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A new California law provides companies with the option to legally organize as a benefit corporation. The benefit corporation law, which took effect on January 1st, 2012, allows companies to utilize a new organizational structure which goes beyond that of traditional corporate and nonprofit formations. The new corporate category allows a company to place environmental or social policies within the corporate charter. It also expands the fiduciary duties of board members and company executives beyond the traditional role of creating a profit for shareholders. In effect, the law limits a shareholder's ability to sue based on social and environmental policies which may impact the value of his or her stock.

Since the law took effect, more than a dozen companies like Patagonia have already filed the necessary paperwork to become a benefit corporation. In California, the board of directors and executives of a corporation generally have a fiduciary duty to place the interests of shareholders above any other company interests and policies. As a benefit corporation, a company may take into account the interests of its employees and community in addition to profitability.

In order to convert the corporate structure of a company to a benefit corporation, two-thirds of shareholders must approve the change. Returning to a traditional corporate structure requires similar shareholder approval. California is the seventh state in the nation to provide a benefit corporation option to companies.

A corporation is a business entity that is afforded many of the same legal rights as an individual. A corporation may be made up of a single individual or a group of people. Although a variety of corporate structures exist in the United States, the three most common include closely held corporations, C corporations, and S corporations. Each corporation is subject to the laws of the state in which it was incorporated regardless of where its business takes place. If a company chooses to issue stock, it will generally be governed by its shareholders either directly or through a board. In a traditional corporation, a board of directors has a duty to govern the company in a way that serves the best interest of its shareholders.

One of the chief benefits of incorporating a business is it can limit an individual's liability to corporate assets. This is especially important for those engaged in highly litigated fields and trades. Contact an experienced business lawyer today to learn more about the benefits of incorporating your business.