The Connecticut Benefit Corporation Act, which became effective on October 1, 2014, authorized the formation of benefit corporations (also known as B-corporations) under state law. A benefit corporation is a for-profit corporation that is allowed to consider the needs of society, in addition to the needs of its shareholders, when making business decisions. It is an entity that is ideally suited for the growing number of socially conscious entrepreneurs.

The main advantage of a benefit corporation is that its officers and directors are provided with some immunity from shareholder claims if they are acting in furtherance of the corporation’s social mission. The officers and directors of a traditional for-profit corporation may breach the legal duties they owe to their shareholders if they take actions that are not intended to maximize shareholder returns. Accordingly, a benefit corporation is allowed to devote some of its resources to the public good without significant fear of liability.

In order to become a benefit corporation under the Act, a corporation simply needs to state in its initial or amended certificate of incorporation that it has a purpose of creating a general public benefit, or one or more specific public benefits, in addition to its regular business purposes. A general public benefit is one that has a “material, positive impact on society and the environment.” The specific public benefits that may be pursued include, among others, protecting or restoring the environment and/or promoting the arts, sciences or advancement of knowledge. Once formed, a benefit corporation is required to distribute to its shareholders and post on the public portion of its website an annual benefit report detailing its efforts to foster its specified public benefits. The Act, unlike similar statutes in other states, also allows a corporation to adopt a legacy preservation provision which greatly restricts the ability to revoke a company’s benefit corporation status.

Connecticut is at least the twenty-sixth state to authorize benefit corporations. The rise of benefit corporations has been attributed, in part, to a greater demand for corporate responsibility in the wake of various scandals. There are several reasons for business owners to consider forming a benefit corporation besides a desire to become a better corporate citizen. Giving back to society whole can have a salutary effect on a corporation’s public relations and the morale of its employees. Benefit corporations can also attract investments from impact investors who place a premium on societal goals. However, the increased transparency requirements of a benefit corporation, including the obligation to file public reports, can deter some business owners who prefer to keep their affairs private. Accordingly, you should seek advice from a business attorney to determine whether a benefit corporation is the right entity for your company. For more information, please contact Mark W. Klein (mklein@brodywilk.com).