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Maryland Passes 'Benefit Corp.' Law for Social Entrepreneurs

Maryland today became the first state to legally create a new corporate form known as a “benefit corporation” that will let social entrepreneurs codify their missions in their corporate charters.

The law is modeled on proposals by B-Lab, a Berwyn, Pa.-nonprofit that certifies socially responsible companies. The law lets entrepreneurs commit their for-profit ventures to a specific public good, and requires them to report on contributions to that goal and submit to auditing of their impact. Having official “benefit corporation” status allows entrepreneurs to consider stakeholders like employees, communities, or the environment in business decisions. Under existing corporate law, company directors can face lawsuits if considering outside stakeholders is seen to damage the financial interest of shareholders.

We wrote nearly a year ago on the difficulty social entrepreneurs have fitting their hybrid missions of making money and doing good into existing corporate forms. The tangled arrangements they get into (nonprofits controlling for-profits, etc.) can be costly to set up and limit their ability to raise money from outside investors. Adopting the “benefit corporation” form signals that our economic institutions — in this case the laws that govern corporations — are catching up with the growing interest in the social enterprise sector. (This was one of two big ideas on my radar this year.) “If you care about accelerating the development of this emerging marketplace, the first step is providing the legal infrastructure,” Jay Coen Gilbert, one of the co-founders of B-Lab, told me last week.

He says the new legal designation could unlock new capital for social ventures from investors who want to park their money in mission-driven companies. “I think it’s becoming increasingly not only acceptable but sought after by mainstream investors,” Gilbert says.

Maryland Gov. Martin O’Malley, a Democrat, signed the bill today, along with other bills at the end of Maryland’s legislative session. The bill, sponsored by Democratic state Sen. Jamie Raskin, passed Maryland’s Senate unanimously and passed the House by a vote of 135-5.

A similar proposal is pending in Vermont. California lawmakers are considering related legislation to allow “flexible purpose corporations” that would let companies protect their social missions, without the affirmative requirements that the “benefit corporation” law puts in place.

(read online version)

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