Friday, October 3, 2014

The Connecticut Benefit Corporations Act Brings B-Corps to Connecticut

The Connecticut Benefit Corporations Act became effective on October 1, 2014. This law allows for the creation of a new business structure known as the benefit corporation or what is more commonly referred to as the “b-corp.” A benefit corporation has two functions: to maximize profits and to help society and the environment or to create specific public benefits. Connecticut is now the 26th state to enact laws establishing b-corps.  More than twenty companies registered as b-corps with the Connecticut Secretary of State on the first day the law took effect. 

The non-profit company B Lab was formed in 2006 for the purpose of promoting the b-corp structure. B Lab’s goals in creating the b-corp were twofold: to create a business that could focus on issues beyond shareholder profit and to implement standards to aid consumers in distinguishing between a “good company” and a company that simply advertises as such. An example of a well-known b-corp is Ben & Jerry’s, which became a b-corp in 2012.

Directors and officers in a traditional corporation have a fiduciary duty to make decisions that will maximize shareholder profit. As compared to a traditional corporation, the directors and officers of a b-corp may consider other interests of the corporation, in addition to the maximization of the corporation’s profits. The Benefit Corporations Act provides that directors and officers may consider the following interests when making decisions for the company: the impact on the corporation’s shareholders, the impact on the corporation’s employees and others associated with the corporation, the interests of the customers and related public benefits, community and societal factors, the environment, and short and long-term interests of the corporation. 

The Connecticut b-corp law is unique in one respect. The law contains a legacy provision, which the b-corp can adopt after two years of existence. The legacy provision provides that if the b-corp is dissolved, its assets must go to a charitable organization or other b-corps with a legacy provision. Connecticut is the first state to include the legacy provision within its b-corp laws.

For more information about benefit corporations or for assistance with the formation of a benefit corporation, please contact the experienced business lawyers of Brown, Paindiris & Scott, LLP.