Social entrepreneurs take note: on Wednesday, June 16, 2011, the State Senate passed a bill that, if signed into law, could allow for the establishment of benefit corporations in New York. The bill was sponsored by State Senator Daniel Squadron and passed by a vote of 60 to 1; from here, the bill will be sent to the governor.
Benefit corporations, or B Corps, are already legally recognized by four states: Maryland, Vermont, New Jersey, and Virginia (as of July 1). For those unfamiliar with the concept, the benefit corporation is a new form of corporate organization introduced in 2006 with the formation of B Lab, an organization committed to quantitatively evaluating corporate social responsibility.
A benefit corporation is a company that is for-profit, yet is beholden not only to its shareholders, but also to socially beneficial principles such as environmental protection or fair treatment of workers. While several hundred companies in the U.S. have been designated as B corporations by B Lab, without the legislation to support these corporations' social missions, legally the companies are still vulnerable to lawsuits from their shareholders if company earnings are lowered by adherence to their ethical principles.
As an example, ice cream company Ben & Jerry's was launched by its founders as a socially responsible business. However, because the law dictates that a company's duty is to maximize profits for shareholders, when the conglomerate Unilever showed interest in buying out Ben & Jerry's for a massive sum in 2000, the board of directors was obligated to support the buy-out in order to avoid being sued by shareholders. If the legal framework for the benefit corporation had existed in 2000, Ben & Jerry's might not have been compelled to cooperate with the takeover.
Benefit corporations bear some similarities to low-profit limited liability companies (L3Cs), in that both allow for profit and public benefit simultaneously, but benefit corporations allow for more flexibility in their social purposes, while L3Cs feature more flexibility in their taxation. You can read more about the differences between the two in this article from Law for Change.
State Senator Squadron said about the proposed bill for New York, "I'm both a member of the New York State Senate and an eternal optimist…You have entrepreneurs and investors who want to do good, but also want to do it in the context of all the capital and all the resources in the for-profit world." Now that it's up to Governor Andrew Cuomo to sign the bill into law, the coming months will show what the future holds for benefit corporations.
In addition to New York, six other states are currently discussing possible passage of benefit corporation legislation: Colorado, Hawaii, North Carolina, Pennsylvania, California, and Michigan. See more details on the legislative status of these companies here.
To read more about the bill's progress in New York, check out this article from the New York Observer. To see more about benefit corporations overall, the New York Times ran a detailed article on the subject in April, and this piece from Capital Institute features an interview with B Lab cofounder Andrew Kassoy on how companies become certified as B Corps and the progress of benefit corporations as legal structures. For more information on social enterprises, read this Knowledge Base article on GrantSpace.
As more states begin considering laws related to benefit corporations, you're likely to see a lot more news items and information on this topic in the near future.
-- Tracy Kaufman, Library Assistant