In a First for Canada, Benefit Companies Are Coming to British Columbia

June 5, 2020

Amendments to the British Columbia Business Corporations Act (“BCBCA”) that come into force on June 30, 2020 create a new sub-type of corporate entity, the “benefit company”. While this concept is not new in the U.S., British Columbia is the first Canadian jurisdiction to adopt it. Essentially, a benefit company is similar to other B.C. companies, except that it commits to conducting its business in a responsible and sustainable manner and to promoting one or more public benefits.

While the creation of a distinct category of benefit companies is a first in Canada, the expansion of the directors’ fiduciary duties to encompass social good has arguably been underway since the Supreme Court of Canada’s Peoples Department Stores ruling in 2004 and was recently enhanced by amendments to s. 122 of the Canada Business Corporations Act codifying key aspects of the Peoples ruling. Additionally, as discussed below with respect to California, U.S. benefit corporation legislation may have influenced the B.C. amendments.

Purpose of Benefit Company Status

Benefit company status may be of interest to businesses that have, or are considering, “B Corporation” certification, which is conferred by an independent certification agency on U.S. and Canadian corporations that commit to adopting certain social responsibility commitments. Like B Corporation certification, but with the added impact of legislative backing, B.C. benefit company status can help socially responsible enterprises signal their fundamental commitment to social and environmental goals.

Distinguishing Features of Benefit Companies

The major distinctions between a B.C. benefit company and other B.C. companies are as follows:

  • Notice of articles: The benefit company’s notice of articles will contain the following statement (the benefit 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.

  • Articles: The benefit company’s articles must include a provision that specifies the public benefits to be promoted (benefit provision). “Public benefit” refers to something that has a positive effect that benefits (i) a class of persons other than shareholders of the company in their capacity as shareholders, or a class of communities or organizations, or (ii) the environment. The positive effect can be:
    • Artistic
    • Charitable
    • Cultural
    • Economic
    • Educational
    • Environmental
    • Literary
    • Medical
    • Religious
    • Scientific
    • Technological
  • Alterations: Any decision to adopt or eliminate the benefit statement (i.e. to alter the company’s status as a benefit company) must be approved by a special resolution of the voting shareholders. Both voting and non-voting shareholders of the benefit company are entitled to dissent rights with respect to such a change or to a change in the benefit provision.
  • Benefit report: Each year, the benefit company must prepare, provide to its shareholders and post on its website (if it has one) a report (benefit report) that assesses the company’s performance in carrying out the commitments set out in the company’s benefit provision compared to a third-party standard. The report needs to include information about the process and rationale for selecting or changing the relevant third-party standard. Regulations may be enacted that provide more details about the third-party standard and the contents of the benefit report.
  • Penalties relating to the benefit report: It will be an offence if the directors of the benefit company do not prepare and post the benefit report as required by the BCBCA and the regulations. There is a potential fine of up to $2,000 for individuals or $5,000 for persons other than individuals.
  • Augmented fiduciary duty: The directors and officers of a benefit company will be required to act honestly and in good faith with a view to conducting the business in a responsible and sustainable manner and promoting the public benefits that the company has identified in its benefit provision. They must balance that public benefits duty against their duties to the company. (There is currently no guidance with respect to achieving this balance.) However, the amendments state that the public benefits duty does not create a duty on the part of directors or officers to persons who are affected by the company’s conduct or who would be personally benefitted by it.
  • Enforcement and remedies where duty breached: Several significant provisions in the amendments relate to enforcement and remedies:
    • Shareholders are the only persons who are able to bring an action against a BCBCA benefit company’s directors and officers over an alleged violation of their duty relating to public benefits;
    • Only shareholders that, in the aggregate, hold at least 2% of the company’s issued shares may bring such an action (in the case of a public company, a $2 million shareholding, in the aggregate, will also suffice); and
    • The court may not order monetary damages in relation to a breach of that duty. Other remedies, such as removal or a direction to comply, would still be available.

Note that the limitations described above do not apply with respect to the duties that directors and officers of benefit companies have under the general provisions of the BCBCA. Those duties apply to them as they do to directors and officers of other BCBCA companies.

Naming of Benefit Companies

Unlike unlimited liability companies and community contribution companies (two other sub-types of companies in B.C.), benefit companies are not required to have a distinctive corporate designation in their names. Instead, they will use the usual designations “Incorporated”, “Limited” or “Corporation” (or their French versions or abbreviated forms). There appears to be no requirement that the name specify that the company is a benefit company, although as noted above, the notice of articles and articles will contain provisions specific to benefit companies.

Tax Consequences

Benefit companies are for-profit companies and are expected to be treated in the same way as other companies for tax purposes.

Comparison to California Benefit Corporations

California’s benefit corporations legislation – Part 13 of Division 3 of Title 1 of the state’s Corporations Code – may have influenced the drafting of the B.C. provisions. While there are some distinctions, the California provisions are similar in certain respects to the B.C. amendments:

  • The charter documents of the corporation must include a statement that it is a benefit corporation and identify any specific public benefit that the corporation has adopted as part of its purpose
  • The benefit corporation has to prepare an annual report that includes an assessment of the corporation’s performance in accordance with a third-party standard. The statement has to be delivered to shareholders and posted on the corporation’s website, if any.
  • The fiduciary duty of directors and officers of the benefit corporation is modified to include consideration of interests of persons other than shareholders. Directors and officers are not liable for monetary damages for the breach of that duty. There are also restrictions on who can bring an action to enforce those fiduciary duties.
  • Becoming or ceasing to be a benefit corporation requires approval by two-thirds of the corporation’s shareholders and triggers dissent rights.

Further Information

The Government of British Columbia has created a website that provides additional information on benefit companies. The text of Bill M209, the legislation that amends the Business Corporations Act to create benefit companies, is available here. Bill M209 received Royal Assent on May 16, 2020 and, as noted above, is scheduled to take effect on June 30, 2020

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

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