2024 Guide to Connecticut Benefit Corporations

Why We’re Writing a Guide to Connecticut Benefit Corporations:

Attorney Kevin Christopher is a Yale School of Management graduate with an interest in helping Connecticut companies understand benefit corporation legal structures and B Corp business frameworks.
Rockridge supports the B Local Connecticut community and looks to provide helpful business and legal resources for its members.
It’s easy to confuse benefit corporation (legal) and B Corp (business) requirements, and this guide helps to break down the legal requirements specifically.
Each state’s benefit corporation laws vary in important ways, and business lawyers not familiar with these nuances can steer companies in wrong directions.

Rockridge® is a 4x Best For The World B Corp, designed to work with innovative and impact-oriented companies. See our contact page for ways to connect to learn more about our services and how we can help your company launch and scale.

Fundamentals of Connecticut Benefit Corporations

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 Connecticut 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.

Better B Haven’ –Governed by the laws of the Nutmeg State, Connecticut Benefit Corporations operate with the same confidence that a slice of New Haven pizza rivals any New York pie. Here, corporate governance is as distinctly Connecticut as the superior crust of a Pepe’s pizza, ensuring companies thrive under statutes that resonate with local pride and principles. So, make sure you are following the Connecticut statute for guidance on how and when to publish your required annual Benefit Report, the Benefit Director’s duties, and other essential operational aspects that qualify you for Benefit status. If you are not following the rules required under Connecticut law, then you may lose the protections of the Benefit Corporation framework and potentially be subject to shareholder disputes.

Lobsters and Lobsters to the IRS – Your Connecticut 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.

Lit as a Lighthouse – Connecticut 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. Connecticut Benefit Corporations must take into consideration numerous stakeholders when making business decisions. Connecticut Benefit Corporations must also issue annual Benefit Reports and supply their Benefit Reports on a public portion of their website or 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 for Connecticut Benefit Corporations

Connecticut law paints a detailed picture of a Benefit Corporation’s responsibilities, from public benefit missions and shareholder voting to the role of directors. Ignorance isn’t bliss when it comes to compliance, so it’s important to ensure every box is ticked.

Conn. Gen. Stat. Ann. § 33-1350

A selection of requirements that prospective Benefit Corporations should consider:

Notice. A Connecticut Benefit Corporation’s articles of incorporation must include a general public benefit, meaning “a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.” The company may also have a specific public purpose, which is defined under § 33-1351(13) of the law. For example, a specific public benefit can include, serving low-income or underserved individuals or communities, protecting the environment, improving human health, and promoting the sciences. The Act also includes a catchall, which states that a specific public benefit may mean “conferring any other particular benefit on society or the environment.”

Mission Entrenchment. Connecticut Benefit Corporations may adopt a Legacy Preservation Provision. Following a two-year waiting period after the commencement of Benefit Corporation status, the Benefit Corporation may implement a Legacy Preservation Provision, by amending its certificate of incorporation to contain a statement that the corporation is subject to a Legacy Preservation Provision. A Legacy Preservation Provision provides social entrepreneurs the opportunity to preserve their company’s status as a Benefit Corporation in perpetuity, despite fluctuations in company ownership or leadership. The provision, once enacted, also requires the entity, if liquidated, to dispense all assets to one or more benefit corporations or 501(c)3 organizations with similar social missions. Accordingly, any such amendment must be adopted in accordance with the procedures set forth in chapter 601 and must be approved by the unanimous vote or written consent of the shareholders of every class or series regardless of any limitation stated in the certificate of incorporation or bylaws on the voting rights of any such class or series. FRESH Farm Aquaponics Inc. (FFA) of South Glastonbury is an example of a company that has employed the Legacy Preservation Provision. FFA raises plants and fish in a sustainable ecosystem using smart agriculture technologies such as aquaponics. Kieran Foran, co-founder and president of FFA, attributed Connecticut’s Legacy Preservation Provision as an essential component in the company’s decision to convert to a Benefit Corporation.

Conversion. A Connecticut corporation cannot convert to a Benefit Corporation without receiving approval from two-thirds (67%) of its shareholders, this is considered the “minimum status vote.” In a minimum status vote shareholders of every class or series are entitled to vote on the corporate action regardless of a voting rights limitation stated in the certificate of incorporation or bylaws. After approval, the entity must amend or file its certificate of incorporation to include a statement that it is a Benefit Corporation, in addition to matters required by Section 33-636.

