June 9, 2014 - Assessing the legal rights, rewards of benefit corporations
June 9, 2014
By: James W. McLaughlin
Hartford Business Journal
In May, Connecticut joined the majority of its fellow states when it adopted legislation to introduce a new type of corporate legal entity — the benefit corporation. Benefit corporations are designed to meet the needs of the rapidly-developing sustainable business movement in the state. They offer impact investors and social enterprise entrepreneurs a comprehensive yet flexible legal entity that is specifically equipped to accommodate for-profit entities that have a social benefit purpose central to their existence.
Historically, a business corporation's focus has been limited to maximizing shareholder value to the exclusion of other considerations. Deviating from this narrow focus could subject directors to legal risk for breach of their fiduciary duty to the corporation. Benefit corporations broaden the scope of director discretion by removing any ambiguity as to whether directors can consider interests of stakeholders other than shareholders in fulfilling their fiduciary duties. In fact, the new legislation makes such considerations mandatory for benefit corporations.
The law requires a benefit corporation to have the stated purpose of creating a general public benefit. It also offers the option to adopt one or more specific public purposes including improving human health, promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business, or promoting the arts, sciences or advancement of knowledge.
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