What is a Benefit Corporation?
Benefit corporations are formed to create a public benefit, in addition to creating profit for its shareholders. In Maryland, a company can be recognized by the state as a benefit corporation by stating in its corporate charter that it is a benefit corporation, getting certified as providing a public benefit, taking into consideration more than just profit, and submitting an annual benefit report to each stockholder.
Forming a Benefit Corporation in Maryland
Since 2010, Maryland law has recognized the benefit corporation and the benefit LLC as business structures.
In general, a Maryland corporation electing to become a benefit corporation must include in its charter a statement that the corporation is a benefit corporation and has the purpose of creating a “general public benefit.” This language can be included from the start or added in later through amendment. If the company chooses to amend its charter, the board will draft updated language and approve it through a vote.
The corporation also has the option of stating in its charter a “specific public benefit” that it seeks to provide.
- A "general" public benefit is a "material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits."
"Specific" public benefits include things like:
- providing individuals or communities with beneficial products or services;
- promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
- preserving the environment;
- improving human health;
- promoting the arts, sciences, or advancement of knowledge;
- increasing the flow of capital to entities with a public benefit purpose; or
- the accomplishment of any other particular benefit for society or the environment
State Requirements Once Formed
Once a company has either filed or amended its charter to designate itself as a benefit corporation, there are a number of requirements it must follow:
- First, the company must make clear reference to the fact that it is a benefit corporation (a) at the head of the charter document in which the election to be a benefit corporation is made; (b) at the head of each subsequent charter document of the benefit corporation; and (c) on each certificate representing outstanding stock of the benefit corporation.
- Second, the company must create a general public benefit.
Third, directors must consider the effect of any action or decision on:
- the stockholders;
- the employees and workforce;
- the interests of customers as beneficiaries of the public benefit;
- the surrounding community and society;
- the local and global environment; and
- any other factors or groups the director finds to be appropriate.
- Fourth, the company must deliver an annual benefit report to each stockholder.
Annual Benefit Report
The annual benefit report is the backbone of the benefit corporation, as it shows how the company is creating a public benefit. Maryland regulations require it to include:
- the ways the a general public benefit was pursued and to what extent one was created;
- the ways the any specific public benefit was pursued and to what extent one was created;
- any circumstances that hindered the creation of the public benefit; and
- an assessment of the societal and environmental performance of the benefit corporation prepared in accordance with a third-party standard applied consistently with the prior year's benefit report or accompanied by an explanation of the reasons for any inconsistent application.
A list of third-party standards can be found here. The company must deliver this report to each stockholder within 120 days of the end of each fiscal year, and must publish it on its public website.
Expanding Your Recognition Through B-Labs
NOTE: B-Labs is a private, fee-generating organization. Assessment or certification by B-Labs is not required, and this article is not an endorsement of B-Labs. However, B-Labs is a well-known industry leader.
The third-party assessment needed to be recognized as a Maryland benefit corporation can be gained through a private organization known as B-Labs. B-Labs certifies companies as “B-Corps,” a status that can be used to meet the Maryland requirements for a benefit corporation.
B-Labs recognition is not required in order to be considered a benefit corporation in the eyes of the state, but B-Labs is one of the central trade associations surrounding benefit corporations and provides a 3 step process to be recognized as a certified B-Corp.:
First, the company must take the B Impact Assessment, and achieve a score of at least 80 out of 200. This 90 minute assessment is taken online and covers the following areas of assessment:
- governance (transparency, accountability);
- workers (compensation, working environment);
- community (diversity, job growth); and
- environment (environmental services and impact).
- Second, the company must comply with any legal requirements of the state of formation.
- Third, the company must sign the B Corp Declaration of Independence and pay certification fees to B-Labs ranging from $500 to $50,000 based on their annual sales. The fee schedule can be found here.
Although B-Labs certification is not required to become a MD benefit corporation, it provides the following benefits: