Effective June 30, 2020, the Government of British Columbia brought into force amendments under the Business Corporations Act (British Columbia) (BCBCA), introducing a new type of business structure: the benefit company. With these legislative changes, new and pre-existing companies incorporated under the BCBCA can elect to be considered a benefit company.
WHAT IS A BENEFIT COMPANY?
A benefit company is a type of corporation that allows businesses to operate with a view to profit, while simultaneously promoting a public benefit in a responsible and sustainable way. Benefit companies may operate with the goal of achieving a wide range of public benefits, from environmental to charitable, so long as that benefit accrues to the environment, or to specified classes of persons other than the company's shareholders in their capacity as shareholders.
Features of this new structure include:
- Expanded Fiduciary Duties: Directors remain subject to standard corporate fiduciary duties, including the duty to operate honestly and in good faith with a view to the best interests of the company (Duty to the Company). However, the Duty to the Company must be balanced with new duties to operate honestly and in good faith, with a view to conducting business in a responsible and sustainable way and to promoting the public benefits specified in the company's articles (Benefit Duties).
- Modified Director Liability: A director will not be found liable for a breach of the Duty to the Company due only to that director acting in accordance with the Benefit Duties. Shareholders holding an aggregate of at least two per cent of shares-or, in the case of a public company, shareholders holding either at least two per cent of shares or shares with a fair market value of C$2-million-may take legal action against directors in relation to their Benefit Duties.
- New Reporting Obligation: In addition to reports required generally under the BCBCA, benefit companies must prepare an annual benefit report, which must be approved by the directors and published on the company's website. Benefit reports must also be placed before the shareholders at the annual general meeting and deposited at the company's records office.
WHY BECOME A BENEFIT COMPANY?
Benefit corporations are a common corporate structure in the United States, where they are considered a hybrid of for-profit corporations and not-for-profit entities. Since 2013, British Columbia has given corporations the opportunity to operate under its own hybrid structure, Community Contribution Companies (C3s), which allows companies to have one or more community purposes, but subjects them to onerous naming, asset transfer and profit distribution requirements. Introducing the benefit company structure to British Columbia allows corporations to employ some of the advantages of U.S.-style benefit corporations, without some of the burdensome C3 restrictions.
A benefit company structure can allow corporations to:
- Align sustainability goals with corporate obligations by allowing directors to act outside of their Duty to the Company if they are working to promote the public benefits specified in the company's articles.
- Attract shareholders seeking socially responsible investments by signaling the importance of sustainability to the business and giving them a mechanism to hold the company accountable to its sustainability goals.
- Recruit talent, as many of today's most sought-after employees and contractors are looking to pair with corporations that reflect their values.
HOW TO BECOME A BENEFIT COMPANY?
To become a benefit company, a B.C. company must amend its notice of articles to include a benefit statement and amend its articles to include a provision specifying the public benefits to be promoted by the benefit company, and the company's commitment to conduct business in a responsible and sustainable manner. As noted above, benefit companies also have increased annual reporting obligations.
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© 2020 Blake, Cassels & Graydon LLP.
Originally published July 9, 2020.
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