Legal Issues in Social Entrepreneurship 2017-12-14T16:28:08+00:00

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:[2]

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.[3]

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.[4][5] 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).

Instead of recognizing Benefit Corporations, Washington created social purpose corporations in 2012 with a similar focus and intent.[6][7]

From Wikipedia

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.[1]

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

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