California businesses seek new ‘benefit corporation’ status

A dozen companies that try to do business in a socially and environmentally conscious way have filed papers with the state to become California’s first “benefit corporations.”

Chief executives, led by Yvon Chouinard, the founder of Patagonia, a 56-year-old seller of outdoor apparel and equipment based in Ventura County, marched into the secretary of state’s office shortly after it opened Tuesday morning.

It was the first business day after a new state law took effect Jan. 1, giving companies an option besides the traditional corporation or nonprofit organization to legally organize themselves.

The new category allows corporations to officially adopt policies “that create a material positive impact on society and the environment” as part of their legal charter. It also redefines the fiduciary duty of executives and board members to look out for the interests of workers, the community and the environment in addition to meeting their duty to make a profit for shareholders.


The law provides corporate officers with a legal “safe haven” from being successfully sued by shareholders who contend that company’s environmental or social policies diluted the value of their stock.

California corporate law historically mandated that the interests of shareholders be paramount to those of all other parties in all circumstances.

“Patagonia is trying to build a company that could last 100 years,” Chouinard said. “Benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises and even changes in ownership.

Last year, the California Legislature passed a benefit corporation law, AB 361 by Assemblyman Jared Huffman (D-San Rafael). The legislation requires the approval of two-thirds of a corporation’s stockholders before it can convert to the new status. A similar vote is needed to return to being a traditional corporation.

California is the seventh state in the nation to give companies the option of becoming benefit corporations. Vermont and Maryland approved similar laws in 2010, followed by New York, New Jersey, Virginia and Hawaii last year.


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