Welcome to the Rockridge Guide to Southeastern Benefit Corporation Statutes. Here you’ll find a regularly updated listing of benefit corporation laws along with key insights and judicial precedents among Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, South Carolina, and Tennessee. If you are interested in B Corps and confused (like many others) as to the differences between B Corp and Benefit Corporation, start with this introduction:
Shareholder Primacy in 264 Words: The Basis for the Benefit Corporation
A corporation is a creature of state law. It is governed first and foremost by laws of the state(s) in which it is incorporated and/or principally operates, and additionally by the states where it conducts business. Of course, from Alabama to California, we are a diverse country of diverse sets of rules and regulations. Rising above the diversity, however, is the universal principle of shareholder primacy; that is, corporate directors are elected by corporate shareholders, and the directors in their management of the corporation must above all else provide financial returns to shareholders.
An unfortunate byproduct of shareholder primacy is that it limits the ability of corporate management at times to esteem its employees, to reduce environmental impact, to sacrifice near-term profit for long-term viability, or to measure the social consequences of its practices, if thereby endangering shareholder return. This is admittedly an oversimplification, but not an egregious one. Time and time again, as companies have taken gone public or taken on institutional investment they’ve encountered “mission drift” when directors redefine how and even why the companies make money (looking at you, Etsy).
The rise of the benefit corporation is in direct response to shareholder primacy. Under benefit corporation statutes, corporations that operate according to a ‘doing well by doing good’ ethos are shielded from a range of acquisition tactics and shareholder suits when compliant with the respective statutes. Moreover, data is showing that benefit corporations tend to attract better talent and scale better than their non-benefit peers. They may even find tax advantages not otherwise available to standard corporations and limited liability companies.
Benefit Corporation FAQ’s
What is a Benefit Corporation and How Does it Address Shareholder Primacy?
A Benefit Corporation may be thought of as a legal framework to best promote corporate social responsibility. Over the past few decades, U.S. corporate law has trended towards something lawyers ominously refer to as the Doctrine of Shareholder Primacy. It basically means that shareholders can pressure a company into maximizing monetary return to those investors over competing considerations like environmental and social impact.
For example, a company could be prevented from rolling out a novel paternity leave program for its employees if by doing so the company were to risk shareholder dividends. By organizing and operating as Benefit Corporations, companies can shield their management activities from shareholder pressures; effectively, Benefit Corporations put the force of law behind the idea that a company can and will consider people, planet, and profit as worthy metrics of success.
*Note that we will use “company” in our answers when referring to you or your entity since benefit corporation regulations extend in some states to partnership structures as well as corporations.
If a company is already set up as a C Corp or an S Corp, what will change if it becomes a Benefit Corporation?
A few things: for instance, in Delaware, to become a Public Benefit Corporation, an already existing C or S Corp must (1) add “Public Benefit Corporation,” “PBC,” or “P.B.C.,” to its name, (2) identify one or more Specific Public Benefits in its Certificate of Incorporation approved by both the board of directors and stockholders of the corporation, and (3) amend stock certificates to state “Public Benefit Corporation.” Once effective, directors have a duty to consider in board actions not only stockholder interests, but also the stated public benefit(s) and certain other stakeholder interests within the company.
What is involved in the process to become a Benefit Corporation? How long does it take and how much does it cost (not including legal fees)?
If you’re already incorporated as a C or S Corp, then the administrative filing costs will be the required amendments to your company’s incorporation documents. If you have yet to incorporate, then the filing costs will be the same as incorporating as a C or S Corp in your state. If your state has not adopted benefit corporation legislation or has adopted a watered-down version of laws (think double-bottom-line vs triple-bottom-line), then you may need to consider foreign certificates. The amount of time involved will largely depend upon your corporate governance structure and how much time is necessary for board-level adoption of the new structure.
What are the ongoing requirements and fees needed to retain Benefit Corporation status?
Most states require that a company submit a Benefit Report annually or biannually; this is one way of keeping companies focused on the triple-bottom-line approach to measuring success. Some states require the update to be published publicly and others allow the company to choose. Also, some states require that the company provide notice of its status as a Benefit Corporation before the sale of stock. Of course, the company will need to operate in accordance with its newly stated corporate, environmental and social mission; and its accounting practices will need to be updated to properly record and substantiate this. Otherwise, the company should comply with corporate formalities as usual.
