Friday, May 14, 2010

Maryland's New Benefit Corporations Law

In April, Maryland became the first state in the nation to enact legislation permitting the creation of Benefit Corporations. Such business entities are often referred to as “B Corporations,” a term that is a trademark of B Lab, a non-profit that has worked to popularize the concept and that certifies such businesses. This category of business entity permits a corporation to identify goals other than profit maximization, generally objectives relating to social and environmental performance.

Traditionally, the duty of corporate directors and officers is to maximize the monetary return on shareholders’ investment. Benefit Corporations are for-profit enterprises, but they also identify in their corporate documents social progress objectives. The concept grew out of a concern on the part of socially conscious business owners that tapping capital markets can serve to undermine the social mission of their businesses, as the new investors may grow weary of the social mission and simply seek profit maximization.

Under Maryland’s approach, Benefit Corporations must have the purpose of creating a “General Public Benefit”, defined as “a material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of Specific Public Benefits.”  The new law defines this “third party standard” by which a General Public Benefit is to be measured as a standard for defining, reporting, and assessing best practices in environmental and social practices, created by a party independent of the Benefit Corporation and transparent in its criteria for assessment. B Lab has one such standard up and running and has certified over 200 businesses.

The term “Specific Public Benefit” includes the following:
(1) Providing individuals or communities with beneficial products or services;
(2) Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
(3) Preserving the environment;
(4) Improving human health;
(5) Promoting the arts, sciences, or advancement of knowledge;
(6) Increasing the flow of capital to entities with a public benefit purpose; or
(7) The accomplishment of any other particular benefit for society or the environment.
All Benefit Corporations created under Maryland law must have the purpose of creating a General Public Benefit. A Benefit Corporation has the option of specifying in its charter one or more Specific Public Benefits as among its purposes, in addition to (rather than in place of) its purpose of creating a General Public Benefit.
The Directors of a Benefit Corporation must consider the effects of their actions not only the interests of the shareholders, but also on other stakeholders, specified by statute:

(1) In determining what the director reasonably believes to be in the best interests of the benefit corporation, [the director] shall consider the effects of any action or decision not to act on:
(i) The stockholders of the benefit corporation;
(ii) The employees and workforce of the benefit corporation and the subsidiaries and suppliers of the benefit corporation;
(iii) The interests of customers as beneficiaries of the general or specific public benefit purposes of the benefit corporation;
(iv) Community and societal considerations, including those of any community in which offices or facilities of the benefit corporation or the subsidiaries or suppliers of the benefit corporation are located; and
(v) The local and global environment; and
(2) May consider any other pertinent factors or the interests of any other group that the director determines are appropriate to consider.
Non-shareholder stakeholders, however, lack the standing to sue directors under the new law. Only shareholders are able to vindicate any failure of the directors to consider the effects of a given action on the other stakeholders.

The bill incorporates Maryland’s statutory “business judgment” rule, under which board members and officers are generally not liable for actions they take in the course of their duties in seeking to achieve the goals of the corporation, unless those acts constitute fraud, bad faith, waste of corporate assets, or culpable negligence.

Benefit Corporations, of course, have the twin goals of achieving profits and creating Public Benefits. Completely ignoring one of these goals would in all likelihood constitute a breach of duty on the part of the director. But Maryland courts are unlikely to intrude upon a director’s business judgment in choosing one alternative over another where both could arguably lead to the achievement of a Public Benefit.

All Benefit Corporations must make clear reference to the fact that they have elected to be Benefit Corporations at the head of their charter documents and on each outstanding stock certificate. Currently extant corporations that wish to convert to become Benefit Corporations may do so by amending their charters under the general procedure that governs charter amendments for Maryland corporations.

The new legislation requires that Benefit Corporations prepare an annual report that 1) describes the ways in which it pursued a General Public Benefit and, if applicable, the Specific Public Benefits listed as in its purpose, and 2) includes an assessment of its societal and environmental performance under a third party standard. The third party standard should be consistent from year to year, so that a Benefit Corporation’s progress can be consistently judged; if the entity changes such standard, it must explain why in its annual report. The annual report must be delivered to all shareholders and posted on the Benefit Corporation’s website.

