Benefit Corporation (B-Corp)
What is a Benefit Corporation?
Law no. 208 of 28 December 2015 (2016 Stability Law) introduced the figure of the “Benefit Companies” in our legal system.
They are defined as “those companies which, in the exercise of an economic activity, in addition to the purpose of dividing its profits, pursue one or more purposes of common benefit and operate in a responsible, sustainable and transparent way towards people, communities, territories and the environment, cultural and social goods and activities, cultural entities and activities, associations and other stakeholders” (according to Article 1, paragraph 376).
However, the Benefit Company remains a “for-profit” company that can carry out any economic activities and distribute profits – just like all for-profit companies currently provided for by our legislation – but at the same time achieve one or more beneficial purposes in favour of the community.
In addition to the activity aimed at obtaining a profit, these companies have the duty – expressly stated in the articles of association and bylaws – to pursue aims of “common benefit” by adopting a sustainable, responsible and transparent management towards third parties such as the environment, territories, communities, people, social and cultural assets and activities, associations and any other stakeholders.
It is therefore a “hybrid” form of business activity, which is abstractly halfway between those whose sole purpose is to make a profit and those whose sole purpose is to achieve a social benefit (such as the so-called third sector companies). In the case of benefit companies, the administrative body has the task of balancing the interests of the shareholders on the one hand and the pursuit of the common benefit purpose and the interests of the stakeholders on the other.
Why become or set up a Benefit Corporation in Italy?
The incorporation of a Benefit company or the transformation of an existing company into a Benefit company has numerous benefits for both the shareholders and the stakeholders which could be summarised as follows:
the guarantee of legal protection of the directors who pursue not only the profit motive of the company but also the purpose of common benefit as set out in the articles of association, thus balancing financial and non-financial interests;
the certainty for both shareholders and stakeholders that the company will continue to pursue over time the common-benefit objectives set out in its articles of association, while providing a constant update, in a transparent manner, of the methods adopted to pursue those objectives;
to make the company more attractive in terms of social impact investments, thus giving it access to private investment capital from consumers who are aware and knowledgeable about the activity actually pursued by the company;
advantages from the point of view of external reputation, as those who interact with the company can be sure that it operates in a responsible manner with the aim of pursuing its social objective;
ability to attract young talent;
the possibility of developing a network of other benefit companies with whom to share the values they pursue;
the possibility of being one of the few entities that have so far decided to venture into this new entrepreneurial reality, which also aims to restore value to society and the environment.
The “Decreto Rilancio” allocated a specific fund for Benefit Companies, which recognised a 50% tax credit for the establishment or transformation of Benefit Companies. Article 38-ter of the law that converted the “Decreto Rilancio” (Law no. 77 of 17 July 2020, Official Gazette no. 180 of 18 July 2020), entitled “Promotion of the system of Benefit Companies”, recognised a contribution in the form of a tax credit of 50% to reduce the incurred costs of setting up or transforming into a Benefit Company.
Lastly, mention must be made of the further intervention in favour of Benefit Corporations provided for by the tax decree – an amendment to art. 49 of DDL 2020 on ‘Urgent provisions on tax matters and for urgent needs’ – which provides that Benefit corporation and, in general, all companies that operate in a transparent and responsible manner may be awarded a bonus in public tenders.
With the approval of this amendment, all companies will be able to access the bonus in public tenders if they choose to assess their social and environmental impacts, even if they do not have the legal status of a Benefit Corporation.
How to establish a Benefit company?
A company can be set up as a benefit company at the time of its incorporation or, if it has already been set up as an ordinary company, it can become a benefit company by amending the company’s object and, therefore, the articles of association and memorandum of association adopted at the time of incorporation.
In the case of a benefit company to be set up from scratch, the contractual clauses that come into play are in particular those concerning the name, the corporate purpose, the duties and responsibilities of the directors and the annual report on the benefit activity.
Once the type of company which best corresponds to the structure desired by the founders has been identified, the first step is to define its object. In this regard, Article 1, paragraph 377 of the 2016 Stability Law, provides that the common-benefit purposes of a benefit company must be specifically indicated in the corporate’s object and are pursued through management aimed at balancing the interests of the shareholders and those on whom the company’s activities may have an impact.
