Converting To A B Corp

If you have an existing company, you can elect to become a benefit corporation by amending your governing documents. In most states, amendment requires a 66% super-majority vote of all shareholders. This high threshold of approval is an important element of the B Corp structure.

Converting from a traditional corporation or LLC to a B Corp changes the goals of the company and thereby alters the relationship between the shareholders and the social entrepreneur. Under a B Corp, the mandate of the company shifts from a narrow focus on pure profit maximization to a broader focus of creating a positive impact on people and planet while still making a profit.

At times the pursuit of a social / environmental impact can have a negative impact on profitability, which can create tension between the shareholder and social entrepreneur. Under a traditional corporation, the investor has the right to sue the entrepreneur if her decisions to create a social / environmental impact has a negative financial impact.

The B Corp protects the social entrepreneurs from any legal liability derived for choosing purpose over profit. In fact the legal duty flips from a mandate to maximize profit to a mandate to create a general public benefit by operating their business in a socially and environmentally conscious manner.

Thus, the relationship between the shareholders and entrepreneur is fundamentally changed, because the legal right of action has shifted. Instead of having a right of action if the social entrepreneur failed to maximize shareholder value, the shareholder now has a right of action to sue the social entrepreneur if she fails to operate the business in for the general public benefit.

Given this fundamental shift in the nature of the relationship between the shareholder and the social entrepreneur, the drafters of the B Corp legislation wanted to ensure that there was a high level of enthusiasm on the part of the shareholders, not just a slim majority. So, the conversion must be approved by a vote of at least 66% of each class or series entitled to vote at least 66%.

In the same spirit, converting from a B Corp to another legal structure is also a fundamental shift in the relationship between the shareholder and the social entrepreneur, so there is also a 66% vote required to convert out of a B Corp.

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