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“Benefit corporation” law comes into effect in California
05
Jan '12
California has become the seventh US State to give companies committed to social and environmental causes an equal status with other companies that function with the sole aim of making profits.

On the first day of the legislation coming into effect in California, about a dozen companies, including Patagonia Inc., a manufacturer and seller of apparels, applied to become “benefit corporations.”

The new State law lets companies to legally include social and environmental efforts as part of their business missions.

The law shields business corporations from lawsuits filed by shareholders blaming their good work for decreasing the value of their stock.

Until now, shareholders' interest was paramount to those of all other parties under California's corporate law. This forced businesses that wanted to adopt green initiatives or social causes to become not-for-profit organizations, thus limiting their scope to raise venture capital.

According to the new legislation authored by Jared Huffman, a corporation requires approval from two-thirds of its existing shareholders to become a benefit corporation. A similar mandate would be necessary to again become a traditional type of company.

Similar laws were approved by Vermont and Maryland in 2010. This was followed by adoption of the law by New Jersey, Virginia, New York and Hawaii in 2011. About 100 companies have turned benefit corporations in these States.

Fibre2fashion News Desk - India

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