March 15, 2017

Becoming a Kentucky-Based Benefit Corp

Written By

Thomas E. Rutledge
Member, Stoll Keenon Ogden PLLC

Both houses of the Kentucky General Assembly have approved draft legislation that will expressly permit the organization of a “public benefit corporation” (aka a B Corp) in Kentucky.

If you are not familiar with B Corps, it is a relatively new organizational format pursuant to which the shareholders of a for-profit corporation (benefit corporations are not nonprofit charities) agree that the corporation may devote some portion of its assets and energies to a “public benefit purpose.” When, in turn, the board of directors expends company assets in that manner, the board cannot be charged with having violated its duties, including any obligation to maximize shareholder value.

The proposed legislation, being a series of amendments to the existing Business Corporation Act, will allow a corporation to elect benefit corporation status, and define the “public benefit purpose” of the corporation. If this election is made by an existing corporation, it will require approval by both the Board of Directors and the shareholders of the necessary amendment to the articles of incorporation.

In addition, those amendments will be effective only if they receive the approval of at least 90 percent of the existing shareholders. Any shareholders voting against the election to benefit corporation status may exercise dissenter rights. There also are special threshold requirements in the event the company wants to cease being a benefit corporation or if it seeks to change its public benefit purpose.

This legislation has passed both the House the Senate and awaits the Governor’s signature. Assuming the Governor’s signature, the legislation will be effective sometime this summer.

Benefit corporations are not new to other states. Some examples of well-known B Corps organized in other states include:

Again, it is important to emphasize that a benefit corporation is not a non-profit/charitable organization. Rather, it is for for-profit venture that has elected to operate itself in accordance with its public benefit purposes with the understanding that the successful execution of such public benefit purposes can increase the company’s bottom line. Whether the company may receive a charitable deduction for any activities that it may undertake is determined under the Internal Revenue Code.

The B Corp, in defining its public benefit purpose and how it will discharge same, has great flexibility in determining whether or not to tie such purpose to its primary business mission. For example, Namaste Solar, a Colorado company involved in the solar energy field, offers grants for solar system installation to schools and other nonprofits. On the other hand, Dancing Deer Baking Company, a Massachusetts B Corp in the food industry, provides scholarships to homeless mothers.

© 2017 Mary C. Garris and Thomas E. Rutledge

Written By