Doing Good Can Be Good Business
September 6, 2022 Law
As human beings – as Americans - we love it when a business strives to do good things with the profits it makes. A new thing? Not at all. Corporate founders have been working hard to do good things with company profits for a lot longer than you might think.
For more than 100 years, cases have been fought in state courts that have addressed the issue of whether a corporation’s obligations toward its shareholders should take precedence over the founder’s desire to engage in acts for the public good. One of the most notable cases that “got the ball rolling” was the 1919 case of Dodge v. Ford Motor Company (204 Mich. 459, 170 N.W. 668 (Mich. 1919). In this case, minority shareholders, the Dodge brothers, who held 10% of the shares of the Ford Motor Company, sued the Ford Motor Company to prevent the lowering of retail prices of cars to make them more accessible to the average consumer and the increasing of employee wages. The Michigan Supreme Court held that the Ford Motor Company had to adhere to “shareholder primacy”, meaning that Ford had to operate in the best interest of their shareholders, rather than its customers and/or employees. The decision did, however, give the Ford Motor Company a wide berth as to how the company can conduct its business.
Since that early decision, businesses have become increasingly motivated to provide for their social goals in the context of their business vision and shareholder engagement. This movement has given rise, in recent years, to the establishment of the Public Benefit Corporation. Though not the first, Delaware established the Public Benefit Corporation in 2013 (Title 8, Chapter 1, Subchapter XV of the Delaware Code Relating to the General Corporation Law). Today, 36 states and territories offer a form of Public Benefit Corporation.
What is a Public Benefit Corporation – or B Corporation - anyway???
In short, a Public Benefit Corporation – or B Corporation – is a for-profit business that has, as part of its stated purpose in its articles of incorporation, an affirmative commitment to produce public benefit(s) and operational responsibility and sustainability, through the use of company funds to support its efforts.
Is a Public Benefit Corporation a not-for-profit entity? In short, no, not at all. A Public Benefit Corporation is taxed as a C-corporation by default (though S-corporation status may still be elected) and does not receive any other special tax treatment.
How does a corporation receive a Public Benefit Corporation designation? While some states may have more state-specific rules, in Delaware, at the time of incorporation, the Certificate of Incorporation must explicitly state that the corporation is a Public Benefit Corporation. The Certificate of Incorporation will be reviewed and approved by the Delaware Secretary of State’s office, and if approved, the directors of the corporation shall have an obligation to ensure that the public benefit goals are supported by both the company’s activities as well as the actions of the Board of Directors.
Are any other certifications required to have a Public Benefit Corporation? No other certifications are generally required, however many Public Benefit Corporations seek a “B-Corp” seal from the private, non-profit B-Lab (which can be found at www.bcorporation.net). B-Lab established a set of independent, global standards for the responsible and sustainable conduct of businesses. Once certified as a B-Corp, a participating corporation must re-certified every 2 years to maintain it’s B-Corp status with B-Lab.
Do I know any Public Benefit Corporations? You bet! A few of the better-known Public Benefit Corporations include King Arthur Flour, Kickstarter, Tom’s of Maine and Stonyfield Farm, to name a few. Your company might be the next!
If you have an interest in a Public Benefit Corporation, send an email to firstname.lastname@example.org
Concetta E. Dudley, JD. All Rights Reserved © 2022
*Disclaimer: This article does not, and is not intended to, constitute legal or regulatory advice; it is for general information only. It does not create an attorney-client relationship with you or any other reader. Consult with a qualified legal or regulatory professional for advice regarding your specific circumstances