The common benefit constantly referred to by the law and the ultimate aim of the business activity carried out by the Benefit company must be correctly stated in the corporate purpose, as it must concern one or more positive effects or the reduction of negative effects on one or more categories including people, territories, communities, the environment, cultural and social goods and activities, associations and other stakeholders generally referable to workers, suppliers, financiers, creditors, public administration and society.
The Benefit Company shall also add the words “Benefit Company” or “SB” to its name or business name, in order to allow it to avail itself of the qualification towards third parties.
How to transform an existing company into a Benefit company?
If an existing company intends to transform itself into a Benefit Company, the corporate structure must instead proceed with the modification of the deed of incorporation or the articles of association by means of a shareholders’ resolution to be held in the manner prescribed by law.
In this regard, it will not be sufficient to amend the company’s object in order to introduce the common benefit purposes that the company intends to pursue. It will also be necessary to make changes to the name as well as to set out in detail the duties and responsibilities of the directors in the context of the activity aimed at pursuing the common benefit.
All the aforementioned amendments must therefore be filed, registered and published in accordance with the provisions of the law for each type of company pursuant to Articles 2252, 2300 and 2436 of the Italian Civil Code.
The duties of the directors of the Benefit Company
One of the main aspects of a Benefit Company is certainly its management, which must be carried out in compliance with the rules of the type of company adopted, appropriately adapted to the provisions of paragraph 380 of Law no. 208/2015.
Paragraph 380 of Article 1 of the aforementioned law establishes that the administration of the benefit company must pursue objectives in addition to those attributable to the proper pursuit of statutory and legal obligations and coinciding with the balancing of the interest of the shareholders, the pursuit of common benefit purposes and the interests of the categories referred to in paragraph 376 (persons, communities, territories and the environment, cultural and social assets and activities, associations and other stakeholders).
Where it is not possible to pursue a profit and an external collective benefit at the same time, the administrative body shall decide which interest has to previal and which has to be sacrificed. Clearly, the benchmark for such management choices must be professional diligence, since they must act informed and make well-considered choices.
In the pursuit of the company’s object, in fact, the directors may also decide to derogate from the criteria of maximising profit, in order to achieve the additional purpose represented by the common benefit, without prejudice, of course, to their full autonomy and discretion in their management choices. The correct management of the company must be carried out in a responsible, sustainable and transparent manner towards people, communities, territories and the environment, cultural and social assets and activities, associations and other stakeholders, as well as shareholders.
In this regard, it should be noted that the common benefit is qualified by law as the pursuit, in the exercise of the economic activity of the Benefit company, of one or more positive effects or the reduction of negative effects on one or more of the above categories.
It follows that the directors must manage the Benefit company by pursuing a positive effect or reducing negative effects on the categories of subjects with respect to which the company’s activity may have an impact and at the same time pursue the typical economic activities.
Thus, in cases where the corporate purpose contemplates several activities of common benefit, it will be up to the directors to assess which are pursuable and which are expendable, or in any case to identify priorities in the actions to be undertaken.
The appointment of the responsible person
In this context, the benefit corporation has the burden of identifying the responsible person or persons to whom it entrusts functions and tasks in order to pursue the interest of the shareholders, the common benefit purposes as well as the interests of the categories indicated in paragraph 376 in accordance with the provisions of the articles of association.
The identification of the responsible person or persons to whom such tasks are to be entrusted shall be provided for and regulated in a specific clause of the memorandum or articles of association. If it is not already stated in the articles of association, it will be up to the administrative body to appoint the person responsible on each occasion.
The so-called “impact manager” is, in any event, the figure assigned responsibility for the process aimed at pursuing specific objectives consistent with the aims of common benefit and who, by way of example:
- ensures the involvement of all corporate functions in the implementation of the plan for the achievement of such aims as well as its improvement;
- supports the directors by providing information and data on the internal and external context in which the company operates;
- promotes the transparency of the results of the impact by ensuring its publication on the website and through appropriate channels.
However, the appointment of this figure cannot exempt the administrative body from the specific duties and responsibilities imposed by the rule in terms of management aimed at balancing the interests of shareholders and of those on whom the company’s activity may have an impact, the executive body therefore remaining responsible for supervision.
