Benefit Corporation Operational Issues – Part 2

This article is a continuation of the Part 1 discussion as to the operational issues that apply to Benefit Corporations. In the first article we discussed naming issues, purpose clause issues, and the annual beneficial report. In this article we will take a look at director decision making and liability related issues. Another consideration is whether to obtain a benefit corporation certification.

4. Who does a director owe a duty to? Since the governing documents of a Benefit Corporation specifically provide in writing (either in the articles of incorporation, code of regulations, or another written document) that when making decisions the directors will take into consideration the impacts on shareholders and at least one other non-shareholder constituency, who will the directors owe a duty to? The Ohio Legislature has clearly indicated that the directors of a Benefit Corporation do not owe a duty to any beneficiary of the corporation’s beneficial purpose. This makes it clear that the director’s duty is solely to the shareholders of the corporation. It will be up to the shareholders to hold the directors accountable to ensure that a Benefit Corporation is implementing its beneficial purpose.

5. Director decision making hierarchy. A Benefit Corporation may set forth in its articles of incorporation a hierarchy for director decision making. A Benefit Corporation has the ability to state in the articles of incorporation which beneficial factors the directors are to consider along with the hierarchy or order in which the factors should be considered. If a Benefit Corporation does not provide this written guidance to the directors, then the directors will be free to consider a whole host of different for-profit and beneficial considerations without considering which factors should be considered first or which factors should be provided a greater weight.

6. Who can file a lawsuit against a Benefit Corporation forcing it to comply with its beneficial purpose? Again, a beneficiary of the beneficial purpose of a Benefit Corporation, standing alone, will not have the standing to file a lawsuit against a Benefit Corporation. The Ohio Legislature provided a specific listing of individuals who will have the standing to asset such lawsuit – a director, shareholders holding at least 25% of the outstanding shares (unless the articles of incorporation provide a lesser amount but not a greater amount), or a person specifically named in the articles of incorporation.

Deciding to become a Benefit Corporation is not a snap decision. The shareholders should take time to reflect on the corporation’s goals along with administrative steps the directors can take to ensure the corporation’s beneficial purpose(s) becomes second nature during the decision making process.

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Chris Corpus

Founding Partner at Corpus Law Inc

This article does not provide legal advice or create an attorney-client relationship. If you have any questions or would like to learn more about this topic or if you have other legal questions, do not hesitate to contact Chris Corpus, Esq. of Corpus Law Inc at 216-973-2475. Copyright Christopher A. Corpus 2024.