Legislative Alert – Benefit Corporations Approved in Ohio
The Ohio Legislature recently passed legislation making Ohio one of 39 states allowing the incorporation of Benefit Corporations. You may ask yourself – what is a Benefit Corporation?
The purpose of a for-profit corporation is to maximize the profit of a corporation in order to maximize the amount of dividends issued to shareholders. If a for-profit corporation operates its business so as to both make a profit and have a charitable purpose, the shareholders could attempt to make claims that the directors and officers of the corporation have breached their duty in failing to maximize the profits to be distributed to shareholders. But, a Benefit Corporation clearly indicates that the corporation’s purposes are both to make a profit AND to have a charitable or beneficial purpose. Since it is clear to the shareholders of a Benefit Corporation that a portion of the profits will be applied to or invested in charitable purposes, the shareholder will no longer have a claim that the directors or officers breached their duty in the maximization of profits.
A for-profit corporation will have to undertake certain actions in order to be considered a Benefit Corporation. One of these actions is to ensure that the purpose clause in the articles of incorporation clearly indicates that the corporation will have a charitable or beneficial purpose.
It is important to note that a Benefit Corporation is not a non-profit corporation. A Benefit Corporation provides a type of hybrid structure where a for-profit corporation is able to pursue for-profit and non-profit or charitable (beneficial) purposes.
Whether your company is new or existing, consider these steps to take to become a Benefit Corporation.
Do you have a question about Benefit Corporations in Ohio?
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