The law (in Article 1, paragraph 380 of the 2016 Stability Law) therefore provides that in the event of failure to manage the benefit company in such a way as to ensure the balancing of the interests of the shareholders, the pursuit of the purposes of common benefit and the interests of the categories referred to in paragraph 376 and set out in the memorandum of association, such circumstance may constitute a breach of the duties imposed on the directors by law and the articles of association.
In the event of a breach of such duties, the provisions of the Civil Code relating to each type of company concerning the liability of directors shall apply.
In this respect, company law provides in addition to corporate liability actions and creditor actions, for individual liability actions that may be brought by individual shareholders or third parties who have been “directly damaged by the negligent or intentional acts of the directors” (pursuant to Articles 2395 and 2476(6) of the Italian Civil Code).
The annual report on the pursuit of the common benefit
The Benefit company is required by law to give an annual account to the stakeholders of its ability to create value for the company, by publishing a special report which clearly represents the objectives, results and impacts of its action.
The annual report is prepared by the company’s administrative body, which, in drawing it up, has the task of providing a precise and accurate update on the pursuit of the “common benefit” that the individual Benefit Company pursues according to its corporate object. The report must be attached to the financial statements approved annually by the company and must include the following elements:
a description of the specific objectives, methods and actions implemented by the directors in pursuit of the common benefit purpose and any circumstances that have prevented or slowed it down;
an evaluation of the impact generated;
a section dedicated to the description of the new objectives that the company intends to pursue in the following financial year.
The report on the pursuit of common benefit, as prepared and approved by the administrative body, must be made available – like the financial statements – to the board of statutory auditors, if appointed. No provision is made for the report to be filed at the registered office of the company prior to the meeting to approve the financial statements, nor is any provision made for its approval at the shareholder’s meeting.
However, it seems desirable that the report be made available at the company’s registered office (before the date set for the shareholders’ meeting) like any other document (financial statements, directors’ report, etc.) in order to provide shareholders with the information necessary to protect their rights and to cast an informed vote at the meeting.
Finally, the rule specifies that this annual report must be published on the company’s website.
The annual report is therefore the main reporting tool available to the Benefit Company, and is linked both to the company’s expectation of achieving the reputational effects of fulfilling its “social mission”, and to the stakeholders’ assessment of whether the company has actually achieved the promised benefits.
In order to carry out a specific assessment of the impact generated by the Benefit company during the financial year and in terms of common benefit, the legislation also requires it to adopt an external assessment standard.
Benefit company’s evaluation tools
This external evaluation standard (which must be developed by a third party with respect to the company) has the objective of providing a report on the performance relating to the achievement of the benefits promised or declined within the corporate purpose and must have the following characteristics:
must be comprehensive and articulate in assessing the impact of the company and its actions in pursuing the common benefit purpose on people, communities, territories and the environment, cultural and social assets and activities, associations and other stakeholders;
it must be developed by an entity that is not controlled by or affiliated with the Benefit Company;
it must be credible because it is developed by an entity that:
has access to the necessary expertise to assess the social and environmental impact of a company’s activities as a whole;
uses a scientific and multi-disciplinary approach to develop the standard, possibly including a period of public consultation;
it shall be transparent because the information about it shall be made public, and in particular:
the criteria used to measure the social and environmental impact of a company’s activities as a whole;
the weightings used for the different criteria for measurement;
the identity of the directors and governing body of the entity that developed and manages the measurement standard;
the process by which changes and updates to the standard are made;
an account of the body’s income and sources of financial support to exclude possible conflicts of interest.
The legislation identifies the areas that must necessarily be included in the evaluation of common benefit activity and its impact and that must be reported on in the annual report. This assessment must thus include the following areas of analysis:
corporate governance, to assess the degree of transparency and accountability of the company in the pursuit of common benefit purposes, with particular attention to the purpose of the company to the level of involvement of stakeholders and the degree of transparency of the policies and practices adopted by the company;
workers, to assess relations with employees and collaborators in terms of remuneration and benefits, training and opportunities for personal growth, quality of the working environment, internal communication, flexibility and job security;
other stakeholders, to assess the company’s relations with its suppliers, with the territory and local communities in which it operates, voluntary actions, donations, cultural and social activities, and any action supporting local development and its supply chain;
environment, to assess the company’s impacts, with a life cycle perspective of products and services, in terms of resource use, energy, raw materials, production processes, logistics and distribution processes, use and consumption and end of life.
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