Bar News - December 17, 2014
Business Law and Business Litigation: NH Benefit Corporations Law Takes Effect Jan. 1
By: Timothy Condon and Matthew Benson
NH joins majority of other states in creating new option for socially conscious businesses.
Whether a microbrewery seeking to conserve land to grow hops, a farm or food producer seeking to promote sustainable growth practices, or a retail business seeking to improve the quality of life in its community, New Hampshire businesses with social goals will now have a new business entity option to consider.
The newly enacted New Hampshire Benefit Corporation Act, signed into law by Governor Maggie Hassan earlier this year, takes effect Jan. 1, 2015.
The new statute permits for-profit entities that meet certain legal requirements to pursue societal and environmental purposes, in addition to profits. Under this alternative business structure, benefit corporations can more readily pursue their non-financial missions.
What Is a Benefit Corporation?
Benefit corporations are distinguished from traditional corporations or other business entity types based on three main tenants: purpose; accountability; and transparency.
Benefit corporations are required to expressly set forth a general public benefit in their articles of incorporation and may also include specific purpose(s).
“General public benefit” is defined in New Hampshire statute as “a material positive effect on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.”
Directors of benefit corporations are required to exercise fiduciary duties by taking into account the impact of company action on its mission, the interests of workers, the community and the environment, and also the interests of its shareholders, among other considerations, without having to weigh any factor greater than any other, unless otherwise required in the articles of incorporation.
Publicly traded benefit corporations, and other benefit corporations that so elect, are required to have a designated “benefit director.”
Additionally, a benefit enforcement proceeding may be initiated for failure to pursue or create a general or specific public benefit.
A benefit corporation may also have its charter revoked, if it is determined that the entity has failed to pursue its mission.
Benefit corporations are required to file annual benefit reports with the New Hampshire Secretary of State. These reports must also be sent to shareholders and be posted to the company website or otherwise distributed to members of the public upon request.
Benefit directors are required to include an opinion in the annual benefit report, covering the extent they believe that the entity acted in compliance with its mission statement and the requirements of the new statute, and an assessment of ways in which the entity could better pursue its goals.
Maryland was the first state to authorize benefit corporations in 2010. Since then, more than 40 states have adopted or have pending legislation that addresses this accelerating trend, building on the momentum generated by a popular view that benefit corporations combine the best of the nonprofit and for-profit worlds.
Benefit corporations can ensure that their corporate missions survive changes in management, investors or owners. Companies that form as or convert to benefit corporations also have the ability to align socially conscious investors with a specific social agenda, engender customer and employee loyalty, and promote brand awareness. By institutionalizing its mission, a benefit corporation can avoid consequences that are often associated with the expense of maximizing short-term profit.
In addition, as for-profit entities, benefit corporations do not face the same restrictions as charitable institutions or other nonprofits when it comes to raising money. Being a benefit corporation may open the door to early-stage investing from likeminded individuals, or afford an entity the opportunity to co-market or network with other benefit corporations with similar missions.
Benefit corporations also have the ability (or burden) to implement a product pricing structure that recognizes the value customers place on its mission.
Marcia Winters of With Good Reasons LLC, a New Hampshire-based Certified B Corporation, feels that “even though it can be hard to keep prices down, consumers are willing to pay a little more for products from benefit corporations, due to the heightened assurance that the business is treating people fairly.”
Providing the framework for businesses to form benefit corporations gives consumers the potential to choose between businesses that demonstrate they stand behind their missions and promote the general welfare of society, and those that may just be jumping on the “green” bandwagon.
Certified B Corporations
Businesses interested in promoting a commitment to a social or environmental mission can also seek to be certified by a nonprofit entity known as “B Lab,” which has taken the lead in advancing the benefit corporation movement.
B Lab, a nonprofit based in Wayne, Penn., has historically designated qualified applicants as “Certified B Corporations,” regardless of whether they are located in a state that authorizes the formation of benefit corporations. B Lab’s certification standards include objective company performance requirements and other criteria that are reviewed on an annual basis.
There are currently at least four entities in New Hampshire that are Certified B Corporations, including, W.S. Badger Company Inc., With Good Reasons LLC, HomeFree LLC, and Pete & Gerry’s Organics LLC. For companies in states that have adopted the statutory framework to form benefit corporations, B Lab generally requires applicants to be formed under those laws.
The ability to obtain Certified B Corp status is not part of the new law in New Hampshire, and B Lab certification by itself does not alter the fiduciary duties directors and officers owe to the company and its owners (such standards are only impacted for benefit corporations formed under applicable law). Rather, B-Lab’s certification is a way for a company to tout independent review of its societal purpose that can supplement its organizational structure or, for a company that cannot be formed as a statutory benefit corporation, serves as verification of its commitment to its mission.
The Future of Benefit Corporations
More than 1,100 American businesses – ranging from Fortune 500 companies to local mom-and-pop shops – are Certified B Corporations, which seems to suggest that many businesspeople see the upside of forming a benefit corporation as outweighing the burdens. Companies with nationwide brand recognition that have become benefit corporations include outdoor clothing and gear maker Patagonia and Seventh Generation, which makes and distributes environmentally safe household products.
New Hampshire’s new law offers opportunities for both new and existing companies. A company may become a benefit corporation immediately upon formation or upon amending its existing articles of incorporation with the requisite shareholder approval, by including a statement in its articles that it is a benefit corporation, and setting forth the general and other specific benefits it intends to pursue.
Now that the statutory framework is in place, whether the New Hampshire business community adopts the benefit corporation as an entity of choice will come down to an assessment of the associated costs and benefits and the importance of a company’s mission.
Timothy Condon, an attorney at Cook, Little, Rosenblatt & Manson, also focuses his practice on a variety of business law matters for his entrepreneurial clients.
Matthew Benson is a partner at Cook, Little, Rosenblatt & Manson, where he advises business clients on a variety of issues and represents entrepreneurs of all types and at all stages of their businesses, from start-up to exit.