Toms® delivers shoes to underdeveloped regions across the world. Patagoina® has pledged 1% of its sales to preservation and restoration of the natural environment. Kickstarter, the crowdfunding platform, has committed “5% of its after-tax profits towards arts and music education, and to organizations fighting to end systemic inequality.” These companies have not only committed to support the “greater good,” but have also adopted a corporate form designed to accomplish exactly that.
Benefit corporations are a corporate legal structure similar to the traditional C-corporation or limited liability company, but permit the company to operate for a “beneficial purpose” while remaining protected from liability to the beneficiaries of the beneficial purpose. A “beneficial purpose” can be any purpose that has beneficial effects on communities or interests other than the corporation’s shareholders. For example, a beneficial purpose that advances artistic, charitable, cultural, environmental, literary, or even religious causes would qualify.
Presently, 30 states and the District of Columbia have enacted legislation to permit the creation of benefit corporations within those jurisdictions. Ohio is following suit. The Corporation Law Committee of the Ohio State Bar Association has submitted a legislative proposal seeking to amend Chapter 1701 of the Ohio Revised Code to provide for the creating of benefit corporations in the State of Ohio. Specifically, the proposed legislation affords corporate directors and officers protection against liability to beneficiaries relating to the corporation’s pursuit or failure to pursue a beneficial purpose.
Ohio’s proposed legislation does have one significant difference. Typically, benefit corporations are required to file an annual “public” benefit report. Ohio’s proposed law would grant some flexibility to the corporation so that a private corporation may not have to report publically in certain circumstances. A private corporation seeking to raise capital or take on investors, on the other hand, would have to report on its beneficial purpose. The reasoning behind this is simple: investors are now making investment decisions based on the beneficial purpose of the company.
This same reasoning applies to employees making career decisions. According to a survey completed by the global consulting firm Deloitte, “[m]illennials will grow to 75% of the workforce by 2025 and 77% say their company’s purpose will be at least part of the reason for choosing to work at a particular company.”
The idea of a beneficial corporation supports the public good, but also makes good policy for states that wish to attract investment, development, and talent. Ohio may not have been on the forefront of this development, but it will be an important issue to follow as this proposed legislation meanders its way to becoming law.