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Maryland is one of only two states to give both new and existing corporations the ability to identify public benefit as a corporate purpose. Prior to enactment of the "Benefit Corporation" [B Corporation] statute, the directors and officers of a for-profit corporation could not consider public benefits in making decisions for the corporation without risking claims from stockholders that such decisions might negatively affect the corporation's bottom line. As a result of this new statute, corporations may have the purpose of creating a general public benefit, defined as "a material, positive impact on society and the environment."
The statute will affect the real estate industry by expanding the types of activities in which a for-profit corporation may engage. For example, with the B corporation election, a real estate developer may take into account the fact that construction of a building in accordance with voluntary "Green Building" standards will benefit the environment even though compliance with the standards will make the construction more costly. Without the election, the director of a Maryland corporation taking into account any consideration other than direct financial benefit to stockholders risks a stockholder derivative action.
How It Works
A new or existing Maryland corporation may elect to be a B corporation by including an election statement in its charter. Under the B corporation statute, each B corporation must have creation of a general public benefit as one of its stated purposes. General public benefit is defined as "a material, positive impact on society and the environment." A B corporation may also identify a specific public benefit. Preservation of the environment is one of the specific public benefits identified in the Maryland statute. In determining whether an action is in the best interest of the corporation, the directors may take community and societal considerations into account. Directors may consider public benefits, but they need not fear claims by the general public the corporation has failed to accomplish the public benefit. The statute specifically immunizes directors from such claims.
The B corporation must do more than identify the general or specific public benefit it seeks to accomplish. The general public benefit must also be measured by a "third party standard." The statute requires that the third party standard be developed by a person or entity that is independent of the benefit corporation. The standard must also be transparent. The standard is transparent if the factors considered in the standard when measuring the performance of the business, the relative weightings of the factors and the identity of the persons who develop and control changes in the standards are all publicly available or accessible. A number of organizations have sprung up that, for a fee, provide third party standards by which the general public benefits provided by B corporations may be measured.
The B corporation must deliver a report annually to its stockholders describing the ways the corporation pursued the general and specific public benefits identified in the corporation's charter. The report must identify the extent to which the corporation's activities actually created specific or general public benefit and any circumstances that hindered creation of the benefit. Finally, the report must assess the societal and environmental performance of the corporation in accordance with the third party standard applied consistently with the prior year's benefit report.
To date there are no tax breaks available specifically to B corporations at the state, local or federal level although some advocate for breaks such as lower corporate tax rates for B corporations, lower dividend and capital gains tax rates for B corporation investors and expansion of tax credits. Procurement preferences are another type of advantage that could make the B corporation more attractive to entrepreneurs.
There are burdens to the corporations electing B corporation status. Preparation of the annual report regarding achievement of public purposes as measured again the third party standard is a function that a corporation without the designation is not required to fulfill.
There are some who assert that there is no need for the B corporation entity. These critics argue that the non-stock corporation can be used in situations in which the organizers want to achieve charitable goals. The non-stock corporation would not be useful, however, where the organizers of the entity want to generate some profits as well as accomplish charitable purposes. The non-stock corporation cannot be used if profit will be generated inasmuch as there are no stockholders to whom such profit can be distributed.
In any event, owners of existing businesses and persons considering new entities should consider whether election of B corporation may help them achieve their goals. Whether additional benefits, such as tax breaks and procurement preferences, may be available to B corporations and their owners should become clear in the near future.
Susan D. Baker is a Partner in the Corporate Department.see all Business and Corporate Law articles »
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