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The Rockridge® Guide to South Carolina Benefit Corporations
Wanting to know more about South Carolina Benefit Corporations?
…because you want to lock in your profitable purpose as you grow?
…because you want to brand and capture public goodwill as a benefit company?
…because you want to attract top-notch talent as you scale?
…because you want to grow a relevant, scalable, and sustainable enterprise?
Then this guide’s for you!
Fundamentals of South Carolina Benefit Corporations
Just two years after Maryland passed the first Benefit Corporation Statute in 2010, South Carolina followed suit and passed the South Carolina Benefit Corporation Act. Impressively, South Carolina was one of the first states in the southeast to enact a Benefit Corporation statute. Here are some fundamental concepts to keep in mind when incorporating as or converting to a Benefit Corporation in the Palmetto State.
B Corps aren’t Benefit Corporations (necessarily) – Certified B Corps are companies audited by the nonprofit B Lab and validated to be good corporate citizens with triple bottom line business models. They get to brand themselves with the B Corp logo, similar to the way buildings can certify as LEED and chocolatiers as Fair Trade. As part of the B Corp certification process, B Lab requires companies that are legally structured as corporations to convert to Public Benefit Corporations. However, LLC’s and even sole proprietors can become Certified B Corps. If you are a sole proprietor or LLC, you don’t necessarily have to convert to a Benefit Corporation to become a B Corp. Also, you can realize the many advantages of a South Carolina Benefit Corporation legal structure even if you never intend to certify with B Lab as a B Corp business. Read more about how B Corps and Benefit Corporations are related here.
It’s a Southern Thing – South Carolina Benefit Corporations are governed by South Carolina law – not Delaware, not New York – this is as unique to South Carolina as the historic and colorful streets of Charleston. So, make sure you are following the South Carolina statute for guidance on how and when to publish your required annual benefit reports, selecting a benefit director, and other fundamental operational aspects. If you are not following the rules, e.g. assessing the company’s performance against a qualified third-party standard, then you can lose the protections of the Benefit Corporation framework and potentially be subject to shareholder disputes. Fortunately, the Christopher & Panasci ESG team at Rockridge® can help you understand best operational practices and what the South Carolina Benefit Corporation means for your investors, executives, and customers.
This Cock Still Clucks to the IRS – Your South Carolina Benefit Corporation is treated as a typical corporation for tax purposes. There are no magic tax breaks here, but your accountant can guide you on what impact expenses may be deductible to a Benefit Corporation that otherwise aren’t connected to the purpose of a standard corporation.
No Bluff Here – South Carolina Benefit Corporations must be transparent in periodically highlighting what they are doing to further the communities and/or public benefits they serve as expressed in their certificate of incorporation, bylaws, and other governing docs. You can’t just talk it; you’ve got to actually walk it. South Carolina Benefit Corporations must take into consideration numerous stakeholders when making business decisions. South Carolina Benefit Corporations must also issue annual benefit reports and provide them to anyone who requests a copy. The public has to know what you’re all about and what you’re working with.
Statutory Sections that Matter
A selection of requirements that prospective Benefit Corporations should consider:
Notice. A South Carolina Benefit Corporation is formed under the South Carolina Benefit Corporation Act. Under the Act, the certificate of incorporation must have a general public benefit, meaning “a material positive impact on society and the environment taken as a whole, as assessed against a third-party standard.” The company may also have a specific public purpose, which is defined under the act as “a benefit that serves one or more public welfare, religious, charitable, scientific, literary, or educational purposes, or other purposes or benefits beyond the strict interest of the shareholders.” §33-38-120.
Conversion. A South Carolina Corporation cannot convert to a Benefit Corporation without receiving approval from two-thirds of its shareholders. Similarly, termination of Benefit Corporation status by vote or acquisition requires two-thirds shareholder approval. If a South Carolina corporation converts to a South Carolina Benefit Corporation, dissenting shareholders are entitled to obtain payment of the fair value of their shares, alongside other legal remedies.
Operations. Directors of a South Carolina Benefit Corporation must consider not only shareholders, but also employees, suppliers, customers, the community and societal factors, the local and global environment, and the short and long-term interest of the corporation in performing their duties. (Really, this is where all companies may be heading in the U.S.) Unless the benefit corporation’s articles of incorporation explicitly state its intention to provide priority to certain interests, directors are not obligated to give priority to a particular stakeholder. Notably, the entity must designate a ‘Benefit Director’ with several statutory responsibilities, including overseeing the company’s mission as a benefit corporation. The Benefit Corporation also has an option to delegate a ‘Benefit Officer’. The Benefit Officer and Benefit Director may be the same individual.
Transparency and Compliance. A South Carolina Benefit Corporation must issue an annual report to the Secretary of State and to the Corporation’s shareholders demonstrating, among other things, a valuation of the business’s overall social and environmental performance against a qualified third-party standard. The third-party standard must be applied consistently to anticipated and prior benefit reports. If a change happens to occur in the third-party standard, the entity must include a statement describing the reasoning for inconsistency. Additionally, the entity must post its benefit reports on a publicly accessible portion of its website (if it has one). Otherwise, the report must be made readily available to those who request it. The compensation paid to directors and financial or proprietary information in the benefit report may be omitted as posted.
