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New York Authorizes the Incorporation of Benefit Corporations

On December 12, Governor Cuomo signed legislation (http://open.nysenate.gov/legislation/api/1.0/html/bill/S79-2011) 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. The legislation lists such "general public benefits" as providing low-income or underserved communities with beneficial products or services, preserving the environment, improving human health and increasing the flow of capital to entities with a public benefit, to name a few. 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 Corporation Law Committee provided comments (http://www2.nycbar.org/pdf/report/uploads/20072133-ReportonS.79-Awhichwouldauthorizetheincorporationofbenefitcorporations.pdf) on the legislation, supporting the goal of creating benefit corporations, but offering some suggestions on how to enhance and clarify the statute. While many of the Committee’s comments were reflected in the final bill text, some additional modifications should be made to the statute to ensure it best serves its intended goal. This fact was recognized by the Governor, who wrote in his approval memo for the bill that his signature enacting the legislation 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.