Brown Signs Law for B Corp’s in California…Will Venture Capital Follow?

As reported in the October 10, 2011 L.A. Times, Governor Brown has signed California Assemblyman Jared Huffman’s, Bill AB 361 into law, allowing B Corporation to join Hawaii, Maryland, New Jersey, Vermont and Virginia, in legally operating in the State of California.

Without this legal protection, says B Lab Co-Founder Jay Coen Gilbert, by prioritizing social (environmental and other sustainable) outcomes, California B Corporations were operating in what could have been considered opposition to the fiduciary duty to “maximize value to shareholders even if that comes at the expense of workers or the community or the environment.”

Gilbert also notes that, “It’s a system that’s set up to externalize costs to society.”

By providing legal protection for directors and officers, as well as already strict B Corp. guidelines, mandating that annual benefit reports assess their performance against a third-party standard, will prove to be a positive step in enticing Venture Capital into the social space.

It may also be a boon for the legal establishment of another pro-social business model, the “L3C” low-profit limited liability company entity in California, by the IRS, which Jim Wilkins of Triple Pundit describes as, “a structure that facilitates investments in socially beneficial, for-profit ventures” which simplifies “compliance with Internal Revenue Service rules for “Program Related Investments.”



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