Academic journal article Journal of Corporation Law

The Viability of Benefit Corporations: An Argument for Greater Transparency and Accountability

Academic journal article Journal of Corporation Law

The Viability of Benefit Corporations: An Argument for Greater Transparency and Accountability

Article excerpt

I. INTRODUCTION II. BACKGROUND       A. Demand by Investors and Consumers       B. For-Profit Corporations       C. Non-Profit Corporations       D. Hybrid Corporations       E. The Benefit Corporation III. ANALYSIS       A. Provisions in the Existing Legislation            1. The Third-Party Standard            2. The Annual Benefit Report       B. Third-Party Oversight in Practice       C. Enforcement IV. RECOMMENDATION       A. The Need for Stronger Third Party Oversight            1. The Need for Greater Statutory Guidance            2. Audit Requirement            3. Government Oversight       B. The Necessity for a Stronger Enforcement Procedure            1. Recommended Improvement to the Benefit                 Enforcement Proceeding V. CONCLUSION 

I. INTRODUCTION

Traditional corporate forms and the existing corporate law framework place limitations on a corporation's ability to consider interests beyond profit maximization. This notion is at odds with the growing demand for companies that promote social responsibility by using environmentally friendly products and practices, or benefit society in other ways. The benefit corporation entity is a corporate form that has the potential to combine the interests of profit generation with the pursuit of social goals. So long as benefit corporation legislation requires compliance with strict oversight and transparency standards, companies that wish to generate a profit and simultaneously create a positive impact on society will be able to do so without the fear of shareholder derivative litigation. By incorporating as a benefit corporation, a company also signals to the market that the company is socially responsible. The benefit corporation entity therefore allows companies to capture demand from consumers and investors that champion ideals beyond simply maximizing wealth.

Part II of this Note provides a backdrop to the limitations presented by traditional corporate forms, and explores the context of changing investor and consumer behavior that makes the benefit corporation entity an attractive corporate form. Part III analyzes the features of existing benefit corporation legislation and the various requirements for compliance and transparency. Part IV recommends changes to the existing legislation that will make the benefit corporation entity more viable in practice. Finally, Part V offers a brief conclusion.

II. BACKGROUND

Unlike contemporary corporations formed for the purpose of generating profits, (1) the earliest corporate entities were organized with the intent to achieve a more specific and concrete goal. (2) In light of the current period of economic uncertainty, and the awareness of the necessity and desire for sustainability, many Americans are disenchanted with the operating practices and philosophy of major corporations. (3) Some corporations have attempted to solve the problem by abandoning the restrictions of existing corporate forms and reincorporating in a manner that allows for the freedom to pursue socially beneficial goals without altogether abandoning the distribution of profits to its shareholders. (4) This suggests a growing approach to business that has come full circle, embodying the desire to achieve specific progressive purposes in the semblance of the earliest chartered corporations.

A. Demand by Investors and Consumers

The trend of corporations seeking to achieve a purpose beyond generating a profit comes at a time when both investors and consumers desire to align their purchases and investments with their social values. (5) Not all investors want to use their resources solely to generate additional revenue for themselves; many choose "impact investments" to support corporations that share their desire for social and environmental progress. (6) While analysts hesitate to provide an estimate of the current levels of impact investing in the United States, some predict that it will constitute approximately $500 billion of invested funds within five to ten years, representing one percent of total managed assets. …

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