Benefit Corporation

Definition

A benefit corporation is a type of for-profit corporate entity that is required by law to have a positive impact on society, workers, the community, and the environment in addition to generating profit. It is a legal structure that allows companies to consider stakeholder interests alongside shareholder interests.

5 Must Know Facts For Your Next Test

1. Benefit corporations are required to consider the impact of their decisions on all stakeholders, not just shareholders.
2. Benefit corporations must report on their social and environmental performance, typically using third-party standards.
3. Benefit corporation status is a legal designation that provides legal protection for directors to consider stakeholder interests.
4. Becoming a benefit corporation allows companies to attract mission-aligned investors and employees who value social and environmental impact.
5. The benefit corporation model has been adopted in over 35 U.S. states and several countries around the world.

Review Questions

• How does the benefit corporation model differ from traditional for-profit corporations in terms of their obligations and considerations?
  • The key difference is that benefit corporations are legally required to consider the impact of their decisions on all stakeholders, including workers, the community, and the environment, in addition to generating profit for shareholders. Traditional for-profit corporations are primarily focused on maximizing shareholder value, whereas benefit corporations must balance multiple, sometimes competing, interests. This legal structure provides protection for directors to make decisions that prioritize social and environmental impact alongside financial performance.
• Explain how the benefit corporation model aligns with the principles of corporate social responsibility (CSR) and social entrepreneurship.
  • The benefit corporation model is closely aligned with the principles of corporate social responsibility (CSR) and social entrepreneurship. Like CSR, benefit corporations are required to consider their social and environmental impact and operate in a sustainable manner. And similar to social entrepreneurs, benefit corporations use business as a tool to solve social and environmental problems, rather than just maximize profits. The legal designation of a benefit corporation allows companies to pursue these social and environmental objectives while still operating as a for-profit entity, making it an attractive option for socially conscious businesses.
• Evaluate the potential benefits and challenges of the benefit corporation model for businesses, consumers, and society as a whole.
  • The benefit corporation model offers several potential benefits: it allows companies to attract mission-aligned investors and employees who value social and environmental impact; it provides legal protection for directors to consider stakeholder interests; and it can help businesses differentiate themselves and build trust with socially conscious consumers. However, the model also presents some challenges, such as the additional reporting requirements, the potential conflict between stakeholder and shareholder interests, and the risk of 'greenwashing' if companies fail to live up to their stated social and environmental commitments. Overall, the benefit corporation model represents an important evolution in corporate structures that seeks to balance profit-making with positive social and environmental impact, but its long-term success will depend on how well companies are able to execute on this dual mission.

Related terms

Corporate Social Responsibility (CSR): The responsibility of a corporation to operate in an economically, socially, and environmentally sustainable manner while considering the interests of all stakeholders.

Social Entrepreneurship: The process of identifying and starting a business venture to solve a social problem or create social change, often with the use of entrepreneurial principles.

Triple Bottom Line: An accounting framework that measures a company's performance in terms of social, environmental, and financial impact, rather than just financial profit.