Arizona law paves way for new for-profit corporations to create 'public benefit'

For-profit entities must also serve the public good
2013-05-20T00:00:00Z 2014-07-02T12:17:31Z Arizona law paves way for new for-profit corporations to create 'public benefit'David Wichner Arizona Daily Star Arizona Daily Star

Arizona has adopted a new type of corporation with more than just the bottom line in mind.

Called a "benefit corporation," this type of for-profit entity must have a purpose of creating a "general public benefit," in addition to the general corporate purpose of conducting business in the state.

Legislation to create benefit corporations was passed by lawmakers and signed into law by Gov. Jan Brewer in late April. The law goes into effect in 2015.

Here's a look at the new corporate kid on the block.

ARizona law takes effect in 2015; here's the background

What they are

• A "benefit corporation," also known as a "B corporation," is a new type of for-profit Arizona corporate entity that must have a purpose of creating a "general public benefit," in addition to the general corporate purpose of conducting business in the state.

• Under the law (Arizona Revised Statutes Title 10, Chapter 22), a "general public benefit" is defined as "a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard."

• B corporations may also state "specific public benefits," which the law says include: helping low-income or underserved individuals or communities; promoting economic development; protecting or restoring the environment; improving human health; promoting the arts, sciences or advancement of knowledge; or increasing the flow of capital to entities that have a purpose of benefiting society or the environment.

• Benefit corporations must file annual benefit reports, detailing their overall social and environmental performance using recognized third-party industry standards.

What's the difference?

• While for-profit corporations must act in the interest of their shareholders - and their directors and officers have a fiduciary duty to do so - benefit corporations also must act for the public good. That effectively limits the grounds for shareholder lawsuits.

Behind the laws

• State benefit corporation laws have been driven nationally by B Lab, a nonprofit started as an alliance of companies that wanted a way to build social and environmental missions into their for-profit business models. B Lab, based in Berwyn, Pa., offers private "B Corporation" certification (not required by law).

• The Arizona legislation was backed by Seed Spot, a nonprofit Phoenix business incubator aimed at helping "social entrepreneurs."

Growing trend

• Since Maryland passed the first state law creating benefit corporations in 2010, 15 other states (including Arizona) have passed similar laws.

• There are more than 740 certified B corporations from more than 60 industries and 27 countries, according to B Lab.

Not so fast

• Last week, the North Carolina legislature rejected legislation to create benefit corporations in the Tar Heel State. Critics said the measure would encourage a move away from capitalism and wasn't necessary under the state's current corporate structure, The Associated Press reported.

Examples of B corporations

• New Belgium Brewing Co., based in Fort Collins, Colo., which helped lobby for Colorado benefit corporation legislation recently signed into law;

• Outdoor clothing maker Patagonia Inc., one of the first California benefit corporations in 2012;

• Vermont-based King Arthur Flour, the nation's oldest flour company and employee-owned since 1996;

• Many "green" oriented businesses, including renewable-energy and sustainable-product companies.

More information

• The new Arizona law is Chapter 165 of current legislative session laws; go to tinyurl.com/ae9ulbx

• B Lab, www.bcorporation.net

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Featured businesses

View more...

Deals, offers & events

View more...