Starting June 30, 2020, Canadians will be able to create “benefit companies” by committing a new or existing British Columbia company to operate in a responsible and sustainable manner and for a public benefit. While some thirty states in the United States have adopted legislation to permit benefit corporations, British Columbia will be the first province in Canada to create a legislative framework in support of them. As there are no residency requirements for directors in British Columbia, any person can incorporate a benefit company under the new BC legislation.
The introduction of benefit companies represents another milestone in British Columbia’s commitment to social enterprise following the recognition of community contribution companies a few years ago (see our bulletin: Social Enterprise on the Rise: BC’s New Community Contribution Companies). Benefit companies will be regulated by British Columbia’s Business Corporations Act (the “BCA”). Click here to see the full text of the legislative changes .
What are Benefit Companies?
In British Columbia, benefit companies are for-profit companies that make a commitment to conduct their business in a responsible and sustainable manner, while promoting one or more public benefits. This means carrying on the company’s business in a manner that takes into account the well-being of persons that are affected by the company’s operations and endeavouring to use a fair and proportionate share of available environmental, social and economic resources and capacities. To be considered a public benefit under the BCA, the matter promoted must create a positive effect for:
- a group of persons other than the shareholders of the company;
- a group of communities or organizations; or
- the environment.
Positive effects can be of, but are not limited to, an artistic, charitable, cultural, educational, literary, medical, religious, scientific or technological nature. All of these effects have in common that they serve a non-profit purpose.
What are the Legal Requirements for BC Benefit Companies?
BC companies can become benefit companies on incorporation or by changing their Articles and Notice of Articles, the main corporate charter documents. This requires approval by a special resolution of the shareholders (typically at least 2/3 of the votes cast). In either case, the charter documents must contain the following:
- a benefit statement in the Notice of Articles disclosing to the public that the company “is a benefit corporation and, as such, is committed to conducting its business in a responsible and sustainable manner and promoting one or more public benefits”; and
- a benefit provision in the Articles specifying the public benefits to be promoted and making a commitment consistent with the benefit statement.
Once recognized, a BC benefit company must annually assess its performance with respect to its public benefit commitments against a third party standard and publish a benefit report for its shareholders. If the company maintains a publicly accessible website, it is required to post the benefit report on its website. Further, the annual benefit report must be approved by the directors of the benefit company and include:
- a fair and accurate description of the manner in which the benefit company has operated in accordance with the benefit provisions;
- a record and the results of its benefit assessment;
- disclosure of any circumstances that hindered the company’s efforts to carry out the commitments in the benefit provisions; and
- a description of the process and rationale for choosing or changing a particular third party standard of assessment and a statement alerting the reader whether the third party standard is applied consistently or not, and describing the reasons for any inconsistency.
Further requirements may be established by regulation.
Failure to publish a benefit report, or obtain approval from the directors of the company as required under the legislation constitutes an offence and may result in fines.
What are Third Party Standards?
A key compliance aspect for BC benefit companies will be the annual assessment of its operations against a third party standard. This is a standard developed by a standard-setting body that is not related to the benefit company (through affiliation, representation or control) and meets itself certain disclosure requirements. In particular, the standard setting body must publish information which gives the public confidence in its independence and its assessment standard, namely:
- the names of all members of its governing body and the selection process for such members;
- the name of each person who controls the standard-setting body or its operations;
- a description of its funding sources in sufficient detail to disclose any relationship that could compromise the standard-setting body’s independence from the benefit company; and
- a description of the process used to develop the third party standard, its performance criteria and their relative weight.
In turn, a third party standard must provide a benchmark for defining, reporting and assessing the overall performance of a benefit company in relation to its benefit provisions.
From the outset, BC benefit companies will have a number of third party standards to choose from. One possible choice is the “B Impact Assessment” created by B Lab, an NGO, which provides the certified Beneficial corporation (B Corp) standard in 70+ countries, including Canada and the U.S. The Business Development Bank of Canada (“BDC”), a federal Crown corporation and certified B Corp, is B Lab’s national partner in Canada. BDC offers regular workshops to guide entrepreneurs to and through the first steps in the B Impact Assessment, as well as a variety of useful content such as podcast interviews to help entrepreneurs familiarize themselves with the movement and certification. Says Craig Ryan, BDC’s Director of Purpose Entrepreneurship, “The Assessment is a comprehensive, rigorous evaluation of a company’s impact, as well as a how-to guide.”
While B Corp certification is a private standard and should not be confused with the legal status of a BC benefit company, it can serve as a recognized third party standard for the required assessments. In any event, each BC benefit company must annually assess which third party standard best aligns with its objectives and whether the respective standard-setting body meets the statutory independence requirements described above.
What are the New Duties for Directors and Officers of Benefit Companies?
Like directors and officers of other BC companies, those of a benefit company are required to perform all fiduciary and statutory duties of directors and officers. In addition, the directors and officers of benefit companies are obligated to balance these duties with a new duty to act honestly and in good faith with a view to the company’s commitments to operate the business in a responsible and sustainable manner while promoting the public benefits specified in the company’s Articles.
This new duty is owed to the company and not the public at large. Accordingly, directors or officers of a benefit company will not be exposed to lawsuits by persons whose well-being may be affected by the company’s conduct or persons who have an interest in the specific public benefits promoted by the company. However, shareholders holding at least 2% of the issued shares may initiate legal proceedings if the directors or officers fail to act in accordance with the new special duties owed to the benefit company. Where the company is publicly traded, holders of shares with a fair market value of $2,000,000 or more may also commence a lawsuit against the directors or officers in relation to their new duties.
How to Cease Being a Benefit Company?
Benefit companies may give up their special status. To do so, they require the approval of their shareholders by way of special resolution. Once approved, the benefit statement in the Notice of Articles and the benefit provisions in the Articles of the company must be removed. Shareholders who voted against this change have a formal right to dissent. While the company may proceed with the status change, it must purchase the dissenting shareholders’ shares for their fair value.
How are Benefit Companies Different from Community Contribution Companies?
Benefit companies should not be confused with community contribution companies (“CCCs”), which were introduced in BC in 2013. Some key features of CCCs which are different from benefit companies are:
- CCCs are hybrid structures combining for-profit and non-profit elements whereas benefit companies are structured as for-profit companies whose operations must be sustainable and promote public benefits.
- CCCs must adopt a community purpose and use the majority of their assets for that purpose. In contrast, the manner in which a benefit company operates is regulated.
- While CCCs must be identifiable by their legal names, there is no similar requirement for benefit companies.
- CCCs have restrictions on the amounts of dividends or other distributions to their shareholders, and on the transfer or distribution of their assets.
- A CCC must have at least three directors who must perform their fiduciary duties with a view to its community purposes. Benefit companies only require one director.
- CCCs must publish annually a community contribution report, describing its activities, but need not assess these activities against a third party standard.
What Corporate Option is Right for You?
With the introduction of benefit companies, entrepreneurs, investors and philanthropists in BC committed to corporate social responsibility are given access to a tried and tested business structure promoting social and environmental benefits and high standards of transparency and accountability. On the other hand, the landscape of corporate structures in supporting social values and non-profit goals can, at times appear labyrinthine and confusing. If you wish to find out whether benefit companies are right for you or explore other options available to social enterprise in British Columbia, please contact Dierk Ullrich, Kai Alderson, Kevin O’Callaghan, or Cara Chu or another member of our corporate social responsibility team.
This bulletin was written in cooperation with BDC: