Wanting to know more about New York Benefit Corporations?
…because you want to become a B Corporation certified by B Lab ?
…because you want to lock in your profitable purpose as you grow?
…because you want to brand and capture public goodwill as a benefit company?
…because you want to attract top-notch talent as you scale?
…because you want to grow a relevant, scalable, and sustainable enterprise?
Then this guide’s for you!
B Corps aren’t Benefit Corporations (necessarily) – Certified B Corps are companies audited by the nonprofit B Lab and validated to be good corporate citizens with triple bottom line business models. They get to brand themselves with the B Corp logo , similar to the way buildings can certify as LEED and chocolatiers as Fair Trade. As part of the B Corp certification process, B Lab requires companies that are legally structured as corporations to convert to Public Benefit Corporations . However, LLC’s and even sole proprietors can become Certified B Corps. If you are a sole proprietor or LLC, you don’t necessarily have to convert to a Benefit Corporation to become a B Corp. Also, you can realize the many advantages of a New York Benefit Corporation legal structure even if you never intend to certify with B Lab as a B Corp business. Read more about how B Corps and Benefit Corporations are related here.
Empirically Empire State –New York law governs New York Benefit Corporations–not D.C., not Delaware. New Yorkers live by their own rules. So make sure you are following the New York statute for guidance on how to convert to a Benefit Corporation, publish your annual benefit report, and satisfy other operational requirements. If you are not following the rules, e.g. assessing your company’s benefit performance against a qualified third-party standard, then you can lose the protections of the Benefit Corporation framework and potentially be subject to shareholder disputes. Fortunately, the Christopher & Panasci ESG team at Rockridge® can help you understand best operational practices and what the South Carolina Benefit Corporation means for your investors, executives, and customers.
Apples to Apples (to the IRS) – Your New York Benefit Corporation is treated as a typical corporation for tax purposes. There are no magic tax breaks here, but your accountant can guide you on what impact expenses may be deductible to a Benefit Corporation that otherwise aren’t connected to the purpose of a standard corporation.
Statute of Liberty? – New York Benefit Corporations are required to be transparent in assessing their social and environmental performance against a third-party standard. They must issue annual Benefit Reports, posting them on publicly accessible portions of their websites and providing copies to shareholders. There’s a quid pro quo at work here: you don’t get to reshape the standards of corporate law unless you’re actually walking the walk. Therefore, New York Benefit Corporations must light the way of what they are doing to promote the communities and public benefits they serve as expressed in their certificate of incorporation, bylaws, and other governing docs.
A selection of requirements that prospective Benefit Corporations should consider:
Notice. A New York Benefit Corporation is formed pursuant to the laws of the New York Benefit Corporation legislation N.Y. Bus. Corp. Law § 1701 et seq. Under the Benefit Corporation legislation, the company’s articles of incorporation must state a general public benefit, meaning “a material positive impact on society and the environment, taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation.” The company is not required to but may identify one or more specific public purpose, which is defined under Section 1702(e) of the Act. For example, a specific public benefit can include serving low-income or underserved individuals or communities, preserving the environment, improving human health, or promoting the sciences. Section 1702(e)(7) also provides a catchall provision that states a specific public benefit may mean “the accomplishment of any other particular benefit for society or the environment.” The identification of a specific public benefit does not limit the obligation of a Benefit Corporation to create a general public benefit. If a company has a general public benefit and elects to identify one or more specific public benefits, the reporting of these benefits is the same. For more information see the “Transparency” section below.
Conversion. An existing business corporation may become a Benefit Corporation by amending its articles of incorporation so that they contain a statement that the corporation is a Benefit Corporation. To be effective, an amendment must be adopted by a vote from at least three-fourths (75%) of shareholders of each class or series entitled to cast votes. The holders of shares of every series or class that are entitled to vote can vote as a class for the conversion and termination of Benefit Corporation status. If an entity is not a Benefit Corporation but is a constituent corporation or organization in a merger or conversion with a Benefit Corporation, the merger or conversion must be approved by shareholders through a three-fourths (75%) vote of shareholders of each class or series of shares. Similarly, termination of Benefit Corporation status by vote or acquisition requires a minimum approval of three-fourths (75%) of shareholders from each class or series of shares.
