Is the Benefit Corporation Beneficial?

Peter Marshall

Advisor: Daniel B Klein, PhD, Department of Economics

Committee Members: Donald J. Boudreaux, Henry N. Butler

Online Location, Online
November 20, 2022, 12:00 PM to 02:00 PM


The benefit corporation is a relatively novel corporate form that purports to codify novel protections for a novel type of for-profit social enterprise. B Lab presents the legal form and protections in their benefit corporation model as adding something novel to the legal landscape, but the model fails to accomplish the task which its authors set for it. The B Lab model’s failure is partially due to internal failings and partially due to the history, legal, and economic theory surrounding social enterprises. Understanding why the benefit corporation fails requires understanding what corporations are, their history in United States from whence they originate, the concept they purport to facilitate, and how the model is applied in the real world.

      The first chapter of this dissertation is dedicated to briefly tracing the evolution of the corporation and corporate law through the implementation of benefit corporation statutes in the majority of US jurisdictions. It describes major cases that have impacted the directorial decision making the model emphasizes, the prevalence of benefit corporation statutes, and their similarities to each of two prominent models for the benefit corporation. The second chapter examines the B Lab model from a perspective of assurance and helping those who interact with benefit corporations determine that they are interacting with a business in good faith pursuit of a social mission besides profitability. This chapter utilizes Professor Klein’s analysis of assurance as a metric for demonstrating how the structure of promises in the B Lab model do not have sufficient rigor. The third chapter examines social enterprise as a concept and provides a novel taxonomy for understanding the concept. It is proposed as a universalizable description of enterprises purporting to pursue social benefits alongside profitability. The fourth chapter examines further how the taxonomy is ground in the existing literature on social enterprises and synthesizes ideas presented therein to create a new and easily comprehensible way of understanding social enterprise. The fifth chapter examines the provisions in the B Lab model surrounding the social mission of the benefit corporation and explains how the provisions either create barriers to the easy operation of a social enterprise or are insufficient to ensure that the enterprises utilizing the form are operating as social enterprises. The sixth and final chapter moves away from theoretical arguments concerning the efficacy of the B Lab model to examine how it has been implemented, focusing on benefit corporations in Virginia. It describes my search for the benefit corporations registered with the state and attempts to obtain annual benefit reports from those same corporations. My efforts yielded a small fraction of the reports expected from an enforced statute and the reports I obtained generally failed to meet the requirements of Virginia’s benefit corporation law. This empirical chapter demonstrates the failure in practice of the benefit corporation that complements the failure in theory demonstrated by the other chapters.