Termination. Except for a Connecticut Benefit Corporation that adopts a legacy preservation provision, a Benefit Corporation may terminate its status as such, by amending its certificate of incorporation to delete any provision stating that such corporation is a Benefit Corporation. Any such amendment must be approved by a minimum status vote. If a Benefit Corporation is a party to: (1) a merger in which (A) the surviving entity will not be a Benefit Corporation or (B) shares of such benefit corporation will be converted into a right to receive shares or other equity interests of an entity that is not a benefit corporation; or, (2) a share exchange in which the shares of the Benefit Corporation will be exchanged for shares or other equity interests of an entity that is not a Benefit Corporation, the plan of merger or share exchange shall be approved by a minimum status vote. A Benefit Corporation that adopts a Legacy Preservation Provision may only be a party to a merger in which the surviving entity will be a Benefit Corporation that has adopted a Legacy Preservation Provision.

Operations. A Connecticut Benefit Corporation that is a publicly traded corporation shall, and the board of any other Benefit Corporation may, include a director who will be designated the Benefit Director. The Benefit Director must prepare the annual benefit report to its shareholders, which must assess whether the Benefit Corporation acted in accordance with its general public benefit purpose and any specific public benefit purpose in all material respects during the period covered by the report. The Benefit Corporation also has an option to delegate a ‘Benefit Officer’. Directors of a Connecticut 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. Unless the Benefit Corporation’s certificate of incorporation explicitly states its intention to provide priority to certain interests, directors are not obligated to give priority to a particular stakeholder. Directors may also consider other pertinent factors or the interests of any other group that they deem appropriate.

Transparency. A Connecticut Benefit Corporation is a beacon, illuminating its positive impact on society and the environment. It’s not just about the talk; the walk is crucial. Whether it’s in your governance documents or annual Benefit Reports, transparency is key. Stakeholder interests—customers, employees, the planet—are your compass, guiding every strategic decision. A Connecticut Benefit Corporation must select a third-party standard by which to assess the corporation’s pursuit of a general public benefit and any specific public benefit. Selecting or changing a third-party standard requires approval by either a majority of all the directors, the number of directors required by the certificate of incorporation or bylaws of the Benefit Corporation, or by the vote or written consent of the shareholders required by the company’s organizational documents. The Benefit Corporation must then issue an annual Benefit Report to its shareholders demonstrating, among other things, a valuation of the business’s overall social and environmental performance against the selected third-party standard. The third-party standard must be applied consistently to anticipated and prior Benefit Reports. If a change occurs 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 readily available to those requesting it. The compensation paid to directors and financial or proprietary information in the Benefit Report may be omitted as posted.

Rockridge Practical Observations on Connecticut Benefit Corporations

In October of 2014, Connecticut joined twenty-six other states in enacting a Benefit Corporation statute. Compared to other states, Connecticut’s statute has some distinctive/unusual features. For instance, the inclusion of a voluntary “Legacy Preservation Provision,” enables companies to preserve their social mission(s), regardless of a change in company ownership or leadership. Accordingly, the Benefit Corporation’s public benefit can be further entrenched and last in perpetuity, alongside the life of the company.

Parallel to the Model Benefit Corporation Legislation (MBCL), Connecticut 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.” Also, like the MBCL, there is an optional specific public benefit purpose. Moreover, directors of Connecticut Benefit Corporations are obligated to weigh the impact of their actions or inactions upon all specifically named stakeholders, and a 2/3 approval vote is required for the corporation to become a Benefit Corporation or to terminate its Benefit Corporation status. Unlike the MBCL, Connecticut mandates a Benefit Director for publicly traded Connecticut Benefit Corporations. Additionally, unlike the MBCL, the Connecticut statute allows shareholders to derivatively bring a benefit enforcement proceeding if they own at least five percent (rather than two percent, as in the MBCL) of the total number of shares of a class.

Overall, we are pleased with Connecticut’s Benefit Corporation Legislation. However, we would prefer a statutory requirement for third-party audits, instead of the current statutory instruction to evaluate the company’s performance against a qualified third-party standard. Nonetheless, a Connecticut 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.