Push for Benefit Corporation Law
9 March 2016 at 9:02 am
Changes to Australia’s Corporations Act are being drafted to create “benefit corporations” – a new form of for-profit for-purpose business – that will be put to government later this year.
Last year B Lab, the Not for Profit that oversees B Corp certification, created a working group to shake up current corporate law and develop of a set of draft amendments to the Corporations Act 2001 to be used as the basis for advocating for legislative reform in 2016.
Chair of B Lab Australia, Mele-Ane Havea, said benefit corporations have a dual purpose – to make a profit and to achieve public benefit.
“This legislation is important because of changes that I believe we need to make to the economy so that it’s more inclusive and more humane,” Havea said.
“In a diverse economy you need to have a diverse selection of legal structures and this is one of those legal structures that will help to allow different people to organise in different ways.
“There’s a current culture of maximising shareholder profit above all else, and there’s a growing interest in both consumers and directors and companies to take into account other interests, so stakeholder interests, and this company form is for organisations and people that wish to do that.”
Although B Lab has been at the forefront of the push for change, B Corp status is voluntary and should not be confused with benefit corporations.
She said the difference between benefit corporations and other socially good businesses, like B Corps, was that the former is legally bound to adhere to its constitution, which outlines its social purpose.
“It’s often likened to having a company’s mission or purpose embedded into its DNA from the outset, the company form is something which is more difficult to change than a certification for example,” she said
“A company can be certified, and then in two years time can chose not to be certified. Whereas a company’s constitution, that type is much more difficult to change, and similarly if there’s regulation that’s also an added factor that helps to embed the mission in the company.”
Benefit corporation policy would also protect companies from shareholder influence.
“It allows directors to make decisions that are in the best interest of stakeholders and not be concerned about potential negative ramifications as a result, so not being held liable by shareholders for not maximising profits,” Havea said.
“It provides an alternative way of doing business. So it’s kind of protection for directors.”
First introduced in the US in 2008, benefit corporation legislation has since been enacted in 31 states.
Havea said that there was a “really large” uptake in the US, with more than 2,000 benefit corporations registered in the first year – around three times the number of B Corps in the same period.
She said that although the legislation was still in the early phases there was already a lot of interest in the policy.
“There’s a lot of interest in innovative ways to solve social problems, so there has been initial interest in the idea, but obviously not in the legislation itself because that hasn’t been finalised yet,” she said.
“[The working group] has been investigating what an appropriate policy change or legislative change might be, and we’re still in the very early stages of drafting that.
“We’ve received pro bono support from Clayton Utz to put the first draft of the legislation and an explanatory memorandum about the legislation together.
“We’ll then take it out to stakeholders, interested parties around the country in order to get feedback and comments on the legislation in order to then eventually finalise it and then try to get it passed.”
B Lab recently held a benefit corporation information session in Melbourne. The Not for Profit will also be running one in Sydney on 14 March 2016. Find out more here.
Lawyer and member of the B Lab Australia Policy Working Group, Sam Morrissy, explains the legislation in-depth in this article.