Rockridge® Practical Observations
They like their tea sweet in SC. The South Carolina Benefit Corporations Act is now ten years old. Since the statute was enacted in 2012, there have been no amendments made to its original language. South Carolina was one of the first states in the southeast to pass benefit corporation legislation, which may explain why this statute resembles the B Lab’s Model Benefit Corporation Legislation (MBCL) more than some of the watered-down Social Purpose models found in other southern states (such as Georgia’s and Tennessee’s Benefit Corporation Statutes).
For example, like the MBCL, South Carolina defines general public benefit as “a positive impact on society and the environment taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation.” Like the MBCL, there is also an optional specific public benefit purpose. However, South Carolina’s Benefit Corporation Act is one of very few that have departed from the Model Act’s definition to explicitly include “religious” purposes in its specific public benefit purpose definition. Yet, the pursuit of a specific public benefit cannot absolve a benefit corporation from the commitment to produce a general public benefit.
Moreover, comparable to the MBCL, Directors of South Carolina benefit corporations are obligated to weigh the impact of their actions or inactions upon all specifically named stakeholders. In South Carolina, some of the stakeholders include employees, shareholders, customers, suppliers, community, environment, and long-term corporate interests. Also, like the MBCL, the corporation must receive a 2/3 vote from shareholders to become a benefit corporation or to terminate its benefit corporation status. Interestingly, South Carolina’s Act is slightly stronger than the MBCL regarding enforcement. In South Carolina, benefit enforcement proceedings may be brought about from any shareholder of the corporation, not just shareholders who own two or more percent of the corporation (as in the MBCL).
A little more sugar, please. Overall, we are satisfied with South Carolina’s Benefit Corporation Legislation. We would prefer a statutory requirement for third-party audits, instead of an ambiguous statutory instruction to evaluate the company’s performance against a qualified third-party standard. Nonetheless, a South Carolina Benefit Corporation may still employ a third-party auditor. In these instances, we recommend considering B Corp Certification. To apply for B Corp certification, your company will be audited by the nonprofit B Lab and validated to be good corporate citizens with triple bottom line business models.
Find out more about certified B Corps here.
South Carolina Benefit Corporation Resources
An Entrepreneur’s Guide to Going “B” by Center for Business and Environment at Yale
An Investor’s Guide to B Corps by Center for Business and Environment at Yale
Better Business by Chris Marquis
Benefit Corporation Law and Governance by Fredrick Alexander
How are B Corps and Public Benefit Corporations Related? by Rockridge Venture Law
Rockridge® Guide to Southeastern Benefit Corporation Statutes by Rockridge Venture Law
The Delaware Public Benefit LLC: Use it to Become a “Benefit Company” in Your State by Rockridge Venture Law
Sustainability: B Corporations by University of South Carolina’s Library
South Carolina Benefit Corporation Act by South Carolina Legislative Services Agency
10 reasons why a business should become a B Corp by Charleston Regional Business Journal
About Kevin Christopher
Kevin is the founder and principal of Rockridge®, a 4x B Corp Best For The World and Real Leaders Top 150 global impact company. He is annually recognized as a SuperLawyer, and has received numerous professional awards ranging from Conscious Company Magazine’s Top Business Leader to the Federal Lab Consortium’s technology license Deal of the Year. He has been profiled in B the Change, Forbes, the Los Angeles Times, Sustainable Brands, and many other media outlets highlighting sustainability and technology leaders. He is widely recognized for his thought leadership and initiatives at the nexus of impact and innovation.
Impact + Innovation Credentials
An entrepreneur-attorney, Kevin’s recently founded Quantiscope, a BARDA DRIVe accelerator launched AI company advancing ML enterprise models for drug discovery, as well as climate tech Calliope Bio, a computational synthetic biology company launched from the Nucleate Activator and advanced through the Berkeley Skydeck accelerator. Kevin’s entrepreneurship career began with Resolute Therapeutics, a CARB-X awardee developing a novel class of broad spectrum antibiotics.
As an ESG leader, Kevin is a 2050 Fellow at the Yale Center for Business and Environment (CBEY), and select member of the World Economic Forum’s Crypto Sustainability Coalition. Kevin founded Tennessee’s local B Corp network B Tennessee and served as sponsoring counsel to B Academics.
With a background in public-private partnerships, Kevin is a National Institutes of Health (NIH) RadX faculty member, and National Science Foundation (NSF) program evaluator for the Center for Bioplastics and Biocomposites (CB2) as well as the Carnegie Mellon Center for Quantum Computing and Information Technologies (Q-CIT).
. Kevin’s practice areas include:
- patent and trademark prosecution, licensing and litigation;
- corporate law, with an emphasis on benefit corporations, socially responsible businesses and high-growth emergent companies;
- government contracts, with an emphasis on innovation funding;
- corporate and investor financing; and,
- technology commercialization.
To meet with Kevin Christopher, schedule an appointment through Calendly or email him directly at firstname.lastname@example.org.