- Louisiana Enacts Benefit Corporation Statute
- September 24, 2012 | Author: James T. Dunne
- Law Firm: Liskow & Lewis A Professional Law Corporation - New Orleans Office
New corporate form in the state is required to focus on societal and environmental impact of doing business
When Governor Bobby Jindal signed HB 1178 into law on May 31, 2012, Louisiana became the ninth state in the nation to enact a “Benefit Corporation” statute. HB 1178 creates a new type of corporate form in Louisiana, the Benefit Corporation or “B-Corp.” Unlike the traditional corporate model, a B-Corp is legally required to consider the societal and environmental impact of its business decisions in addition to the traditional obligation to maximize profit for its shareholders. The three basic characteristics of a B-Corp are a stated beneficial corporate purpose, accountability of the board of directors to the pursuit of that purpose, and a transparent assessment of the corporation’s performance in achieving that purpose.
Public Benefit Purpose
Unlike a traditional “C-Corporation,” a benefit corporation must have a stated purpose to create a “general public benefit” memorialized in its articles of incorporation. Such a general public benefit must create a “material positive impact on society and the environment” as assessed against a three-part standard. Benefit Corporations may also choose to pursue one or more of the following listed specific public benefits:
- Serving low-income or underserved individuals or communities;
- Promoting economic opportunity for low-income or underserved individuals or communities;
- Preserving the environment, promoting positive impacts on the environment, or reducing negative impacts on the environment;
- Improving human health;
- Promoting the arts, sciences, or advancement of knowledge;
- Increasing the flow of capital to entities with a purpose listed in this paragraph;
- Historic preservation; and
- Urban beautification.
Accountability to the Public Benefit Purpose
The general corporate structure of a B-Corp also differs from that of a traditional C-Corp. First, the board of directors of a B-Corp must consider the effects of any action or inaction of the corporation on seven stated societal factors to ensure the corporation meets its public benefit purpose. The board of directors must also include an independent “benefit director” who is responsible for preparing an “annual benefit report” to be submitted to the shareholders. Such report must contain, inter alia, an opinion from the benefit director whether the corporation, its directors, and officers have acted in accordance with its stated general public benefit purposes and any adopted specific purpose.
Transparency, the Annual Benefit Report
In addition to the benefit officer’s opinion, the annual benefit report must also contain the following information : a narrative description of the ways in which the stated public benefit was pursued and the extent to which the stated public benefit was created, the compensation paid to each director of the corporation, and the name of each stockholder that owns 5% or more of the outstanding shares of the corporation. Finally, the annual benefit report must also include an assessment of the performance of the corporation in pursuing its stated public benefit against a selected third party standard. The third party standard must be transparent in that a certain amount of information must be publicly available; including stated measurement criteria and the relative weight given thereto, the identity and financial backing of the governing body that created the standard, and the process by which the standard was created and is revised.
Purpose of the Legislation
B Lab, the non-profit organization that worked in conjunction with the New Orleans Business Alliance and the Louisiana legislature to enact HB 1178, states that the purpose behind creating this new form of business entity is to use the “power of business to solve social and environmental problems.” But the ultimate goal of a B-Corp need not be purely altruistic. This legislation allows officers and directors of corporations the flexibility to consider other factors beyond shareholder return in their decision making. This more socially and environmentally conscience approach to business dovetails with many of the stated purposes of the myriad of start-up businesses that have flourished in the post-Katrina New Orleans environment, and allows like minded investors to invest in a for-profit corporation that shares their values.