Arizona’s Newest Business Entity, The Benefit Corporation

By December 18, 2015 Articles, Business
B-Corporation as Subsidiary for Non-Profits

In many markets, consumers and employees, alike, hunger for purpose-driven companies committed to socially and environmentally responsible business practices.

Prior to this year, however, Arizona did not offer a form of business entity that could fully accomplish a dual mission, producing both profit and social good. But now, the Benefit Corporation, or “B-Corporation,” exists as another option for Arizona entrepreneurs, enacted under A.R.S. § 10-2401, et seq.

B-Corporations are uncommon but up-and-coming. For example, in Fort Collins, Colorado, New Belgium Brewing Company, a one-hundred percent employee-owned B-Corporation, serves up an award-winning beverage, while making smart sourcing decisions and charitable partnership initiatives, including a strategy to purchase 10% of all hops from Salmon Safe Certified farms, ensuring healthy watersheds for native salmon. New Belgium also holds accountable the companies in its supply chain on issues such as manufacturing, transportation, waste, and company culture — and likewise, the beer-maker tracks its own statistics to reduce mega joules of energy, water, and greenhouse gas used in production. With these ingredients, this B-Corporation has disrupted the craft beer market.

Fundamentally, the question is whether the underlying state law that governs the company supports the entrepreneur’s mission-driven direction.

If not, then the company faces significant legal risk. The problem arises when one camp wants to use company assets to prosper a non-owner stakeholder, opposed by another group unwilling to subsidize that effort. These disagreements often surface when socially-conscious for-profit companies attempt to scale.

Consider an equity investment, a merger, or a liquidity event. In a larger corporate operation, governance and economic rights are spread out, allocated across tens or thousands of persons, including officers, directors, and shareholders. Historically, managers lean toward their traditional fiduciary responsibility to maximize returns to shareholders. The risk of litigation looms over their planned acts of generosity.

And so, the company’s social agenda will be trimmed back or cut.

On the other hand, the laws for the B-Corporation entity augment certain fiduciary duties, allowing or even requiring managers to pursue shared and enduring prosperity for all stakeholders. Further, tactically, B-Corporations offer market differentiation, broad legal protection to directors and officers, and expanded shareholder rights. Commitment to B-Corporation standards can also attract and retain talented employees.
At New Belgium Brewery, Jenn Vervier, Director of Strategy and Sustainability, agrees that the company’s legal commitments have, “signal[ed] to our stakeholders (coworkers, customers, suppliers, and community) that our values are truly at the core of our business.”

In upcoming articles, I’ll guide you through a few important topics, including fiduciary duties, corporate structure, and the logistics of operating a B-Corporation.