British Columbia has introduced a new type of corporation in 2020, called a "benefit company". The British Columbia Business Corporations Act (BCBCA) already provides a number of choices when it comes to the type of corporate entities available, those being: a basic corporation (which in BC is called a "company"), an unlimited liability company (ULC), a community contribution company, and now a benefit company.
Gowling WLG Focus
While British Columbia has now formalized benefit companies as a distinct type of corporate entity, there is no compelling legal reason or need for them in Canada, as the common law in Canada already allowed directors to take various interests into account in making corporate decisions. Whether benefit companies are something wanted by the marketplace and will be attractive to investors remains to be seen.
Benefit Company Requirements
A benefit company differs from a standard BC company in three ways:
(1) A company is a "benefit company" if its notice of articles contains the following statement:
"This company is a benefit company and, as such, is committed to conducting its business in a responsible and sustainable manner and promoting one or more public benefits ."[1]
Both "responsible and sustainable manner" and "public benefit" are defined in the BCBCA. "Public benefit" is defined as a positive effect, including of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature, for the benefit of a class of persons, other than shareholders of the company, or a class of communities or organizations, or the environment. "Responsible and sustainable manner" is defined as a manner of conducting the business that takes into account the well-being of persons affected by the operations of the benefit company, and endeavours to use a fair and proportionate share of available environmental, social and economic resources and capacities.[2]
(2) A benefit company must include in its articles:
(a) a provision that specifies the public benefits to be promoted by it; and
(b) a commitment to conduct the benefit company's business in a responsible and sustainable manner and to promote the public benefits that are to be promoted by it.[3]
(3) A benefit company is required to annually publish a benefit report. To prepare the benefit report, each year the directors must select a third party standard, and assess against that standard the company's performance in carrying out the commitments in its benefit provision in its most recently completed financial year.[4]
The benefit report must disclose, among other things:
(a) a fair and accurate description of the ways the benefit company demonstrated commitment to conducting its business in a responsible and sustainable manner and to promoting the public benefits specified in its articles;
(b) a record of the assessment carried out against the selected third party standard and the results of that assessment; and
(c) the circumstances, if any, that hindered the benefit company from carrying out the commitments in its benefit provision.[5]
The benefit report must be approved by the directors, signed by at least one director evidencing that approval and posted on the company's website if it has one.
The BCBCA also provides guidance on how to transform a standard BC company into a benefit company and vice versa.
Benefit Companies and Statutory Duties
"Benefit corporations" have become more popular in the United States over the past few years, and this may be due to US case law that requires directors to maximize shareholder value above other interests. To counter that, benefit corporations legislation in the US allows the directors of benefit corporations to take public benefits into consideration in making business decisions. Taking public benefits into consideration in making corporate decisions is less of a change in Canada than in the United States, because the evolution of the case law in Canada allows companies to take various interests, such as those of employees, consumers, creditors and the environment, into account in making decisions. Although already part of Canadian common law, this concept was expressly enacted in section 122 of the Canada Business Corporations Act. The difference for a British Columbia benefit company is that the standard permitted under the common law would be a required standard in relation to the company's chosen public benefit.
Directors and officers of all BC companies must act honestly and in good faith with a view to the best interests of the company.[6] To satisfy the requirement that a benefit company's public benefit be considered in decision making, directors and officers of benefit companies are also required to act honestly and in good faith with a view to conducting the business in a responsible and sustainable manner, and to promoting the public benefits specified in the company's articles.[7] In meeting this additional duty a director or officer does not contravene the general duty under section 142(1)(a) of the BCBCA.[8]
To protect directors and officers of benefit companies in the exercise of their statutory duty, the BCBCA contains provisions shielding them from a claim for breach of that duty by the public generally, and only allowing a claim against directors or officers for breach of that duty by shareholders meeting certain ownership thresholds.[9] In terms of damages for those types of claims, only non-monetary remedies are available.[10]
[1] BCBCA Section 51.992 (emphasis added).
[2] BCBCA Section 51.991.
[3] BCBCA Section 51.993.
[4] BCBCA Section 51.994.
[5] BCBCA Section 51.994(3).
[6] BCBCA Section 142(1)(a).
[7] BCBCA Section 51.993(1).
[8] BCBCA Section 51.993(3).
[9] BCBCA Sections 51.993(2) and (4). A legal proceeding may be commenced only by shareholders of the benefit company and only if: (a) in the case of a public company, the proceeding is commenced by shareholders holding, in the aggregate, at least the lesser of 2% of the issued shares of the company and issued shares of the company with a fair market value of at least $2,000,000; and (b) in any other case, the proceeding is commenced by shareholders holding, in the aggregate, at least 2% of the issued shares of the company.
[10] BCBCA Section 51.993(5).