23 June 2020
The new B.C. “benefit company”: Meaningful marketing tool or hollow political posturing?
On 30 June 2020, the Business Corporations Act will be amended to introduce a new type of company called a “benefit company”. While there are legitimate concerns as to whether this new type of company is actually needed, the concept could provide a lucrative marketing opportunity for many B.C. businesses.
What are benefit companies?
Benefit companies are for-profit companies that are committed to conducting business in a responsible and sustainable way while also promoting one or more public benefits. The public could be deemed to benefit in any of the following areas, provided that the activity has a positive effect for a group of people (other than business shareholders), a community, an organization, or the environment:
In simple terms, benefit companies are businesses that balance their financial objectives with promoting positive social goals.
What differentiates benefit companies from ordinary companies?
- Benefit statement: Benefit companies’ notice of articles must contain a standardized commitment to behaving responsibly, sustainably, and with a view to promoting one or more public benefits.
- Benefit Provision: Benefit companies’ articles must state their public benefits and their commitments to promote those public benefits in a responsible and sustainable manner.
- Benefit Report: Benefit companies must produce an annual benefit report which assesses their performance in promoting their specified public benefits in a responsible and sustainable manner, which must be posted on any website of the benefit company, and must be made available to the public at the benefit company’s legal office.
How are benefit companies formed?
- For new incorporations: All regular Business Corporations Act incorporation rules apply to benefit companies and they must also include the benefit statement in their notice of articles and the benefit provision in their articles.
- For existing companies: An existing company can become a benefit company once the shareholders have approved an alteration of its notice of articles to include the benefit statement, and filed the same with the Registrar.
Pros and cons
The main criticism of benefit companies is that they are the adoption of an American solution to an American problem that does not exist in Canada. Directors of American companies must exercise their fiduciary duties in the best interests of the corporation and its shareholders, and therefore, preserving/increasing share value is paramount.
In contrast, Canadian directors or officers owe their primary duty of care to the company, and not its shareholders, and therefore may promote public benefits they consider in the best interest of the company.
This has led to some understandable criticism that benefit companies have little practical use in Canadian business. Critics consider the benefit company concept to be more of a red herring, signaling socially progressive business practices rather than bringing about actual meaningful business reform. However, one positive attribute of benefit companies is that they provide clarity in situations where directors face a conflict between promoting an unprofitable public benefit and acting in the company’s best interest.
This new concept provides a significant marketing opportunity for B.C. businesses. Generally speaking, conducting business as a benefit company has almost no additional restrictions or financial disincentives. ‘Public benefit’ is so broadly defined that, with a little imagination, almost any business could argue that its activities have some positive effects on society.
For example, a gym could easily argue that it is promoting healthy living, an Irish bar could argue it promotes and educates on Irish culture, and any business with an existing corporate social responsibility scheme could easily tailor it to align with a public benefit.
Becoming and maintaining a designation as a benefit company should be easy to achieve and low-cost for any interested businesses. While transitioning to the public benefit model could be an excellent marketing tool for any business, it could be particularly lucrative to any business looking to reinvent or reintroduce themselves after Covid-19. If you have questions regarding how becoming a benefit company might make sense for your business, contact our Business Law Group.
Arthur Cullinan is an articling student at Watson Goepel LLP.