State establishes new classification for ‘benefit’ corporations
There is a new way to do businesses in Connecticut.
As of October 1, state law allows companies to elect to be classified as a “benefit” corporation, meaning they voluntarily strive to meet higher standards of accountability and transparency and provide a “public benefit.”
More than 20 states now allow companies to incorporate as benefit corporations. Connecticut became one of those states when it passed legislation in the General Assembly’s February session; the bill became law October 1.
The designation signifies that companies strive to create a general public benefit, which the legislation defines as “a material positive impact on society and the environment.” The benefit must be assessed by a third party. There is no material incentive such as tax breaks to achieving the designation, but has obvious PR value.
According to the bill, companies can create a general public benefit in one or more of the following ways: providing low-income or underserved communities with beneficial products or services; promoting economic opportunity for people “beyond the creation of jobs in the normal course of business”; protecting or restoring the environment, improving human health; promoting the arts, sciences or advancement of knowledge; or increasing the flow of capital to other benefit corporations.
An existing company that is not currently a benefit corporation can become one by amending its certificate of incorporation.
All benefit corporations are required by law to publicly publish an annual report that assesses their overall social and environmental performance against a third-party standard. Among other things, the annual report must include a narrative description of how the company pursued a general public benefit as well as an obstacles that arose during that process.
The bill that led to the state law was introduced by State Sens. Donald Williams Jr. (D-29) of Brooklyn and Majority Leader Martin Looney (D-11) of New Haven and State Reps. Brendan Sharkey (D-88) of Hamden and Joe Aresimowicz (D-30) of Berlin.