How does becoming a Benefit Corporation affect your taxes? Are they taxed differently?
Benefit Corporations are not tax-exempt like non-profits because they are still for-profit entities. A Benefit Corporation will still be taxed as an S Corp, C Corp, or alternative pass-through entity where applicable. Benefit Corporation status is first and foremost a legal status. Notwithstanding, in some circumstances, for instance with pass-through entities, expenditures historically not deductible as not related to the primary business of the company may become deductible through Benefit Corporation adoption.
To illustrate, if a law firm partnership properly organized wished to purchase kayaks for monthly river cleanups (just brainstorming here, of course), that purchase may ordinarily be considered personal expenditures attributable to its partners or not reasonably related to the practice of law. As a Benefit Corporation, the law firm may reasonably argue that the purchase is a proper business expenditure in light of the firm’s triple-bottom-line business model and specific corporate structure. The I.R.S. in its rule making is concerned with the creation of wealth, and if new markets are created or competitive advantages achieved through investments specific to differentiating branding, i.e. promotion of Benefit Corporation status to appeal to conscientious consumers, then a secondary if not parallel aspect of the company’s business purpose has been achieved and should be recognized equivalent with other primary business expenses.
Some commonly used terminology in the world of Benefit Corporations:[table id=2 /]
Survey of State Benefit Corporation Statutes
The Southeastern states are the new kids on the block when it comes to Benefit Corporation laws. And like a boy band, these laws are generally big on show and light on substance. The southeastern states are led by conservative legislatures in many cases led by part-time officials (i.e. there’s no money in state politics so don’t quit your day job). It is easy to envision a conservative, part-time state legislator googling “benefit corporation” and immediately forming a negative opinion of proposed legislation if the takeaway is ‘idealist entrepreneurs don’t have to listen to their investors anymore’. Instead, the focus of advocacy in conservative states should be on the potential of Benefit Corporation statutes to encourage community engagement, enable long-term corporate planning and R&D investment, and development of local investor syndicates.
As it stands, Benefit Corporation laws have been adopted in many southern states, but the laws look very different from the Model Benefit Corporation Legislation developed by B Lab. Below are important distinctions. For more on how the southeastern statutes have deviated from the MBCL, see Grading Georgia’s Public Benefit Corporation Law. For purposes of this comparison, we refer to the southeastern statutes as Social Purpose laws instead of Benefit Corporation laws.[table id=1 /]
Reference: Ala. Code §10A-2A-17.01 – § 10A-2A-17.06
- An Alabama Benefit Corporation is formed under the Alabama Benefit Corporation Act. Under the Act, the Certificate of Incorporation must include a statement that the corporation is subject to the Benefit Corporation chapter of the corporation law. The name of a Benefit Corporation must contain the words “benefit corporation”, the abbreviation “B.C.” or the designation “BC”, and may not use the word “incorporated” or an abbreviation thereof.
- In Alabama, public benefit means a positive effect, or reduction of negative effects, on one or more communities or categories of persons (other than stockholders solely in their capacity as stockholders) or on the environment, including effects of an artistic, charitable, economic, educational, cultural, literary, medical, religious, social, ecological, or scientific nature.
- Directors of an Alabama Benefit Corporation must consider not only shareholders, but also employees, suppliers, community, and the environment in performing their duties. Directors must also act in a responsible and sustainable manner, which essentially means creating a positive effect on society and the environment dictated by the company’s size and nature of business.
- An Alabama corporation cannot convert to a Benefit Corporation without two-thirds approval of its shareholders. Similarly, termination of Benefit Corporation status by vote or acquisition requires two-thirds shareholder approval.
- An Alabama Benefit Corporation must prepare an annual benefit report that is to be distributed to shareholders and posted on its website.
Resources: Alabama Benefit Corporation Association
- An Arkansas Benefit Corporation must state in its articles of incorporation its status as a benefit corporation.
- An Arkansas Benefit Corporation must identify a general public benefit, defined as a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from its business and operations.
