By: Caleb Williams
2013 Legislation Affecting Oregon Business: Benefit Companies
In 2013, Oregon has become the most recent state in a wave of states to create a legal framework for a “benefit company.” As of this writing, 19 states and the District of Columbia have adopted similar legislation. Oregon is relatively unique, in that it is one of just a few states that allow both corporations and LLCs to organize as a “benefit company.”
A benefit company is a corporation or LLC whose purpose is to provide “general public benefit” in addition to the usual business purpose of maximizing profits for the benefit of shareholders or members. Under the Act, “general public benefit” means “a material positive impact on society and the environment, taken as a whole, from the business and operations of the benefit company.” Benefit companies are not non-profit entities, but for-profit business entities intended to promote societal and environmental good in addition to a return of profit to the owners. Oregon’s law is based on a model act promoted by the non-profit organization B Lab (www.bcorporation.net). B Lab encourages states to adopt legislation that allows for-profit companies to organize for purposes other than profit, and also certifies companies that meet B Lab’s benefit company standards.
The movement by state legislatures to adopt benefit company legislation is motivated by an increasing desire for investors and operators to promote social good. It helps that the legislation is relatively uncontroversial. Electing to be subject to the benefit company statute merely results from the agreement of the business owners.
Structurally, in order for a corporation or an LLC to be governed by the benefit company statute, a statement to that effect must be included in the initial articles of organization or through an amendment to the articles of incorporation. A company may further specify a public benefit that the company wishes to pursue by identifying that specific benefit in the articles.
The Act requires the benefit company to appoint a board of governors, which in turn designates one member to act as a “benefit governor.” The benefit governor then oversees the actions of the company in accomplishing public benefit and reports to the board of governors how the company performs. A board of governors is a new concept under Oregon law, but in practice operates like a committee of the board of directors. Presumably, smaller companies will have their existing board of directors act as the board of governors and appoint a benefit governor from among their members.
A unique feature of the legislation is that the law requires a benefit company to prepare an annual benefit report describing the extent to which the benefit company provided a general public benefit and the actions and methods that benefit company used to provide the general public benefit. The report also must describe how the benefit company’s efforts measured against a third party standard (selected by the company) in meeting the public benefit. This report must be provided to each owner and be posted on the benefit company’s website for review by the public.
Proponents of the Benefit Company Act believe such legislation is necessary because the current legal framework for for-profit entities promotes and supports the primary purpose of maximizing the return of profit to the owners. The Benefit Company Act establishes a legal basis for the entity to promote a non-owner’s interest. Non- owner interests specifically identified in the act include:
- The employees and work force of the benefit company;
- The benefit company’s customers;
- The communities that the benefit company’s activities affect; and
- The local and global environment.
By creating a statutory framework for benefit companies, the Oregon legislature has created a basis for shareholders or members of a corporation or LLC, respectively, that have elected to be a benefit company to bring an action to insure that the company, its governors, officers, directors, members or managers pursue general public benefit or a specifically identified benefit for the benefit company. In addition, the Act provides liability protection to officers, directors and managers that are pursuing public benefit interests in the activities of the corporation or LLC rather than primarily seeking to increase the return of profit to the owners.