Tuesday, October 18, 2011

California's New B Corporation

Governor Brown recently signed Assembly Bill 361 enacting a new kind of corporation for California, the B-Corporation.  You may be familiar with B Corporation Certification which already exists.  However B Corporation Certification and California's new B-Corporation are different.  B Corporation Certification is certification awarded by NGO B-Labs which certify companies that operate under sustainable principals.

California's new B-Corporation legislation, effective January 1, 2012, allows a new business to legally incorporate as a Benefit Corporation, or an existing corporation to change its legal designation to a Benefit Corporation.  The Benefit Corporation shall have the purpose of creating a general public benefit.  Under existing corporate law, Corporations owed a fiduciary duty to its shareholders, and all decisions must be made with the shareholders' interests as paramount.  Decisions made to maximize sustainability, minimize detrimental impact to the environment, and/or maximize social benefit could leave directors liable to shareholders if those decisions negatively impacted shareholders.  With the new B-Corporation legislation, however, directors would have maneuverability in making such decisions without the concomitant liability.

AB 361 encourages corporate transparency.  Indeed, as part of the legislation, B-Corps must include in their annual reports a review of the corporation's overall social and environmental performance.  In addition, B-Corps must post all of its benefit reports on the public portions of the corporate web site, if there is one.

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