Ohio updates law to include Benefit Corporations (“B Corporations”​)

While the Dolan family may not be the most popular one in Ohio in light of recent baseball transactions (e.g., changing the Cleveland Indians’ team name, trading all-star Francisco Lindor to New York), one Dolan has undisputedly improved the Buckeye State. Senator Matt Dolan sponsored a senate bill that was signed into law by the Governor in December 2020. Senate Bill 21 amends Ohio corporation law to create a new kind of for-profit corporate entity—a benefit corporation (a so-called “b corporation”). This amendment is a great addition to Ohio corporation law, and will likely incentivize more corporate activity within the State.

What is a benefit corporation?

A benefit corporation is a for-profit corporation whose organizational documents authorize the corporation to pursue “beneficial purposes” as well as other legal purposes. Customarily, corporations are created with the purpose of making a profit that can then be distributed to their shareholders; they pursue legal activities in order to make money (“for pecuniary gain,” as it’s called in the amendment). But thanks to the amendment, corporations can now pursue “beneficial purposes” in conjunction with their other objectives.

What are “beneficial purposes”?

A beneficial purpose is any purpose intended to have a positive effect—or to reduce any negative effect—on society-at-large, people, or the community, and is of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature. While the amendment specifies these purposes, the definition is non-exhaustive and will likely be interpreted broadly by courts, so owners will have wide latitude when determining what beneficial purposes their corporation will seek.

How do you form a benefit corporation?

A benefit corporation is formed the same way any other for-profit corporation is formed in Ohio: by filing articles of incorporation with the Secretary of State. However, the beneficial purpose or purposes must be expressly stated in the articles of incorporation; the failure to specifically include the corporation’s beneficial purpose or purposes will result in a failure to establish a benefit corporation. (Sidebar: it is unclear how this requirement will be enforced. That is, will the Secretary of State reject non-complying filings at the outset, or will it be left to courts to decide if a corporation has complied?)

If a corporation is already in existence and the shareholders wish to convert it to a benefit corporation, they may do so by amending the corporation’s articles of incorporation. However, no public corporation—that is, any corporation whose shares are traded on a national securities exchange—can become a benefit corporation unless their initial articles of incorporation included a qualifying beneficial purpose. If the initial articles of incorporation did not include a beneficial purpose, the public corporation is prohibited from becoming a benefit corporation.

Why create or become a benefit corporation?

In recent years, corporate culture has shifted such that shareholders and investors seek to not only make money from their corporate endeavors, but to better society, the environment, and their communities. A large portion of our country’s corporate mentality has morphed such that people now look to do good for others through their corporate endeavors, rather than to simply realize a profit. For example, throughout 2020, we saw many businesses (take NIKE, Inc., for example) taking action to support people and businesses affected by the COVID-19 pandemic, as well as the Black Lives Matter movement and local black-owned businesses. Check out bcorporation.net to read about other benefit corporations. Through benefit corporations, businesses can pursue multiple purposes without running afoul of corporate law or being liable to third party beneficiaries.

Given this changing attitude and the current cultural climate, benefit corporations are becoming popular corporate vehicles. As such, Ohio wanted to join other states in allowing benefit corporations, which will drive more corporate activity to and within Ohio. Business owners always ask in which state should they form their corporation. Thankfully, if it will be a benefit corporation, Ohio is now an option.

How is a benefit corporation different than a non-profit corporation?

The main difference is that benefit corporations are still classified as for-profit; they just have an added non-profit purpose. So, consider benefit corporations as a blend between a for-profit and non-profit corporation. Unlike non-profit corporations that have no shareholders, benefit corporations have shareholders who own and can exercise authority over the corporation.

So what now?

If you are interested in forming a benefit corporation or converting your corporation into a benefit corporation, you now have that opportunity in Ohio. (Thank you, Mr. Dolan.) Beginning March 24, 2021, corporations can utilize the new law and state beneficial purposes within their articles of incorporation. This update to Ohio corporation law will hopefully be a great boon for the State, as it will align the law with the current cultural shift toward benefitting society and communities instead of solely seeking more profits.

Please reach out to me if you are interested in learning more about benefit corporations or creating one in Ohio. I will be happy to send you free resources on the subject or work with you to establish (or convert) your benefit corporation.

This article first appeared on the Meridian Law blog at meridianlaw.co/blog on 1/21/2021.