The “family” of corporate structures continues to grow. The British Columbia Business Corporations Act, SBC2002, c. 57 (BCA), already includes the standard business corporation model as well as two “half-siblings” — the unlimited liability company and the neglected community contribution company. On June 30, amendments to the BCA introduced the newest member of the family: the benefit company.
At present, B.C. is the only jurisdiction in Canada that has adopted the benefit company model. Like its older sibling the community contribution company, or C3, the benefit company is a hybrid of traditional business and non-profit models — a corporation with share capital that is obligated to conduct its business in a responsible and sustainable manner and to promote public benefits.
Both “public benefit” and “responsible and sustainable manner” are defined in the amended BCA. Public benefit means a positive effect provided to persons other than the company’s shareholders, organizations, communities or the environment. The BCA provides a non-exhaustive list of potential public benefits including those of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature. Responsible and sustainable manner means a manner of conducting business that takes into account the well-being of persons impacted by the operations of the benefit company and endeavours to use a fair and proportionate share of the available environmental, social and economic resources and capacities.
To become a benefit company, a BCA corporation must include the following prescribed statement in its notice of articles: “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.”
By including this benefit statement in its notice of articles, the corporation qualifies as a benefit company. An existing BCA corporation can transition into a benefit company by altering its notice of articles by special resolution of the shareholders to include the required statement. A company incorporated outside B.C. could become a benefit company by a two-stage process: first resolving to leave its original jurisdiction and continue under the BCA, and then by adopting the statement in its notice of articles.
The duties of benefit companies
Once qualified, a benefit company must meet two ongoing requirements in order to maintain the status: it must include a benefit provision in its articles and must publish an annual benefit report. The benefit provision must set out the corporation’s commitment to conducting its entire business in a responsible and sustainable manner, and to promoting one or more specified public benefits.
The benefit report must be published each year, on or before the corporation’s annual reference date. It includes a description of the ways the benefit company demonstrated its commitment to conducting its business in a responsible and sustainable manner and promoted the public benefit(s) set out in its articles. The benefit report also includes a performance assessment that the benefit company completes using a third-party standard of its choice, subject to certain requirements in the BCA. The benefit report is a public document and must be accessible to any person upon request at the company’s record office and be posted on the company’s website.
Directors of benefit companies have additional statutory duties. They are obligated to act honestly and in good faith with a view to conducting business in a responsible and sustainable manner and promoting the public benefit(s) specified in the company’s articles. Further, a director must balance this duty with their standard fiduciary duty to act in the best interests of the company. The BCA provides protection to directors of benefit companies by limiting shareholder action against them in respect of these additional duties.
This aspect of the benefit company model has raised concerns from some that having a corporate vehicle that is expressly required to consider stakeholders beyond the stockholder may erode the common law decisions (see in particular BCE v. 1976 Debentureholders 2008 SCC 69) which suggest that all boards of corporations in Canada have such obligations to consider the bigger picture over share price. It is an interesting question worthy of debate — does the existence of a vehicle designed for socially responsible business imply that corporations that do not adopt this model are permitted to be focused solely on the company itself and its shareholders?
A better model?
The benefit company model was designed to be attractive and useful to businesses that are committed to being outstanding corporate citizens, and that want to be branded as such. This same brand was a significant driver behind the creation of the C3 in 2013. Like benefit companies, C3s must operate for a purpose beneficial to society and have an annual reporting requirement. However, the C3 reporting model does not require assessment against a third-party standard.
Unlike C3s, benefit companies are not subject to the restrictions on the company’s ability to pay dividends to investors and to distribute assets on dissolution, which have weighed down the C3 to the point of obscurity. Benefit companies can also operate with a single corporate director, like standard BCA corporations. This makes benefit companies an attractive option for businesses looking for a flexible way to operate for some public good and to receive some statutory brand recognition as a socially responsible and sustainable organization. Indeed, there is no apparent reason why a business seeking to establish its socially responsible brand would choose the older C3 model over the “new and improved” benefit company. The latter has all the same benefits of its older sibling, with none of the onerous distribution restrictions.
At present, there are no unique tax advantages that arise from becoming a benefit company, and it seems unlikely at this point that governments will create any such advantages. They are not exempt from tax on income like a non-profit organization, and they cannot offer tax receipts for donations received. This compels the benefit company to operate like a standard for-profit corporation, deriving income largely from the products or services it provides, rather than from donations or grants like a not-for-profit organization.
It is not yet clear if there is a meaningful market in Canada for the kind of model the benefit company represents. Certainly, businesses in all jurisdictions are capable of operating in a responsible and sustainable way without a corporate status granted to them by legislation. The world is full of examples of companies doing good things in their communities when they feel inclined. It is entirely unclear whether a new model such as benefit companies will increase the overall social responsibility of the Canadian business landscape.
However, as the importance of corporate social responsibility and company values continues to increase and affect spending decisions of Canadians, it is likely that businesses will embrace any edge to win the hearts and minds of customers and investors. Businesses believe, and rightly so, that their image matters, their brand matters. In this light, the benefit company appears well poised. The model provides a legislatively sanctioned corporate social responsibility (CSR) brand for a business and has no significant regulatory restrictions — only a transparent commitment to carrying on business in a responsible, sustainable way that benefits the broader constellation of stakeholders of the corporation.
Michael Blatchford is a partner in the Vancouver office of Norton Rose Fulbright. He works with charities, not-for-profit organizations, associations, clubs, social enterprises and other entities in the voluntary sector and advises on all aspects of their operations and governance. Vancouver-based associate Kate Braaten, who practises in the firm’s business law group, also serves clients in the charitable and tax-exempt sector, assisting senior counsel in advising on a variety of matters, including charitable registration, governance, fundraising and tax.
This article was originally published by Law360 Canada – providing Canadian legal news, analysis and current awareness for lawyers and legal professionals who need a real-time view on the shifting legal landscape.