April 15, 2020
By Anthony Cammarata Jr.
If enacted, a bill drafted by the State Bar of Georgia’s Corporate Section and introduced by Representative Scott Holcomb (D-81st District) during the 2019 session of the Georgia General Assembly would create a new corporate structure in the state. House Bill 230 is a proposal to amend the Georgia Business Corporation Code to authorize a type of corporation called a “Benefit Corporation” or a “B Corporation.”
What is a Benefit Corporation?
A Benefit Corporation is a corporate structure that allows a private company to have a public benefit purpose as one of its missions and charter purposes. This novel structure was first authorized in the State of Maryland in 2010, but similar laws have now been passed in 35 other states and Washington, D.C. A few well-known examples of Benefit Corporations include Patagonia, Ben & Jerry’s, Kickstarter, King Arthur Flour, and Warby Parker.
Benefit Corporations are for-profit companies that are obligated by their internal governance to meet strict standards of social and environmental performance, accountability, and transparency. Benefit Corporations are similar to non-profit corporations, because they have a similar stated mission of generating an overall societal benefit; however, they are for-profit entities, which can create unique opportunities to obtain funds that might otherwise be unavailable to a non-profit.
Reporting regulations and other statutory requirements are designed to ensure that Benefit Corporations are adhering to their general, and any named specific, public benefit purposes. As a result, investors who may have funds available to invest but would primarily prefer such wealth be directed towards creating positive societal impacts can invest in a Benefit Corporation, under the belief that company management is bound to its mission statement. In contrast to non-profit corporations, Benefit Corporations are not purely charitable in nature and as such have the potential to expand the impact that an investment can create as compared to a donation of an equal amount.
What are the Advantages/Disadvantages of a Benefit Corporation?
Structuring a business as a Benefit Corporation could provide potential benefit in certain circumstances. First, many investors are attracted to the social and environmental impacts of B Corporations, and a clear public benefit purpose can serve as an effective selling point when attempting to acquire such investors. Certain industries will be particularly easy to fit into benefit corporation parameters. In general, companies in industries like clean energy, healthcare, education, and certain other technologies could have a basis to assert that their business is geared toward a public good.
B Corporations can also trigger an emotional experience for consumers, who feel as if their purchases have “bigger picture” impacts and are perhaps even willing to pay premiums for this experience. Accordingly, simply being formed as a Benefit Corporation can be a useful marketing tool. Further, for successful businesses that prefer to adhere to certain principles, a founder can ensure that a buyout, or even takeover, of a B Corporation would not dilute or eliminate the company’s original mission, because the mission is engrained in the B Corporation’s charter documents and internal controls.
Regarding the disadvantages of the B-Corp structure, due to the relatively new nature of Benefit Corporations, there is still a level of uncertainty that exists regarding how they should operate, how they will be treated by future lawmakers, and other potential challenges. Presently, while some more progressive municipalities give preferences to Benefit Corporations in awarding contracts or awarding tax credits, there are no significant financial perks on the federal level given to Benefit Corporations, which are essentially taxed as for-profit corporations rather than non-profit/tax-exempt organizations.
One should also consider that the accountability that comes with a B-Corp is multifaceted; principals are forced to make sure that the business remains in conformity with the standards set forth in the certification, or else they may run the risk of losing the business altogether. Finally, depending on the state’s level of reporting requirements, which have not yet been fully defined in Georgia, additional costs and administrative burdens could accompany Benefit Corporations.
What is the Current Status of HB 230?
On March 5, 2019, the bill overwhelmingly passed in the Georgia House of Representatives by a vote of 165 to 2 and was referred to the Georgia State Senate Judiciary Committee. On January 27, 2020 the Senate Judiciary Committee passed the bill and it now awaits a vote before the full Senate.
However, as a result of the COVID-19 pandemic, the Georgia General Assembly suspended the 2020 legislative session indefinitely on March 13th. According to the resolution to suspend the session, House Speaker David Ralston and Lieutenant Governor Geoff Duncan will give “prompt notice” when they have jointly reached a determination that it is prudent for the General Assembly to reconvene. Until said suspension is lifted, the fate of HB 230 will remain in limbo.
If HB 230 is passed when the General Assembly suspension is lifted, Georgia will be added to the rapidly increasing list of states that recognize the Benefit Corporation as an authorized corporate structure. If your business is focused on a public benefit as one of its core missions, forming as or converting to a Benefit Corporation might be a strategy worth exploring if HB 230 is ultimately enacted.
Anthony Cammarata Jr. is an associate attorney with Flint, Connolly & Walker, LLP currently assisting clients in various corporate, civil, and transactional matters. Whether this form of corporate structure is right for your business or another business model has the best chance of bringing you success, he and the other attorneys at Flint, Connolly & Walker, LLP have the knowledge and expertise to help your business find its identity and achieve its full potential.