In 2014, the Florida became one of many states to permit social purpose or benefit corporations, popularly referred to as B-Corps. These two corporate forms are governed under the Florida Business Corporation Act, Chapter 607, Part II (Social Purpose Corporations) and Part III (Benefit Corporations). The purpose of these entities is to allow socially conscious entrepreneurs and investors to form profit corporations to engage in activities that are beneficial to society beyond the traditional benefits of profit corporations.
These corporation are profit corporations, but with a few differences. In addition to its purpose to generate profit, each social purpose or benefit corporation takes on an additional statutory purpose to advance public benefits. Further, the officers and directors of the corporation take on a statutory obligation to consider the effects of the corporation and ensure the corporation is taking steps to achieve its intended purpose or benefit. Officers and directors are held accountable to the shareholder, not just to maximize profits, but to take measurable steps to fulfill its obligations to advance the stated social purpose or benefit. The officers and directors must describe those efforts in the annual report to the shareholders.
The difference between a benefit corporation and a social purpose corporation is one of specificity. A benefit corporation aims to achieve a more broadly stated general public purpose for society as a whole, where as a social purpose corporation may have a single, specific, and more limited purpose. Specific public benefits of a social purpose corporation include, but is not limited to, promoting low-income of undeserved individuals with beneficial products or services, promoting economic opportunity (beyond just the creation of jobs), protecting or restoring the environment, improving human health, promoting arts and sciences, and increasing flow of capital to entities that has similar stated purposes.
One impact of these corporate forms is to impose an obligation on directors to consider how the corporations actions impact the corporation’s ability to accomplish its purpose and consider the effect of corporation actions not just on shareholders (i.e. maximize profit), but also employees, suppliers, customers, communities in which the corporation conducts business, local and global environments and the short and long term interests of the corporation. See https://www.floridabar.org/the-florida-bar-journal/now-its-easier-being-green-floridas-new-benefit-and-social-purpose-corporations/
In exchange for the officers and directors obligations to ensure the corporation executes on its purpose, the statue limits officer and director liability in a few ways. The obligation on the management of the corporation no longer comes down exclusively on the fiduciary duty to assure that the corporation maximizes profit. Rather, a duty exists to also achieve or advance the stated purpose, although this is not a requirement but merely a mandate to consider the effects of corporation actions. Shareholders may pursue a benefit enforcement proceeding against the corporation for a failure to pursue a public benefit. Such actions may be brought as derivative actions.
Measuring and reporting the effectiveness and success of benefit and social purpose corporations poses additional challenges for directors and corporate management, as well as investors. For a good article touching on the challenges associate with reporting the success of value based entities. see https://www.mckinsey.com/business-functions/sustainability/our-insights/more-than-values-the-value-based-sustainability-reporting-that-investors-want?cid=soc-appDislaimer: A Deeper Dive with DLT and each blog post is not intended as legal advice, nor should you consider any part of this blog or website as such. Nothing herein acts to create any attorney client relationship with the lawyers at DLT Law Group. The blog is designed to provide general information and thoughts from the lawyers at DLT Law Group. You should not act upon any information contained in this website without first seeking professional advice from a lawyer licensed in your state or country.