Legal Issues in Social Entrepreneurship
Reflecting the sector convergence in social entrepreneurship is the development of hybrid legal entities focusing on both financial and social return
A growing number of states have passed legislation for some version of benefit corporation or social benefit corporation which enables a corporation to be chartered with a double bottom line and a dual mission to make profits and serve the community. Organizations similar to the benefit corporation are the flexible purpose corporation, and the low profit limited liability corporation otherwise known as the L3C. Benefit corporations differ from traditional C corporations in purpose, accountability, and transparency, but not in taxation.
The purpose of a benefit corporation is to create general public benefit, which is defined as a material positive impact on society and the environment, i.e. maximum positive externalities and minimum negative. A benefit corporation’s directors and officers operate the business with the same authority as in a traditional corporation but are required to consider the impact of their decisions not only on shareholders but also on society and the environment. In a traditional corporation, shareholders judge the company’s financial performance; with a benefit corporation, shareholders judge performance based on the company’s social, environmental, and financial performance.
Transparency provisions require benefit corporations to publish annual benefit reports of their social and environmental performance using a comprehensive, credible, independent, and transparent third-party standard. In some states, benefit corporations must also file the reports with the Secretary of State, although the Secretary of State does not control the content of the annual benefit report. In some states, shareholders have a private right of action, called a benefit enforcement proceeding, to enforce the company’s mission when the business has failed to pursue or create general public benefit, although no such proceeding has been instituted by benefit corporation shareholders in any U.S. court
In April 2010, Maryland became the first U.S. state to pass benefit corporation legislation. As of September 2015, 30 states and Washington, D.C. have passed legislation allowing for the creation of benefit corporations:
|State||Date Passed||Date in Effect||Legislation|
|Arizona||April 30, 2013||December 31, 2014||SB 1238|
|Arkansas||April 19, 2013||July 18, 2013||HB 1510|
|California||October 9, 2011||January 1, 2012||AB 361|
|Colorado||May 15, 2013||April 1, 2014||HB 13-1138|
|Connecticut||April 24, 2014||October 1, 2014||SB 23, HB 5597 Section 140|
|Delaware||July 17, 2013||August 1, 2013||SB 47|
|Florida||June 20, 2014||July 1, 2014||SB 654, HB 685|
|Hawaii||July 8, 2011||July 8, 2011||SB 298|
|Idaho||April 2, 2015||July 1, 2015||SB 1076|
|Illinois||August 2, 2012||January 1, 2013||SB 2897|
|Indiana||April 30, 2015||July 1, 2015||HB 1015|
|Louisiana||May 31, 2012||August 1, 2012||HB 1178|
|Maryland||April 13, 2010||October 1, 2010||SB 690/HB 1009|
|Massachusetts||August 7, 2012||December 1, 2012||H 4352|
|Minnesota||April 29, 2014||January 1, 2015||SF 2053, HF 2582|
|Montana||April 27, 2015||October 1, 2015||HB 2458|
|Nebraska||April 2, 2014||July 18, 2014||LB 751|
|Nevada||May 24, 2013||January 1, 2014||AB 89|
|New Hampshire||July 11, 2014||January 1, 2015||SB 215|
|New Jersey||January 10, 2011||March 1, 2011||S 2170|
|New York||December 12, 2011||February 10, 2012||A4692-a and S79-a|
|Oregon||June 18, 2013||January 1, 2014||HB 2296|
|Pennsylvania||October 12, 2012||January 1, 2013||HB 1616|
|Rhode Island||July 17, 2013||January 1, 2014||HB 5720|
|South Carolina||June 6, 2012||June 14, 2012||HB 4766|
|Tennessee||May 20, 2015||January 1, 2016||HB 0767/SB 0972|
|Utah||April 1, 2014||May 13, 2014||SB 133|
|Vermont||May 19, 2010||July 1, 2011||S 263|
|Virginia||March 26, 2011||July 1, 2011||HB 2358|
|Washington, D.C.||February 8, 2013||May 1, 2013||B 19-058|
|West Virginia||March 31, 2014||July 1, 2014||SB 202|
Connecticut’s benefit corporation law is the first to allow “preservation clauses,” which allow the corporation’s founders to prevent it from reverting to a ‘For Profit’ entity at the will of their shareholders.
Illinois established a new type of entity called the “benefit LLC,” making the state the first to allow limited liability companies the same opportunities afforded to Illinois corporations under the state’s Benefit Corporation Law. Italy has been the first non-USA country worldwide to recognize the “B-corps” as a distinct corporate entity (Italian financial Act for 2016- L. nr. 208/2015).
From Wikipedia https://en.wikipedia.org/wiki/Benefit_corporation
B Corp certification (also known as B Lab certification or B Corporation certification) is a private certification issued to for-profit companies by B Lab, a global non-profit organisation with offices in the United States, Europe, South America, Canada, Australia, and New Zealand. To be granted and to preserve certification, companies must receive a minimum score on an online assessment for “social and environmental performance“, satisfy the requirement that the company integrate B Lab commitments to stakeholders into company governing documents, and pay an annual fee ranging from $500 to $50,000.
As of September 2016, there are 1,863 “certified B Corporations” across 130 industries in 50 countries. B-Lab certification has no legal status.
From Wikipedia https://en.wikipedia.org/wiki/B_Corporation_%28certification%29#cite_note-Make_It_Official-1
For more information on Legal Issues in Social Entrepreneurship see: