Lawyers Journal

Benefit corporations: A new form of doing business in Massachusetts

On Aug. 7, 2012, Gov. Deval Patrick signed House Bill No. 4352 into law, thereby establishing the Massachusetts Benefit Corporation Act and adding Chapter 156E to the Massachusetts General Laws. With the introduction of Chapter 156E, Massachusetts became the eleventh state to adopt the establishment of this new type of corporate entity, along with California, Hawaii, Illinois, Maryland, Louisiana, New Jersey, New York, Pennsylvania, South Carolina, Vermont and Virginia. Effective Dec. 1, 2012, Massachusetts entities may incorporate as benefit corporations or convert to benefit corporations.

The intent of the newly adopted legislation is to provide a for-profit corporate framework that supports the developing movement of business concerned with societal benefit, impact investing and social enterprise. Benefit corporations are similar to traditional for-profit corporations but they differ in one important respect. While directors and officers of traditional for-profit corporations must focus primarily on maximizing shareholder value, the directors and officers of benefit corporations are also charged with the duty to consider the social and environmental impacts of their corporate decision-making. Importantly, the benefit corporation model offers broad legal protection to directors and officers, expands shareholder rights, and provides an alternative corporate form to attract capital from socially-minded entrepreneurs and investors.1

The major characteristics of the benefit corporation form are: a requirement that a benefit corporation must have a corporate purpose of creating "general public benefit;"2 an expansion of the duties of directors to require consideration of non-financial stakeholders as well as the financial interests of shareholders; and an obligation to report on its overall social and environmental performance using a comprehensive, credible and independent third-party standard.  General public benefit is defined as a "material, positive impact on society and the environment, taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation.3

To establish a benefit corporation in Massachusetts, an entity would organize under Chapter 156A (the professional corporation statute) or Chapter 156D (the business corporation statute) and clearly reference in the Articles of Organization their election to be a benefit corporation in the following manner:

In Article II of the Articles of Organization, a clear reference that it is a benefit corporation by stating that the entity is to be a benefit corporation or that "the corporation shall have the purpose of creating a general public benefit." The corporation may also identify specific public benefits that it aims to create, however, listing those alone is not sufficient.

In Article VIII, benefit corporations shall designate one director as their benefit director, whose duty is to oversee and report on the corporation's public benefit goals. In addition, the person named as benefit director must be independent (i.e. he or she may not be simultaneously named to any other positions in the corporation, such as president, treasurer, employee, etc.).

In Article VIII, the benefit corporation may designate one person as their benefit officer. This person may be the same person as the benefit director.4

One of the critical responsibilities of the benefit director is to prepare an annual shareholder's report outlining how well the benefit corporation met its goals of impacting the general public benefit, as well as any specific benefits it may have identified in its Articles of Organization.5 The shareholder's report shall include the items set forth under Chapter 156E, Section 11(c) of the Massachusetts General Laws. Benefit corporations are also required under the new law to issue an annual benefit report to its shareholders, post the annual report to its public website, and deliver a copy to the Secretary of the commonwealth.6

In addition to incorporation of new benefit corporations, Chapter 156E allows for the conversion of existing domestic profit and professional corporations to the benefit corporation status by filing Articles of Amendment in order to amend their Articles of Organization and to include the requisite purpose clause referenced above. In order to convert, however, the corporation will need to obtain a two-thirds vote of the holders of each outstanding class of shares.7

Finally, a benefit corporation may terminate its status as a benefit corporation by simply amending its Articles of Organization to delete the general public and/or public benefits identified in the purpose clause.8

Last month marked the effective date of businesses beginning to incorporate as benefit corporations or converting to benefit corporation status. Since benefit corporations must meet the needs of entrepreneurs, investors, consumers and policy makers interested in using the power of business to benefit social and environmental problems, the development of this new, flexible legal entity in Massachusetts should be exciting in the coming years.

BRYAN C. NATALE is a graduate of Suffolk University Law School, where he received his Juris Doctor and Boston College, where he received his Bachelor of Science. A native of Woburn and currently residing in Boston, Natale is the Essex County Director for the Massachusetts Bar Association Young Lawyers Division. He practices business/ corporate transactional law at the law firm of Glovsky & Glovsky LLC, located in Beverly.

1See Benefit Corp Information Center, White Paper - The Need and Rationale for the Benefit Corporation: Why It Is The Legal Form That Best Addresses The Needs Of Social Entrepreneurs, Investors, and, Ultimately, The Public (January 26, 2012), available at http://benefitcorp.net/for-attorneys/benefit-corp-white-paper.
2
Id.
3
Id.
4
See Massachusetts General Laws ("M.G.L."), Chapter 156E, Sections 4 and 5; See also Secretary of the Commonwealth of Massachusetts, Corporations Division. Benefit Corporations -- New Legislation, Massachusetts General Laws Chapter 156E, Effective December 1, 2012, available at http://www.sec.state.ma.us/cor/corpdf/Notice%20regarding%20Benefit%20Corporations.pdf.
5
See M.G.L., Chapter 156E, Section 11(c).
6
Id. at Section 15(a) and (b).
7
Id. at Section 5.
8
Id. at Section 6.

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