Virginia was among the first handful of states to embrace the social entrepreneurship movement by passing a law in 2011 creating a special form of business entity—the benefit corporation. Here are a few good things to know about the Virginia benefit corporation:
1. What is a benefit corporation and how is it different from a regular stock corporation? A benefit corporation is a special form of stock corporation that is formed to pursue a general public benefit (a term defined broadly under the statute to include any “material positive impact on society and the environment taken as a whole, as measured by a third-party standard…”). A few distinguishing features of a benefit corporation include: (i) maximizing profit is not the only objective, pursuit of public benefit is also required; (ii) directors must take into account a variety of stakeholders (not just shareholders) in fulfilling their duties; and (iii) an annual benefits report must be prepared in accordance with a third party standard (e.g., B Lab) and made publicly available.
2. Is a benefit corporation a tax-exempt entity? No, benefit corporations are neither tax-exempt nor nonprofit organizations. These are for-profit businesses taxed as either “C” corporations or “S” corporations.
3. How do I form a benefit corporation in Virginia? The same way you form any Virginia stock corporation—by filing Articles of Incorporation with the State Corporation Commission. The Articles must contain two special provisions. First, the Articles must contain a statement that the business elects to become a benefit corporation. Second, the Articles must include as one of its stated purposes the creation of a general public benefit (i.e., a socially beneficial purpose).
4. Do other states have benefit corporation statutes in effect? Yes. As of April 2016, benefit corporation laws have been passed in 31 states (including the District of Columbia), with several other states considering benefit corporation legislation.
5. Do directors of benefit corporations have any special duties or obligations different from stock corporations? Yes, benefit corporation directors must take into account several different stakeholders and factors when determining what’s in the best interests of the corporation: (i) shareholders; (ii) employees;(iii)customers; (iv) the community as a whole; (v) the local and global environment; (vi) short-term and long-term interests of the benefit corporation; and (vii) the ability of the benefit corporation to accomplish its general and specific public benefit purposes.
* This material is provided for informational purposes only and should not be construed as legal or tax advice, nor should it be acted upon without prior consultation with your own professional advisors. Receipt of this information does not create an attorney-client relationship between the recipient and the author.