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Effective January 22, 2013, Pennsylvania permits a new form of business entity that can be formed known as a “benefit corporation.”

“Benefit Corporation” – General and Specific Public Benefits
A benefit corporation is a business corporation that has elected to be governed by the Benefit Corporation Act (the “Act”) such that, in addition to its purpose of conducting a chosen business, it has a secondary corporate purpose to create a “general public benefit” that is intended to have a “material positive impact on society and the environment”.

Further, it may also adopt provisions in its articles relating to achieving one or more additional “specific public benefits” such as providing low-income individuals or communities with beneficial products or services; promoting economic opportunity for individuals or communities (beyond creating jobs in the normal course of business); increasing the flow of capital to entities with a public benefit purpose (such as charities and other benefit corporations); and the accomplishment of any other particular benefit for society or the environment.

Governance and Transparency

Directors/ Liability Limitation. Directors in a benefit corporation are generally subject to the same duties of care and loyalty (and right to rely on advisors) as directors of ordinary Pennsylvania business corporations, but they also have a duty to consider the effects of their decisions on certain of the benefit corporation’s other constituencies (which include, under the Act, shareholders, employees and workforce of the corporation, customers, community and societal considerations, the local and global environment, the short-term and long term interests of the benefit corporation and the ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose). Directors of benefit corporations are not required to give priority to any of these interests over any others (unless its articles of incorporation provide otherwise), and are in any event not liable for considering these other constituencies, as long as the director has satisfied his or her duties of care and loyalty. Similarly, directors are not liable for money damages if the benefit corporation fails to actually create a general (or specific) public benefit.

Accountability and Reporting - Benefit Director. Benefit corporations are required to select a third-party standard for “defining, reporting and assessing corporate social and environmental performance.” Each year (within 120 days after fiscal year end), the benefit corporation must deliver to each shareholder (and file with the state, as well as maintain on its website) an annual benefit report that includes a narrative of the ways in which the general and specific public benefits were pursued (and any related hindrances), how the corporation selected the third-party standard it uses to assess performance, and its assessment of the overall social and environmental performance of the benefit corporation against such third-party standard during such year.

Additionally, each board must have at least one independent member that is designated as the “benefit director,” who is required to submit in the annual benefit report his or her opinion of whether the benefit corporation acted in accordance with its general (and specific, if any) public benefit purpose (as well as opinions of whether other directors and officers of the corporation have acted in accordance with applicable requirements under the Act).

Enforcing the Public Benefit Mission.
Only shareholders and directors of a benefit corporation can bring an action against the corporation (or the board) for failing to pursue the general or specific public benefits; members of the public, even those who were intended to receive such public benefits, cannot bring such actions. More importantly, only injunctive relief is available in such actions, not money damages.
Forming or Becoming a Benefit Corporation; Terminating

Forming a benefit corporation in Pennsylvania is fairly straightforward: where an ordinary Pennsylvania business corporation is formed, its articles of incorporation must simply state that it is “also a benefit corporation”. Turning an existing Pennsylvania business corporation into a benefit corporation requires that its articles of incorporation be amended to state the same thing, though the amendment must be approved by 2/3rds majority on a class and series basis (including non-voting shares). Similarly, an election to cease being a benefit corporation requires a charter amendment and approval (and any transaction like a merger that would terminate the benefit corporation election similarly must be approved) by the same 2/3rds threshold.

With this legislation, Pennsylvania joins California, Hawaii, Illinois,. Louisiana, Maryland, Massachusetts, New Jersey, New York, South Carolina, Vermont and Virginia in authorizing the formation of benefit corporations.

A benefit corporation is a great way for an entity to make a social purpose part of their operations and preserve those values in the future. It also provides clarity and protection to its officers and directors.