Source: https://www.floridabar.org/the-florida-bar-journal/now-its-easier-being-green-floridas-new-benefit-and-social-purpose-corporations/
Timestamp: 2020-01-21 05:31:41
Document Index: 448158810

Matched Legal Cases: ['§607', '§607', '§607', '§ 607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607', '§607']

Now It’s Easier Being Green: Florida’s New Benefit and Social Purpose Corporations – The Florida Bar
Vol. 88, No. 9 November 2014 Pg 38 Stuart R. Cohn and Stuart D. Ames Environmental & Land Use Law
The sustainable business movement, impact investing and social enterprise sectors are developing rapidly but are constrained by an outdated legal framework that is not equipped to accommodate for-profit entities whose social benefit purpose is central to their existence. The benefit corporation…is the most comprehensive yet flexible legal entity devised to address the needs of entrepreneurs and investors and, ultimately, the general public.4
The distinction between the B corporation and the SP corporation is that the B corporation has a broad purpose to benefit the public generally, while the SP corporation can choose to limit the benefit goal or goals it pursues. The difference is reflected in the respective definition sections. The B corporation’s stated statutory purpose is to pursue a “general public benefit,” defined as “a material, positive effect on society and the environment, taken as a whole….”5 The stated purpose of an SP corporation is to create a “public benefit,” the word “general” being deliberately omitted. Public benefit for the SP corporation is defined as “a positive effect, or the minimization of a negative effects, taken as a whole on the environment or on one or more ” listed categories of potential beneficiaries.6 In addition to their statutory mandate, both the B Corporation and the SP corporation may choose to adopt in its articles of incorporation a “specific benefit purpose.”7 The difference being that any specifically adopted benefit purpose in a B corporation does not absolve the directors and officers from the mandate to consider broad societal concerns,8 while for an SP corporation, the specific public benefit can be the sole goal considered by management.
1 Florida’s corporate statute, Ch. 607, has been divided into three parts. Part I contains general provisions and governs the traditional corporate model, Part II governs social purpose corporations, and Part III governs benefit corporations. Parts II and III are not entirely stand-alone provisions, as they incorporate all Part I provisions to the extent not specifically addressed in Part II or Part III.
2 Forum for Sustainable and Responsible Investment, 2010 Report on Socially Responsible Investing (2010), available at http://ussif.org/. One study found that as of 2010, for-profit companies that have been, on some basis, identified as socially responsible represented roughly 10 percent of all domestic assets under management, approximately $2.3 trillion, much of it in mutual funds.
3 Benefit corporation, http://www.benefitcorp.net (registration numbers).
4 William H. Clark, Jr. & Larry Vranka, The Need and Rationale for the Benefit Corporation 1, 28 (unpublished manuscript dated January 26, 2012, available in authors’ materials.) William Clark, a Philadelphia attorney, is among the most prominent attorney proponents of benefit corporations and informally consulted with the drafters of the Florida legislation.
5 Fla. Stat. §607.602(5).
6 Fla. Stat. §607.507(6) (emphasis added). The listed categories include artistic, charitable, economic, educational, cultural, literary, religious, social, ecological, and scientific benefit activities. Fla. Stat. §607.507(2).
7 “Specific public benefit” is defined in the B corporation statute by a nonexclusive list that includes such items as providing low-income or undeserved individuals or communities with beneficial products or services, improving human health, and increasing the flow of capital to entities whose purpose is to provide a benefit to society. Fla. Stat. § 607.602(8). For SP corporations, the definition of a specific public benefit is general, but the listing contained in the B corporation statute is repeated among the possible public benefits that an SP corporation may choose to pursue. Fla. Stat. §607.502(6).
8 Fla. Stat. §607.606(2) (“The identification of a specific public benefit…does not limit the obligation of a benefit corporation” to create a general public benefit.).
9 Fla. Stat. §607.607(1).
10 Presumably if the corporation distributing drugs in Africa was, at the same time, not considering ways to improve employee welfare, or was engaged in less than ecologically sound manufacturing processes, the corporation would not be considered a true B corporation. The result may be a failure to meet third-party assessment standards mandated for B corporations.
11 Eric I. Talley, Corporate Form and Social Entrepreneurship: A Status Report from California and Beyond (Sept. 2012) (Draft version 1.2, prepared for the Association for Corporation Counsel 2012 annual meeting).
12 Fla. Stat. §607.506(3) (SP corporations); Fla. Stat. §607.606(3) (B corporations).
13 T he directors’ duty of care mandated in Fla. Stat. §607.0830 is specifically noted for each of the B and SP corporations.
