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Introduction

Unlike traditional corporate structures, a benefit corporation obligates the board to consider the interests of all stakeholders in its decision making, not just shareholders. The company must pursue a public benefit purpose, and must report on its impact performance to shareholders and potentially to the general public (depending on the state). The definition of public benefit varies by state, but it is most often expressed as a purpose of creating a positive impact on society and the environment as a whole, or of operating in a responsible and sustainable manner. The statutes also allow (or in some states require) the company to specify one or more specific public benefit purposes that it will pursue, each of which must fall within statutory definitions. For example, Delaware requires the specific public benefit purpose to be stated in the certificate of incorporation, and allows it to include positive effects of “an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.”

Some states, including New York, also allow the company to specify which purposes have priority. Practitioners should keep in mind that provisions prioritizing one purpose over others run the risk of limiting the board’s discretion.

Benefit corporations are often confused with certified B Corporations, which commit to a set of impact “best practices” defined by the nonprofit B Lab. Certified B corps can be structured as corporations or as LLCs.  See Measuring general social and environmental performance.

Term sheet language specific to benefit corporations may be useful in the following situations:

  • the corporation will be formed at the time of the investment, and so the specific public benefit has not yet been defined;
  • the investors want to modify the definition of the specific public benefit in connection with the investment;
  • the investors or entrepreneurs want to require that the benefit report be distributed more often than is statutorily required;
  • the investors or entrepreneurs want to require the company to publicly share its benefit report;
  • the investors or entrepreneurs want to require the enterprise to assess its performance with respect to its specified public benefit against an independent third party standard;
  • the investors want a voice in any future changes to the benefit purpose and related concepts; and
  • if the company has multiple specific benefit purposes, the investors or entrepreneurs may want to specify that the company prioritize one or more purposes over others.

With some of the sample language, we identify a state or states for which the language is designed. Adjustments may be required to this language for corporations formed in other states.

Sample language for agreeing on the company’s specific public benefit purpose

The [Certificate][Articles] of Incorporation of the Company shall identify as the Company’s specific public benefit purpose(s) [definition of specific public benefit purpose(s)].

Sample language for requiring more frequent benefit reporting

The Company shall provide to its shareholders its benefit report [insert time period, which is more frequent than statutorily required].

Sample language for requiring public dissemination of benefit report

The Company’s benefit report shall be posted on the Company’s website. The Company may omit from the posted reports any financial or proprietary information included in the reports.

Sample language for requiring assessment of social performance with reference to third party standard

The Company’s benefit report shall include an assessment of the overall social and environmental performance of the Company against a credible, independent third party standard].

Requiring investor approval for changes to special benefit purpose and related requirements (debt)

Delaware

During the term of the Loan, the consent of the Investor shall be required to (1) change the Company’s specific public benefit purpose(s), (2) adopt or change the objectives the Board is required to establish to promote its public benefit purpose(s) and the interests of those materially affected by the Company’s conduct, or (3) adopt or change the standards the Board is required to adopt to measure progress in promoting such public benefit purpose(s) and interests.

New York/California

During the term of the Loan, the consent of the Investor shall be required to (1) change the Company’s specific public benefit purpose(s), or (2) adopt or change the third-party standard used to assess the Company’s social and environmental performance.

Sample language for requiring investor approval for changes to special benefit purpose and related requirements (Delaware - equity)

As long as the Investors hold at least [X percent] of the Shares purchased, [the vote of at least X percent of the Shares, voting as a separate class] OR [the approval of the Board, including the approval of the Series X Director(s)], shall be required to (1) change the Company’s specific public benefit purpose(s), (2) adopt or change the objectives the Board is required to establish to promote its public benefit purpose(s) and the interests of those materially affected by the Company’s conduct, or (3) adopt or change the standards the Board is required to adopt to measure progress in promoting such public benefit purpose(s) and interests.

Sample language for requiring investor approval for changes to special benefit purpose and related requirements (New York/California - equity)

As long as the Investors hold at least X percent of the Shares purchased, [the vote of at least X percentage of the Shares, voting as a separate class] OR [the approval of the Board, including the approval of the Series X Director(s)], shall be required to (1) change the Company’s specific public benefit purpose(s), or (2) adopt or change the third-party standard used to assess the Company’s social and environmental performance.

Sample language for establishing the priority of multiple benefit purposes

The [Certificate][Articles] of Incorporation of the Company shall identify as the Company’s specific public benefit purpose(s) [definition of the specific public benefit purpose], and shall state the Company’s intention to give priority to [definition of the priority purpose].

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