By Ginny Cascio Bonifacino, Esq.
Why do clients choose their attorney? Is it because they confidently trust the attorney will represent them successfully and competently? Is it because the attorney’s personality or style of representation fit the client’s expectations? Does it matter that the attorney supports the same social causes as the client or shares similar values?
More and more consumers are expressing their views through the companies and brands that they support. If a client spends time researching values of the brand of ice cream they eat or the type of shoes they wear, it is highly likely that they will want to ensure the same alignment with their business lawyer, employment lawyer, estate planner, or any other attorney.
Benefit Corporation v. Certified B Corporation
These two terms are often referred to as “B Corps” but they do have important differences:
A benefit corporation is a legal entity structure formed by state statute. Once a business follows the statutory requirements, it can be a benefit corporation.
A Certified B CorporationTM has been vetted and certified by B Lab based on the business’s social and environmental impact. Once certified, the business has access to B Lab’s network and can use B Lab’s logo.
A business can be one or both—it is important to understand this distinction when advising clients.
Over the last decade, there has been a significant movement for businesses to not only drive value for shareholders but also consider environmental, social, and governance concerns. On the legal side, many states and the District of Columbia have enacted legislation allowing for different forms of social enterprise entities, including benefit corporations, public benefit corporations, and low-profit limited liability companies. This article focuses on Maryland’s version—the benefit corporation or benefit limited liability company (LLC)—which will be referred to as a “benefit company.” As a foundational principle, corporations and LLCs are established by state laws and formed by registration with state agencies. Corporations and LLCs provide their owners (shareholders and members respectively) with protection from personal liability. Which type of entity is recommended often depends on the goals and tax concerns of the company.
A benefit company is a for profit company but is formed to both (1) generate profits for its owners and (2) support a greater social or environmental benefit.
According to B Lab, the leading non-profit organization that certifies benefit corporations based on specific criteria, there are currently 5,610 certified companies in 84 countries over 157 industries but only 48 of which are in legal services. Is this a missed opportunity for law firms? This article seeks to find out.
How to Form a Benefit Company?
Maryland passed its first benefit company statute in 2010. The process for forming a benefit company is straightforward. The company must include language in its Articles electing to be a benefit corporation or benefit LLC and stating that it is formed for a “general public benefit.”
Maryland’s corporate code defines “general public benefit” as a material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits, [such as]
(1) providing individuals or communities with beneficial products or services;
(2) promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
(3) preserving the environment;
(4) improving human health;
(5) promoting the arts, sciences, or advancement of knowledge;
(6) increasing the flow of capital to entities with a public benefit purpose; or
(7) the accomplishment of any other particular benefit for society or the environment.
Another reason to become a benefit corporation is that it provides directors with some additional insulation from a breach of fiduciary duty claim if the owner’s interests are not always put first when making decisions. Maryland’s corporate code requires that “A director of a corporation shall act: (1) In good faith; (2) In a manner the director reasonably believes to be in the best interests of the corporation; and (3) With the care that an ordinarily prudent person in a like position would use under similar circumstances.” The benefit corporation statute gives directors flexibility to consider the best interests of broader stakeholders, including the owners, employees, customers, community, environment, and other important factors without being subject to liability. Directors, however, are not required to always consider these interests and will not be liable to these other stakeholders or the public if a decision only benefits the owners.
A benefit company has an ongoing responsibility to measure its progress towards this general public benefit using a third-party standard. The company is required by the statute to publish an annual report on its website and provide the report to its owners of its progress towards fulfilling its public benefit goals. This is often where B Lab is used because its certification process provides an accepted third-party standard that a benefit company may use to measure its goals.
Can a Maryland Law Firm Become a Benefit Company?
Yes, a Maryland law firm may be organized as a benefit LLC, but a Maryland law firm cannot be a benefit corporation. Law firms must ensure compliance with (1) state laws, (2) state bar requirements, and (3) ethical rules and guidance.
State laws and bar requirements
Each jurisdiction has its own laws and/or bar requirements that attorneys must review when they are setting up a new law firm. Underlying many of these rules is the requirement that an attorney is always personally liable for their advice and subject to a malpractice claim. While attorneys usually advise their clients to form a corporation or LLC to provide the owners with personal protection from the company’s liabilities, this avenue is not open to an attorney, unless the state has provided other entity options.
In Maryland, a law firm may elect to be professional services corporation or a limited liability company. These corporate forms allow a law firm to obtain limited liability protection from other claims but carves out claims directly against an attorney for alleged malpractice. The Maryland corporate code, however, very clearly states that a law firm may only be a professional services corporation and not any of the other types of corporations permissible under the code, including a benefit corporation.
On the other hand, Maryland’s Limited Liability Company Act permits a law firm to be a limited liability company, including a benefit limited liability company. Maryland law firms wishing to become benefit companies should consider whether the benefit LLC form suits their business needs, and if so, can further make an IRS election to be taxed as a corporation.
Ethical rules and guidance
Attorneys are also governed by the ethical rules and guidance in the jurisdictions where they are licensed. These rules must also be reviewed to ensure that a Maryland law firm can elect to be a benefit limited liability company. There is no explicit prohibition under the Maryland Rules of Professional Conduct (MPRC), the American Bar Association Model Rules of Professional Conduct, or related ethics opinions that would prevent a law firm from becoming a benefit company. Nonetheless, a Maryland law firm must keep in mind these Rules as it determines how it will serve a greater public interest, while its attorneys still maintain their ethical duties to their clients.
