Public Benefit Corporation Becomes an Option in Kansas, Effective July 1st
Now more than ever, businesses are judged by their values and social impact. Becoming a public benefit corporation is one meaningful and transparent method to demonstrate and embed a corporation’s values and culture. The public benefit corporation structure of governance is gaining traction around the country among socially minded founders, investors, employees and customers, and beginning July 1, Kansas businesses will have public benefit corporations as a choice in how they operate mission-driven enterprises that benefit both the public and investors.
Under the traditional model, corporations and their Boards of Directors are charged with maximizing financial returns for their investors. Under the newly enacted Kansas Public Benefit Corporation Act that takes effect July 1, electing corporations and their boards may focus on financial returns for investors while also providing a self-defined benefit to the public.
What Are Public Benefit Corporations?
Public benefit corporations are sometimes viewed as a hybrid between a for-profit and non-profit corporation; it is a for-profit enterprise designed to achieve both stockholder profits and a stated public benefit. The option to become a public benefit corporation is available to both new and existing businesses.
A public benefit may be any positive effect or reduction of a negative effect in areas such as medicine, religion, art, culture, education, charity or the environment. The directors of the public benefit corporation are tasked with balancing both the public benefit identified in the corporation’s charter and the stockholders’ interests in receiving a return on their investment.
A key positive that companies can gain from going the public benefit corporation route is public recognition as a socially minded enterprise – well-known public benefit corporation brands include Ben & Jerry’s and Patagonia. As far as potential negatives, companies should be aware that once they become a public benefit corporation, it can be difficult to undo the status.
The Kansas Public Benefit Corporation Act
The Act gives the directors legal protection against breach of fiduciary duty claims stemming from their use of the corporation’s business to help address social or environmental problems, or advance the public interest, when such activities diminish stockholder financial returns.
One of the compelling features of the public benefit corporation is its increased accountability and transparency. Among other features, the Act requires directors to make an annual statement to their stockholders addressing the promotion of the corporation’s stated public benefit.
Further, the Act requires a 2/3 vote of the stockholders, both to become a benefit corporation or to terminate its benefit corporation status. This feature provides peace of mind to founders that their original vision will be considered during future rounds of financing and management transitions. It also provides for stockholders to receive fair value for their stock if the corporation chooses to make a shift in its stated public benefit.
If you have any questions about Kansas’ new Public Benefit Corporation Act, including how to revise your corporate charter to become a public benefit corporation, or benefit corporations in other states, please contact Bill Quick
or your Polsinelli attorney.
James Kopfensteiner also contributed to this alert.