Professor B has a post on "beneficial (or B) corporations," which are corporations that designate themselves as socially responsible. He cites a 2005 post by Geoffrey Manne on the UK's Community Interest Company, and my response, that
the main effect of opting into the CIC form is that the governing statute would then limit the extent to which the firm's governance ever could be changed through a takeover or similar device to restrict the manager’s control over the cash.
I have argued at more length (in my Accountability and Responsibility in Corporate Governance) that corporate managers in fact have a lot of power under the business judgment rule to engage in what most people refer to socially responsible governance. Also, given market discipline and the agency costs of removing this discipline there isn't much demand for giving managers even more power.
The question here is, what is the best way of providing for more socially responsible governance, assuming there's a demand for it?
Professor B writes that "[i]f US corporation law codes were more clearly understood to be enabling statutes, there is nothing the CIC buys you (other than the label) that could not be done via the articles of incorporation of a standard business corporation." Then he gives suggestions, including dividend restrictions and stronger stronger. But he concludes:
Unfortunately, it's not at all clear that US corporate law is sufficiently enabling to achieve this result. State law arguably does not permit corporate organic documents to redefine the directors' fiduciary duties. In general, a charter amendment may not derogate from common law rules if doing so conflicts with some settled public policy. In light of the well settled shareholder wealth maximization policy, nonmonetary factors charter amendments therefore appeared vulnerable. This problem seems especially significant for Delaware firms, as Delaware law became increasingly hostile to directorial consideration of nonshareholder interests in the takeover decisionmaking process.
Yes, the inflexibility and essentially mandatory nature of corporate law is precisely the problem. Perhaps special B Corp statutory provisions could address this, but they'll run smack into corporate law norms in gap areas, as have special close corporation provisions.
This is one of the many ways in which uncorporations, particularly including LLCs, can be useful. You can do what you want with an LLC in the operating agreement. Most LLC statutes now explicitly permit non-profit LLCs. See Ribstein & Keatinge, §4:10.
If you want more explicit authorization for socially responsible LLCs, there's now a special statutory vehicle called “low-profit” LLCs, or L3Cs. As discussed in the above section of Ribstein & Keatinge, these entities
are intended to signal to foundations and donor directed funds that entities formed under these provisions intend to conduct their activities in a way that would qualify as program related investments. The first such statute was adopted in Vermont. See Vt. Code, title 11, ch. 21, §3001(27) [discussed here]. . . This statute requires the L3C, among other things, not to have a “significant purpose” of producing income or property appreciation. Similar statutes have been adopted in Utah (see Utah St. § 48-2c-412) and Wyoming (see Wy. St. §17-15-102).
I add that "[i]t is not clear precisely what is accomplished by these special provisions that cannot be done under standard LLC statutes." One could say the same thing about the B Corporation.
The L3C is one of many developments of the modern uncorporation discussed in my forthcoming Rise of the Uncorporation.
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