Attorneys have a duty to put the best interests of their clients first in the representation. An attorney’s representation cannot be swayed by other external factors and the profession takes substantial steps through strong conflict of interest and prohibition of fee sharing to ensure that attorneys put their clients first.
As a business, however, the law firm is free to operate and use its revenue in a way that furthers a greater public benefit. Some would say that an attorney’s ethical requirements support becoming a benefit corporation. In the Preamble of the MPRC, “an attorney, as a member of the legal profession, is a representative of clients, an officer of the legal system and a public citizen having special responsibility for the quality of justice.” The Rules provide some additional interpretation of what entails being “a public citizen” including to seek to improve the law and access to the legal system. These goals focus an attorney on thinking beyond themselves to a greater public good—not unlike what a benefit corporation achieves. Under the current legal and ethical landscape in Maryland, a law firm may elect to be a benefit LLC.
What happens if an LLC is not the correct form for a law firm?
AN LLC is not always the appropriate entity form for a business because of such concerns as its long-term goals, investor demographics, or tax concerns. However, if a Maryland law firm does not choose to be an LLC for other reasons, it may still be a Certified B Corporation by B Lab if it satisfies B Lab’s standards.
Why Become a Benefit Company?
At the root of becoming a benefit company should be a genuine desire to do good and to improve our world. Market differentiation drivers may encourage pursuit of B Corp status.
Making more money
This may seem counterintuitive, but the uniqueness of being a benefit company rather than a regular company or a non-profit corporation is that the company can generate profit and want to generate profit, while working towards a larger public purpose. If the client agrees with the firm’s values, then they are not only more likely to retain the law firm but also may be willing to pay more.
More credibility in branding
Corporations are sometimes criticized for their “support” of various social causes without showing results or transparency into their actions. A benefit company and/or a certified B corporation are required to complete and publish an annual report. This additional level of accountability and transparency provides clients with a level of trust that giving their dollars to this specific business will bring about social or environmental good.
B Lab Logo
Companies that are certified by B Lab and use the Certified B Corporation TM logo as part of their branding cite a boost in marketing and exposure. This branding signals to consumers that this business is a legitimate benefit company striving to create public good.
Attracting and retaining the best talent
Since the COVID-19 pandemic, there has been a surge of employees leaving their jobs—often called the Great Resignation or the Great Reshuffle. In order to attract and retain talent, research shows that employees want to feel valued and respected but also have a sense of purpose and community at work. By its very nature, a benefit company is focused on a greater public benefit. It provides workers with common values and a purpose that they can work towards. Benefit companies often state that their employees are happier, work harder, and stay longer.
Better positioning for the future
In the last several years, businesses have had to pivot to stay in business through a pandemic, global supply chain disruptions, substantial inflation, rising gas prices, and a looming recession. According to B Lab, certified B corporations were 64% more likely to stay in business during the 2008 recession than other similarly sized businesses. A benefit company is conditioned to regularly call into question its business practices and strive to improve them. This often gives them the skills, insight, and flexibility needed to respond quickly and efficiently in times of trouble.
The number of benefit companies are growing substantially across many different industries as these businesses pivot to focusing on greater social, governance, and environmental concerns in addition to generating profit. Maryland law firms deciding to join this movement will obtain benefits that improve their bottom line and enable them to be good “public citizens.”
1 See B Lab Homepage, https://www.bcorporation.net/en-us (Last visited Aug. 29, 2022).
2 See Md. Code Ann., Corps. & Ass’ns § 5-6C-01, et seq. (Benefit Corporations); § 4A-1201, et seq. (Benefit Limited Liability Companies).
3 Id. § 5-6C-01(c) and (d).
4 See id. § 5-101, et seq. (professional services corporation); § 4A-01, et seq. (Limited Liability Companies).
5 Id. at § 5-102.
6 See id. §4-203.1; 4-301. See also id. § 4A- 1202(a).
7 Md. Att’ys Rules of Prof’l Conduct, 19–305.4 (West, Westlaw through 2021 Legis. Sess.).
8 See id. at 19–301.7 – 19–301.10.
9 See Maryland State Bar Association, Inc. Committee on Ethics, Ethics Docket No. 19-06.
10 Ann Juergens & Diane Galatowitsch, Changing Education and Practice of Law: Fostering Client Altruism and the Common Good in the Practice of Law: Learning from Emerging Movements in Business and Economics, 44 Mitchell Hamline L. Rev. 1, 29 (2018).
11 Md. Att’ys Rules of Prof’l Conduct, 19-300.1. PREAMBLE.
Ginny Cascio Bonifacino, Esq. is co-founder and partner of Nazareth Bonifacino Law LLC, a boutique business law firm currently pursuing its Certified B Corporation status. Ginny believes honoring values is good business. Through her general counsel and intellectual property practice, Ginny provides clients with integrative advice that limits their risk freeing them up to focus on what makes them happy.
To form a Maryland entity: Maryland State Department of Assessment and Taxation, https://businessexpress.maryland.gov/.
To keep up-to-date on new social enterprise legislation in the United States, check out: Grunin Center for Law and Social Entrepreneurship – NYU School of Law. Social Enterprise Law Tracker: https://socentlawtracker.org/#/map.