The Vermont Benefit Corporations Act:

A Business Corporation with the Purpose of Creating Public Benefit

May 12, 2011

Spring ConferenceBy: H. Kenneth Merritt, Jr.

Copyright 2011 -H. Kenneth Merritt, Jr.

For-profit Corporation Benefit Corporation (7/1/11)

Non-profit Corporation Limited Liability Company

L3C

Limited Partnership General Partnership Cooperative

Vermont Entity Choice

Vermont Historical Context

Director’s Duties – 11A V.S.A. 8.30 Good Faith Duty of Care-Care as ordinarily prudent person in a like position would exercise under

similar circumstances In a manner the Director reasonably believes to be in the best interests of the

corporation

The rise of constituency statutes in response to takeovers in 1980-1990s

11A V.S.A. Section 8.30 (3) – Amended best interests of the corporation in 1998 to provide that directors may consider to include constituencies other than shareholders

Applies only to public companies Increasing number of companies concerned about natural

(environment), human (employees), and economic environment. Double bottom line Triple bottom line

Vermont Historical Context

VBSR Mission Statement: is to foster a business ethic in Vermont that recognizes the opportunity and responsibility of the business community to set a high standard for protecting the natural, human, and economic environments of our citizens.

Tension between corporate social responsibility and existing legal framework

Corporate Social Responsibility – How to measure: CSR Reporting GRI B Lab

Benefit Corporations

One of the purposes of a benefit corporation is to create general public benefit as measured by third-party standard. (21.03 (a)(4))

May be in addition to and may be limitation of 11A3.01(a) – any lawful business.

The corporation may also elect to create specific public benefits. (21.08(b))

Creation of general and specific public benefit is defined as being in the best interests of the corporation. (21.08(c))

Note that benefit corporations are a type of business corporation and are for-profit. All other provisions of Title 11A apply.

The specific public benefits that a benefit corporation may elect to create include (21.03(a)(6): providing low-income or underserved individuals or

communities with beneficial products or services. promoting economic opportunity for individuals or

communities beyond the creation of jobs in the normal course of business.

Preserving or improving the environment improving human health. promoting the arts, sciences or advancement of

knowledge increasing the flow of capital to entities with a public

benefit purpose. accomplishment of any other particular benefit for

society or the environment.

Benefit Corporations

Directors SHALL consider the interests of certain constituencies – although the weight to be given those interests is not prescribed. (21.09) shareholders of the corporation. employees and workforce of the corporation, subsidiaries

and suppliers. customers to the extent they are beneficiaries of the

public benefit purposes of the corporation. community and societal considerations. local and global environment. long-term and short-term interests, including the

possibility that those interests may be best served by the continued independence of the corporation.

any other pertinent factors which the director determines are appropriate to consider.

Benefit Corporations

An officer must also consider those interests when (21.11):

1. the officer has discretion in how to act or not act, and2. the decision will have a material impact on the

creation of public benefit by the corporation.

Corporation may designate an officer as benefit officer (21.12) - o Authority and duties relating to public benefit purpose.

The corporation must prepare an annual benefit report on its creation of public benefit (21.14): report must be given to the shareholders report must be posted on the public portion, if any, of

the corporation’s website – can exclude compensation and proprietary information.

Benefit Corporations

Act provides for the designation of a “benefit director” (Section 21.01): must be independent must prepare an annual evaluation of the corporation’s

performance, which must be included in the annual benefit report

Benefit Corporations

Existing corporation opting in (21.05) – Requires statement of reasons for and benefit to shareholders of opting in.

Same requirements for opting out (21.07) 2/3 vote No Third Party Right of action (21.13) Enforced in a benefit

corporation proceeding. May be brought by shareholder or directors.

Benefit Corporation Mechanics

Thank You

By: H. Kenneth Merritt, Jr.Managing Director

PO Box 5839, Burlington, VT 05402802.658.7830

kmerritt@merritt-merritt.com