New amendments to the British Columbia Business Corporations Act have recently received royal assent and will come into effect soon. One of the key changes is the creation of what is knows as a “benefit company”; an increasingly common term in the United States, but a new concept in Canadian business law.
What is a “Benefit Company”?
A “benefit company” is defined as a for-profit business that, in addition to earning a profit, also promotes one or more public benefits and conducts its business in a sustainable and responsible manner. While the company is free to choose the benefit it promotes, it must have a positive effect on a group of people (other than the business’s shareholders), a community, an organization or the environment. Areas in which a company might provide a benefit include:
Benefit companies are subject to the standard rules under the BCBCA, in addition to further regulations. A benefit company must:
- Have a “benefit statement” in its notice of articles.
- State its public benefits, its commitments to promoting those public benefits and to conduct business in a responsible and sustainable manner in its articles. This is called a “benefit provision”.
- Publish an annual benefit report and post it on its website (if it has one).
Directors and officers of the company will also have additional obligations, including the duty to balance their commitment to operate the business in a sustainable and responsible manner & promote the public benefit of the business with their obligation to act in the best interests of the company.
What is a “Benefit Report”?
Every benefit company must produce an annual report analyzing the company’s performance in relation to its stated benefit as compared against a third-party standard, which is defined under the legislation as follows:
“third-party standard” means a standard for defining, reporting and assessing
(a) the overall performance of a benefit company in relation to its conducting business in a responsible and sustainable manner, and
(b) the performance of the benefit company in relation to the public benefits specified in that benefit company’s articles,
which standard is developed by a third-party standard-setting body and in accordance with the regulations, if any;
The standard is likely to vary depending on the specific public benefit the company has committed to supporting, as measuring performance in promoting environmental causes, for example, will differ significantly from promoting a cause such as the advancement of women and other marginalized groups in STEM fields.
Assessments are self-conducted by the company, and there is no government oversight of the assessment process, which raises questions as to the impact these assessments will have on the companies that undertake to do them. These reports must be made publicly accessible both in-person and online, though they will not be filed within any sort of registry. It remains to be seen how much public scrutiny these reports will be subject to.
Benefits and Criticisms of the New Legislation
Besides the promotion of a public good, is there any benefit to the corporation of registering as a benefit company? The purported purpose of these amendments is to enable those wishing to do some form of good through the businesses they create to establish a permanent purpose behind a company that will continue even if the business is eventually sold or the original stakeholders are no longer involved in the company’s operations. It’s a way to protect a company’s purpose and legacy, in other words.
However, some critics of the changes say that the legislation is too broad to serve any real purpose, and say that the changes will mostly serve to shield stakeholders from personal liability. Given the extensive list of what may be defined as a “public good”, critics say that virtually any company can be made to fit within the definition. Further, and perhaps most significantly, the new legislation prohibits litigation against corporate shareholders by those who fall within a group the company is purporting to benefit:
51.993 (1) A director or officer of a benefit company, when exercising the powers and performing the functions of a director or officer of the company, must
(a) act honestly and in good faith with a view to
(i) conducting the business in a responsible and sustainable manner, and
(ii) promoting the public benefits specified in the company’s articles, and
(b) balance the duty under section 142 (1) (a) with the duty under paragraph (a) of this subsection.
(2) Despite subsection (1),
(a) the directors and officers of a benefit company have no duty under subsection (1) to
(i) a person whose well-being may be affected by the company’s conduct, or
(ii) a person who has an interest in a public benefit specified in the company’s articles, and
(b) no legal proceeding may be brought by a person referred to in paragraph (a) (i) or (ii) against a director or officer of a benefit company in relation to the duties under subsection (1). [Emphasis added]
Critics say that this provides a loophole for companies to take advantage of when they set out the structure of a new venture. By making the group standing to benefit from the company’s “public good” as broad as possible, the company is in effect creating a shield for itself and it’s stakeholders from litigation from everyone within that group.
Contact Cherkowski Marsden LLP With Questions About How These Changes Will Impact You and Your Business
The effects that these amendments will have on businesses in British Columbia remains to be seen, but for now, those wishing to benefit from the protections afforded to “benefit companies” should reach out to an experienced business lawyer for advice on how they can structure their company under this new scheme. A skilled lawyer will thoroughly review all obligations under the new legislation and assist with structuring your business so that it meets the requirements under the law.
At Cherkowski Marsden LLP we assist business professionals at all levels and across a wide range of industries. We advise our clients on a variety of issues, including internal policies and compliance matters. If you would like to speak to one of our experienced business lawyers, contact us online or at 250-308-0338 to schedule a consultation.