B.C. Considers Benefit Corporations

June 21, 2018 | Sarah Fitzpatrick

British Columbia may become the first province in Canada to pass legislation that provides for the creation of “benefit corporations.” Benefit corporations are different from the typical for-profit business corporation in that they must be mandated to conduct business for the purpose of creating a general public benefit. They must also adhere to a certain level of accountability and transparency.  Benefit corporations started as a “B Corp” certification issued by B Lab, a non-profit headquartered in Pennsylvania. B Lab then prepared model legislation for U.S. States to adopt, officially authorizing corporations to conduct business for a public benefit purpose and allowing directors to act in the best interest of the public.  Currently, 33 U.S. States and the District of Columbia have passed legislation that officially authorizes benefit corporations.

Bill M 216 proposes to amend the B.C. Business Corporations Act (the “Act”) to create benefit companies. The bill is a private members’ bill, which passed second reading on May 17, 2018. As it has passed both first and second reading (which is rare), it is expected that Bill M 216 will receive enough support to pass third reading and be enacted into law.

Benefit Statement and Commitment

The proposed B.C. benefit companies will be share capital corporations that must have the following “benefit statement” contained in their notice of articles:

This company is a benefit company and, as such, has purposes that include conducting its business in a responsible and sustainable manner and promoting one or more public benefits.

In its articles, the benefit company will also need to include a commitment to: (i) conduct its business in a responsible and sustainable manner; and (ii) promote public benefits that are specified in the articles. A public benefit is defined as a “positive effect that includes an effect of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.” The positive effect must also be for the benefit of either a class of persons (excluding the company’s shareholders), communities or organizations, or the environment. Responsible and sustainable manner is defined as a manner of conducting business that takes into account the well-being of persons affected by the company’s operations and endeavours to use a fair and proportionate share of available environmental, social and economic resources and capacities.

A B.C. company can become a benefit company if a special resolution of its shareholders authorizes it to include the benefit statement in its notice of articles and such notice is filed. A company may cease to be a benefit company by a special resolution of its shareholders and an amendment to its articles.  Time will tell as to whether a conversion application or some additional document will need to be filed, as is required for B.C.’s community contribution companies (C3s).

Name

A benefit company will be required to have the words “Benefit Company” or “B.Co.” as part of its name.  As proposed, this means that an existing corporation that becomes a benefit corporation will need to change its name.  Again, it is not clear whether this change can be made as part of a conversion application or whether a separate name change form will need to be filed.

Annual Report

The proposed legislation states that a benefit company will be required to publish an annual benefit report disclosing how it conducted its business in a responsible and sustainable manner and promoted the public benefits stated in its articles.  This requirement is consistent with existing benefit corporation legislation in the U.S. The report must also include an assessment of the company’s performance in carrying out its benefit purposes against a third-party standard. The report will need to advise on any circumstances that hindered its endeavours to carry out its benefit purposes.

Duty of Directors and Officers

Interestingly, the directors and officers of the proposed benefit company will have a duty to act honestly and in good faith with a view to the best interests of the public. This phrase is defined as the best interests of persons who may be materially affected by the company’s conduct and the promotion of the public benefits stated in its articles. The directors and officers will be expected to balance this new duty with those existing duties set out currently at s. 142 of the Act, which are:

  • to act honestly and in good faith with a view to the best interests of the company;
  • to exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances;
  • to act in accordance with the Act and its regulations; and
  • subject to the bullets listed above, to act in accordance with the memorandum and articles of the company.

Interestingly, a director or officer can be excused from liability under s. 142 if they act in the best interests of the public.  Specifically, Bill M 216 proposes that a director or officer who contravenes his or her duties set out at s. 142 of the Act by reason only that the director or officer acted in accordance with his/her duty to act honesty and in good faith with a view to the best interests of the public, the director or officer will be deemed not to have contravened s. 142. If this bill is left unamended, it will be interesting to see how this exemption will be reconciled with s. 142(3) of the Act, which states that a director or officer cannot be relieved from their obligation to act in accordance with the Act or its regulations.

Oppression Remedy

The proposed legislation does not change the ability of shareholders to bring complaints against a company on the basis that the company’s affairs were conducted, or the directors’ powers were exercised in a manner that is oppressive to the shareholders or that some act was done that unfairly prejudiced the shareholders. If the intention is to give primacy to the public benefit interests over the ordinary business interests of the corporation and its shareholders, the legislation should expressly direct a court that is considering a shareholder complaint to consider the public benefit. As Bill M 216 has not yet passed third reading, there may still be amendments to the proposed legislation.

Conclusion

It will be interesting to see where the benefit company model will go in B.C. The benefit company is somewhat similar to the existing B.C. C3, which is a hybrid corporate structure featuring both for-profit and a non-profit components. C3s are share capital companies operated for community purposes and have certain restrictions on their assets, including: (i) a limitation on the amount of profit that may be paid out annually to shareholders by way of dividend; and (ii) the type of entity to which a majority of its assets must be distributed on dissolution.

Although C3 legislation has been in effect since 2013, there are only approximately 60 registered C3s. Benefit companies may provide a more attractive alternative to C3s since the proposed legislation does not contain the same asset restrictions.

If you are interested in the B.C. benefit company structure and whether it may be appropriate for your organization once the legislation is enacted, our Social Impact lawyers would be happy to assist.

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