About Wisconsin Public Benefit Corporations

On November 27, 2017, legislators in Wisconsin passed a law creating a category of business corporation identified as a benefit corporation, to be found in Chapter 204 effective February 26, 2018, making Wisconsin the 34^th state to recognize this special designation.

Maryland was the first state in the U.S. to permit the creation of “benefit corporations,” which are for-profit corporations that exist to not only to maximize profits for shareholders, but to permit the board directors to consider other factors in running the business, such as the environment or other socially beneficial merits. As of July 2017, 33 states plus Washington, D.C., had passed legislation to permit the creation of benefit corporations.

Benefit Corporations are Different from B Corps

Benefit corporations, which are not to be confused with “B Corps” (more on this later), are corporations that are still formed under Chapter 180, but specify in their articles of incorporation that they have a purpose of creating a general public benefit. If not initially formed as a benefit corporation, an existing corporation may amend its articles to become a benefit corporation. A benefit corporation may also terminate its status as a benefit corporation and cease to be subject to the provisions of chapter 204 by amending its articles to delete the provision.

What types of “Public Benefit”?

There are two types of “public benefit” recognized, general and specific. Section 204.102(5) defines a “general public benefit” as “having a material positive impact on society and the environment by the operations of a benefit corporation taken as a whole, through activities that promote some combination of specific public benefits.” In addition, a corporation’s articles may state that it is formed for a “specific public benefit”, which, under Section 204.102(7), is defined as:

(a) Providing low-income or underserved individuals or communities with
beneficial products or services.

(b) Promoting economic opportunity for individuals or communities beyond the
creation of jobs in the normal course of business.

(c) Preserving the environment.

(d) Improving human health.

(e) Promoting the arts, sciences, or advancement of knowledge.

(f)  Increasing the flow of capital to entities with a public benefit purpose.

(g) The accomplishment of any other particular benefit for society or the
environment.

How are Officers and Directors Protected?

Generally, traditional corporations exist for the profit of its shareholders. If its board of directors take actions to which the shareholders object, they can be removed from the board by a vote of the shareholders. In some circumstances, the shareholders can even sue a director for failing to act in the best interests of the shareholders.

The designation of “benefit corporation” is intended to shield officers and directors from personal liability, such as for monetary damages, for any action taken as an officer or director if he or she performed the duties of his or her office in compliance with this section and the provisions of chapter 180. Directors would also be protected for the failure of the benefit corporation to pursue to create general or specific public benefit, or for any act or omission in their capacity of a benefit director unless the act or omission constitutes self-dealing, willful misconduct, or a knowing violation of law. Moreover, section 204.302 makes clear that directors do not have a duty to a person that is a beneficiary of the general or specific public benefit.

Considerations of a Public Benefit Corporation

Under section 204.301 of the new statute, directors must consider the effects of any action or inaction on all of the following:

1. the shareholders of the benefit corporation;
2. the employees and workforce of the benefit corporation and its subsidiaries and suppliers;
3. the interests of customers as beneficiaries of the general public benefit or specific public benefit purposes of the benefit corporation;
4. community and societal factors, including those of any community in which offices or facilities of the benefit corporation or its subsidiaries or suppliers are located;
5. the local and global environment;
6. the short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the benefit corporation; and
7. the ability of the benefit corporation to accomplish its general public benefit purpose and any specific public benefit purpose.

Benefit Corporations Must Provide an Annual Report

The legislature also requires benefit corporations to be transparent. Section 204.401(1) requires the corporation to provide an annual report to its shareholders on the corporation’s promotion of the general or specific benefit identified in its articles, including:

(a) The objectives the board of directors has established to promote general public benefit or any specific public benefit.

(b) The standards the board of directors has adopted to measure the corporation’s progress in promoting general public benefit or any specific public benefit.

(c) Objective, factual information based on the standards under par. (b)  regarding the benefit corporation’s success in meeting the objectives under par. (a)
and in promoting public benefits and interests.

(d) An assessment of the corporation’s success in meeting the objectives under par. (a) and in promoting general public benefit or any specific public benefit.

The articles or bylaws of a benefit corporation may further require that the benefit corporation make the statement described in sub. (1) available to the public, or that the benefit corporation use a 3^rd-party standard in connection with or attain a periodic 3^rd-party certification addressing the corporation’s promotion of general public benefit or any specific public benefit identified in its articles. A “3^rd-party standard” is something like “B Corp” mentioned above. “Certified B Corporation™” is a certification the non-profit B Lab gives to for-profit corporations that meet its standards of social and environmental performance, accountability, and transparency. They liken it to products that are certified organic. B Lab describes its work as a global movement of people using business to support the best interests of not only the corporation but of society. As such, any corporation electing to become a benefit corporation should take care not to call itself a “B Corp” without garnering the stamp of approval from B Lab, lest it expose itself to an action for trademark infringement and a host of other likely claims.

Establishing a benefit corporation in Wisconsin is not only a way for a corporation to free its officers and directors to pursue goals without being completely wedded to the profit of the shareholders, but also provides a way for corporations to distinguish themselves from their competitors. Time will tell how many corporations take advantage of this new tool in the coming months and years. Our business law attorneys can provide further guidance if needed.