What Is the Status of Benefit Corporation Legislation in Texas?
Benefits corporations are a relatively new type of business entity in the United States. As of today, 16 U.S. states have passed legislation allowing benefit corporations to be formed in those states. Texas and 11 other states are working through the details of passing similar legislation.
A benefit corporation is a for-profit corporation, but unlike traditional corporations, a benefit corporation's directors are free to engage in business activities that promote common good without fear of lawsuits from shareholders. Directors of traditional corporations businesses are legally obligated to maximize economic returns for shareholders. So, if a greener business model could be implemented in a traditional corporation, but doing so would cut into profits, business directors are exposed to liability for failing to maximize profits.
Benefit corporations, on the other hand, can legally operate in a manner that has a positive impact on both the environment and society while still making a profit. Some other distinctions of benefit corporations include:
- The corporation's stated purpose includes having a material positive impact on society and the environment
- The duties of directors are expanded to require consideration of nonfinancial stakeholders as well as the financial interests of shareholders
- Benefit corporations are obligated to report their overall social and environmental performance using a comprehensive, credible, independent, and transparent third-party standard
Proponents of benefit corporations believe the designation will help consumers distinguish between businesses that falsely claim to be environmentally conscious and those who actually practice what they preach.
Legislation to allow benefit corporations in Texas was introduced in the state legislature in March 2013, but was withdrawn from the schedule earlier this month. We will keep an eye on any action in the state legislature regarding the proposed benefit corporation act and let you know what happens next
If you need help starting or managing your business, contact an experienced Bryan-College Station, Texas business law attorney. Our attorneys provide assistance and answer your business formation and management questions, including employee and compliance issues. Call the Peterson Law Group to make an appointment at 979-703-7014 or fill out our online contact form.