California Benefit Corporations: A New Legal Structure for Social Entrepreneurs

Posted 12 months ago. Applies to California, 1 helpful vote

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1

Specific Purpose

One of the most appealing aspects of forming a benefit corporation is that the founders are able to designate one or more social or environmental benefits that will be supported by the corporation in addition to the traditional purpose of building shareholder value. In addition to a general benefit purpose statement, this specific purpose must be specified in the Articles of Incorporation filed with the California Secretary of State - and thus becomes part of the corporation's "DNA."

2

Annual Benefit Report

In order to become a benefit corporation, the organization must agree to be subject to higher disclosure requirements than traditional corporations. These disclosure requirements include the publication of an annual benefit report. The annual benefit report must be shared with the shareholders, the secretary of state and published on the corporation's website. The report should contain "an assessment of [its] overall social and environmental performance against a third party standard."

3

Assessment of Performance

Determining the appropriate third party standard can be difficult because there is no official set of legal guidelines for selecting a third party standard. The law simply requires that the third party standard must be comprehensive, credible, transparent, and developed by an independent entity. Additionally, while the report must be provided, the law does not require the report to be certified or audited by a third party. It is simply the job of the corporation, the board and the shareholders to select the appropriate third party standard and then disclose its own performance against the selected standard.

4

Third Party Standards

A number of organizations have stepped forward to provide the standards of evaluation benefit corporations need, in order to comply with this statutory requirement including B Lab, and the Global Reporting Initiative (GRI). An experienced attorney can help Benefit Corporations select the appropriate standard for review based on the organization's size and mission, and assist the Benefit Corporation in completing the review and impact assessment.

Additional Resources

B Impact Assessment by B Lab

B Impact Assessment by B Lab

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