Benefit Companies: New British Columbia Corporate Form Combines Profit and Public Purpose

| 17 minutes

On May 19, 2020, the British Columbia (“BC”) government brought into force amendments to the BC Business Corporations Act[1] (“BCA”) establishing a new corporate form: the “benefit company”.

Benefit companies differ from typical for-profit corporations. In addition to pursuing profit, a benefit company must commit to conducting business in a “responsible and sustainable manner” and promoting “public benefits”. Given that benefit companies may freely pursue profit, they also differ from corporate forms aimed at furthering public welfare, such as community contribution companies formed under the BCA and not-for-profit organizations under the BC Societies Act.[2]

BC is the first Canadian jurisdiction to introduce benefit companies. The concept has roots in the United States, where legislation passed in multiple states since 2010 provides for “benefit corporations”, a similar corporate form. Another evident inspiration is the “B Corp Certification”, a designation issued by a non-profit, B Lab, that assesses the social and environmental performance of for-profit companies. Well-known brands that are “B Corp Certified” include Patagonia, Ben and Jerry’s, and Kickstarter.

Legislative History

The BC government has twice attempted to introduce benefit companies by amendment to the BCA. First, in 2018, Dr. Andrew Weaver (Member of the Legislative Assembly) proposed Bill M 216, but it failed to get beyond second reading. Dr. Weaver and the government made a successful second attempt the following year, with Bill M 209 (the “Amendments”) receiving royal assent on May 16, 2019, and taking effect as of June 30, 2020.

Legal Framework under the Amendments

A. Becoming or Ceasing to Be a Benefit Company

Any business incorporated under the BCA may voluntarily become a benefit company by altering its notice of articles and its articles, both upon a special resolution of the shareholders.[3] In contrast to legislation in some US jurisdictions, the Amendments do not require that a benefit company include “b.co” or “benefit company” in its name.[4]

The notice of articles of every benefit company must include the following benefit statement:

“This company is a benefit company and, as such, is committed to conducting its business in a responsible and sustainable manner and promoting one or more public benefits.”[5]

Also, a benefit company’s articles must contain a benefit provision setting out its commitment to conduct business in a responsible and sustainable manner and to promote the public benefits specified in the articles.[6] Put differently, benefit companies are required to make both a “means” and an “ends” commitment.

The Amendments define responsible and sustainable manner as:

“a manner of conducting business that

(a) takes into account the well-being of persons affected by the company’s operations; and

(b) endeavours to use a fair and proportionate share of available environmental, social and economic resources and capacities.”[7]

This “means commitment” is universal; it applies to all benefit companies equally.

The Amendments define public benefit as:

“a positive effect, including of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature, for the benefit of:

  • a class of persons (excluding the shareholders) or a class of communities or organizations; or
  • the environment, including air, land, water, flora and fauna, and animal, fish, and plant habitats.”[8]

This “ends commitment” is particular; each benefit company must specify the public benefit(s) it intends to promote. The specified public benefits need not be one of the illustrative examples listed in the statutory definition, whereas the beneficiaries must fall within the listed categories of beneficiaries. 

A corporation may cease to be a benefit company in the same way it may become one: by altering its notice of articles upon special resolution of the shareholders. In either circumstance, doing so will trigger the dissent rights of shareholders, which will also apply to non-voting shareholders pursuant to s. 238 of the BCA.[9]

B. Disclosure Obligation – Benefit Report and Third-Party Standard

On an annual basis, a benefit company must prepare, produce, and publish a benefit report on how it has conducted its business in a responsible and sustainable manner and promoted its public benefits. The directors must assess the company’s performance in relation to its “means” and “ends” commitments against a third-party standard of their choosing.[10]

The chosen standard must have been developed by a third-party standard-setting body (“TPSS Body”).[11] There are two broad requirements for qualification as a TPSS Body: independence and disclosure. To be independent, an entity or person must be unrelated to the benefit company. For a TPSS Body to be unrelated to a benefit company, it must not have as a member of its controlling body any director, officer, shareholder, or beneficial owner (or any associate of such persons) of the benefit company. If the TPSS Body is a corporation, it must not be an affiliate of the benefit company.[12]

