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New York Authorizes the Incorporation of Benefit Corporations

On December 12, Governor Cuomo signed legislation which will create a new class of corporations in New York whose purpose is to create a benefit for not just shareholders, but the community at large. These newly incorporated “benefit corporations” would have a "general public benefit" purpose, which is defined as a material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits. By removing the legal impediments that may prevent directors or shareholders from pursuing a business model which results in social benefits, the new law will allow businesses to adopt higher standards of corporate purpose, accountability and transparency.

After being asked by the bill’s sponsors to review the bill, the Committee on Corporation Law provided comments on the legislation, supporting the goal of creating benefit corporations but offering some suggestions on how to enhance and clarify the statute. A number of the Committee’s comments were incorporated in the legislation; however, other comments were identified by Governor Cuomo as important issues to address. In his approval memo, the Governor wrote that his signing the measure was contingent on the sponsor’s assurance that subsequent legislation would be introduced to deal with the issues identified. The City Bar will continue to monitor this legislation and looks forward to seeing corporations take advantage of this new opportunity to expand their social impact.

December 21, 2011