Note: Providing Clarity for Standard of Conduct for Directors Within Benefit Corporations: Requiring Priority of a Specific Public Benefit

By Roxanne Thorelli. Full text here.

One of the newest social enterprise business forms—the benefit corporation—is becoming increasingly popular throughout the United States. Since its formal beginnings in 2010, thirty states and the District of Columbia have passed benefit corporation legislation, and seven other states are currently in the process of passing legislation. The benefit corporation is a for-profit company that is required to pursue a public benefit purpose. To meet the dual profit-seeking and public benefit goals, directors of benefit corporations must consider shareholders and a variety of stakeholder interests, including the environment and society.

Although benefit corporations are becoming popular, they have risks and complications specifically relating to their expanded director duties. Due to the additional requirement for pursuing a public benefit, directors of benefit corporations must understand their duties so they can fulfill their obligations to company shareholders as well as promote the greater good. However, as many scholars have recognized, current benefit corporation legislation lacks guidance for director duties regarding how to make decisions based on the divided loyalties to shareholders and stakeholders. Regrettably, existing legal scholarship has failed to address this issue in a systematic way.

To address this problem, this Note explores and analyzes five important shortcomings of the director duty provisions within current state benefit corporation statutes. Ultimately, this Note seeks to overcome the gap in the legal literature by providing a novel solution that will guide benefit corporation directors as they navigate this complicated terrain. With novel fiduciary duties for directors and no current case law pertaining to breach of benefit corporation fiduciary duty or benefit corporation governance, it is important to clarify director duties and provide guidance; otherwise, the new corporate entity may ultimately prove unsuccessful.