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Is It Time to "B" a Part of the Social Responsibility Movement?

Small Business Group

 By: Rebecca S. Kane, Esq.

 

November 19, 2014
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Anyone who has ever looked into or started a business can probably recall having a conversation with either their lawyer or accountant (or both) about whether to form their new company as a "C" corporation or an "S" corporation. Oftentimes, that discussion focuses on issues of taxation and limitations on corporate structure.

Recently, Governor Maggie Hassan signed into law Senate Bill 215, and New Hampshire has now joined the growing movement to add another letter of the alphabet into the mix, and with it, a new dimension to business structure and management — the B corporation, also known as the Benefit Corporation, codified as RSA 293-C and to be effective January 1, 2015.

What Is a B Corporation and How Is It Different?

B corporations are a new form of corporation with greater focus on social responsibility. Under the traditional corporate governance model, a board of directors has a duty to manage the corporation and to maximize its value for the overall benefit of its shareholders. This standard can cause practical dilemmas for the board, however, when faced with conflicts between competing interests (shareholders, employees, consumers, suppliers, community members, the environment etc. collectively, "stakeholders"). Protection of employee interests, donations to charities, maintaining local supply relationships, and adopting environmentally-friendly practices all can reduce profit distributions to the shareholders, and under the traditional corporate governance model, the board risks liability from shareholder suits when it prioritizes non-financial interests over the bottom line for its shareholders.

The B corporation legislation embodies a more modern view of corporate governance, namely that the concerns of stakeholders other than shareholders should also be taken into account when determining whether the corporation is meeting its mission.

What Is Required of a B Corporation?

B corporations are required to have a Benefit Director who is responsible for preparing the annual Benefit Report. The Benefit Report addresses whether the board acted consistently with its obligation to create general and specific public benefit purposes, and it must be annually published on its website, filed with the Secretary of State's Office, and distributed to its shareholders. The Benefit Report distributed to its shareholders must also include the compensation paid to each director.

Is There Any Tax Benefit for B Corporations?

At present, there are no special tax benefits to being a B corporation in NH, but other jurisdictions have provided tax incentives, and it is not improbable that more cities and states will follow suit.

Why Would a Business Become a B Corporation?

The growing social responsibility movement encourages businesses to adopt a mission statement that benefits the general public, and frequently consumers will choose to pay more for goods and services from these businesses than those businesses driven entirely by profits. Designation as a B corporation allows those consumers and businesses to be able to tell the difference between the two.

It is clear that the movement toward corporate social responsibility continues to take root and grow. Businesses interested in joining this movement should consult with their legal advisor on how best to align their corporate governance structure with their corporate mission of social responsibility.

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Rebecca Kane is an attorney in the Corporate Department of Devine, Millimet & Branch, P.A. in Manchester, N.H.

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The Devine Millimet Startup Team offers this free E-Mail Alert service to provide information on recent developments in business law. If you have any questions about this e-mail, or if you know of anyone else who may be interested in receiving these alerts, please send us an email at startupteam@devinemillimet.com.


This is not a legal document nor is it intended to serve as legal advice or a legal opinion. Devine, Millimet & Branch, Professional Association makes no representations that this is a complete or final description or procedure that would ensure legal compliance and does not intend that the reader should rely on it as such.


Copyright© 2014 Devine Millimet & Branch, Professional Association

 

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