This past weekend, the new Massachusetts Benefit Corporation statute went into effect, making us the 11th state to enact such a law.

Benefit corporations are structured like traditional C-corporations.  They have Articles of Organization (you know, the charter…what we in the Bay State call your Certificate of Incorporation).  They have by-laws.  They’ll likely need all the usual business formation documents: incorporator consents and initial board of director votes.  They should probably start off with the usual employment agreements and intellectual property assignments that their C-Corp siblings favor.

But there’s one big exception:  where the directors and officers of a C-Corp carry a fiduciary duty to—within the limits of the law and subject to their good faith business judgment—maximize investor returns, Benefit corporations are permitted to emphasize the social and environmental impacts of their activities.

Both entities can arrive at the same noble place.  A C-corporation may decide to use all-organic ingredients or 100% recycled packaging, but it’s supposed to do so because it believes that decision gives it some market advantage.  Maybe it thinks that it can extract a price premium from socially conscious customers (hello, Whole Foods).  Maybe it wants to distinguish itself from less circumspect competitors.  Maybe it just wants to avoid bad PR. The officers of a standard C-Corporation are allowed to use their business judgment when they make decisions, but at the core of each such decision, those officers must believe they are benefiting the company’s shareholders.

Benefit corporations have more latitude.  Instead of just considering what is best for investors,the directors and officers of a benefit corporation can—and in some areas are actually required to—consider how their actions and decisions will impact employees, clients, the communities where the company works, the near-and-global environments, both the short and the long term interests of the corporation, and specifically identified items of public good (helping low-income persons, environmental conservation, promoting arts and sciences, etc.). They can’t just focus on benefiting shareholders; they have to focus on benefiting the public as well.

So, when is consideration of public benefit a “can consider” and when is it a “must consider” for an officer or director of a Benefit Corporation?  According to the new Massachusetts G.L. ch. 156E, these officers and directors SHALL consider:

  • shareholders
  • employees
  • the interests of customers or clients…or of the general public
  • community and societal factors
  • local, regional and global environments
  • both short-term and long-term interests of the company
  • the company’s stated beneficial purpose or the specific items of public good I identified above

Those officers and directors MAY also consider

  • the interests of the economy
  • other pertinent factors or relevant group interests

Maybe your first thought it reading this list was, “Whoa.  That’s a lot of divergent interests that  director has to keep happy.  It’s tough enough just navigating between the needs of majority and minority shareholders.  Now they have to worry about these other constituencies. Aren’t those constituencies going to sue when they feel slighted?

That’s probably why 156E insulates decision makers from monetary damages and gives them wide discretion in choosing how much relative emphasis to place on each benefit. If a benefit corporation’s directors and officers are actively working to keep the environment clean and to make enough money to stay in business long term, you probably can’t successfully challenge their decision to lay off half of the Worcester office and replace full-time employees with cheap temp labor. Benefit corporations don’t have to do perfect good.  Good good is good enough.

So what’s to stop a company from using Benefit Corporation status as a PR shell while they soullessly pillage the environs like their black-hearted C-Corp brethren?  What keeps them from claiming they help the environment by planting a few trees in a city park as they dump toxic waste into that city’s river?

As with shareholder derivative suits, Ch. 156E creates a mechanism (called a benefit enforcement proceeding) by which the corporation itself directly, or a shareholder or director or other named person acting derivatively, can bring an action to force compliance with the entity’s beneficial objectives. Just like you have to declare a major in college, a benefit corporation has to decide in its charter what public benefit it serves. And when it acts in a manner contrary to that benefit, any of the company’s stakeholders (not shareholders, but a much broader class of persons interested in the company’s activities, can go to court and force the company to live up to its promises.

Supposedly, ten companies were queued up this weekend to become the first benefit corporations in the Commonwealth.

[NOTE: Statutory Benefit Corporations are not the same thing as B-Corps.  B-Corps are entities that have been certified by Philadelphia-based B Labs as being sufficiently beneficial to the greater good.  They do not have to comply with any particular statute or regulation, other than the usual ones prohibiting businesses from misrepresenting themselves.   Also, it’d be a bit confusing to have C-Corps be entities organized under Mass. G.L. 156C, and B-Corps be entities organized under Mass. G.L. 156E.

[NOTE ALSO: Benefit corporations are not the same as a non-profit corporations which are organized for the furtherance of some public or charitable benefit (and which are therefore eligible for tax-exempt status).  Benefit corporations don’t have to be non-profit; they aren’t charities.  They can be very much for-profit; they can use their excess cash for corporate gain instead of public benefit.  They just have to make the public benefit calculus before they do so.

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