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SOCIAL ENTERPRISE LAW UPDATE AND MAP

For those keeping count: Currently, twenty-two states plus D.C. authorize benefit corporations. Four more benefit corporation states are scheduled to come online by January 1, 2015. In addition, four states authorize flexible/social purpose corporations, and eight states authorize low-profit limited liability companies. Thus, since January 1, 2014, the number of benefit corporation states has increased by seven while the number of flexible/social purpose corporation states has increased by one. There has been no increase in low-profit limited liability company states. In the aggregate, the US now has 31 states with some form of social enterprise legislation on the books. (But for North Carolina’s 2014 repeal of L3C legislation, there would be 32 states with social enterprise legislation on the books.)

For ease of reference, I have listed below each state that has passed social enterprise legislation thus far this year, and in each case I have included a hyperlink to brief but helpful commentary. Moreover, I highlight below certain unique aspects of each state’s new law. [Professor Haskell Murray’s chart provides much more detail in this regard as does a legislative status map and chart prepared by Smith Moore Leatherwood.]

Connecticut

As previously reported on SocEntLaw, Connecticut’s benefit corporation legislation contains a unique “legacy-preservation provision” that is similar to the “asset lock” required for UK community interest companies. Invoking Connecticut’s legacy-preservation provision theoretically assures that a Connecticut benefit corporation’s assets are forever dedicated to charitable purposes or to other benefit corporations with similar “legacy-preservation provisions.” Connecticut’s benefit corporation statute is not effective until October 1, 2014.

Florida

Florida adopted both benefit corporation and a social purpose corporation statutes effective July 1, 2014. Thus, Florida becomes the fourth state with a flexible/social purpose corporation statute.

Minnesota

Minnesota joins Delaware and Colorado as one of the states that requires a special designation in the name of a general benefit corporation or a specific benefit corporation. Minnesota’s special designations are as follows: “GBC” or “SBC.” So, along with Delaware and Colorado “PBCs,” we now will have “GBCs,” “SBCs,” and “PBCs” in the social enterprise world. Minnesota’s statute becomes effective January 1, 2015.

Nebraska

The Nebraska benefit corporation statute follows very closely the B-Lab model legislation and took effect on April 2, 2014.

New Hampshire

A New Hampshire benefit corporation may be administratively dissolved if it neglects to file is required annual benefit report. The New Hampshire statute becomes effective January 1, 2015.

Utah

Utah’s benefit corporation statute also follows closely the B-Lab model legislation and is effective immediately. Moreover, the Utah Department of Commerce has created a very user-friendly guide to forming benefit corporations in Utah.

West Virginia

Effective July 1, 2014, West Virginia’s benefit corporation statute generally follows the B-Lab model legislation, but among other things relaxes the “independence” tests for adopting third-party standards and does not require the annual benefit report to disclose director compensation.

 

Finally, I have updated and posted to SSRN my social enterprise entity comparison chart listing all states with any form of social enterprise legislation (including citations to the relevant statutes).

Stay tuned: It will be interesting to see where the US stands as of the end of 2014 with regard to social enterprise legislation.

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