Maryland, 1st State to Pass Benefit Corporation Legislation: 6 Interesting Provisions of SB 690

There is unique fame and distinction in being the first. In the Olympics it can win you gold. In the marketing world, it can give you first mover advantage. And in law it can help you set precedent.

Maryland can tap into these sentiments when telling the story of benefit corporation legislation. That’s because on April 13, 2010, Governor Martin O’Malley made Maryland the first state to legally recognize benefit corporations, when he signed Senate Bill 690 into law.

(A quick refrain, benefit corporation legislation creates a new form of corporation. One that is for-profit and that aims to create material positive impact on society and the environment. It is different from “B corporation”, which is a voluntary certification. More here.)

6 Interesting Provisions of Maryland’s SB 690, Creating Benefit Corporations

Here is a look at how Maryland has structured its benefit corporation bill, SB 690, which became effective law on October 1, 2010. It closely follows the model legislation prepared drafted by Drinker Biddle & Reath.

(Read the full text of Maryland’s benefit corporation bill here)

1. Defining a Benefit Corporation:
Paraphrased from Section  5–6C–06: Every benefit corporation shall have the purpose of creating general public benefit. Benefit corporations may additionally identify one or more specific public benefits.

Specific public benefits include (paraphrased from Section  5–6C–01):

• providing beneficial products/services to individuals or communities;
• promoting economic opportunity, beyond job creation, for individuals or communities;
• preserving the environment;
• improving public health;
• promoting arts, science, or advancement of knowledge;
• or any other particular benefit for society or the environment.

From Section  5–6C–01: “General public benefit” means a material positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits.

2. Requirements
Paraphrased from Section 5-6C-05:  Companies that choose to incorporate as benefit corporations must make clear reference to their benefit corporation status by:

• announcing the corporation is a benefit corporation at the head of the charter (and at the head of each subsequent charter); and on each outstanding stock certificate
• approval by stockholders according to Maryland Corporations Code (Title 2, Subtitle 6). Note Section 2-604 requires 2/3 vote where there are stockholders.

3. Transitioning Corporations
Paraphrased from  5–6C–03: A corporation may elect to become a benefit corporation by amending or including in the charter of incorporation a statement that the corporation is a “benefit corporation.”

 Additionally, the required vote from stockholders is also required (Section 2-604 of Maryland Corporations Code).

4. Board of Directors Decisionmaking
Paraphrased from  5–6C–07: A Director of a benefit corporation should consider the effects of any decision to act or not to act based on:

• shareholders of the benefit corporation
• employees and workforce of the benefit corporation
• customers as beneficiaries of the general or specific public benefit of the benefit corporation;
• community and society;
• local and global environment; and
• any other pertinent factors or interest of any other group that the Director determines are appropriate to consider

5. Transparency
Paraphrased from 5–6C–08: Benefit corporations shall deliver an annual benefit report to each stockholder  within 120 days of the end of the fiscal year. The benefit report shall include:

• description of how the benefit corporation has pursued the general public benefit, and the extent to which the general public benefit was created;
• ways in which specific public benefit was created; and
• any circumstances that have hindered creation of the public benefit; and
• assessment of societal and environmental performance of the benefit corporation, consistent with a third-party standard;

The benefit report shall be posted publicly on the company’s website.

6. Termination
Paraphrased from Section  5–6C–04: A corporation may terminate its benefit corporation status by amending its articles of incorporation charter (i.e. deleting the statement that the corporation is a benefit corporation.”

Read On

• Maryland Senate Bill 690 Information
• Maryland’s Benefit Corporation (Nonprofit Law Blog)
• Perspectives: Maryland, the Delaware of Benefit Corporations by Senator Jamie Raskin (B Corporation)