Expert Advice
Jan. 2, 2014
Benefit Corporations
Benefit corporations can pursue social aims and profits.
Each director of the benefit corporation must act in good faith, in a manner that he or she believes to be in the best interests of the corporation and with such care, including reasonable inquiry, as an ordinary prudent person in a similar position would use under similar circumstances (§ 14620(a)). Directors must consider the impact of any action upon the shareholders, employees, customers, the community, the environment, short- or long-term interests of the corporation, and the ability of the corporation to accomplish its public benefit purpose (§ 14620(b)). That said, the code clearly dictates that directors owe their duty to the corporation; they do not owe a fiduciary duty to the general public (§ 14620(i)). In discharging their duties, directors are not required to give priority to any particular factor or person unless the corporation so stated in its articles (§ 14620(d)). Enforcement, Change, Taxes
If the directors fail to discharge their duties as described above, or if the corporation fails to pursue its public benefit purposes, assess its performance, or issue the benefit report, the shareholders may bring an action in court to force the corporation to do so. No monetary damages are available in such a derivative action, though the court may order reimbursement of attorneys fees (§ 14623). The articles of the corporation must state that it is a benefit corporation and describe any specific public purposes (§ 14602). Stock certificates must identify the corporation as a benefit corporation (§ 14631). Conversion or merger into or out of a benefit corporation requires at least a vote of two-thirds of the outstanding shares (§§ 14603, 14604). Shareholders who oppose the conversion or merger are entitled to dissenters rights under the code (§ 14604(d)). For tax purposes, a benefit corporation may elect to be a C or an S corporation. They also may be subject to various local preferences. For example, in San Francisco a benefit corporation enjoys a 4 percent bidding preference on city contracts. Benefit corporations represent a new breed of American capitalism, paving the way for a sustainable economy with no trade-off between purpose and long-term profit. Jonathan S. Storper is a partner at Hanson Bridgett in San Francisco, where he chairs the firm's benefit corporation practice group.
Kari Santos
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