Benefit Company Amendments to the BC Business Corporations Act

Benefit Company Amendments to the BC Business Corporations Act

On June 30, 2020 amendments to the British Columbia Business Corporations Act (“BCBCA”) will come into force. As a result, businesses in British Columbia will have the option of becoming a “benefit company”.

The existing rules under the BCBCA will apply to benefit companies. However, benefit companies, their directors and officers will also have to comply with specific requirements, as more particularly described below.

What is a benefit company?

A benefit company is a for-profit company that is committed to conducting its business in a responsible and sustainable manner. This means that the business will be conducted in a manner that:

  1. takes into account the well-being of persons affected by the operations of the benefit company; and
  2. endeavours to use a fair and proportionate share of available environmental, social and economic resources and capacities.

The company must also be committed to promoting one or more “public benefits” for the benefit of:

  1. a class of persons, other than the shareholders of the company, a class communities or organizations; or
  2. the environment, including air, land, water, flora, fauna, and animal, fish and plant habitats.

Public benefits are defined as positive effects, including those of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.

Incorporating a benefit company

An Incorporation Application and notice of articles must be filed with the Registrar of Companies to incorporate a company under the BCBCA.  To operate as a benefit company, the notice of articles must contain the following 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 “Benefit Statement”).

The articles of the Company set out the rules and regulations for the conduct of a company. To operate as a benefit company, the articles must include a “Benefit Provision” that:

  1. specifies the public benefits to be promoted by the benefit company; and
  2. sets out commitments to:
    1. to conduct the benefit company’s business in a responsible and sustainable manner; and
    2. to promote the public benefits specified in the Articles

Note that a company incorporated under the BCBCA may become a benefit company provided that the shareholders authorize by a special resolution:

  1. an alteration of the notice of articles to include the Benefit Statement; and
  2. an alteration of the articles to include a Benefit Provision.

A benefit company may cease to be a benefit company by altering the notice of articles to remove the benefit statement provided that the shareholders authorize the alteration by special resolution.

Directors and officers

The directors and officers of a benefit company must act honestly and in good faith with a view to:

  1. conducting the business in a responsible and sustainable manner; and
  2. promoting the public benefits specified in the company’s articles.

The directors and officers must balance this duty with their duty to act honestly and in good faith with a view to the best interests of the company.

A director or officer will not contravene their duty to duty to act honestly and in good faith with a view to the best interests of the company due only to acting in accordance with their duties as directors and officers of a benefit company.

The directors and officers of a benefit company have no duty to:

  1. a person whose well-being may be affected by the company’s conduct; or
  2. a person who has an interest in a public benefit specified in the company’s articles.

Persons whose well-being may be affected by the company’s conduct or who have an interest in a public benefit specified in the company’s articles may not bring a legal proceeding against a director or officer of a benefit company in relation to their duties as directors and officers of a benefit company.

The shareholders of the benefit company may commence a legal proceeding in relation to the duties of directors and officers of a benefit company provided that:

  1. in the case of a public company, the proceeding is commenced by shareholders holding, in the aggregate, at least the lesser of:
    1. 2% of the issued shares of the company; and
    2. issued shares of the company with a fair market value of at least $2,000,000; and
  2. in any other case, the proceeding is commenced by shareholders holding, in the aggregate, at least 2% of the issued shares of the company.

A court cannot order monetary damages in relation to any breach of the duties of directors and officers of a benefit company.

Selection of a third-party standard

The directors of the benefit company must, for the purposes of preparing a benefit report, annually select a third-party standard developed by a “third-party standard-setting body” in accordance with the regulations (if any) for defining, reporting and assessing:

  1. the overall performance of a benefit company in relation to its conducting business in a responsible and sustainable manner; and
  2. the performance of the benefit company in relation to the public benefits specified in that benefit company’s articles.

The third-party standard-setting body must be a person or entity that is not related to the benefit company and that makes public the following information:

  1. the name of each member of the third-party standard-setting body’s governing body;
  2. the selection process for membership in that governing body;
  3. the name of each person who:
    1. if the third-party standard-setting body is a corporation, controls the standard-setting body; or
    2. if the third-party standard-setting body is not a corporation, controls the operations of the standard-setting body;
  4. a description of the sources of the third-party standard-setting body’s funding in sufficient detail to disclose any relationship that could reasonably be considered to compromise the standard-setting body’s independence from the benefit company; and
  5. a description of the process used to develop a third-party standard, including the criteria against which the benefit company’s performance is to be measured and the relative weight of those criteria.

A third-party standard-setting body is considered related to a benefit company if:

  1. it is an affiliate of the benefit company;
  2. a director, officer or shareholder, or an associate of a director, officer or shareholder of the benefit company or of an affiliate of the benefit company is a member of the governing body of or otherwise controls the third-party standard-setting body; or
  3. a person who beneficially owns shares of the benefit company, or an associate of such a person, is a member of the governing body of or otherwise controls the third-party standard-setting body.

Benefit Report

On or before each annual reference date for the company, the director of a benefit company must produce and publish a report (the “Benefit Report”) that discloses prescribed information in relation to the company’s most recently completed financial year.

The directors of a benefit company must approve the Benefit Report and at least one director must sign the Benefit Report before it is published. If the company has a publicly accessible website then, once the Benefit Report is published, the directors of the benefit company must post it on their website.

A copy of each Benefit Report must be kept at the benefit company’s registered and records office. Any person may, without charge, inspect the copy of the Benefit Report that is kept at the benefit company’s registered and records office.

The Benefit Report must include:

  1. a fair and accurate description of the ways the benefit company demonstrated commitment
    1. to conducting its business in a responsible and sustainable manner, and
    2. to promoting the public benefits specified in that benefit company’s articles;
  2. a record of and the results of the assessment against the third-party standard of the benefit company’s performance for the most recently completed financial year in carrying out the commitments set out in the Benefit Provision;
  3. the circumstances, if any, that hindered the benefit company’s endeavours to carry out the commitments set out in the benefit company’s Benefit Provision;
  4. the process and rationale for selecting or changing the third-party standard used to prepare the benefit report in addition to prescribed statements about the third-party standard used for the assessment; and
  5. any other information required by the regulations.

At this time, there are no regulations published with respect to benefit companies.

Offences

It is an offence to:

  1. publish a Benefit Report which has not been approved and signed by one or more of the directors;
  2. fail to publish or post a Benefit Report;
  3. publish or post a Benefit Report that does not comply with the BCBCA or the regulations.

A person who commits either of these offences is liable to a fine of up to $2,000 for individuals and a fine of up to $5,000 for entities other than individuals.

For more information about creating a benefit company, becoming a benefit company or complying with the BCBCA, please do not hesitate to contact one of our lawyers in our Corporate/ Commercial practice group.

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