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Insights: British Columbia introduces a benefit company ― a new type of company under its Business Corporations Act

July 23, 2020

In brief

On June 30, 2020, British Columbia became the first jurisdiction in Canada to offer a benefit company, as an alternative to a traditional company, society or other legal entity. A benefit company is a for-profit company that: 

  • commits to conducting its business in a responsible and sustainable way, and
  • promotes one or more public benefits that have a positive effect for a group of people (other than the company’s shareholders), communities, organizations or the environment

A benefit company is different than a traditional company, because it will be accountable to both:

  • shareholders, by earning profits and increasing shareholder value, and
  • other stakeholders, by offering a public benefit to help society 

A benefit company clarifies that a company’s directors are accountable to the company, its shareholders and other stakeholders. As a result, directors will not be viewed as breaching their fiduciary duties to the company or its shareholders.  

This new type of company offers a choice for entrepreneurs to form businesses that earn profits, as well as helping their communities, enabling them to attract investors that share their public benefit goals.

In detail

Background

British Columbia Bill M 209, Business Corporations Amendment Act (No. 2), 2019 (the Amendment), which received royal assent on May 16, 2019, introduced a new type of company — a benefit company — into BC’s Business Corporations Act. The Amendment came into force on June 30, 2020 when British Columbia issued the required Order in Council. 

What is a public benefit company?

According to the terms of the Amendment, a public benefit company is a for-profit entity that is committed “to conducting its business in a responsible and sustainable manner and promoting one or more public benefits.”

A “public benefit” is defined as having “a positive effect, including of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature, for the benefit of (a) a class of persons, other than shareholders of the company in their capacity as shareholders, or a class of communities or organizations, or (b) the environment, including air, land, water, flora and fauna, and animal, fish and plant habitats.” 

A public benefit company must operate in a “responsible and sustainable manner,” which is defined as “a manner of conducting the business that (a) takes into account the well-being of persons affected by the operations of the benefit company, and (b) endeavours to use a fair and proportionate share of available environmental, social and economic resources and capacities.”

To ensure that a benefit company acts for the public benefit and in a responsible and sustainable manner, the Amendment requires a benefit company to:

  • state in its articles the company’s public benefit goals and that the “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”
  • publish an annual benefit report assessing the company’s performance in its promotion of its stated public benefits and compare its progress against an independent, third-party standard
  • make the report available at the company’s records office and on the company’s website, if it has one, and
  • require the company’s directors to balance the commitments in the benefit provision with their duty to act in the best interests of the company

A benefit company may be liable for an offence if it fails to comply with the benefit report provisions. A company may incorporate, convert, continue into British Columbia or amalgamate as a benefit company, and is required to adopt articles to reflect that it is a benefit company.

Why is the Amendment necessary?

Historically, English, American and Canadian common law viewed a company as a legal person formed for the primary purpose of profit. As a result, the conduct of corporate directors would be subject to judicial review on a standard which prioritized shareholders’ interests over the interests of all other stakeholders. The courts in the United States have adopted this type of interpretation and it is referred to as “shareholder supremacy.” 

A strict application of the shareholder supremacy doctrine would restrict a director’s ability to make discretionary decisions when faced with competing interests. As fiduciaries, any director may be liable to shareholders, if their decisions place the interests of other stakeholders above those of shareholders. 

In Canada, the application of the shareholder supremacy doctrine was challenged in the courts. In a pair of decisions1 from the Supreme Court of Canada (SCC), the SCC firmly established that the directors' fiduciary duty is owed to the corporation, and not any particular constituency. In its rulings, the SCC provided guidance for corporate directors faced with competing interests and choices. However, the SCC decisions left considerable uncertainty as to the priorities of stakeholders and their interests and how directors should reconcile these factors. 

The organizing principle established by the SCC in BCE Inc. v 1976 Debentureholders was recently written into the Canada Business Corporations Act. As of June 21, 2019, the directors of federal corporations are able to consider other stakeholder interests, including those of:

  • employees, retirees and pensioners
  • creditors, consumers and governments

The CBCA amendment expressly provides cover for corporate directors who exercise their powers in the interests of stakeholders other than shareholders. The BC Amendment similarly develops the SCC organizing principle, but takes a different approach from the CBCA, by creating an entirely new type of entity. This new entity’s constitution requires directors to act in the best interest of the public benefit designated in the company’s notice of articles.

The takeaway

BC joins jurisdictions in the United States that have also introduced benefit companies as an alternative to traditional companies. This allows entrepreneurs to start businesses that are accountable to both shareholders and other stakeholders enabling investors to consciously choose to invest in companies that share their values.

 

1. Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68, and BCE Inc. v.1976 Debentureholders, 2008 SCC 69

 

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Ron Kugan

Ron Kugan

Partner, PwC Law LLP

Tel: +1 416 687 8237

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