Understanding the New Benefit and Special Purpose Corporations

Corporations in California now have a new way of doing business that requires them to take a more universal view to their role in the world, rather than concentrating only on the balance sheet. The benefit corporation, or “B Corp”, was created to satisfy the objective of some businesses that wanted to find ways to both be profitable and address the concerns of their employees, the community, and the environment.

The law allows California companies to register as this new class or corporation rather than a limited liability corporation (LLC) or other business entity, and holds them to specific standards for their corporate behavior which includes: (1) a corporate purpose to create a material positive impact on society and the environment; (2) redefining the fiduciary duties of its directors to mandate consideration of non-financial aspects in decision-making; and (3) reports on the organization’s overall social and environmental performance using accepted third-party standards.

A benefit corporation creates a “general public benefit,” that is “a material positive impact on society and the environment,” in addition to its business activities and any “specific public benefit” such as: