In California, a Benefit Corporation is a new entity; the law authorizing such entities became effective January 1, 2012.
1. What is a Benefit Corporation?
It is a California general corporation that chooses three additional requirements:
- Public Purpose: creates a material positive impact on society and environment, taken as a whole
- Accountability: required to consider environmental and social factors in its actions and operations (as well as profits)
- Transparency: reports annually to shareholders on its environmental and social performance using independent third-party standards.
2. Can Benefit Corporation revert to different form of business?
Yes, it can revert to California general corporation or other form of business.
3. Why become a Benefit Corporation?
- This type of legal entity allows entrepreneurs and investors to organize a stock corporation that can pursue both economic and social objectives. A Benefit Corporation is legally authorized to produce profits for shareholders AND to provide a material positive impact on society and the environment.
- Benefit Corporation provides flexibility in succession planning by inserting corporate values in the foundation documents and allowing greater flexibility to choose buyer for the corporation when sold.
- It may provide better return to shareholders because research shows that Benefit Corporations beat the performance of peer firms organized in other forms.
- It allows the company to stand out as Corporate Responsibility Leader and socially responsible brand or entity.
4. Is there any change in taxation?
No, Benefit Corporations will continue to be taxed as for-profit corporations, under both federal and California income tax law.
5. What is the difference between a California general corporation and Benefit Corporation?
- Purpose: in addition to purposes of traditional corporations, Benefit Corporation has a purpose of creating “general public benefit”; it may also add one or more “specific public benefit” purposes.
- Accountability: Board of Directors and officers must consider the impacts of any action or proposed action on all of the following:
- employees of the corporation, its subsidiaries and suppliers
- customers (as beneficiaries of public benefit purposes)
- community and society
- short and long-term interests of the corporation
- the ability of the corporation to accomplish its public benefit purposes
- Transparency: annually assesses and reports to shareholders on its environmental and social performance.
6. What is “general public benefit”?
Section 14601(e) of the California Corporations Code defines this term as “a material positive impact on society and the environment – taken as a whole – from the business and operations of a benefit corporation.”
7. What are the “Specific Public Benefits”?
Per Section 14601(e) of the California Corporations Code, they are:
- Providing low-income or underserved individuals or communities with beneficial products or services
- Promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business
- Preserving the environment
- Improving human health
- Promoting the arts, sciences, or advancement of knowledge
- Increasing the flow of capital to entities with a public benefit purpose
- Accomplishing any other particular benefit for society or the environment.
8. What is a Benefit Enforcement Proceeding?
It is a claim or action relating to any of the following:
- Failure to pursue general and any specific public benefit purpose set forth in the Articles of the Benefit Corporation
- Directors’ failure to perform Benefit Corporation obligations
- Failure to deliver / post Annual Benefit Report
9. Who has the power to enforce public benefit purposes set forth in the company’s Articles?
- The Benefit Corporation itself, its Directors and Shareholders
- No one else
10. What outcomes are possible in the Benefit Enforcement Proceeding?
- Court order mandating compliance
- No recovery of money, but if court decides corporation’s actions were not justified, it can order the corporation to reimburse plaintiff’s attorneys’ fees
- No personal liability of directors or officers
11. Where can I find help with organization of a California Benefit Corporation?
Please contact the Law Offices of Oksana Van Rooy. Our corporate law attorney in Orange County will guide you through every step of organizing a Benefit Corporation.