Tuesday, April 20, 2010

Maryland First State to Create New "Benefit Corporation"

The Chronicle of Philanthropy reports that Maryland Governor Martin O'Malley signed into law legislation that creates a new "benefit corporation," a new type of entity that confers benefit both to its shareholders and the society as a whole.  Also described as "socially responsible," these corporations' directors must consider how their decisions and the corporation's activities will affect constituencies other than its shareholders, which includes employees, the environment, and the local community.  As reported by the Chronicle, Vermont's Senate recently passed a bill to create a "for-benefit corporation," with similarities to the new Maryland corporation.  According to the Philadelphia Inquirer, similar legislation is being considered in six states other than Vermont. 

Although these new corporations are not nonprofit or not-for-profit corporations with a statutory nondistribution constraint, they do blur the lines somewhat on choice-of-entity considerations.  These benefit corporations clearly provide entrepreneurs with the ability to achieve some of the societal benefits of nonprofit corporations while retaining the profit potential of business corporations.



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