How to Form a Benefit Corporation in Maryland

Benefit corporations are formed to create a public benefit, in addition to creating profit for its shareholders. In Maryland, a company can be recognized by the state as a benefit corporation by stating in its corporate charter that it is a benefit corporation, getting certified as providing a public benefit, taking into consideration more than just profit, and submitting an annual benefit report to each stockholder.

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Benefit Corporations

Benefit corporations are formed to create a public benefit, in addition to creating profit for its shareholders. Maryland recognizes benefit corporation and benefit limited liability company as business structures. This article addresses benefit corporations. To be recognized by as a benefit corporation, a benefit corporation must:

  • state in its charter that it is a benefit corporation;
  • get certified as providing a public benefit, taking into consideration more than just profit; and
  • submit an annual benefit report to each stockholder.

Note that Maryland General Corporation Law applies to benefit corporations, except where the more specific terms of the laws governing benefit corporations apply.

Read the law: Md. Code, Corporations and Associations Title 5, Subtitle 6C

In general, a Maryland corporation electing to become a benefit corporation must include in its charter a statement that the corporation is a benefit corporation and has the purpose of creating a “general public benefit.” This language can be included from the start or added in later through amendment.

The corporation may also state a “specific public benefit” in its charter that it seeks to provide.

  • A general public benefit is a "material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits."
  • Specific public benefits include things like:
    • providing 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 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; or
    • the accomplishment of any other particular benefit for society or the environment

Read the Law: Md. Code, Corporations and Associations § 5-6C-01

 

State Requirements Once Formed

Once a company has either filed or amended its charter to designate itself as a benefit corporation, the company must:

In addition, the company's directors must consider the effect of any action or decision on:

  • the stockholders;
  • the employees and workforce;
  • the interests of customers as beneficiaries of the public benefit;
  • the surrounding community and society;
  • the local and global environment; and
  • any other factors or groups the director  finds to be appropriate.

Read the Law: Md. Code, Corporations and Associations § 5-6C-07

 

Annual Benefit Report

The annual benefit report is the backbone of the benefit corporation. The company must deliver this report to each stockholder within 120 days of the end of each fiscal year and must publish it on its public website. If the company does not have a public website, then the company must provide a copy of its most recent report on demand and without charge to anyone who requests a copy.

The annual benefit report shows how the company is creating a public benefit. The report must include a description of:

  • the ways the a general public benefit was pursued and to what extent one was created;
  • the ways the any specific public benefit was pursued and to what extent one was created;
  • any circumstances that hindered the creation of the public benefit; and
  • an assessment of the societal and environmental performance of the benefit corporation prepared in accordance with a third-party standard applied consistently with the prior year's benefit report or accompanied by an explanation of the reasons for any inconsistent application.

Read the Law: Md. Code, Corporations and Associations § 5-6C-08

A third party standard is a standard for defining, reporting, and assessing best practices in a corporate social and environmental performance that:

  • is developed by a person or entity independent from the benefit corporation; and
  • is transparent (i.e., makes publicly available or accessible information about the facts considered when measuring a business's performance, the relative weight of those facts, the identity of the persons who developed and control changes to the standard, and the process by which changes are made to standards.)

Read the Law: Md. Code, Corporations and Associations § 5-6C-01

 

Expanding Your Recognition Through B-Labs

NOTE: B-Labs is a private, fee-generating organization. Assessment or certification by B-Labs is not required, and this article is not an endorsement of B-Labs. However, B-Labs is a well-known industry leader.

A private organization, such as B-Labs, can provide the third-party assessment required to be recognized as a Maryland benefit corporation. B-Labs certifies companies as “B-Corps,” a status that can be used to meet the Maryland requirements for a benefit corporation.

B-Labs recognition is not required in order to be considered a benefit corporation in the eyes of the state, but B-Labs is one of the central trade associations surrounding benefit corporations and provides a 3-step process to be recognized as a certified B-Corp.

Source
Original article by Matthew Stockwell, Rule 16 Student Attorney (Fall 2015), Community Development Clinic, University of Baltimore. Edited by PLL.