Why You Should Consider a Benefit Corporation

Why You Should Consider a Benefit Corporation

A benefit corporation is a type of for-profit corporate entity that allows businesses to consider profit as well as society and the environment. Incorporating as a benefit corporation legally protects the corporations’ social goals by mandating considerations other than just profit. The “flexibility” for a corporation and its directors, which historically have existed to maximize profits, to consider the social impact and direction of a company is the primary advantage of incorporating as a benefit corporation and a great way to differentiate your company.

As such, a director is legally protected by the corporate charter to take into account not only the bottom line, but also how the business can contribute and help solve social and environmental challenges, without the fear of retaliation from shareholders. This special form of incorporation is available in 30 states, including New Jersey.

Becoming a benefit corporation can also enhance a company’s bottom-line. Increasingly, consumers are beginning to seek and purchase products and services from businesses that align to their social values and are perceived to be “good citizens.”  Social accountability, as a core value of the company, is a great way to distinguish your company in a crowded marketplace. Moreover, it can also help attract employees. A Deloitte survey found that 7 percent of millennials say their “company’s purpose was part of the reason they chose to work there.”

New Jersey’s Benefit Corporation Statute

Under New Jersey law, any newly formed business may incorporate as a benefit corporation. In addition, existing businesses can amend their existing articles of incorporation to become a benefit corporation.

A benefit corporation must have the purpose of creating a general public benefit, which is defined as a material positive impact on society and the environment. In addition, the company may identify one or more specific public benefits in addition to its stated purpose of creating a general public benefit, including:

• Providing low-income or underserved 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; and
• The accomplishment of any other particular benefit for society or the environment.

New Jersey benefit corporations must satisfy a number of specific compliance obligations. Notably, the company must designate a “benefit director,” whose duty is to determine whether the benefit corporation has acted in accordance with its general, and any specific public benefit purpose. A benefit corporation must also deliver an annual benefit report to shareholders and post the report on its website. Among other requirements, the annual report must detail the ways in which the corporation pursued any general and specific public benefit during the year, the extent to which the public benefit was created, and any circumstances that hindered the creation of a public benefit.

Potential cons of a benefit corporation

The potential drawbacks of a benefit corporation are the expanded reporting/compliance requirements referenced above and that it is a relatively new legal entity. As such, the decision to become a benefit corporation is not set in stone. A benefit corporation may terminate its status as a benefit corporation by amending its certificate of incorporation to delete the statement that the corporation is a benefit corporation.

Are you a New Jersey business owner considering incorporating as a benefit corporation? Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Michael Jimenez, at 201-806-3364.