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.
2Id.
3Id.
4See 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.
5See M.G.L., Chapter 156E, Section 11(c).
6Id. at Section 15(a) and (b).
7Id. at Section 5.
8Id. at Section 6.