Now it's easier being green: Florida's new benefit and social purpose corporations.

• Author: Cohn, Stuart R.
• Position: Business Law

Effective July 1, 2014, Florida joined the growing number of states that permit special types of for-profit corporations to pursue substantial public interest goals at the possible expense or deferral of profit maximization, the traditional corporate goal objective. What has been the exclusive realm of not-for-profit corporations is now open to for-profit corporations that want to devote some part of their business resources to substantial nonprofit or socially beneficial activities. The legislation created two new forms of for-profit corporations: 1) the benefit corporation and 2) the social purpose corporation. (1) These new entities differ from traditional corporations in three principal respects: 1) a statutory purpose to engage in public benefit activities, in addition to whatever specific public benefit goals may be adopted in the articles of incorporation; 2) a statutory mandate to directors and officers to consider the effect of any corporate action or inaction upon the corporation's public benefit goals; and 3) a mandatory annual report to shareholders describing the efforts of the corporation to achieve the statutory and any specifically adopted public benefit goals. The new entities may be thought of as "green" corporations, the difference between the benefit and social purpose corporations being one of degree of commitment to broad public benefit goals. The intent of the new legislation is to accommodate entrepreneurs and investors who want a for-profit corporation that may engage in substantial socially beneficial activities to an extent beyond what may be allowed for traditional corporations.

Although Florida joins approximately 25 other states that have adopted analogous legislation, Florida's approach differs from other states, with the exception of California and Minnesota, by allowing entrepreneurs a choice to form either a benefit corporation with broadly stated general public goals or a social purpose corporation that may have a single or more limited public benefit agenda. Most states have adopted only the benefit corporation model, which mandates that directors and officers consider an entire range of societal and environmental factors with regard to any corporate action or inaction. The drafters of the Florida legislation believed that it is preferable to give entrepreneurs and investors a choice between a broad, general public-oriented type of corporation and a corporation that may be more limited in its range of public benefit goals.

Why the New Corporate Entities?

Although corporations have long engaged in charitable and other public service projects, there is a sense that an undefinable legal limit exists to nonprofit making activities. In part, the limitation is tied to the fiduciary responsibilities of directors and officers to the corporate shareholders. In part, it is also due to the traditional concept of a corporation as a profit-making entity. In recent years, however, there has been a growing movement among socially minded entrepreneurs and investors who seek to move away from the traditional profit maximization model for corporations and exploit private interests to serve the public interest. Such dual-purpose corporations were initially seen as an oddity. Ben & Jerry's was often cited as such an entity, and the company gained considerable respect for its clear pursuit of public benefit goals. Today, Ben & Jerry's is not an oddity. (2) B Labs, which operates a leading Internet site for benefit corporation information, engages in a state-by-state check of benefit corporation formations and its most recent figure is 955 filings. (3) As noted in one major study:

The sustainable business movement, impact investing and social enterprise sectors are developing rapidly but are constrained by an outdated legal framework that is not equipped to accommodate for-profit entities whose social benefit purpose is central to their existence. The benefit corporation ... is the most comprehensive yet flexible legal entity devised to address the needs of entrepreneurs and investors and, ultimately, the general public. (4)

Benefit and Social Purpose Corporations' Principal Characteristics

* Purpose--The benefit corporation (B corporation) and social purpose corporation (SP corporation) are formed with the stated statutory purpose of creating or pursuing public benefit activities. These new entities are intended to make profit but at the same time engage in substantial public interest pursuits that may significantly affect the corporation's bottom line and shareholder distributions. They are distinguished from not-for-profit entities because both the B corporation and SP corporation are for-profit entities and may distribute dividends to their shareholders.

The distinction between the B corporation and the SP corporation is that the B corporation has a broad purpose to benefit the public generally, while the SP corporation can choose to limit the benefit goal or goals it pursues. The difference is reflected in the respective definition sections. The B corporation's stated statutory purpose is to pursue a "general public benefit," defined as "a material, positive effect on society and the environment, taken as a whole...." (5) The stated purpose of an SP corporation is to create a "public benefit," the word "general" being deliberately omitted. Public benefit for the SP corporation is defined as "a positive effect, or the minimization of a negative effects, taken as a whole on the environment or on one or more" listed categories of potential beneficiaries. (6) In addition to their statutory mandate, both the B Corporation and the SP corporation may choose to adopt in its articles of incorporation a "specific benefit purpose." (7) The difference being that any specifically adopted benefit purpose in a B corporation does not absolve the directors and officers from the mandate to consider broad societal concerns, (8) while for an SP corporation, the specific public benefit can be the sole goal considered by management.

* Mandate--In contrast to traditional corporations, each B and SP corporation is subject to a statutory mandate to management...