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7/24/2013
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New law creates ‘benefit corporation’ business model in RI
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STATE HOUSE – A new law sponsored by Rep. Teresa Tanzi and Sen. Catherine Cool Rumsey will create a new kind of corporation in Rhode Island, allowing companies that adopt it to dedicate themselves to social and environmental missions.
The legislation (2013-H 5720aa, 2013-S 1049), passed by the General Assembly on its final day of session and signed in to law July 16, creates a voluntary option for businesses that have a mission other than profit to allow them to pursue that mission appropriately without risk of lawsuits from shareholders. Such “benefit corporation” laws currently exist in at least 12 other states, including Massachusetts, Vermont and New York.
“At a time when we need to encourage economic development in Rhode Island, we should be inviting innovative business models like benefit corporations. If someone wants to both bring a business to our state and invest in a community or help the environment, we should welcome them with open arms. Rhode Island will not only benefit from the jobs and tax revenue they’ ll bring to our state, but our communities could also be the beneficiaries of some of their mission-related activities,” said Representative Tanzi (D-Dist. 34, Wakefield, Peace Dale and Narragansett).
For-profit corporations are responsible to their shareholders to dedicate themselves to one thing above all else: maximizing profits. While corporations can pursue activities that have a social or environmental benefit, such as making donations to community organizations, these actions must always be in the long-term interest of profit. If shareholders believe a director is devoting too much effort or expense on something that does not result in higher profits, they can seek the removal of that director or sue the company.
But benefit corporations, with the support of their shareholders, formally commit not only to turning a profit, but also to considering society and the environment in every aspect of their decision-making process. Examples of well-known benefit corporations include Vermont-based King Arthur Flour Company, an employee-owned company committed to environmental sustainability and volunteerism, and California’s Patagonia, Inc., a high-end outdoor clothing outfitter that funds environmental causes.
Allowing benefit corporations to incorporate in Rhode Island would encourage business growth and investment in Rhode Island, help attract socially conscious entrepreneurs to the state, provide high-quality jobs and provide businesses with freedom to help solve problems in society, said the sponsors.
“By becoming one of the fairly early adopters among states, Rhode Island will have a leg up in attracting entrepreneurs who are interested in forming a benefit corporation. We need to take advantage of any opportunity to give our state an edge when it comes to economic development, and this is a way to do that while simultaneously helping businesspeople who want to make the world a better place to do so,” said Senator Cool Rumsey.
Allowing benefit corporations in Rhode Island comes at no cost to the state, since the designation does not provide any tax break and has no effect on traditional corporations.
Under the new law, businesses need the support of two-thirds of all classes of their shareholders to convert into (or out of) benefit corporation status. Once a company becomes a benefit corporation, it is accountable to those shareholders both for making a profit and for pursuing its mission. Benefit corporations must produce, in addition to their annual financial reports, an annual benefit report that analyzes their impact on society and the environment that year, using one of several acceptable third-party reporting standards.
The law provides businesses more freedom and options, said the sponsors, because benefit corporation status is entirely optional and because it would mean that companies that wish to pursue a mission in addition to profits would have the legal backing to do so without risk, if shareholders agree.
For more information, contact:
Meredyth R. Whitty, Publicist
State House Room 20
Providence, RI 02903
(401) 222-1923
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