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What's a Maryland B Corporation?
For centuries, the role and responsibilities of corporations and corporate boards of directors have been clear: to maximize shareholder (owner) profit. Indeed, directors are subject to derivative suits by shareholders for violations of either the duty of care or loyalty which impedes such pursuits. However, beginning October 1, 2010, that will not necessarily be the case in Maryland. The Free State recently became the first state in the nation to approve a new form of business entity known as a Benefit (B) Corporation.B corporations continue to operate for-profit. However, it is distinguished from a traditional corporation by having as it's central purpose a "General Public Benefit". Recognizing that corporations necessarily create broad externalities, this standard requires that a B corporation shift its focus from maximizing shareholder utility to "stakeholder" utility, which includes owners, employees and the general public. Among the statutorily enumerated public benefit purposes that a B corporation must stipulate in its charter are:
- Providing individuals or communities with beneficial products or services;
- Promoting economic opportunities for individuals or communities beyond the creation of jobs in the normal course of business;
- Preserving the environment;
- Improving human health;
- Promoting the arts, sciences, or advancement of knowledge;
- Increasing the flow of capital to entities with a public benefit purpose; or
- The accomplishment of any other particular benefit for society or the environment.
One of the most significant effects that this new entity will have is on the duties required of board members. Indeed, the legislation requires that directors shall consider the following five factors in making business decisions:
It will be some time before B corporations are formed and operated and the statute interpreted by Maryland courts. At this time, two questions clearly present themselves. First, to what degree will investors be inclined to fund a for-profit venture that is statutorily obligated to consider the interests of non-owner parties when making business decisions? Second, even with statutory protection, to what degree will B corporation directors be shielded from shareholder derivative suits if profits suffer?
- The stockholders of the benefit corporation;
- The employees and workforce of the benefit corporation and the subsidiaries and supplies of the benefit corporation;
- The interests of customers as beneficiaries of the general or specific public benefit purposes of the benefit corporation;
- Community and societal considerations, including those of any community in which offices or facilities of the benefit corporation or the subsidiaries or supplies of the benefit corporation are located; and
- The local and global environment.
It will be some time before B corporations are formed and operated and the statute interpreted by Maryland courts. At this time, two questions clearly present themselves. First, to what degree will investors be inclined to fund a for-profit venture that is statutorily obligated to consider the interests of non-owner parties when making business decisions? Second, even with statutory protection, to what degree will B corporation directors be shielded from shareholder derivative suits if profits suffer?
1 Comments to "What's a Maryland B Corporation?"
Recognizing that corporations necessarily create broad externalities, this standard requires that a B corporation shift its focus from maximizing shareholder utility to "stakeholder" utility, which includes owners, employees and the general public.
Posted by James Morgan - Puritan Financial Advisor
on August 27, 2010 at 06:22 AM
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