- An Arkansas corporation cannot convert to a Benefit Corporation without two-thirds approval of its shareholders. Additionally, all shareholders may vote irrespective of voting or class limitations in the corporation’s charter or bylaws. Similarly, termination of Benefit Corporation status by vote or acquisition requires two-thirds shareholder approval.
- Directors and certain officers of an Arkansas Benefit Corporation must consider not only shareholders, but also employees, suppliers, community, environment, and long-term interests of the corporation in performing their duties.
- A Benefit Corporation must prepare an annual benefit report that is to be distributed to shareholders, posted on its website and filed with the Secretary of State.
- A Benefit Corporation will not be financially liable for violating any of the state requirements and may only be charged with violating the requirements through specific beneficiary enforcement proceedings.
- A Florida Benefit Corporation must state in its articles of incorporation its status as a benefit corporation.
- A Florida Benefit Corporation must identify a general public benefit, defined as a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from its business and operations.
- A Florida corporation cannot convert to a Benefit Corporation without two-thirds approval of its shareholders. Additionally, all shareholders may vote irrespective of voting or class limitations in the corporation’s charter or bylaws. Similarly, termination of Benefit Corporation status by vote or acquisition requires two-thirds shareholder approval. If terminated, shareholders are entitled to appraisal rights.
- Directors and certain officers of a Florida Benefit Corporation must consider not only shareholders, but also employees, suppliers, community, environment, and long-term interests of the corporation in performing their duties.
- A Florida Benefit Corporation must prepare an annual benefit report that is to be distributed to shareholders and posted on its website. Failure to deliver an annual report can subject the corporation to court order and discretionary award of attorneys’ fees.
- A Florida Benefit Corporation will not be financially liable for violating any of the statutory requirements and may only be charged with violating the requirements through specific beneficiary enforcement proceedings.
Resources: Florida for Good
Reference: Georgia Code § 14-2-1801 – §14-2-1807
- A Georgia Benefit Corporation must state in its articles of incorporation its status as a benefit corporation.
- In Georgia, public benefit means a positive effect, or reduction of negative effects, on society, on the environment, or on one or more communities or categories of persons, entities, or interests, other than shareholders in their capacity as shareholders, including effects of an artistic, charitable, cultural, economic, ecological, educational, environmental, literary, medical, religious, scientific, social, or technological nature.
- A Georgia corporation cannot convert to a Benefit Corporation without two-thirds approval of its shareholders. Additionally, all shareholders may vote irrespective of voting or class limitations in the corporation’s charter or bylaws. Similarly, termination of Benefit Corporation status by vote or acquisition requires two-thirds shareholder approval.
- Directors of a Georgia Benefit Corporation must consider the public benefit or benefits specified in the corporation’s articles of incorporation when managing or directing the business and its affairs.
- A Georgia Benefit Corporation must adopt a standard or standards by which to measure its performance in pursuing the public benefit or benefits specified in the its articles of incorporation. An annual report must be provided annually to shareholders and to persons requesting copies in writing.
- A Georgia Benefit Corporation will not be financially liable for violating any of the statutory requirements.
Reference: Codified in KRS 271B
- A Kentucky Benefit Corporation is defined as a for-profit corporation intended to produce a public benefit and to operate in a responsible manner, balancing the stockholders’ pecuniary interests, the best interests of those materially effected by the corporation’s conduct, and the public benefit identified in the articles of incorporation (271B.1-400(23)).
- A Kentucky Benefit Corporation must state in its articles of incorporation its status as a benefit corporation and one or more public benefits (271B.2-020(4)).
- A public benefit is defined as a positive effect or reduction of negative effects one one or more categories of persons, entities, communities, or interests other than stockholders in their capacities as stockholders (271B.1-400(22)).
- A Kentucky corporation cannot convert to a Benefit Corporation without ninety percent (90%) approval of its shareholders. Any shareholder has dissenter’s rights to oppose a benefit corporation conversion. A Kentucky Benefit Corporation can terminate its benefit corporation status by a lesser approval of two-thirds (67%) of its shareholders (271B.11-025).
- Directors of a Kentucky Benefit Corporation must consider in management of the corporation the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit or public benefits identified in its articles of incorporation (271B.8-300(8)). Shareholders with at least two percent (2%) holdings of the Benefit Corporation may enforce this provision through a derivation proceeding (271B.7-400(8)).