South Carolina is the latest state to adopt legislation recognizing benefit corporation’s as a legal structure available for incorporation. First introduced by Maryland in 2010 and now recognized in a total of nine states, benefit corporations have to take account of non-financial interests, such as social, environmental or community objectives. The companies are required to issue an annual ‘benefit’ report to their shareholders documenting the manner in which they have pursued its public benefit purposes.
Just like a regular corporation, benefit corporations have the option of going public. But unlike other public companies, benefit corporations have the added duty to consider non-financial interests when making decisions. The goal of the benefit corporation is to allow companies to take certain steps that will benefit their non-financial objectives, while giving them peace of mind that the law will protect them from litigious shareholders who are unhappy about the stock price. Benefit corporations also ensure shareholders that the company they invest in will not stray from its non money-making mission.
Critics say the new form is unnecessary and may be counterproductive. Mark Underberg, writing for the Harvard Law School Forum on Corporate Governance and Financial Regulation, said benefit corporations’ “crabbed view of directorial fiduciary duties perpetuates the unfortunate misconception that existing law compels companies to single-mindedly maximize profits and share price.” Supporters see the structure as a middle way between traditional listed companies, whose directors, they claim, have to chase profit to the exclusion of all else, and non-profit organizations, such as charities.
The number of benefit corporations now surpasses 500 and is expected to rise with legislation pending in Michigan, Pennsylvania, Illinois, Colorado, Washington D.C., and North Carolina.
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Reinhard von Hennigs