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Archive for November, 2014

Minnesota’s B Corporation – The Public Benefit Corporation

Wednesday, November 12, 2014 @ 09:11 AM
Author: Peter Brehm

Many of our clients at Business Law Center are more than great business people, they are great people who do more for their communities than just create wealth.  The problem for some for profit companies is that the primary, if not exclusive purpose for the company is to create profits for the shareholders.  So, if the board of directors approves a program donating 10% of the company’s profits to a charitable organization, or cancels a lucrative contract with a business because it was using child labor, some (or all of the shareholders) could take action against the board for making decisions for reasons other than company profits.

Enter the B Corporation.  Minnesota’s new (effective January 1, 2015) Public Benefit Corporation.  Not to be confused with non-profit corporations, the B Corporation has shareholders, profits, and the board is required to consider, the impact of all actions on the financial interests of the owners.  Also, unlike a non-profit, there is no public agency that will force to the company to pursue its purpose.

However, like a non-profit, the corporation may also require the board to consider factors other than profits, and shields the directors from liability from doing so:

     In discharging the duties of the position of director of a specific benefit corporation, a director:

          (1) shall consider the effects of any proposed, contemplated, or actual conduct on:

                (i) the pecuniary interest of its shareholders; and

                (ii) the specific benefit corporation’s ability to pursue its specific public benefit purpose;

          (2) may consider the interests of the constituencies stated in section 302A.251, subdivision 5; and

          (3) may not give regular, presumptive, or permanent priority to:

               (i) the pecuniary interests of the shareholders; or

              (ii) any other interest or consideration unless the articles identify the interest or consideration as having priority.

There are two types of B Corporations:

General benefit corporations are required to pursue a net material positive impact from its business and operations on society, the environment and the well-being of present and future generations. In addition to this broad obligation, general benefit corporations may also state a specific public benefit, or benefits.

Specific benefit corporations are required to elect only to pursue one or more positive impacts, or reduction of a negative impact, on specified categories of natural persons, entities, communities or interests other than shareholders (in their capacity as shareholders). This narrower obligation allows the specific benefit corporation to focus its mission on one or more explicit benefits without the general societal concerns required of general benefit corporations.

The B Corporation should not be confused with C Corporations or S Corporations, in that it is not a tax designation, it is really just a subset of a typical Minnesota corporation governed by 302A.  Any new or existing corporation may elect to become a B Corporation though it original articles, by amending its articles to comply with the statute, or through a merger.   Any election to do so, however, will permit unhappy shareholders to be bought out.

Finally, one of the significant drawbacks of the B Corporation, is the requirements of transparency.  Every year, the company must file an annual report with the Secretary of State.  That report is public, and must detail how the company sought to fulfill its public purpose.  If the company is a general benefit corporation,  report must be based upon an independent third party standard for similar companies.

Peter C. Brehm

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