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............................................................................................................875

II. Background............................................................................................................876

A. Demand by Investors and Consumers..............................................................876

B. For-Profit Corporations...................................................................................878

C. Non-Profit Corporations..................................................................................879

D. Hybrid Corporations........................................................................................879

E. The Benefit Corporation...................................................................................880

III. Analysis..................................................................................................................881

A. Provisions in the Existing Legislation..............................................................882

1. The Third-Party Standard...........................................................................882

2. The Annual Benefit Report..........................................................................883

B. Third-Party Oversight in Practice...................................................................884

C. Enforcement.....................................................................................................886

IV. Recommendation...................................................................................................888

A. The Need for Stronger Third Party Oversight..................................................888

1. The Needfor Greater Statutory Guidance..................................................888

2. Audit Requirement.......................................................................................889

3. Government Oversight................................................................................890

B. The Necessity for a Stronger Enforcement Procedure.....................................890

1. Recommended Improvement to the Benefit Enforcement Proceeding.........890

2. The Case for Expanding Available Remedies.............................................892

V. Conclusion..............................................................................................................893

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. …

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