Jobs & the Economy, Legislation

Benefit Corporations Coming To Connecticut?

  • Feb 19, 2014
  • Helen Fang & Ben Zimmer

The Connecticut General Assembly is considering legislation that would create a new corporate form in Connecticut – the “benefit corporation.”  Benefit corporations are for-profit companies that receive no preferential tax treatment from the government.  But unlike traditional companies they are required to pursue a “positive impact on society and the environment,” as assessed against a third-party standard, in addition to the economic interests of shareholders.

Benefit corporations have become increasingly popular with advocates of so-called socially responsible investing, and legislation allowing for benefit corporations has already been passed in twenty states.  There are currently more than 550 benefit corporations across the country, including clothing-maker Patagonia and brownie-producer Greyston, which supplies Ben & Jerry’s.

Anyone investing in a benefit corp. understands that economic returns may be lower than with a traditional corporation, so there is no reason not to allow new companies to incorporate in this way if they wish.  On the other hand, if an existing publicly traded company wishes to reincorporate as a benefit corporation, their present shareholders could be harmed.  Delaware, where 50% U.S. publicly traded companies are incorporated, addresses this risk by allowing publicly traded companies to reincorporate as a benefit corporation only with the approval of 90% of shareholders.  Connecticut’s proposed bill would allow this change with only a 2/3 majority. 

The Connecticut General Assembly should pass legislation allowing for the formation of benefit corporations under CT law, but only after amending the proposal to include protections as rigorous as Delaware’s for shareholders of existing publicly traded companies. 

Read More Coverage: