This post has been edited since it was first published
Benefit Corporation, a new way form of corporate entity that purports to use business to address environmental and social problems, has passed the California State Assembly, and is heading to Governor Brown’s desk for his signature.
California joins states like Maryland, Vermont, New Jersey, Virgina, and Hawaii in passing Benefit Corp legislation. The vehicle for passing the California legislation was Assembly Bill 361, introduced by Assemblyman Jared Huffman back in February of this year.
Benefit Corporation legislation is often confused with B Corporation certification (for good reason-- the names are obviously quite similar). B-Corporation is a certification from the NGO B-Labs, which aims to certify companies that operate under sustainable principals. A B-Corporation may or may not be a legal Benefit Corporation- the designation may not even be possible depending on state laws.
The Benefit Corporation bill has come a long way in less than a year, and just needs one more step to make it law. From the B Corporation Facebook page, which worked in support of the bill: “With a vote of 50 to 14, AB 361 passed the Assembly Floor on its concurrence vote today! Now, the bill goes to Governor Brown’s office for consideration.”
California in particular has a vast array of corporate entities, including various types of non-profits, corporations, and limited liability companies. Each of these has a slight nuance in tax-code, organizational structure, and purpose.
Traditionally, a corporation's mission is solely for profits, whose main benefactors are the shareholders. The Benefit Corporation changes all this. From the bill itself, “A benefit corporation shall have the purpose of creating a general public benefit.”
Alongside its purpose for general public benefit, one thing makes a California Benefit Corporation stand out from a traditional corporation: transparency. In other words, there is a legal mandate towards the general public benefit.
In terms of transparency, a Benefit Corp has to include in its annual report overall social and environmental performance. This is on top of the traditional financial statements.
Furthermore, it looks like the Benefit Corporation is pushing forward transparency in the internet age, “A benefit corporation shall post all of its benefit reports on the public portion of its Internet Web site, if any.”
Any corporation can structure their company according to the B Corp standards. However, the legally recognized corporate structure 'Benefit Corporation' simplifies the process, and, some might argue, makes things a bit more tight from a legal standpoint.
So, what do you think? Can a Benefit Corporation legal structure truly create corporations that benefit the general public? Or is the B Corp certification sufficient? Do you think established corporations would be willing to change their charters?
Jonathan Mariano is an MBA candidate with the Presidio Graduate School in San Francisco, CA. His interests include the convergence between lean & green and pursuing free-market based sustainable solutions.