoting the arts, sciences, or advancement of knowledge;
  6. Increasing the flow of capital to entities with a public benefit purpose; or
  7. The accomplishment of any other particular benefit for society or the environment.

How to become a Benefit Corporation
The new statute allows both new and existing corporations to elect benefit corporation status. For an existing corporation, once the election to become a benefit corporation is approved by the stockholders in accordance with the Maryland Corporations and Associations Article, the corporation would need to amend its charter to include a clear statement that it elects to be a benefit corporation. A new benefit corporation charter must also contain a clear statement that it is a benefit corporation. This means that the election to be a benefit corporation must appear at the head of the charter document, on every subsequent charter document and on any share certificates.

Reporting Requirements
A benefit corporation is also responsible for creating an annual benefit report, which must include:

  1. A description of the way the benefit corporation pursued a general public benefit during the year and the extent to which the general public benefit was created;
  2. A description of the way the benefit corporation pursued any specific public benefit that the charter states is the purpose of the benefit corporation to create and the extent to which it was created;
  3. A description of any circumstances that hindered the benefit corporation from creating public benefit;
  4. An assessment of the societal and environmental performance of the benefit corporation prepared in accordance with a third party standard applied consistently with the prior year’s benefit report or accompanied by an explanation of the reasons for any inconsistent application.

What is so special about Benefit Corporations?
The distinguishing factor that separates benefit corporations from other corporations is that a benefit corporation has a dual purpose, to build value for its shareholders while also pursuing a socially responsible agenda. The statute outlines the additional duties are imposed on directors when determining what is in the best interests of the company. In a regular corporation, directors are typically motivated by providing returns for shareholders. In a benefit corporation, in addition to profits, directors need to concern themselves with providing a public benefit.

The statute outlines five factors a director should consider when determining what the director reasonably believes to be in the best interest of the benefit corporation. The director needs to consider how business decisions will impact the following:

  1. The stockholders of the benefit corporation;
  2. The employees and workforce of the benefit corporation and the subsidiaries and supplies of the benefit corporation;
  3. The interests of customers as beneficiaries of the general or specific public benefit purposes of the benefit corporation;
  4. Community and societal considerations, including those of any community in which offices or facilities of the benefit corporation or the subsidiaries or supplies of the benefit corporation are located; and
  5. The local and global environment.

The legal status as a benefit corporation allows businesses to consider other stakeholders like employees, communities and the environment in business decisions. This is contrasted with regular corporations where directors can face lawsuits when they consider outside stakeholders to the detriment of stockholders. This new statute creates a platform for socially responsible business and protects these businesses with statutory guidelines that enable the corporation to pursue both shareholder value and general public benefit.