Also, a TPSS Body must publicly disclose certain information about itself, including:

  • the name of each member of its governing body;
  • the selection process for membership in its governing body;
  • the name of each person who controls its operations;
  • a description of its funding sources in sufficient detail to disclose any relationship that could compromise its independence; and
  • a description of the process used to develop a third-party standard.[13]

Once a benefit company’s directors have selected a third-party standard developed by a suitable TPSS Body and assessed the company’s performance against that standard, they must produce a benefit report that includes the following information:

  • a fair and accurate description of how the benefit company demonstrated its “means” and “ends” commitments;
  • a description of the circumstances (if any) that hindered the company’s endeavors to carry out its commitments;
  • a record of the assessment and its results;
  • the process and rationale for selecting (or changing) the third-party standard; and
  • any other information required by regulation.[14]

The benefit report must be posted on the company’s website if it has one and published as prescribed under the BCA.[15]

C. Governance

The directors and officers of a benefit company are required to act honestly and in good faith with a view to conducting business in a responsible and sustainable manner and promoting the company’s public benefits (the “Benefit Company Duty”). Further, they are required to balance their Benefit Company Duty with the fiduciary duty under s. 142(1)(a) of the BCA to act honestly and in good faith with a view to the best interests of the company (the “Fiduciary Duty”), which is applicable to all directors of a company incorporated under the BCA. Directors will not contravene their Fiduciary Duty only by reason of acting in accordance with their Benefit Company Duty; however, directors of benefit companies remain subject to all duties normally applicable to directors of companies incorporated under the BCA.[16]

The Amendments restrict who may bring legal proceedings against directors and officers in relation to the Benefit Company Duty. Persons “whose well-being may be affected by the company’s conduct” or who have “an interest in a public benefit specified in the company's articles” are barred from doing so. Only shareholders holding, in the aggregate, at least 2% of the issued shares of the company (or, for a public company, issued shares with a fair market value of at least $2,000,000) may sue the directors and officers of a benefit company in relation to the Benefit Company Duty. No monetary damages are available for a breach of the Benefit Company Duty; only injunctive relief.[17]

Advantages of Benefit Company Status

It is generally recognized that Canadian corporate law lacks a strict “shareholder primacy” rule. Corporate directors have latitude to pursue a broader mandate beyond maximizing shareholder profits. This has caused commentators to question the utility of the benefit company status in Canada.

Nonetheless, benefit company status signals certain advantages:[18]

  1. It provides certainty and clarity regarding a company’s mandate. By furnishing a simple legal framework, benefit company status can “lock in” and “institutionalize” a company’s founding vision and standards, even after its founders have left.
  2. It circumscribes director and officer liability. The Amendments restrict who may sue a benefit company’s governing minds in relation to their duties. At the same time, shareholders have a recourse against a rogue board that forsakes the company’s commitments.
  3. It may help attract capital investment from ethically motivated “impact investors”. By becoming a benefit company, a business may demonstrate to prospective investors a commitment to stay true to its values even as it grows and pursues profits. Meanwhile, investors are given added assurances that the company will not stray from its mission and added transparency and monitoring through third-party assessments and publication of annual benefit reports.
  4. It may strengthen a company’s reputation by showcasing commitment to social and environmental responsibility. Benefit company status may appeal to consumers wishing to support sustainable brands, and it may attract talent from a labour market increasingly concerned about employers’ values.

Downsides of Benefit Company Status

A. Untested Waters

The foremost downside of benefit company status is that it is untested. The Amendments leave various questions unanswered, both from a business and legal perspective.

On the business side, companies might wonder what commercial advantages benefit company status will actually confer:

  • How attractive is it to investors?
  • How attractive is it to consumers or prospective employees?
  • Does it legitimize or de-legitimize a startup?
  • In which industries is it a good match? In which industries is it mismatched?

