Benefit corporations: coming soon to New Hampshire

A new state law gives socially minded businesses an alternative corporate option

Beginning Jan. 1, New Hampshire will join over two dozen other states in permitting business and professional corporations to be formed as “benefit corporations” – a hybrid form of corporate entity that allows a for-profit corporation to pursue social responsibility as one of its stated business purposes.

Benefit corporations are distinct from nonprofit entities in that they are permitted to operate for profit and are not eligible for tax-exempt status.

Since benefit corporations were first introduced in the United States in 2010, over 1,100 have been formed, including several well-known companies, such as Patagonia Inc. in California and the King Arthur Flour Company Inc. in Vermont.

The New Hampshire Benefit Corporation Act provides that any New Hampshire business or professional corporation may elect to be treated as a benefit corporation under the act by designating in its articles of incorporation that it is a benefit corporation.

By making this designation, the act provides that, in addition to its business purpose, the electing corporation will have as an additional purpose the creation of general public benefit by having a material positive effect on society and the environment, taken as a whole.

The articles of the benefit corporation may also enumerate more specific public benefits that entity will seek to achieve. The electing business or professional corporation will continue to be subject to the applicable provisions of the New Hampshire Business and Professional Corporation Acts, except as specifically modified by the Benefit Corporation Act.

Statutory protections

One of the most significant modifications under the act is to change the fiduciary duties of the directors and officers of a benefit corporation.

In a typical business or professional corporation, directors and officers are required to act in the best interest of the corporation and its shareholders. This usually requires them to maximize corporate profits and the associated returns to investors. With a benefit corporation, the purpose of the entity, and the corresponding obligations of its directors and officers, are expanded so that the directors and officers of benefit corporations are required to consider the effects of their actions not only on the pecuniary interests of the shareholders but also on other societal factors.

These factors may include the entity’s employees, workforce and suppliers; the interests of its customers; community and societal factors; the local and global environment; the short- and long-term interests of the benefit corporation; and the ability of the benefit corporation to accomplish its general public benefit purposes and any specific public benefit purposes.

While the act broadens the scope of matters that must be considered when making corporate decisions, it also offers statutory protections by specifying that the directors and officers have authority to take these matters into account but have no duty to the general public, only to the entity’s shareholders.

The act also makes clear that there will be no personal liability for monetary damages for any failure of a benefit corporation to pursue or create general or specific public benefit.

The act also imposes a number of accountability requirements. In order to maintain benefit corporation status, each benefit corporation is required annually to assess its overall performance against a recognized third-party standard for defining, reporting and assessing corporate social and environmental performance. The act permits each entity to select an appropriate third party standard to apply, requiring only that it be comprehensive, balanced and transparent.

In addition, each year the benefit corporation is required to prepare an annual benefit report, including a narrative description of the ways in which the benefit corporation has pursued, and been successful in creating, either general public benefit or the specific public benefits set forth in its articles. The report must also describe the process and rationale for the third-party standard used to prepare the benefit report and summarize the results of the entity’s assessment against that standard.

A copy of the annual benefit report must be provided to each shareholder of the benefit corporation. In addition, a redacted version must be posted on the entity’s website and filed with the secretary of state.

The New Hampshire Benefit Corporation Act will provide socially minded businesses and their owners with an innovative alternative corporate option to consider. As this form of entity continues to gain traction across the country, it will be interesting to see the level of adoption in New Hampshire. 

Colleen Lyons, an attorney at the law firm of Sheehan Phinney Bass + Green, can be reached at 603-627-8222 or clyons@sheehan.com.

Categories: Law, Legal Advice
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