Benefit corporation laws hold social ventures accountable

Businesses with an environmental and social conscience have dramatically grown in number and influence.

Entrepreneurs are starting mission-driven, for-profit businesses with purposes traditionally associated with nonprofits, such as providing solutions for obtaining basic needs like food, water and capital in third-world countries. Other businesses are engaged in more traditional for-profit activities, but finding ways to do so with a substantially reduced environmental footprint. Many of these businesses consider the group of stakeholders to whom they are responsible to go well beyond company shareholders, and to include employees, customers, suppliers, the environment, and the communities in which the business operates. This growth has forced traditional corporate laws to adapt to evolving business methods and ideas. Social entrepreneurs now have a variety of choices to make when organizing their businesses, such as forming a "benefit corporation" under some state laws, or being certified as a "B corporation" by an independent organization.

The historical legal framework for business corporations requires the directors and officers of a corporation to act in the best interests of the corporation. Profits and short-term financial gains for investors have traditionally been the exclusive tools for measuring whether something is in the best interests of a corporation.

This focus on profits is too narrow and inflexible for many socially minded businesses that consider their stakeholders to extend beyond investors. So, the marketplace and corporate laws are adapting to these needs. Many states are amending their corporate laws to allow corporations different ways of expressing their purposes and interests. There are also independent certification services that can evaluate and certify a business' commitment to sustainable practices. Entrepreneurs who wish to express a corporate commitment to social or environmental goals have several options available to them.

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Douglas D. Morris is the chair of the business department at Ater Wynne LLP. He focuses on mergers and acquisitions, corporate finance, securities and general corporate representation. L. David Connell, chair of the Ater Wynne tax group, served as co-author of this article. Connell focuses on tax, business and nonprofit law.