Do your shareholders want to protect the environment, improve human health, or promote the arts? AND make a profit? In the past, the laws and custom of the United States only supported one or the other. Businesses are either devoted to making money for their shareholders or helping the community. Recently, this has begun to change as states pass legislation authorizing new “benefit” or “service-oriented” business for-profit entities. These new entities are a hybrid combining both for-profit and for-public benefits. Maryland’s version is the Benefit Corporation or Limited Liability Company. These new entities follow most of Maryland’s corporate and limited liability company laws with a few distinct differences.
First, the benefit corporation must adopt a purpose for either a “general” public benefit or “specific” public benefit. Maryland law defines General Public Benefit as “a material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits.” Md. Code Corps. & Assns. § 5-6C-01(c). Specific Public Benefits include:
- Providing individuals or communities with beneficial products or services;
- Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
- Preserving the environment;
- Improving human health;
- Promoting the arts, sciences, or advancement of knowledge;
- Increasing the flow of capital to entities with a public benefit purpose; or
- The accomplishment of any other particular benefit for society or the environment. Md. Code Corps. & Assns. § 5-6C-01(d).
The third party standard is determined by an independent party that sets factors to analyze and measure the performance of the business to achieve the benefit.
Second, the benefit corporation must be transparent with its actions and finances. Annually, the benefit corporation must issue a report to the stockholders which summarizes its progress in achieving the public benefit. This report must be posted online. The third party standard used to determine the public benefit shall be disclosed to the public.
Third, the directors of the benefit corporation shall take into account the effect of their decisions and actions on the stockholders, employees, customers, community and other interested parties in pursuit of the public benefit. This is a significant change from the traditional corporation where the board of directors is only required to consider the effect of its decisions on the company and the shareholders. However, this expansive decision making does not expose the directors to more liability or create a cause of action for non-stockholders.
Other than these requirements, a benefit corporation is operated as a normal corporation. It can be created by simply filing a charter or amendment to the charter that designates the entity as a benefit entity.
For more information about these new business entities, please contact Ginny Cascio by telephone at (240) 778-2308 or e-mail at email@example.com.