California Law Now Permits Benefit Corporations

At the turn of the new year, many laws approved by the California legislature during 2011 went into effect.  One such law is AB 361, which created the benefit corporation, a business entity new to California.  Beginning January 1, 2012, new entities may adopt this form, and existing corporations may convert to benefit corporations with a two-thirds shareholder approval vote.

While traditionally the interests of California’s corporate shareholders trumped all other corporate interests, benefit corporations can adopt environmental, social, or other public benefit policies as part of their legal charter.  This provides legal protection from claims that a corporation’s pursuit of social goals were decreasing stock values, and allows corporations to create and adhere to public benefit policies without converting to a nonprofit.

In addition to including environmental or social goals in their charter, benefit corporations must publish an annual benefit report on its social and environmental performance when compared to third party standards.  Fiduciary duties of corporate directors are also expanded to encompass environmental and social considerations.

Several advantages of benefit corporation form cited by supporters of AB 361, include broader fiduciary roles of officers and directors allowing them to pay greater attention to social and environmental considerations, greater access to certain investing due to increased accountability and established public benefit goals, and marketing opportunities arising from benefit corporations’ ability to distinguish themselves as truly committed to certain causes.

AB 361 represents a growing trend among states to aid corporations to commit and adhere to social or public benefit goals, as well as profit-based goals, and was modeled after similar successful legislation in Hawaii, Maryland, New Jersey, New York, Vermont, and Virginia.  AB 361 was signed by Governor Brown in October of last year, after receiving bipartisan support in the California Legislature.

If you or your business has questions about benefit corporations or other business entity forms, the experienced attorneys at Janssen Malloy LLP are available to assist.

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