What are benefit corporations?

Benefit corporations are new legal structures that we should know about.  It is one of several new legal structures to emerge alongside the rise of “social entrepreneurship” in recent years.  The interesting thing about these structures is that they shield the board from investor lawsuits.  In a regular corporation, any actions other than those taken with the purpose of maximizing shareholder value could be liable.

Here’s an excerpt from the article:

What is a ‘benefit corporation’?
A company whose charter allows the board to consider social or environmental objectives ahead of profits.

What is the advantage?
Protection from investor allegations of not maximizing shareholder value.

Does that make it a nonprofit?
No, a benefit corporation isn’t a nonprofit nor is it tax exempt.

How many states allow it? Seven. With bills introduced in four additional states.

What are the downsides? ‘For an investor, this is a terrible idea’ due to lack of accountability, says Charles Elson, who teaches corporate governance at the University of Delaware. If management makes a bad decision, ‘there’s very little you can do about it as a shareholder.’

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