Maryland creates a new class of corporation

Maryland recently became the first U.S. state to pass legislation creating a new class of corporations that must generate both profit and social benefits. The new entities, called Benefit Corporations, must also prove they’ve achieved both.

According to the new law, Benefit Corporations are required to generate material positive impacts; consider employees, the environment and the community in decision-making; and submit verified reports on their social and environmental performance. Benefit Corporation status is open to new and established companies, which must get a two-thirds majority vote from shareholders to switch.

Being a Benefit Corporation will ensure that a company’s growth is aligned with its social or environmental mission by holding directors accountable to adhering to the company’s stated goals, says Andrew Kassoy, co-founder of Pennsylvania-based nonprofit B Lab, which helped draft the initial legislation.

Additionally, the law could drive capital towards social ventures by helping investors identify companies in which they want to invest and push policymakers to create incentives for businesses to solve social problems, Kassoy says. 

The law requires Benefit Corporations to publish annual reports that comply with recognized third-party standards. For now those could include the Global Reporting Initiative or B Lab's own B Impact Assessment, but it will likely create a market for additional verifications, Kassoy says.

Meanwhile, the idea is taking root in other states, as well. About 10 states, including California, Oregon, Washington and Colorado, are considering similar legislation.