Ohio governor signs bill spearheaded by Senator Dolan, allowing "Benefit Corporations"
On Friday, December 18, Governor DeWine signed Senate Bill 21 (SB 21) into law to allow for-profit corporations to be classified as “benefit corporations.” SB 21 amends Ohio Corporation law, set forth in Revised Code 1701, to allow corporations and directors the flexibility to pursue beneficial activities in any area, such as arts, education, technology, ESG, and others. This is a change from general corporate law which creates fiduciary duties and potential liability to corporations and directors for pursuing missions that are not single-handedly aligned with corporate profits.
Senator Matt Dolan spearheaded SB 21 to bring this opportunity to Ohio businesses. Senator Dolan has championed this initiative because he believes, “The benefit corporation model is important because of the outside investors who may limit their investments to benefit corporations only. I don’t want Ohio to miss out on these funds and potential economic growth.”
What is a Benefit Corporation?
A “benefit corporation” is a for-profit corporation filed at the state level, which is authorized to pursue beneficial purposes in addition to the standard legal purposes for which for-profit corporations may be formed. This state-level designation allows for-profit entities to pursue beneficial purposes which traditionally have been seen as non-profit purposes. While benefit corporations do not provide special tax treatment like non-profits, this type of entity has the opportunity to pursue purposeful profits while achieving other desirable results. Ownership and management considerations may suggest that social entrepreneurs should look closely at the benefits of forming a benefit corporation instead of a traditional nonprofit.
Benefit corporations allow business owners and directors to embrace the concept of “do well and do good.” Research has also shown that benefit corporations allow companies to demonstrate authenticity through purpose which enhances consumer loyalty to brands with a social purpose. Further, there is a growing social movement and “brand recognition” for benefit corporations as indicated in The growing social movement supporting benefit corporations and Certified B corps is here to stay.
What does this mean for Ohio entities?
Ohio is joining 38 states including the District of Columbia, by allowing state-level benefit corporations. SB 21 will become law on March 18, 2021. This means that, as of such date, current entities may elect to convert to become a benefit corporation and new entities may form specifically for this purpose. Ohio’s legislation is more desirable than benefit corporation statutes in several other states due to the flexibility it provides. While some states require annual public benefit reports that are prepared against third-party standards to describe what the corporation has accomplished with respect to its mission, SB 21 allows shareholders the flexibility to determine what, if any, public reporting will be required. Some companies may not want to provide public reporting of their beneficial purpose and mission, while others may elect to provide this public reporting to attract new investors or for other reasons.
As a type of Ohio corporation, benefit corporations will be required to comply with corporate formalities required of other corporations. This means that benefit corporations will be required to produce annual financial statements for shareholders and shareholders will be entitled to examine the books and records of the corporation.
McDonald Hopkins LLC can assist you in determining if the benefit corporation model is right for your organization, and assist you with preparing for and forming your benefit corporation in Ohio. If you have any questions regarding the contents of this post, please feel free to reach out to Amy Wojnarwsky, Teresa Metcalf Beasley, or Michael Wise whose contact information is listed below.