- Florida Supports Socially Conscious Corporations
- July 11, 2014 | Author: Rebecca H. Forest
- Law Firm: Lowndes, Drosdick, Doster, Kantor & Reed Professional Association - Orlando Office
Effective July 1, 2014, Florida now offers entrepreneurs two additional types of for-profit business entities, social purpose corporations and benefit corporations. Historically, for-profit corporations are to act in the best interests of their shareholders, which generally means by maximizing profits, but there is growing trend among states to permit such corporations to also act for public good as well. These two new types of corporations are intended to provide for-profit corporations greater flexibility to pursue public or social benefit while providing accountability and transparency in achieving their stated purposes.
A social purpose corporation is one that has as a purpose (as stated in its articles of incorporation) creating a public benefit, which generally means a positive effect or the minimization of negative effects, taken as a whole, on the environment or on one or more categories of persons or entities, of an artistic, charitable, economic, educational, cultural, literary, religious, social, ecological or scientific nature, from the business and operations of the corporation. A social purpose corporation may have one or more specific public benefits included in its purpose.
A benefit corporation is one that has the purpose (as stated in its articles of incorporation) of creating a general public benefit, which means a material, positive effect on society and the environment, taken as a whole, which is attributable to the business and operations of the corporation and measured by using an independent, third-party standard. A benefit corporation may also have one or more specific public benefits.
A “public benefit” for a social purpose corporation and a “specific public benefit” for a benefit corporation, includes (but is not limited to): providing low-income or underserved individuals or communities with beneficial products or services; promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business; protecting or restoring the environment; improving human health; promoting the arts and sciences or advancement of knowledge; and increasing the flow of capital to entities that have as their stated purpose the provision of a benefit to society or the environment.
Under the new provisions, a corporation may be formed as a social purpose or a benefit corporation. An existing corporation may become a social purpose or a benefit corporation by amending its articles or by merger, conversion or share exchange with a social purpose or benefit corporation. Any such amendment, merger, conversion or share exchange will recover shareholder approval by a minimum status vote as provided in the new statutory provisions.
Directors in a social purpose corporation must consider the effects of any action or inaction taken by the corporation not just on the shareholders of the corporation, but also on the ability of the corporation to accomplish its public benefit or any stated special public benefits. Directors also may consider, among other factors, the effects or any action or inaction by the corporation upon its employees and the work force, the interests of customers and suppliers as beneficiaries of the public benefit or specific public benefits, community and societal factors, the local and global environment, and the short-term and long-term interests of the corporation. In contrast, directors of a benefit corporation must consider all of these factors, in addition to the effect of such action or inaction on the corporation’s shareholders and the ability of the corporation to accomplish its general public benefit purpose and any stated specific public benefit purposes. Additionally, directors and officers of both social purpose and benefit corporations also are subject to general standards applicable to all for-profit corporations.
Directors and officers of social purpose and of benefit corporations are provided legal protection for their consideration of the non-financial interests of their employees, the community and the environment in their decision making processes. Directors and officers of a social purpose corporation or a benefit corporation generally are not personally liable to the corporation, or any shareholders for the failure of the corporation to pursue or create a social purpose or any general or stated specific public benefit. Further, a person generally may not bring an action against a social purpose corporation or a benefit corporation or its directors of officers for failure to create or pursue a public benefit or a stated specific public benefit.
In order to provide for greater transparency, both a social purpose corporation and a benefit corporation must prepare an annual benefit report that describes the ways in which the corporation pursued a public benefit during the year and the extent to which a public benefit was created and any circumstance that hindered such pursuit or creation. A social purpose corporation may use an independent third-party standard (meeting requirements set forth in the statutes) in preparing its annual report but such use is required only if required by its articles of incorporation or the board of directors. In contrast, the annual benefit report for a benefit corporation must be prepared in accordance with a third-party standard. Consequently, there may be a higher level of transparency and accountability with a benefit corporation. For both types of corporations, the annual report must be mailed to shareholders and must be made be publicly available on the corporation’s website for at least three years or otherwise be made publicly available if it has no website.