Also, on the legal side, the following are live issues:

  • How exactly do director and officers balance their Benefit Company Duty with their Fiduciary Duty?
  • How does a benefit company “take into account the well-being of persons affected by its operations” (that is, what is its responsibility)?
  • What is “a fair and proportionate share of available resources and capacities” (in other words, what is sustainability)?
  • Apart from the listed public benefits, what other interests may qualify as legitimate public benefits?
  • What are the implications of falling short of the third-party standard, apart from publication in the benefit report?

B. Critiques

The Amendments have faced criticism from a range of commentators.[19] In view of landmark Supreme Court of Canada decisions that provide that directors may consider the interests of various stakeholders (including, but not limited to, shareholders, employees, creditors, consumers, governments and the environment) in exercising their Fiduciary Duty [20], critics have called the legislation unnecessary and misguided. They warn that it may create the impression that directors of entities that are not benefit companies are not required to consider broader stakeholder interests. Also, as the legislation is inspired by designations in U.S. law, critics worry that U.S. jurisprudence may distort Canadian corporate law. Lastly, critics argue that the legislation invites excessive privatization by delegating norm enforcement to unregulated, for-profit TPSS Bodies. It remains to be seen whether these critiques will take the shine off the new corporate form.

Key Takeaways

As BC moves ahead with benefit company legislation, the Amendments signpost important changes in the province’s business landscape.

Key takeaways regarding this new corporate form include the following:

  • Benefit companies will be required to conduct business sustainably and responsibly and to promote specified public benefits.
  • Becoming a benefit company is straightforward; any company incorporated (or continued) under the BCA may do so by a special resolution of its shareholders.
  • Each benefit company will have an obligation to prepare and disclose an annual benefit report in which its performance is assessed against an eligible third-party standard of its choice.
  • Directors and officers of benefit companies will be required to balance their existing fiduciary duties with a new duty to meet the company’s public benefit commitments.
  • Possible advantages to being a benefit company include “locking-in” the company’s original mission using a simple legal framework; attracting capital from “impact investors”; and enhancing the company’s brand in the market.
  • The chief disadvantage is that benefit company status is novel and untested; the legislation leaves open many questions that may not be clarified or adjudicated for some time.

With the Amendments now in effect, we will continue to monitor the changes and their implications for BC businesses. If you have questions about benefit companies, please reach out to our team at McCarthy Tétrault.

[1] [SBC 2002] c. 57.

[2] [SBC 2015] c. 18.

[3]Bill M 209 – 2019 Business Corporations Amendment Act (No. 2), 2019 [“Bill M 209”], ss. 51.993, 51.995.

[4] See Bill M 216 – 2018 Business Corporations Amendment Act, 2018 [“Bill M 2016”], s. 51.998.

[5]Bill M 209, s. 51.993.

[6]Bill M 209, s. 51.993.

[7]Bill M 209, s. 51.991.

[8]Bill M 209, s. 51.991.

[9]Bill M 209, s. 51.995.

[10]Bill M 209, s. 51.994.

[11]Bill M 209, s. 51.991.

[12]Bill M 209, s. 51.991.

[13]Bill M 209, s. 51.991.

[14]Bill M 209, s. 51.994.

[15]Bill M 209, s. 51.994.

[16]Bill M 209, s. 51.993.

[17]Bill M 209, s. 51.993.

[18] Carol Hansell, “The benefits of benefit corporations”, The Globe and Mail (15 May 2019) online; British Columba, Legislative Assembly, Hansard, 41st Parl, 4th Sess, No 241 (29 April 2019) at 8473-8475 (Andrew Weaver), online.

[19] Andrew MacLeod, “Taking Care of Business? Experts Call New BC Law a Gift to Corporations”, The Tyee (4 June 2019) online; Carol Liao, “B.C. MLAs should recognize ‘benefit’ corporation is an American branding exercise”, The Globe and Mail (21 October 2018) online; Christine Dobby, “B.C. joins growing trend to ‘benefit companies’ that do business in responsible, sustainable manner”, The Globe and Mail (31 December 2019) online.

[20]Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69.

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