The Newly Enacted New Hampshire Benefit Corporation ActJuly 14, 2014
On July 11, 2014, Governor Maggie Hassan signed into law Senate Bill 215, the New Hampshire Benefit Corporation Act (the “Benefit Corporation Act”), thus joining about 20 other states, including Connecticut, Massachusetts, and Rhode Island, in authorizing the incorporation of a new form of business corporation in New Hampshire: the benefit corporation. Benefit corporations are for-profit corporations that, unlike traditional corporations where directors must focus on maximizing profits and shareholder value, have a corporate purpose to create a material positive impact on society and the environment in addition to any profit-making purpose. The Benefit Corporation Act is codified at N.H. RSA 293-C and takes effect January 1, 2015. Below is a brief discussion of key features of the Benefit Corporation Act.
Socially Minded Corporate Purpose
A benefit corporation is required to have a purpose of creating a “general public benefit,” in addition to any profit-making purposes. “General public benefit” is defined in the Benefit Corporation Act to mean “a material positive effect on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.” A benefit corporation may also pursue a “specific public benefit,” such as those that benefit low-income or underserved individuals or communities, the environment, health, arts, sciences, or the economy, in addition to the pursuit of a general public benefit. The socially minded focus of a benefit corporation is woven into its DNA through the inclusion of its general public benefit purpose and any specific public benefit purpose in its articles of incorporation.
The Benefit Corporation Act redefines directors’ fiduciary duties. Directors of a benefit corporation must consider the general public benefit and any specific public benefit identified in the benefit corporation’s articles of incorporation, in addition to any profit-making purposes. In discharging their duties, directors must consider the effects of their decisions on a broad array of stakeholders that include shareholders, employees, subsidiaries, suppliers, customers, the community, and the environment. Directors must also consider the short-term and long-term interests of the benefit corporation and may consider factors or interests of other groups that they deem appropriate.
Directors and officers of a benefit corporation are afforded certain protections under the Benefit Corporation Act. First, directors’ and officers’ consideration of non-financial interests and factors does not constitute a violation of general standards of conduct for directors and officers, which require the exercise of good faith, care of a prudent person, and consideration of the best interests of the benefit corporation. Second, directors and officers are excluded from personal liability for monetary damages for any action or inaction in the course of performing their duties, or for failure of the benefit corporation to pursue or create a general public benefit or specific public benefit, unless otherwise provided in the corporation’s articles of incorporation or bylaws. Third, directors and officers do not have a duty to any beneficiaries of the benefit corporation’s general public benefit purpose or specific public benefit purpose.
The Benefit Corporation Act allows a “benefit enforcement proceeding” to be brought against the benefit corporation, its directors, or its officers for failure to pursue or create a general public benefit or a specific public benefit, or for violation of any obligation, duty, or standard of conduct required under the Benefit Corporation Act. However, such a proceeding may be brought only by the benefit corporation, shareholders, directors, investors (owning at least 2 percent of shares of a corporation or at least 5 percent of shares of the entity of which the benefit corporation is a subsidiary), or other persons specified in the articles of incorporation or bylaws.
A benefit corporation must prepare an annual benefit report for distribution to its shareholders, for filing with the New Hampshire Secretary of State, for posting on its public website, and for distribution to the public upon request if the benefit corporation does not have a public website. The report must describe the manner in which the benefit corporation pursued its general public benefit and any specific public benefit during the year, the extent to which the general and any specific public benefit was created, and any circumstances that hindered the creation of the general or specific public benefit. It must also include an assessment of the social and environmental performance of the benefit corporation against a third-party standard adopted by the benefit corporation.
The Benefit Corporation Act is designed to address market place demand for a corporate entity form that satisfies socially and environmentally conscious businesses, consumers, entrepreneurs, and investors. A company wishing to become a benefit corporation may elect to do so at the time of filing its articles of incorporation or by amending its existing articles to elect benefit corporation status.PDF