-- Will Pearce, LEED AP BD+C


  1. “Green Building”: The roadmap for Africa’s fight against Climate Change.
    Over half the world’s population is now living in cities and the reality of this mass urbanization is a dramatic shortfall in the amount of available housing, particularly in the developing world. For example, according to Ghana Statistical Service, Ghana only meets approximately one-third of the annual urban housing demand for 100,000 units and as much as 60% of Accra’s population lives in informal settlements.
    Building operations are estimated to be responsible for 25-40% of energy consumption in developed nations and 56% of the energy used in sub-Saharan Africa is by residential building alone. There is a direct correlation between this energy consumption and climate change. The UNEP Sustainable Building & Climate Initiative (UNEP-SBCI) indicates that 40% of global carbon dioxide (CO2) emissions come from the built environment.
    These human-generated CO2 emissions contribute to global climate change, impacts of which include increased severity of storm events, rising sea levels, increased levels of drought in many areas, flooding and sharp changes in seasonal temperatures. Many parts of Africa are likely to be severely impacted by these changes, particularly with respect to fresh water and food shortages, higher sea levels in coastal areas and an increased spread in diseases and disease-carrying pests.
    Yet, the good news is that the Intergovernmental Panel on Climate Change (IPCC) 4th Assessment Report, as well as a report by McKinsey, indicates that the building sector has the greatest opportunity to mitigate climate change with the lowest cost. Therefore, improving the environmental performance and energy efficiency of buildings, particularly homes, in Africa can make a significant contribution towards minimizing CO2 emissions and the ability of cities to adapt to climate change, while at the same time improving the quality of greatly needed housing stock.
    The above objective was translated into action at the Conference on Promoting Green Building Rating tools in Africa, held in UN Gigiri, Nairobi-Kenya. The Conference on Promoting Green Building Rating systems in Africa provided a unique opportunity for some 20 countries from Africa to advance their understanding of green building and the options to promote the uptake of green building best practices in Africa.
    Going forward, the Nairobi declaration on Green Building for Africa makes a loud statement in the 7th and 8th paragraphs: “We resolve that in order to reduce CO2 emissions and the ability of cities to adapt to climate change while improving the quality of the built environment, it is urgent to improve the environmental performance and energy efficiency in buildings on the African continent.”
    “We are committed to being the promoters of green practices, from planning, design, construction and operation from the built environment, the use of appropriate building materials, technologies, services and processes that minimize CO2 emissions in our continent.”
    Best of all, for some of us in the research field we hope prospective Green Building Councils in Africa will take into account the social and cultural specificities of Africa particularly- exploring traditional practices that have been proved to be environmentally beneficial while addressing the need for mass construction in Africa given the fact of rapidly increasing urban population growth.
    Delali Adiamah
    Office of Parliament of Ghana
    Research Department

  2. What's the difference between this B Corp concept and the Low Income LLC system that Vermont (and a few other states) have created?

  3. Low Profit LLC's (or "L3C's") are closer to non-profits than Benefit Corporations. The creation of income or appreciation in value cannot be among the significant purposes of an L3C. Moreover, an L3C must advance a specific charitable or educational purpose. Benefit Corporations are intended to be for-profit entities, albeit businesses with goals additional to profit maximization. Additionally, it is not likely that a Maryland Benefit Corporation would qualify for the preferred tax status for which L3C's are often eligible under the Internal Revenue Code.

  4. Delali Adiamah:

    Thanks for posting a Comment here at Green Building Law Brief on the important topic of Green Building in the Developing World. Countries that are experiencing rapid urbanization have a unique opportunity to make rapid, widespread use of green technology, and those of us in more developed nations have a duty to support that effort.

    Your Comment, however, is not germane to the topic of the post, Maryland's New Benefit Corporations Law. Due to the thoughtful nature of the Comment and the importance of its topic, we're keeping it up. In the future, though, please make sure your Comments meet the issues discussed in our blog posts. If there's any topic you believe we should cover, please feel free to e-mail us any time at