On January 23, 2013, Pennsylvania will become one of twelve states to have created a new type of corporation known as the "benefit corporation." Titled the "Pennsylvania Benefit Corporation Act", the act allows "social" entrepreneurs to focus not only on the bottom line but to also consider other non economic societal factors (community, environment, employees etc...). While the Benefit Corporation is based upon the familiar corporate form, it has three additional requirements - purpose, accountability and transparency.
Purpose. In short, the Benefit Corporation must have a purpose designed to create a positive impact on society and the environment which will be judged against a third-party standard. Examples could include companies focused on protecting the environment, educating inner city children or promoting awareness on health issues. The Act itself sets forth a non-exclusive list of appropriate purposes.
Accountability. Fiduciary duties of officers and directors have been broadened to require consideration of not only the traditional bottom line analysis, but how a decision impacts non-financial interests such as the environment or the company's employees. For example, if a company is going to be acquired in a merger, the officers and directors are no longer required to solely maximize shareholder value. A Benefit Corporation's Board of Directors are able to accept a lower price per share if going this route will result in no employees being terminated.
Transparency. Benefit Corporations are required to deliver to their shareholders an annual "benefit report" describing how the company met its stated public benefit goals as set forth in its articles of incorporation and if not, what transpired that prevented this from happening. The benefit report must filed with the Department of State and be posted on the company website. If there is no website, then the company must provide a copy to any person who requests a copy.
So, why would you want to form a Benefit Corporation or possibly switch your current entity to a Benefit Corporation? First and foremost, you may be socially conscious and believe a corporation has a responsibility to focus on more than just the bottom line. Second, there are tax advantages and incentive programs aimed at Benefit Corporations that are not available to other companies. Finally, marketing surveys have seen a push amongst consumers to direct their purchasing dollars towards businesses which are aligned with their priorities. Especially in this age of social media, where the effects of corporate behavior have fast implications, this can be a great way to distinguish your business from the competition.
The attorneys at Danziger Shapiro & Leavitt can assist you in forming your benefit corporation or switching your current business entity to a benefit corporation. Please call us today to discuss these and other issues affecting your company.