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Monday, June 13, 2011

Benefit LLC - Tori

Interested in promoting the arts or helping the environment while also making a profit?

During the 2011 session of the Virginia General Assembly, Delegate Jennifer McClellan (D-Richmond) introduced HB2358 which creates the statutory framework for the incorporation of benefit corporations. The bill passed the Virginia House and Senate with no opposition, was signed into law by Governor Bob McDonnell on March 26, and will take effect on July 1. A benefit corporation is an interesting hybrid that mixes the values of a traditional business entity (maximizing shareholder value) and a nonprofit (social mission). As outlined in the 2011 legislation, a benefit corporation must have listed as one of its purposes the creation of a general public benefit which is defined as “a material positive impact on society and the environment taken as a whole, as measured by a third party standard.” [1] According to a recent article in Business News Daily, Virginia joins three other states (Maryland, New Jersey, and Vermont) that have passed legislation to award legal recognition to benefit corporations. A handful of other states are considering similar legislation. [2]

One of the most intriguing aspects of this legislation is the requirement that a benefit corporation meet independent, third party standards that demonstrate the company is fulfilling its public benefit mission. According to the legislative text, the benefit corporation is required to submit an annual benefit report that describes how the company is meeting these public benefit standards and the extent to which the standards are being met. However, the legislation does not specify any standard or list of standards that must be met. With this lack of specificity, the legislation seemingly opens up a marketplace for companies to pick which standards they will follow.

The rise of benefit corporations also presents interesting new questions for scholars of both for-profit and nonprofit board governance. For example, Research Dependency theorists could explore if nonprofit boards perceive benefit corporations as potential competitors and a threat to their ability to access resources. If these perceptions develop, how might a nonprofit board’s strategic decision making change? Because benefit corporations are hybrid profit/nonprofit organizations, another interesting field of inquiry would be an examination of how benefit corporations develop their mission statements. Is there a particular balance between profit motive and social mission that promotes greater mission attachment? Finally, scholars could examine how the new third-party accountability regimes impact strategic planning.

[2] Nicole Fallon, ‘’Benefit Corp ‘ Status Incorporates Doing Good into Business Basics,’ Business News Daily, May 25, 2011.

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