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Pennsylvania Accepts First Benefit Corporations

Home Care Associates, Untours Media, Yikes, Nolan Painting and Mugshots Coffeehouse were among more than a dozen companies to register as benefit corporations since Pennsylvania passed a law to give businesses greater freedom to pursue social and environmental objectives.

The state’s new law allows entrepreneurs, investors and consumers the option to build, finance and patronize businesses that pledge, as part of their corporate structure, to operate in a socially and environmentally responsible manner.

The law permits a corporation’s directors to consider non-financial interests when making decisions without breaching any fiduciary duty to shareholders. For example, directors of benefit corporations could choose to buy energy from renewable sources even if the cost was higher than power generated by fossil fuels, the Pennsylvania Department of State said. The law also allows a company’s directors to consider potential suppliers’ social and environmental practices.

Becoming a benefit corporation is a voluntary action that requires approval from two-thirds of a company’s shareholders. The corporation’s performance in achieving its public benefit is assessed against a third-party standard.

In Pennsylvania, benefit corporation are required to file annual statements with shareholders and the Department of State showing how they are meeting their commitment to provide public benefits.

An increasing number of municipal and state governments have addressed benefit corporations through legislation and tax incentive programs. Philadelphia was among the first cities in the US to provide a pilot tax incentive for certified benefit corporations.

In California, governor Jerry Brown signed two bills into law in 2011 to give businesses greater freedom to pursue social and environmental objectives. From January 2012, when the law went into effect, until November 2012, about 75 companies in the state registered as benefit or flexible-purpose corporations.

But legal experts attending last year’s National Association of State Charity Officials conference urged California regulators to provide more oversight of these companies. Critics argued that flexible-purpose corporations – a category that, compared to benefit corporations, has fewer requirements to ensure explicit social or environmental aims – could allow bad actors to mislead the public. They also said the benefit corporation model could give investors a false sense of security.

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