MBE Rules · Business Associations
Benefit Corporations
Cal. Corp. Code § 14600
The rule
Benefit corporations must pursue a general public benefit alongside profit, judged by a third-party standard; directors must consider stakeholder impacts, and only shareholders (not the public) can enforce via benefit-enforcement proceedings.
In plain English
Benefit corporations are a type of business entity that aims to generate profit while also creating a positive impact on society and the environment. They are required to assess their performance against a third-party standard and must consider the interests of various stakeholders, not just shareholders, in their decision-making.
Worked example
A benefit corporation, EcoGoods, decides to implement a new recycling program that will reduce profits in the short term but significantly benefit the community and environment. The directors evaluate the program using a third-party standard and determine that it aligns with their mission to provide a general public benefit. As a result, EcoGoods moves forward with the program, fulfilling its obligations as a benefit corporation.
Memory hook
Profit with purpose: benefit corporations balance the bottom line and the greater good.
The trap
Exams may present scenarios where students confuse the enforcement rights of shareholders with those of the general public, leading to incorrect conclusions about who can bring benefit-enforcement proceedings.
How examiners test it
Questions often involve fact patterns that test the candidate's understanding of the dual purpose of benefit corporations, focusing on stakeholder considerations and the enforcement mechanisms available to shareholders.
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