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Benefit Corporations Enable California Business Owners to Serve the Public Good

Triple_Bottom_Line_graphic.jpgThe “one and only social responsibility of business,” according to the Nobel Prize-winning economist Milton Friedman, is “to increase its profits so long as it stays within the rules of the game.” Making money is the goal is just about any for-profit business, but a common criticism of much of American business is that acting to serve its own ends often fails to benefit society. Some business owners, in addition to making a profit, might want to work towards goals that have a social, economic, or environmental benefit. Several states, including California, have enacted laws allowing the establishment of “benefit corporations,” also known as “B corporations,” which let businesses balance goals related to “general public benefits” with the duty to maximize returns for shareholders. A nonprofit organization known as B Lab offers private certification for B corporations that maintain certain standards.

A B corporation is a for-profit business entity organized under state law. At least 27 states have enacted B corporation statutes, and another 14 states have pending legislation. The idea of the B corporation has gained popularity in recent years, as consumers who already seek out companies with compatible values have become more aware of issues like corporate responsibility. In some surveys, nearly half of all consumers have stated that they would boycott companies that they believed were not acting in society’s best interest. At the same time, the level of trust that consumers have in corporations is declining, and corporate campaigns aimed at one social issue or another might meet with skepticism as easily as support from consumers.

California’s B corporation law, CA Corp. Code § 14600 et seq., took effect in 2011. It allows corporations to be formed under California law for the purpose of a “general public benefit,” defined as something that has a “material positive impact on society and the environment” when “assessed against a third-party standard.” CA Corp. Code § 14601(c). A California B corporation may identify more than one specific public benefit. Examples provided by the Legislature include “preserving the environment” and “improving public health.”

The board of directors of a B corporation must consider the impact of corporate actions on the company’s chosen benefit, in addition to the usual considerations like shareholder interests. The board must also prepare an annual “benefit report” describing how the corporation pursued its benefit and identifying the “third-party standard” it used to assess its accomplishments.

Certification by B Lab is not a legal requirement for B corporations, but rather a means of demonstrating the company’s commitment to a cause to shareholders, customers, and the public. To qualify for certification, a company must score at least 80 out of 200 points on an impact assessment, and it must meet B Lab’s standards for accountability and transparency. As of the beginning of 2014, more than 1,050 companies in 60 industries have qualified for certification.

If you or your business is dealing with issues related to corporate formation, business organization, or a business dispute, a skilled business and commercial lawyer can advise you of your rights and protect your interests. Since 1976, James G. Schwartz has represented businesses and business owners in the Bay Area. To schedule a free and confidential consultation, please contact us today online or at (925) 463-1073.

More Blog Posts:

Shareholder in S Corporation Must Pay Tax Despite Exclusion from Management, Pleasanton Business & Commercial Law Blog, June 16, 2014

New California LLC Statute Took Effect at the Beginning of 2014, Pleasanton Business & Commercial Law Blog, February 12, 2014

New Laws Affecting California Businesses Beginning in 2014, Pleasanton Business & Commercial Law Blog, December 11, 2013

Photo credit: By Triplebotline (Own work) [CC-BY-SA-3.0], via Wikimedia Commons.