Benefit corporation

• 1. Introduction

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  Benefit corporations exist because a single court case from 1919 reshaped what a company could legally care about. In Dodge v. Ford Motor Co., a Michigan court articulated what became the governing idea of American corporate life: that a corporation's purpose is to maximize financial gain for its shareholders. Over the following century, that principle hardened into what lawyers call "shareholder primacy." Mission-driven founders who wanted to consider workers, communities, or the environment did so at their own legal peril. Their directors could be sued for it. Then, in April 2010, Maryland passed a law that changed the equation.

  That law created the benefit corporation, a new kind of for-profit company that could legally pursue goals beyond profit. The questions the rest of this documentary will explore are: how did this legal form take root across the country, what protections does it actually offer, and what distinguishes it from related structures that look similar but work very differently?

• 2. The Problem It Solved

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  Delaware's Chancery Court reaffirmed the shareholder-primacy doctrine in 2010, the same year Maryland's law took effect. The court stated plainly that a non-financial mission "seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders" and is inconsistent with directors' fiduciary duties. That ruling clarified the bind that mission-driven companies faced.

  Under ordinary corporate law, directors' day-to-day decisions are generally shielded by what is called the business judgment rule, which keeps courts from second-guessing operating choices. But in a takeover or change of control situation, that protection evaporates. Courts then require directors to chase the highest purchase price, regardless of what it does to the company's social or environmental commitments.

  Even in states that had passed so-called constituency statutes, which let directors consider non-financial interests, the legal picture stayed murky. Without settled case law, directors worried about civil claims if they strayed from their duty to maximize profit. The benefit corporation form resolved that uncertainty by explicitly expanding fiduciary duty to cover employees, suppliers, customers, the community, and the local and global environment.

• 3. State by State Spread

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  Maryland's benefit corporation law took effect on the 1st of October 2010, enacted as SB 690 and HB 1009 on the 13th of April that year. Vermont followed a month later, on the 19th of May 2010, though Vermont's law did not take effect until the 1st of July 2011. New Jersey's law came into force on the 1st of March 2011, and Hawaii passed its legislation on the 8th of July 2011 and made it effective the same day. California followed in late 2011 with AB 361, effective the 1st of January 2012.

  From there, the map filled in quickly. Illinois, Louisiana, Massachusetts, Pennsylvania, and South Carolina all passed legislation in 2012. By the time Delaware, Arkansas, and Oregon joined in 2013, the form had reached one of the most important corporate jurisdictions in the country. Delaware's law took effect on the 1st of August 2013.

  Connecticut's statute, passed in April 2014 and effective in October that year, introduced a distinctive wrinkle: preservation clauses. These allow founders to prevent the company from ever reverting to a standard for-profit entity at the shareholders' will, a protection not found in other states' versions. By the count reflected in the source, approximately 36 jurisdictions, including Washington, D.C., have now authorized the creation of benefit corporations.

• 4. What the Law Actually Requires

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  Maryland Code Section 5-6C-07 sets out what benefit corporation directors must consider, and it goes well beyond shareholders. Officers and directors are required to weigh the effects of their decisions on employees, customers, the community, and the environment. The nature of the business itself does not affect whether a company qualifies as a benefit corporation; what matters is that it declares its commitment in its corporate bylaws.

  Transparency is a central obligation. Benefit corporations must publish annual benefit reports measuring their social and environmental performance against a comprehensive, credible, independent third-party standard. Those reports must be delivered to all shareholders and posted on a public website, though proprietary data may be excluded.

  Changing into or out of the benefit corporation status requires what the statutes call a minimum status vote. In most states that threshold is a two-thirds supermajority. Shareholders who vote against such a change and qualify may invoke dissenter's rights, which allow them to require the company to buy back their shares at fair value before the conversion takes effect.

  Not all states have backed these requirements with teeth. Few of them have included provisions for removing benefit corporation status or imposing fines if companies fail to publish compliant benefit reports, which leaves enforcement uneven across jurisdictions.

• 5. Related But Different Structures

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  Public benefit LLCs extend the same opportunities to limited liability companies that benefit corporation laws provide to corporations. Delaware enacted its public benefit LLC statute on the 23rd of July 2018, taking effect on the 1st of August. Maryland, Oregon, Pennsylvania, Kansas, and Utah have all enacted similar provisions for LLCs.

