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ComplianceJanuary 07, 2021

Georgia and Alabama enact benefit corporation laws

Georgia and Alabama are the latest states to authorize benefit corporations, effective January 1, 2021. A benefit corporation, in general, is a for-profit corporation that has as one of its purposes the creation of a general public benefit. Its directors must, or may, consider the interests of non-shareholder stakeholders in making decisions, and it must report to the shareholders on its progress in creating public benefits.

Although approximately 40 states have adopted some sort of benefit corporation legislation, the laws can vary from state to state. Many have adopted a Model Benefit Corporation law drafted by a nonprofit organization called B Lab. That law requires the directors to consider stakeholder interests and requires the benefit corporation to measure its progress against a third-party standard.

Others have adopted a public benefit corporation model based on Delaware’s Public Benefit Corporation law. The Delaware law differs from the Model act in several ways, including that the public benefit corporation must have at least one specific benefit, a third-party standard is not required, and the benefit report does not have to be made public.

Alabama and Georgia adopted benefit corporation provisions that are not based on either the Model act or the Delaware law. Georgia’s and Alabama’s laws are similar to each other but have a few differences. Below is a brief summary of both laws.

Georgia’s benefit corporation provisions: Secs. 14-2-1801 to 14-2-1807

Formation

A Georgia benefit corporation is formed under the corporation law and is subject to its provisions, except where the law has provisions specific to benefit corporations. The Articles of Incorporation must contain a public benefit provision and a statement that the corporation is a benefit corporation.

The name may contain the phrase "benefit corporation" or "public benefit corporation" or the abbreviation "BC" or "PBC" may be used.

Election by existing corporation

A corporation that is not a benefit corporation can become a benefit corporation by amending its Articles of Incorporation or by entering into a merger or other transaction that results in it becoming a benefit corporation.

However, it cannot do so without approval by the shareholders of at least two-thirds of the votes of each class or series of shares of the corporation, voting as separate voting groups, whether or not otherwise entitled to vote.

Definition of public benefit

Public benefit means a positive effect, or reduction of negative effects, on society, on the environment, or on one or more communities or categories of persons, entities, or interests, other than shareholders in their capacity as shareholders, including effects of an artistic, charitable, cultural, economic, ecological, educational, environmental, literary, medical, religious, scientific, social, or technological nature.

Role of board of directors

The board of directors of a benefit corporation shall consider the public benefit or benefits specified in its Articles of Incorporation when managing or directing the business and affairs of the benefit corporation and adopt a standard or standards by which to measure the benefit corporation's performance in pursuing the public benefit or benefits.

Annual benefit report

A benefit corporation shall, no less than annually, provide to its shareholders and to any other person who may request a copy in writing, a written report addressing the benefit corporation's performance with respect to its pursuit of the public benefit or benefits specified in its Articles of Incorporation. A benefit corporation may, but is not required to include in its Articles of Incorporation or bylaws a provision that the benefit corporation makes the report generally available to the public or that the benefit corporation use a third-party standard in connection with measuring the benefit corporation's progress in accomplishing its stated public benefit or benefits.

Alabama’s benefit corporation provisions: Secs. 10A-2A-17.01 to 10A-2A-17.06

Formation

An Alabama benefit corporation is formed under the corporation law and subject to its provisions, except where the law has provisions specific to benefit corporations. The Certificate of Incorporation must include a statement that the corporation is subject to the benefit corporation chapter of the corporation law.

The name of a benefit corporation must contain the words “benefit corporation”, the abbreviation “B.C.” or the designation “BC”, and may not use the word “incorporated” or an abbreviation thereof.

Election by existing corporation

The approval of at least two-thirds of the votes entitled to be cast and, if any class or series of stock is entitled to vote as a separate group thereon, the approval of at least two-thirds of the votes entitled to be cast by that voting group, shall be required for a corporation that is not a benefit corporation to amend its Certificate of Incorporation to include a statement that it is subject to the benefit corporation article or enter into a merger or other transaction that results in it becoming a benefit corporation.

Definition of public benefit

Public benefit means a positive effect, or reduction of negative effects, on one or more communities or categories of persons (other than stockholders solely in their capacity as stockholders) or on the environment, including effects of an artistic, charitable, economic, educational, cultural, literary, medical, religious, social, ecological, or scientific nature.

Role of board of directors

Each member of the board of directors of a benefit corporation, when discharging the duties of a director, shall act in a responsible and sustainable manner, and in a manner that pursues the public benefit or benefits identified in any public benefit provision.

In fulfilling the duties, a director shall consider, to the extent affected, in addition to the interests of stockholders generally, the separate interests of stakeholders known to be affected by the business of the corporation including the following: the employees and workforces of the corporation, its subsidiaries, and its suppliers; customers; communities or society, including those of each community in which offices or facilities of the corporation, its subsidiaries, or its suppliers are located; and the local and global environment.

Annual benefit report

No less than annually, a benefit corporation shall prepare a benefit report addressing the efforts of the corporation during the preceding year to operate in a responsible and sustainable manner, to pursue any public benefit or benefits identified in any public benefit provision, and to consider the interests of stakeholders. A benefit corporation shall post all of its annual benefit reports on the public portion of its website, if any. If a benefit corporation does not have a website, the benefit corporation shall provide a copy of its most recent annual benefit report, without charge, to any person that requests a copy in writing.

Learn more about CT's Benefit Corporation Formation Services.

Sandra Feldman
Publications Attorney
Sandra (Sandy) Feldman has been with CT Corporation since 1985 and has been the Publications Attorney since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.