Operations. Directors of a New York Benefit Corporation must consider not only the shareholders’ interests but also the concerns of various stakeholders. These stakeholders include employees, suppliers, customers, the community and societal factors, the local and global environment, and the short and long-term interests of the corporation in performing its duties. Unless the Benefit Corporation’s articles of incorporation explicitly state its intention to provide priority to certain interests, directors are not obligated to give priority to particular stakeholders. Peculiarly, the New York Benefit Corporation statute does not mention the designation of a specified benefit director or officer; rather the statute discusses the standard conduct for all directors and officers of a Benefit Corporation generally.
Transparency. A New York Benefit Corporation must issue a Benefit Report annually for its shareholders that details its progress in pursuing its stated general public benefit (and specific public benefits, if applicable). This report must be generated using a third-party standard (such as the one used by B Lab) and given to its shareholders. The report must outline any circumstances that have hindered the creation by the Benefit Corporation of a general or specific public benefit. In addition to shareholders, the entity must make the report publicly available through its website (if there is one). Any financial or proprietary information included in the Benefit Report may be omitted as publicly posted. Concurrently with the delivery of the Benefit Report to shareholders, the Benefit Corporation must deliver a copy of the Benefit Report to the Department of State for filing.
Compliance. Unlike other state laws, the New York Benefit Corporation provisions do not explicitly provide for benefit enforcement proceedings.
Endless Opportunities? New York’s Benefit Corporation Statute is quite bare-bones compared to other states’ Benefit Corporation Statutes. There are some benefits to giving Benefit Corporations more freedom to operate as they please, such as possibly encouraging more corporations to convert into Benefit Corporations. However, there are certainly some concerns. For instance, more freedom in a Benefit Corporation statute provides fewer opportunities to adequately assess the activities of the Benefit Corporation and to protect against greenwashing and shareholder primacy. As an example, Benefit Enforcement Proceedings are not mentioned in the New York Statute. Likewise, there are no mandatory or optional Benefit Directors or Officers, to lead benefit compliance and ensure that the purposes and goals of the Benefit Corporation are met. Moreover, the annual Benefit Report does not require disclosure or a description of the reasoning for a change in a company’s third-party standard. Thus, the metrics for assessing the company can potentially be changed, without notifying shareholders and other stakeholders that a change occurred, or the reasoning for the change.
At Rockridge Venture Law we favor strong transparency and compliance requirements to protect against greenwashing and shareholder primacy. Accordingly, we would prefer for there to be Benefit Enforcement Proceedings, as a method by which directors and officers of Benefit Corporations can be called to answer on allegations that they breached their duties to act in the best interests, and to accomplish the purposes, of the corporation; that is, to create “general public benefit” or one or more optional “specific public benefits.”. While traditional derivative or direct lawsuits may still ensue, we are unsure of how New York common law will approach shareholder primacy issues in this context. Moreover, we would prefer a requirement for third-party audits, instead of the current statutory instruction to evaluate the company’s performance against a qualified third-party standard, without an obligatory audit. We would also suggest that companies disclose when and why they change their qualified third-party standard. Fortunately, an New York Benefit Corporation may still choose to employ a third-party auditor. In these instances, we recommend considering B Corp Certification. To apply for B Corp certification, your company will be audited by the nonprofit B Lab and validated to be good corporate citizens with triple bottom line business models.
Find out more about certified B Corps here .
An Entrepreneur’s Guide to Going “B” by Center for Business and Environment at Yale
An Investor’s Guide to B Corps by Center for Business and Environment at Yale
Benefit Corporation Guide by Small Business Development Center at SUNY Buffalo State
Better Business by Chris Marquis