British Columbia Introduces Benefit Companies

July 09, 2020

Written By Jonathan McCullough, Dawn Gould and Martin Smith

On June 30, 2020, British Columbia became the first Canadian jurisdiction to allow for the establishment of "benefit companies" by introducing amendments to the Business Corporations Act (British Columbia).

What Is a Benefit Company?

A benefit company is a for-profit company that commits to (a) conducting its business in a "responsible and sustainable manner" and (b) promoting one or more "public benefits". Conducting business in a responsible and sustainable manner means taking into account the well-being of persons affected by the operations of the company and endeavouring to use a fair and proportionate share of available environmental, social and economic resources and capacities. A public benefit is defined in the Act as a positive effect (including of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature) for the benefit of the environment or a class of persons (other than shareholders of the company in their capacity as shareholders), communities or organizations.

Establishing a Benefit Company

A benefit company is formed under the incorporation rules set out in the Act applicable to all B.C. companies. However, the notice of articles of a benefit company must contain the following "benefit 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."

The articles of a benefit company must also include a "benefit provision" that specifies the public benefits to be promoted by the company and sets out its commitments to conduct its business in a responsible and sustainable manner and to promote such specified public benefits.

An existing B.C. company may convert to a benefit company by passing a special resolution of its shareholders altering its notice of articles and articles to include the required benefit statement and benefit provision. Conversely, a benefit company may cease to be a benefit company by altering its notice of articles and articles to delete the benefit statement and benefit provision. Shareholders (including non-voting shareholders) have dissent rights in respect of the special resolution to alter the company's notice of articles or articles to include or delete the benefit statement or benefit provision, and if the special resolution is approved, may be entitled to be paid the fair value of their shares.

Duties of Directors and Officers of Benefit Companies

The Act (and the corporate statutes in most other Canadian jurisdictions) currently provides that directors and officers of a company must "act honestly and in good faith with a view to the best interests of the company". Canadian courts, including the Supreme Court of Canada, have decided that for the most part the best interests of a company are paramount to those of any other stakeholder, including shareholders. So even when a company has committed itself to supporting social or environmental concerns, the role of the directors and officers is to put the interests of the company ahead of those concerns.

On the other hand, directors and officers of a benefit company also have a duty to "act honestly and in good faith with a view to (i) conducting the business of the company in a responsible and sustainable manner, and (ii) promoting the public benefits specified in the company's articles" (the "Benefit Duty"). Additionally, the directors and officers must balance the duty to act honestly and in good faith with a view to the best interests of the company with the Benefit Duty (the "Balancing Duty"). This is an important development in the law.¹ Only shareholders, in certain circumstances, may commence a legal proceeding against directors or officers of a benefit company in relation to the Benefit Duty or the Balancing Duty, and a court is prohibited from ordering monetary damages in such legal proceedings. The existing due diligence defence available to directors is available for matters related to the Benefit Duty and the Balancing Duty. We will look to courts in the future to help clarify the interpretation and application of the Benefit Duty and the Balancing Duty, as well as the recourse available to shareholders for an alleged breach of such duties.

Annual Reporting Obligations

In addition to complying with its benefit provisions, a benefit company must publish an annual "benefit report" by putting a copy of the benefit report, as approved by the directors, before the shareholders at the company's annual general meeting and maintaining a copy in the company's records office. The company must also post the benefit report on its publicly accessible website, if any. As with many corporate records, a benefit report is available for inspection by any person.

Details on the preparation and content of a benefit report are set out in section 51.994 of the Act. In brief, the company has to select a third-party standard for defining, reporting and assessing the performance of a benefit company in relation to the commitments set out in its benefit provisions and perform a self-assessment against that third-party standard. The benefit report must set out the results of the assessment along with (a) descriptions of the company's conduct in complying with its obligations under the benefits provisions; (b) descriptions of any hindrances encountered by the company in performing such obligations; and (c) certain information about the third-party standard. 

Note on "Certified B Corps"

Several U.S. states have laws like B.C. that allow for various forms of benefit or public benefit companies where performance of the benefit is legally part of the corporate mandate.

There are also companies that call themselves "Certified B Corporations", which have typically been certified by the not-for-profit "B Lab" after completing an assessment. One of the steps for obtaining certification is meeting what B Lab calls the "legal requirement". In jurisdictions where benefit companies do not exist, B Lab requires companies to add provisions to their constating documents allowing the company to act in a way that considers its impact on society and the environment and protects the directors and officers from liability arising from those considerations. It is questionable, under Canadian law, whether the inclusion of these provisions in the constating documents of a company that is not a benefit company would allow the directors and officers of the company to pursue activities that, while socially important, might negatively impact the company's financial interests. The amendments to the Act allowing for benefit companies solves this problem in British Columbia.

There is evidence to suggest that investors are increasingly interested in finding sustainable and responsible means of investment and it is possible that benefit companies have a role in serving that interest. It will be interesting to see how popular benefit companies become in British Columbia and whether other Canadian jurisdictions will follow suit in creating them, as a majority of the U.S. states have done.

Bennett Jones would be pleased to assist with any questions relating to the creation or structure of a B.C. Benefit company and determining if it may be suitable for your business.

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