  Some states have also created social purpose corporations, or SPCs, which the source describes as more flexible in their legal requirements and responsibilities than benefit corporations. California passed both SB 201 and SB 1532 for flexible purpose corporations on the 9th of October 2011; those laws were later revised and renamed as SPCs in 2015 via SB 1301. Florida and Washington have similar SPC statutes.

  Low-profit limited liability companies, known as L3Cs, represent a third variant. These were created to comply with IRS program-related investment rules under 26 U.S.C. Section 170(c)(2)(B), which allow private foundations to maintain tax-exempt status by investing in qualifying businesses. Vermont was the first state to authorize L3Cs, on the 30th of April 2008. Michigan, Maine, Wyoming, and Illinois followed over the next year. L3Cs blend limited liability and nonprofit law but remain for-profit entities for tax purposes.

  Benefit corporations are also distinct from cooperatives, where governance and shares are equally held by members such as all employees or all consumers. A benefit corporation can be organized as a cooperative, and vice versa, but the two forms are not interchangeable.

• 6. Beyond the United States

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  British Columbia became the first Canadian province to authorize benefit companies when its legislation took effect on the 30th of June 2020. The push started two years earlier: in May 2018, the leader of the British Columbia Green Party introduced a bill to amend the province's Business Corporations Act.

  Colombia introduced benefit corporation legislation in 2018. Israel's Companies Law defines a public benefit company in its ninth chapter, with a definition that dates to a 2007 amendment. Israeli public benefit companies may only draw their stated goals from a closed list codified in law and are prohibited from distributing dividends.

  Italy moved in December 2015, when its parliament passed legislation recognizing a new kind of organization called the Societa Benefit. That form was directly modeled on the American benefit corporation. The United Kingdom took a different path earlier: Community Interest Companies, or CICs, were introduced in 2005 for people who wished to establish businesses trading with a social purpose or carrying on activities for the benefit of the community. Oregon's benefit corporation law, signed in July 2023, added a procurement dimension not widely found elsewhere, allowing public contracting agencies to award contracts to benefit corporations even when their prices run up to 5% higher than a competitor's.

• 7. The B Corp Distinction

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  Filing as a benefit corporation in a state and earning certification as a B Corporation are two different things, and the difference matters. B Corporations voluntarily commit to social and environmental goals and must score at least 80 out of 200 on a survey called the B Impact Assessment administered by the organization B Lab. They must also pass an audit process and pay an annual fee to B Lab to maintain certification.

  Companies seeking re-certification will be required to pledge to incorporate as a benefit corporation, linking the two tracks. But a company can be a legally chartered benefit corporation without being B Lab-certified, and a company can earn B Lab certification without filing as a benefit corporation in its state of incorporation.

  Perhaps the clearest endorsement of the benefit corporation form on record comes from Yvon Chouinard, founder of Patagonia, who wrote that benefit corporation legislation creates the legal framework that allows companies like his to stay mission-driven through succession, capital raises, and changes in ownership, by institutionalizing the values, culture, processes, and high standards that founding entrepreneurs put in place.

• 8. Consumer and Investor Pull

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  Research cited in the William Mitchell Law Review journal puts the number of American customers who make purchasing decisions based on environmental or social responsibility at around 68 million. The same journal found that about 49% of Americans have boycotted a firm at some point because they viewed its behavior as not in the best interest of society.

  When price and quality are held equal, research suggests that 87% of customers would switch from a less socially responsible brand to a more socially responsible competitor. Some consumers go further, using their purchases as a targeted instrument to punish companies for specific environmental or social failures or to reward companies they view as acting in the public good.

  On the business side, benefit corporation laws address a concern that mission-driven founders frequently name: the fear of losing their social or environmental mission when raising growth capital. The laws also provide protection when a company is being sold, allowing directors to weigh factors beyond the highest offer on the table, a direct counterweight to the standard established by Revlon, Inc. v. MacAndrews and Forbes Holdings, Inc. Firms that have made the transition report advantages in retaining employees, building customer loyalty, and attracting talent aligned with the company's culture.