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19 • 2017

What is a benefit corporation?

Like a social purpose corporation, a benefit corporation is a modified form of a traditional, for-profit corporation. A benefit corporation is generally governed by rules similar to those applied to traditional corporations, with a few important differences. First and foremost, a benefit corporation must have the purpose of creating “general public benefit,” which means that the corporation’s business and operations must have a “material positive impact on society and the environment, taken as a whole, as assessed against a third-party standard.” Cal. Corp. Code §§ 14601(c), 14610(a). A benefit corporation’s articles of incorporation may also specify one or more “specific public benefits” that will be the corporation’s purpose(s). Specific public benefits include: 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 ordinary course of business; preserving the environment; improving human health; promoting the arts, sciences, or advancement of knowledge; and increasing the flow of capital to entities with a public benefit purpose. Cal. Corp. Code § 14601(e). Second, directors of a benefit corporation still owe fiduciary duties to the corporation, but in carrying out those duties, the directors must consider a much wider range of factors, including community and societal considerations, the local and global environment, and the ability of the corporation to accomplish its general, and any specific, public benefit purpose(s). Cal. Corp. Code § 14620. Third, a benefit corporation must deliver to its shareholders an annual benefit report that includes an assessment of the corporation’s overall social and environmental performance measured against a third-party standard. Cal. Corp. Code § 14630.