Idaho recently joined the ranks of the District of Columbia and 26 other states that have passed benefit corporation legislation. The Idaho Benefit Corporation Act, S.B. 1076, becomes effective July 1, 2015, and provides new Idaho corporations with the ability to incorporate as benefit corporations. The law also provides existing Idaho corporations the ability to elect to become a benefit corporation.
A benefit corporation election provides flexibility and protection for corporations that want to consider more than the financial bottom line by enabling directors and officers to look beyond maximizing only shareholder value without compromising their duties to shareholders. In addition to considering the impact a decision may have on shareholders’ value, directors of benefit corporations are to think about, among other factors, the effect of their actions or inactions on employees, subsidiaries, suppliers, the community and the local and global environment.
For example, corporations have long adopted sustainability policies and considered environmental implications of their actions. However, in economic decisions, maximizing the shareholders’ value is a corporation’s primary legal obligation and drives the corporate decision-making process. Benefit corporations, though, could consider the effect on the environment to be equally as important as the shareholders’ value in their deliberations regarding an economic decision.
How Do Benefit Corporations Differ?
Some key differences between benefit corporations and other corporations include the following characteristics:
- A benefit corporation must include in its articles of incorporation a purpose of creating general public benefit.
- Directors of benefit corporations must consider the effects of their action or inaction on shareholders, employees, subsidiaries, suppliers, the interests of customers, community and social factors, and the local and global environment, among other factors.
- A benefit corporation may designate a “benefit director” or a “benefit officer” whose charge is to create a comprehensive annual benefit report that discusses whether he or she believes the corporation acted in accordance with its public benefit purpose. The annual benefit report provides information on, among other things, how the company met its public benefit purpose, any circumstances that hindered the company’s attempts to achieve its public benefit purpose, the company’s overall social and environmental performance and compensations paid to individual directors.
Should Your Company Become a Benefit Corporation?
Your company might already be discussing the effects of your decisions on interest groups and issues other than shareholders’ value. Perhaps your company’s values currently include what would be deemed a “general public benefit.” For companies that desire to consider the environment, social benefits or the effect of their business and economic decisions on interest groups other than shareholders, electing benefit corporation status can allow them to do that with less risk of compromising their duties to their shareholders.
© 2015 Perkins Coie LLP