In 2011 New Jersey joined the growing number of States that allow for benefit corporations. Benefit corporations are unlike regular corporations that are created to maximize profit. Instead, benefit corporations are formed to allow the business to consider profit as well as society and the environment in its mission. However, since benefit corporations are “for-profit” entities, shareholders of the business can still receive dividends from corporate profits.
While benefit corporations and typical for-profit corporations share many of the same characteristics, according to the New Jersey statute, a benefit corporation’s “certificate of incorporation shall also state that it is a benefit corporation.” Existing corporations can determine to become benefit corporations or terminate its benefit status if at least two-thirds all classes of shareholders approve amending the certificate of incorporation.
What does being a “benefit corporation” really mean? At a minimum every benefit corporation must have the purpose of creating a general public benefit. In addition to broadly creating a public benefit, benefit corporations may also have a “specific public benefit” defined as:
- Providing low-income individuals or communities with beneficial products or services;
- Promoting economic opportunity for individuals or communities beyond the creating of jobs in the normal course of business;
- Preserving the environment;
- Improving human health;
- Promoting the arts, sciences or advancement of knowledge;
- Increasing the flow of capital to entities with a public benefit purpose; and
- The accomplishment of any other particular benefit for society or the environment.
In addition to serving a public good, benefit corporations have several other unique requirements. Benefit Corporations must have on its board of a directors one independent Benefit Director who is tasked with preparing an annual benefit report to shareholders. The Benefit Report must include in part a description of how the Corporation pursued a general public benefit during the year and an assessment of the social and environmental performance of the benefit corporation as judged against a third-party standard. A “third-party standard” means a recognized standard for defining, reporting and assessing corporate social and environmental performance that is:
- Developed by a person that is independent of the benefit corporation; and
- Transparent because the following information about the standard is publicly available;
- The Factors considered when measuring the performance of a business;
- The relative weightings of those factors; and
- The identity of the persons who developed and control changes to the standard and the process by which those changes are made.
Benefit corporations are not appropriate for every business. Nevertheless, if your business is focused on having a public impact, incorporating as a benefit corporation should be considered. If you have questions about whether your business should consider becoming a benefit corporation please contact one of our business attorneys.
About the author: Andrew P. Bolson, Esq. is an attorney with Meyerson, Fox, Mancinelli & Conte, P.A. in Montvale, New Jersey. Andrew’s practice focuses on commercial and estate litigation, business law, real estate law, estate planning and privacy and Internet law.