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

 

  • Rockridge supports B Local communities through the country and looks to provide helpful business and legal resources for their 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 Ohio Benefit Corporations

 

Ohio amended its General Corporation Law to recognize benefit corporations in 2021, over a decade after Maryland passed the nation’s first benefit corporation statute. Here are a handful of tenants of benefit corporation laws in Ohio.

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 an Ohio 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.

Rocking It Ohio-Style – Just like the iconic tunes at the Rock & Roll Hall of Fame, the unmatched prowess of the Big Red Machine, and the natural allure of the Cuyahoga Valley National Park, Ohio’s legal landscape for Benefit Corporations marches to its own rhythm. It’s all about embracing the local vibe—from tapping into the spirit of Ohio law for your annual benefit report beats to ensuring every operational note is pitch-perfect. Miss a beat by failing to observe Ohio-specific statutory requirements and you might find yourself facing more than just music critics. To keep your Benefit Corporation in harmony and out of discord with shareholder disputes, be sure to follow Ohio corporate law.

Buckeyes and Buckeyes to the IRS – Your Ohio 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 hidden tunnels here – Ohio 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 articles, bylaws, and other governing docs. You can’t just talk it; you’ve got to actually walk it. Ohio Benefit Corporations must take into consideration numerous stakeholders when making business decisions, and to a certain extent report out on efforts throughout the year to advance public benefit interests.

Statutory Sections that Matter for Ohio Benefit Corporations

 

Ohio Rev. Code § 1701 et seq

A selection of requirements that prospective Benefit Corporations should consider:

Notice and Stakeholder Commitment. Under the Ohio Revised Code (ORC), a corporation seeking to become a benefit corporation must file articles of incorporation with the state. These articles must expressly state one or more beneficial purposes for which the Benefit Corporation is being formed. This means that the corporation aims to have a “bona fide positive effect or to reduce one or more bona fide negative effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature for the benefit of persons, entities, communities, or interests other than shareholders in their capacity as shareholders.” This is a non-exhaustive list.

Conversion. For a corporation to convert into a benefit corporation by amending its articles, the amendment must be adopted in accordance with the procedures set forth in § 1701.70, and the amendment must be approved by the shareholders entitled to vote. If no shares have been issued by the corporation, then the company must follow the requirements outlined in that same section. Likewise, for a benefit corporation to terminate its benefit status, the articles must be amended, and that amendment must be adopted in accordance with the procedures set forth in § 1701.70.

Operations. Directors of an Ohio benefit corporation perform their duties in good faith and in the best interests of the corporation. This requires consideration of the shareholders, but the directors may also consider 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. If the benefit corporation’s articles give priority to certain interests, directors shall consider those first. Ohio’s legislation does not, however, give priority to particular stakeholders, directors, or officers, aside from defining who may bring a legal action on behalf of the benefit corporation.

Transparency and Compliance. An Ohio benefit corporation must issue a financial statement to its shareholders at the annual shareholder meeting. Among the details of the statement per § 1701.38, a benefit corporation must also report on “the beneficial purposes of the benefit corporation and the activities of the benefit corporation toward those beneficial purposes and related provisions set forth in the corporation’s articles.” There is no standard by which the corporation must evaluate its performance, nor is there a requirement that the corporation must publicize scores to members of the general public upon request.

Rockridge® Practical Observations on Ohio Benefit Corporation Laws

 

Something is better than nothing. The revised legislation that introduced benefit corporations to Ohio is less than three years old, and its language is yet to be amended. The legislation does draw some of its inspiration from existing benefit corporation statutes of other states, like the standard language in the Delaware General Corporation Law (DGCL). Generally, however, the benefit corporation language in Ohio’s Revised Code is more comparable in strength to the weak models in southern states like those in Georgia and Tennessee Benefit Corporation Statutes than the standard DGCL.

For example, Ohio’s definition of a “beneficial purpose” reads closely to the “public benefit” as defined by the DGCL. Unlike the DGCL, however, Ohio does not require that the perspective benefit corporation name “one or more specific public benefits” in its articles of incorporation. In fact, the ORC does not even require the corporation to explicitly state that is a benefit corporation. Another illustration is Ohio’s annual reporting requirement, which sounds stronger than the DGCL’s biennial periodic statement. In terms of stringency, however, Ohio falls far short. The DGCL additionally details what must be included in the statement, well beyond the singular sentence quoted above from the ORC. The DGCL also employs the use of a third-party standard for measuring the corporation’s performance, which is not part of Ohio’s legislation. Neither the DGCL not ORC require a corporation to make their reports publicly available upon request, which some state laws (Virginia and Texas, for example) mandate.

Ohio’s statute is stricter than the DGCL regarding enforcement. In Ohio, derivative benefit enforcement proceedings may generally be brought only by a director or a shareholder owning at least twenty-five percent of all outstanding shares. The DGCL contains similar language overall, but shareholders who may bring derivative actions need only hold at least two percent of the corporation’s outstanding shares.

More work to do. Taken together, Ohio’s benefit corporation legislation would benefit from reading more like the DGCL. The lack of specificity as to what qualifies as a beneficial purpose does not promote shareholder primacy and the triple bottom line (people, planet, profit) aims of other benefit corporation laws across the states. Additionally, the lack of a third-party standard for measuring performance, as well as the lack of a requirement to publicize reports, does little to incentivize corporations to define and realize their beneficial purposes. More proactive states even mandate third-party auditors to evaluate corporation performance. Perhaps as more time passes, Ohio will identify shortcomings in its legislation and begin to make amendments.

Notable Ohio B Corps

 

Jeni’s Splendid Ice Creams. Founded in Columbus, OH, this ice cream company has been a Certified B Corp since 2013. In addition to being in prominent grocery stores across the country, Jeni’s operates an online shop and over 50 brick-and-mortar “scoop shops” across 15 states, plus the District of Columbia.

MVP Dairy, LLC. Though it only became a Certified B Corp in 2020, MVP is the first dairy farm to achieve such status. This makes sense for a company that is always pushing to be better. MVP Dairy is a leader is sustainable and regenerative farming practices, and also operates a non-profit organization – Dairy Learning Center – to educate to public about milk production.

Branch Financial, Inc. Despite having its headquarters in Ohio, the branches of this non-life insurance company reach to nearly 40 states and continue to grow. This Certified B Corp seeks to provide a service that we can all get behind – fast insurance coverage and hundreds of dollars in savings.

Ohio Benefit Corporation and Business 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

B Lab’s Knowledge Base – Resources on B Corps by B Lab

The Legal Requirement for Certified B Corporations by B Lab

B Lab’s Knowledge Base – Resources on B Corps by B Lab

The Delaware Public Benefit LLC: Use it to Become a “Benefit Company” in Your State by Rockridge Venture Law

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.

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