With Governor John Kitzhaber’s signature of House Bill 2296 on June 18, Oregon passed a law recognizing the Benefit Corporation as a legal entity.
This new legislation marks the culmination of an ongoing effort by members of the business community to gain legal recognition of business motives other than financial gain. It seems fitting that a form of entity associated with social and environmental benefit would be found in Oregon. Immix Law Group is committed to triple bottom line practices and would like to share some of the relevant details of this new law with you.
What is a Benefit Corp?
A Benefit Corporation (or B-Corp) is a corporation or LLC that has elected to include in its articles of incorporation, or articles of organization as applicable, a commitment to providing a public benefit, and that recognition has various advantages to the company and to the public. More than twenty states are now considering or have adopted legislation to recognize Benefit Corporations. Oregon law now allows corporations and LLCs to become Benefit Corporations and, for those Benefit Corporations, requires affirmative steps to ensure the principles match the practices.
The new law provides that Benefit Corporations are “business entity[s] the purpose of which is to create benefits for the public in addition to generating profits for the entity’s owners.” A traditional business entity entails a trust in the owners to represent the financial interests of each co-owner (historically defined by law as profits). Under traditional principles of law, an owner, director, or manager who puts the interests of others before co-owners could be liable for breaching the fiduciary duty owed to the co-owners. For example, in the historic case of Dodge v. Ford, Henry Ford was found to have breached his fiduciary duties by paying employees more than necessary and reducing the cost of each car, which in turn reduced the overall profits of co-owners. The new Benefit Corporation designation makes it clear to co-owners (e.g. potential investors) that profits are not the enterprise’s sole motive—to qualify as a Benefit Corporation under Oregon law, the business must commit to providing a general public benefit, in addition to the existing profit-maximizing purposes.
Both existing businesses and newly formed entities in Oregon may take advantage of the law and become Benefit Corporations.
Where did it start?
The first recognition of an entity as a benefit corporation occurred in Maryland, which, in 2010, adopted a law similar to Oregon’s law. The idea germinated earlier, however, and has its roots with a non-profit: B Lab. B Lab’s goal is to endorse Benefit Corporation legislation in all states, and it proposed the model legislation (see B-Corp White Paper) upon which the Oregon Act is based. Ultimately, B Lab’s objective is to replace “or” with “and” to empower businesses that maximize profits and minimize environmental harm and provide benefits to employees and improve their communities. B Lab also provides an independent third-party service to certify B-Corps, regardless of where in the world the company resides, with the same principles of accountability and mandatory inclusion of motives other than profit. View B Lab’s how to become a B-corp here.
What is “Triple Bottom Line?”
In a traditional business, the bottom line is profit—on a financial statement, that is what the shareholders are looking for. In a Benefit Corporation, the bottom line has three P’s: Profit, Planet, and People. An impetus of the legislation is to create transparency and accountability for the impact on all three P’s.
Oregon’s law includes a number of specific factors that the governor (Benefit Corporation term for managing person) must consider, in addition to the ordinary duties owed by a director to the corporation or a manager or member to the LLC, in making executive decisions on behalf of the company (view House Bill 226 here). These include consideration of the:
- Employees and workforce;
- Subsidiaries and suppliers;
- Communities which benefit from the company’s activities;
- Local and global environment;
- Company’s short term and long term interests; and
- Company’s ability to fulfill its purpose and any specific purpose disclosed in the company’s foundational documents.
What does it take?
It takes more than filling out and stamping a form to become a Benefit Corporation. Of significant concern to B Lab, the Secretary of State, the legislature, the business community, and anyone else behind the new law are transparency and accountability. A company seeking recognition as a Benefit Corporation must clearly disclose to its owners which principles are important, and it must be accountable for its actions to serve those interests. To that end, Oregon’s law provides that a Benefit Corporation will prepare and make public an annual benefit report, including a benchmark against how the company met its own standards and how it met a third-party standard (the company may select its own third-party standard). The benefit report does not need to be audited or reviewed, just available to the public.
There are tangible and intangible benefits of becoming a Benefit Corporation. First, registering with the State and satisfying the Benefit Corporation requirements protects decision-makers from claims by co-owners for considering non-financial interests when directing the company. Second, a Benefit Corporation will be able to publicly promote and report on its adherence to its principles and success in bringing tangible benefits to people and planet. Third, there is a community of Benefit Corporations that provide intangible benefits in networking and knowledge transfer throughout the community. Some companies will even offer discounts on services to fellow Benefit Corporations. Finally, a growing network of investors is seeking out Benefit Corporations in an effort to put investment dollars to work in multiple ways, generating not only financial returns, but also measuring ROI in terms of positive impact on community and environment.
About the Author: Leigh Gill
Email: email@example.com | Direct: (503) 802-5542
Having worked as a business analyst, project manager and consultant, Leigh’s desire is to understand the business need and apply effective real-world solutions to solve business problems.