Corporate Law Alert: Launch of New Oregon Benefit Company Law Produces Record Signups

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On January 1, Oregon launched its new benefit company law, becoming the 20th U.S. state to allow the formation of such entities. The launch produced a record-setting response, with 29 registrants signing up for benefit company status on the first day alone, exceeding first-day efforts by other states including California, New York and Delaware.

A New Corporate Entity for For-Profit Businesses

A benefit company is a new type of corporate entity for for-profit businesses with socially responsible objectives. Historically, these for-profit businesses have had a narrowly interpreted fiduciary duty to maximize shareholder value. However, under this new legal structure, officers and directors are provided broader legal protection to pursue the business's social mission and balance financial and non-financial interests during decision-making. Benefit companies must have a general purpose to provide a material positive impact on society and the environment, taken as a whole, and must commit to increased accountability and transparency through the issuance of a publicly available annual report. This annual report is intended to document the business's progress toward accomplishing its purpose.

In sum, a benefit company provides social entrepreneurs with a more robust legal framework to embrace the "triple bottom line" (people, planet, profit) and use for-profit businesses to solve social and environmental problems. From a branding perspective, this is intended to differentiate a business from its competition and to attract impact investors and socially responsible customers who want to align their purchasing decisions with their values. It is also expected to attract and engage employees.

Differences Exist Between a Certified B Corporation and a Benefit Company

One note of caution: An Oregon benefit company is not necessarily a certified B corporation — although both are often referred to as "B corps." A certified B corporation is a company that has received an international third-party certification based on its overall social and environmental performance. Issued by the non-profit B Lab, this certification is similar to other third-party standards, such as LEED or ENERGY STAR, in providing an independent assessment of the company's compliance with certain standards and, therefore, credibility as to its genuineness. An Oregon benefit company does not have to be a certified B corporation. However, within a certain period of time after becoming a certified B corporation, a business will need to become a benefit company, if permitted within its state of formation.

Topics:  B Corporation, Benefit Corporations, Choice of Entity, Corporate Social Responsibility, Social Entrepreneurship, Startups, Transparency

Published In: Business Organization Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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