A Look at the New Benefit Corporations

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New York recently signed into law a bill that will create “New Benefit Corporations” or companies that are not only responsible for maximizing profits but also maximizing social and environmental good. New York is now the seventh state to enact such legislation.

The law hearkens back to the original purpose of incorporating a company in the United States: achieving a public good such as paving roads or building structures. Over the years, corporations have shifted their focus to focus exclusively on profit maximization for shareholders. Companies have been legally bound to maintain this singular focus. Until now.

Benefit corporations are essentially non-profit/profit hybrids with the main difference being that non-profits have significant advantages in the realm of taxation. The main benefit of the new corporate structure is that it will prevent any possible legal proceedings from shareholders against company executives who are not strictly focused on maximizing profits. As of right now, there is no special taxation for benefit companies but supporters of the movement are hopeful that the new structure will become widespread enough to eventually carry its own taxation benefits.

The idea of benefit corporations has been around for a long time and is often confused with “B Corps.” This is a certification that is granted by B Lab, an independent, non-profit verifier of benefit corporation status. The B Corp status is not a legal form and so is similar to LEED certification. The biggest draw of the new law is that Benefit Corporations would become their own legal corporate structure.

According to a recent article in the Sacramento Business Journal, many experts are expecting the new benefit status will reach a level of conspicuity to rival LEED certification. As the demand for companies with a conscious grows, your business will be presented with opportunities to gain new customers in new demographics.

So far New York, California, Virginia, Vermont, Hawaii, New Jersey and Maryland are the only states that have passed the legislation. If your company is located in one of these states and you have been looking to target environmentally conscious demographics in your market development strategy, gaining benefit corporation status would be a great strategy to undertake. Those businesses that are located outside of these seven states or the seven states that have legislation pending (Louisiana, South Carolina, North Carolina, Michigan, Illinois, Connecticut and Pennsylvania) you can always look into gaining “B Corp” status from an independent verification firm such as B Lab.

An important part of business development strategies and market development in particular is to ensure that the market you’re targeting will be profitable. Do your due diligence to ensure that you’re making the best decision for that point in the business’ life. The market that you’re targeting might be profitable but should that market be your number one priority? Would the company’s resources be better spent elsewhere?

After all, you still have a responsibility to maximize profitability to shareholders. For now, that is.