Benefit Corporations Allow New York and New Jersey Businesses to Combine Profits with the Public Good

Ford_1921.jpgAccording to most U.S. corporate laws, a for-profit corporation may be established for nearly any lawful purpose, subject to restrictions in particular industries or professions. One of the primary purposes of a for-profit business has long been held to be making profits for the company’s shareholders, and this causes many people to perceive the interests of American businesses as being at odds with the interests of society. New York, New Jersey, and more than 20 other states now allow the creation of “benefit corporations,” or “B corporations,” which allow business owners to direct for-profit enterprises towards one or more specified public benefits. See N.Y. Bus. Corp. L. § 1701 et seq., N.J. Rev. Stat. § 14A:18-1 et seq. B Labs, the nonprofit organization that developed the model legislation for most B corporation statutes, offers private certification for B corporations that meet certain standards.

The Michigan Supreme Court once held that “[a] business corporation is organized and carried on primarily for the profit of the stockholders.” Dodge v. Ford Motor Company, 170 N.W. 668 (Mich. 1919). While this is no longer held by law to be a corporation’s sole purpose, that perception of the business world endures for many people. In situations where a corporation’s shareholders want to direct resources towards a particular cause, minority shareholders might be able to stop them if it would have a negative impact on their shares.

B corporations must identify one or more “general public benefits” that they intend to support through their activities. “General public benefit” is defined as something that makes a “material positive impact on society and the environment” as determined in comparison to “a third-party standard.” N.Y. Bus. Corp. L. § 1702(b), N.J. Rev. Stat. § 14A:18-1. Existing corporations may amend their formation documents to become B corporations, or new entities may incorporate as B corporations. Many well-known businesses, such as the New York-based e-commerce company Etsy, are organized as B corporations.

Directors and officers of a B corporation, in addition to the usual fiduciary duties to the shareholders and the company, must consider the impact of business activities on the company’s specified public benefit and its ability to continue to achieve that public benefit. B corporations must submit annual reports to their shareholders describing how the company pursued the public benefit, the extent to which it created or enhanced the public benefit, and any factors that hindered these goals.

B Labs offers certification to qualifying B corporations that indicates they have met the organization’s standards. This certification is not a legal requirement to operate as a B corporation, but rather a way of indicating to shareholders, customers, and the public that the company is maintaining standards set by the organization that essentially created the B corporation as a business form. More than 1,000 B corporations in about 60 industries have been certified by B Labs.

For more than 30 years, Samuel C. Berger has represented the interests of New York and New Jersey businesses and entrepreneurs as a corporate officer, certified public accountant, and business attorney. Our firm offers fixed-fee legal service packages covering a wide range of issues to help our clients understand their rights and obligations, and to allow them to grow and run their businesses smoothly. To schedule a confidential consultation to discuss your legal matter, please contact us today online or at (212) 380-8117.

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