Monday, June 18, 2012

Lousiana Recognizes Benefit Corporations

On May 31, 2012, Louisiana become the ninth state to adopt benefit corporation legislation. Effective August 1, 2012, firms will be able to incorporate as "Benefit Corporation," or existing firms can convert to this new status with at least a two-thirds shareholder vote. All corporate actions, including approval of acquisitions, require a two-thirds vote.

Firms incorporating under this law must adopt and be assessed under an independent third party standard for corporate social responsiblity (CSR), such as those provided be B Lab, Ceres, GRI. etc.  Benefit corporations in Lousiana must provide a "specific public benefit," which may mean any of the following:
  • Providing low-income or underserved 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.
  • Conferring any other particular benefit on society or the environment.
Benefit corporations are similar to traditional FOR-profit firms, except that in additional to seeking profit, there is also some goal related to social responsibility. The idea is that officers and directors of these firms are no longer required, either explicitly or implicitly, to exclusively pursue shareholder financial profits.  The statute in Louisiana, in fact, requires directors to take all of the following constituencies into consideration while discharging their duties:
  • The shareholders of the benefit corporation.
  • The employees and work force of the benefit corporation, its subsidiaries, and its suppliers.
  • The interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation.
  • Community and societal factors, including those of each community in which offices or facilities of the benefit corporation, its subsidiaries, or its suppliers are located.
  • The local and global environment.
  • The short-term and long-term interests of the benefit corporation, including benefits thatmay accrue to the benefit corporation fromits long-term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation.
  • The ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose.
  • May consider other pertinent factors or the interests of any other group that they deem appropriate.
In approving benefit corporations, Lousiana becomes the ninth state to do so, following California, Hawaii, Maryland, New Jersey, New York, Vermont, Virginia, and Washington State.  Washington State is not included in some lists of benefit corporation states because of a few differences in their legislation from other states.  The first main difference is that using a third-party assessment is optional. More specifically, the organizers may optionally include a third-party assessment requirement in the articles of incorporation, but it is not required that they do so. Second, it is optional whether or not to require the officers and directors to consider the social purpose impact of every decision. These modifications to the standard benefit corporation "boilerplate legislation" were intended to give firms more flexibility about how to accomplish their social purpose.  I, however, include Washington in my list because they clear the primary hurdles of allowing firms to adopt a legally recognized social purpose and also allowing firms to adopt a third-party CSR standard.  Thus, if a firm in Washington state desires to become a benefit corporation, it can do so in every meaningful sense of the term.

A full list of states with benefit corporation statutes is available on my website, along with a listing of companies that have adopted this new corporate entity type.

Craig R. Everett, PhD
Graziadio School of Business and Management
Pepperdine University

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