14 In addition to the creation of new companies with substantial public benefit goals, it may be anticipated that some existing traditional and nonprofit corporations may find it preferable to transform into either a B or SP corporation.
15 Fla. Stat. §607.502(5) (SP corporation); Fla. Stat. §607.602(7) (B corporation). This requirement applies to each class or series of shares whether or not entitled to vote, voting as a separate voting group.
16 Fla. Stat. §607.505(3) (SP corporation); Fla. Stat. §607.605(2) (B corporation). This requirement applies to each class or series of shares whether or not entitled to vote, voting as a separate voting group.
17 The legislation added Fla. Stat. §§607.1302(g), (h), (i), and (j), providing for such appraisal rights.
18 Fla. Stat. §607.512 (SP corporations); Fla. Stat. §607.612 (B corporations).
19 Fla. Stat. §607.602(10). The annual report must identify the provider of the third-party standard but does not require that the provider audit or certify the annual report. There are several independent companies that have developed such standards. The leading company in the field of benefit corporation creation and reporting is B Labs, http://www.bcorporation.net.
20 Fla. Stat. §607.511 (SP corporations); Fla. Stat. §607.611 (B corporations). No potential or actual intended beneficiary of a benefit goal has standing to bring such a suit for failure to pursue or create the benefit. Fla. Stat. §§607.509 (3)-(4) (SP corporations); Fla. Stat. §§607.609 (3)-(4) (B corporations). Other states have imposed a minimum share ownership requirement to bring the action, but Florida opted not to do so.
21 Directors and officers are protected from monetary penalties in Fla. Stat. §607.507(3) and 509(3) (SP corporations); Fla. Stat. §607.607(2) and 609(3) (B corporations). The corporation is protected from monetary penalties in Fla. Stat. §607.511(1)(b) (SP corporations); Fla. Stat. §607.611(1)(b) (B corporations).
22 Fla. Stat. §607.0302(12).
23 See, e.g., Dodge v. Ford Motor Co., 170 N.W. 688 (Mich. 1919), in which Henry Ford’s decision to reduce dividends in order to reduce the price of cars to the general public was held improper. The court stated: “A business corporation is organized and carried on primarily for the benefit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors…does not extend to a change in the end itself, to the reduction of profits or to the non-distribution of profits among stockholders in order to devote them to other purposes.”
24 In the oft-cited case A.P. Smith Mfg. v. Barlow, 98 A.2d 581 (NJ 1953), the New Jersey Supreme Court had no trouble upholding the corporation’s power to make a donation to Princeton University, but did note that the contribution “was modest in amount.”
25 From a purely technical perspective, there is nothing in Florida’s corporate statute or case law that expressly or implicitly prevents a corporation from engaging in substantial public benefit programs. The concern that principally motivates the adoption of the B and SP corporations is the sense of restraint imposed upon directors and officers as a result of traditional corporate law concepts of profit-maximization and fiduciary duties to shareholders, and the concern that courts may be receptive to arguments of breach of duty when large public benefit expenditures have been made.
26 Fla. Stat. §607.0830(3). Among the listed factors a director may consider are “the social, economic, legal, or other effects of any action on the employees, suppliers, customers of the corporation or its subsidiaries, the community and society in which the corporation or its subsidiaries operate, and the economy of the state and the union.”
27 Delaware does not have a statutory stakeholder provision but has judicially recognized the directors’ authority to consider “other constituencies,” including the community generally, in hostile takeover defensive actions. Unocal Corporation. v. Mesa Petroleum Co. , 493 A.2d 946 (Del. 1985). However, in a later case, the Delaware Supreme Court noted that “while concern for various corporate constituencies is proper when addressing a takeover threat, that principle is limited by the requirement that there be some rationally related benefit accruing to the stockholders.” Revlon, Inc. v. MacAndrews & Forbes Holding, Inc. , 506 A.2d 173, 176 (Del. 1985).
28 Within the first three months after Delaware’s adoption of its benefit corporation statute, 55 corporations were formed under those provisions. Alicia E. Plerhoples, Delaware Public Benefit Corporations 90 Days Out: Who’s Opting In?, http://scholarship.law.georgetown.edu/facpub/1307.
29 The concerns regarding investor understanding may also apply to creditors who may not be aware that the corporation’s goals include significant nonprofit maximizing activities. Drafters of Florida’s legislation considered, but rejected, the notion of requiring benefit corporations to have an express notation in their corporate name, such as “BC” or “SPC,” as some states have done.
30 It should be pointed out that Florida did not extend B or SP status to limited liability companies as at least one other state has done.