{"id":4011,"date":"2024-09-13T10:07:41","date_gmt":"2024-09-13T14:07:41","guid":{"rendered":"https:\/\/www2.law.temple.edu\/10q\/?p=4011"},"modified":"2024-09-13T10:07:41","modified_gmt":"2024-09-13T14:07:41","slug":"to-b-or-not-to-b-a-benefit-corporation","status":"publish","type":"post","link":"https:\/\/law.temple.edu\/10q\/to-b-or-not-to-b-a-benefit-corporation\/","title":{"rendered":"To \u201cB\u201d or Not To \u201cB\u201d a Benefit Corporation"},"content":{"rendered":"

September 13, 2024<\/p>\n

One of the most frequent early-stage questions from entrepreneurs is whether they should organize their business as a traditional business entity\u2014such as a corporation\u2014or as one of the newer, alternative entities\u2014such as a benefit corporation (distinct from the \u201cB Corporation\u201d certification offered by the Pennsylvania-based nonprofit B-Labs)\u2014that many socially responsible businesses are increasingly using in recent years. While there is no one right answer to this question, there are some key considerations that should help entrepreneurs decide on how they want to proceed.<\/p>\n

A benefit corporation is a for-profit corporation, like Warby Parker or Ben & Jerry\u2019s, that seeks to produce a positive effect upon persons, entities, communities, or interests through one or more specific benefit purposes (e.g.<\/em>, the public benefit typically includes some sort of artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological purpose) as set forth in the company\u2019s certificate of incorporation. By embedding it side-by-side with the company\u2019s for-profit purpose in the company\u2019s charter, the Delaware statute requires benefit corporations to balance their for-profit interests with the best interests of those that their public benefit is intended to help. This is in contrast to traditional corporations, which do not require (and typically do not have) a specific benefit purpose in their organizing documents, meaning that traditional corporate boards are not required (and in many instances are not permitted to) weigh any interests other than the pure financial interests of shareholders when making decisions for the corporation. In many cases, this means a choice between maximizing profits for the benefit of stockholders or facing a potential lawsuit for not doing so.<\/p>\n

To enforce this multi-bottom line mandate, the Delaware benefit corporation statute provides for two primary enforcement mechanisms: (i) the ability of stockholders who hold at least 2% of the company to bring suit against a board of directors (called a benefit proceeding) in order to compel the board to more fully weigh its beneficial purpose, and (ii) the requirement that the company publish and post a report to its website showing its progress in accomplishing its beneficial purposes. While it is unclear what the exact consequences are for violating those provisions, for now these mechanisms seem to serve primarily as an organizing feature and behavioral anchoring mechanism rather than as a separate and distinct threat not already faced by traditional corporations.<\/p>\n

\u00a0<\/strong>While not appropriate for every business or situation, entrepreneurs choose to form benefit corporations for myriad reasons:<\/p>\n