On April 24, 2014, the Minnesota legislature passed the Minnesota Public Benefit Corporation Act, which is expected to be signed by the governor and become effective on January 1, 2015. With the enactment of this legislation, Minnesota joins about two dozen other states that offer a specific statutory option for the organization of for-profit but socially minded businesses. By electing to become a public benefit corporation, a corporation will be obligating itself to pursue general or specific public benefits among their primary objectives. Incorporating as a public benefit corporation will be one method that socially minded businesses can use to distinguish themselves from other entities.
Because the statute acts as an overlay to the existing Minnesota Business Corporation Act, public benefit corporations will be subject to most of the statutory provisions and case law that apply to Minnesota corporations. Key additional requirements and consequences of electing public benefit corporation status are:
- Public Benefit
A public benefit corporation's articles must spell out its duty to pursue a general or specific public benefit. Public benefit corporations in Minnesota are divided into two types, depending on the scope of the public benefit to be pursued by the entity:
- General benefit corporations are required to pursue a net material positive impact from its business and operations on society, the environment and the well-being of present and future generations. In addition to this broad obligation, general benefit corporations may also state a specific public benefit or benefits.
- Specific benefit corporations are required to elect only to pursue one or more positive impacts, or reduction of a negative impact, on specified categories of natural persons, entities, communities or interests other than shareholders (in their capacity as shareholders). This narrower obligation allows the specific benefit corporation to focus its mission on one or more explicit benefits without the general societal concerns required of general benefit corporations.
Each public benefit corporation will have "General Benefit Corporation" or "Specific Benefit Corporation" (or the abbreviations GBC or SBC) in its legal name. This "branding" aspect of the entity form may be important for benefit corporations.
- Director Duties
Directors of a public benefit corporation are obligated to consider the general or specific public benefit purpose (depending on whether they are a GBC or an SBC) and the interests of constituencies other than shareholders. The pecuniary interests of the shareholders are among the interests to be considered by directors, but these interests have no presumptive priority.
- Limited Enforcement
Only shareholders have the right to bring an action for failure to pursue the public benefit. No government authority or third party may do so, although it is possible that third parties may have a cause of action under a consumer fraud statute if the public benefit corporation does not undertake its obligations to provide public benefit.
Each public benefit corporation must prepare and file with the Minnesota Secretary of State an annual report, describing the ways and extent to which it pursued and created the relevant public benefit. In the case of a general benefit corporation, this report must reference an independent third-party standard selected by the board. Failure to file this report will result in revocation of public benefit corporation status. Because the report is filed with the Minnesota Secretary of State, it is also subject to penalties of perjury if it is not accurate.
- Exit Rights Upon Loss of Status
If status as a public benefit corporation is terminated, either with a two-thirds shareholder vote or due to the intentional failure to file the required annual transparency report, shareholders may demand their shares be redeemed at fair value through a statutory appraisal proceeding.
Any Minnesota corporation can elect to be a public benefit corporation upon formation or by amending its articles of incorporation with a two-thirds vote of its shareholders. Any shareholders that oppose the conversion to a public benefit corporation have the opportunity to redeem their shares at fair value pursuant to a statutory appraisal rights proceeding.
For more information regarding the latest developments in corporate social responsibility, including whether public benefit corporation status may make sense for your business, please contact Brandon Mason and Jonathan Nygren .
Jonathan Nygren and Brandon Mason are lawyers in Faegre Baker Daniel's corporate practice. Jonathan Nygren served as a member of the Minnesota State Bar Association's public benefit corporation drafting committee, which assisted the legislature with the preparation of the statute.