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The New Italian Benefit Corporation


The object of this work is the study of a new model of company introduced in Italy with Law No. 208/2015, the Benefit Corporation, a form of undertaking with joint lucrative and altruistic purposes. The Italian legislator was inspired by the North American Benefit Corporation, which was introduced in many states beginning in 2010, but the Italian regulation is fairly generic and incomplete. Our preliminary task is to seek a systematic framework for this model of company, identifying its rightful place among the ‘for-profit’ and ‘non-profit’ business sector, while highlighting their similarities or differences with regard to the wider issue of corporate social responsibility. Next we must attempt to try to fill in, through interpretation, the many gaps and dysfunctions we find in the regulatory body that, if unresolved, would make the new company model unappealing. This reconstruction must be carried out with reference to the traditional concepts of Italian corporate law, depending on the type of corporation chosen and insofar as they are compatible with the new model. The work thus provides a rough comparison of the new Italian corporation model and some of the North American states’ legal regulations on Benefit Corporations.

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  1. This is an attempt to direct entrepreneurial activity towards pursuing not only (or not exclusively) the egoistic interest of the entrepreneur in maximizing profit but (solely or in addition to profit) also collective and public benefits.

  2. That concerns ‘hybrid legal forms to meet the needs of […] hybrid business’, McDonnel (2014), p 4.

  3. Or if the ‘social’ activity nevertheless provides profits, they cannot be distributed.

  4. Think about, for example, the Commission Communication ‘A renewed EU strategy 2011–2014 for Corporate Social Responsibility’, adopted on 25 October 2011, COM (2011) 681 final; or Directive 2014/95/EU of the European Parliament and the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ L330/1. Many initiatives have been adopted to promote CSR at the international level: the most relevant are undoubtedly the United Nations Global Compact (September 2000) and the OECD Guidelines for Multinational Enterprises.

  5. An example is the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions ‘Social Business Initiative. Creating a favourable climate for social enterprises, key stakeholders in the social economy and innovation’, adopted on 25 October 2011, COM (2011) 682 final.

  6. A change due to a new sensibility concerning customers, consumers and investors that (in an ideal world), due to their choices, could affect entrepreneurial behaviour.

  7. Law No. 141 of 18 August 2015 (‘Rules on social farming’).

  8. Art. 25, para. 4, Decree Law No. 179 of 18 October 2012, converted into Law No. 221 of 17 December 2012.

  9. Legislative Decree No. 155 of 24 March 2006, now repealed by Legislative Decree No. 112 of 3 July 2017.

  10. Borgia (2010), pp 2 et seq.; Costi (2005), pp 417 et seq.; Denozza (2005), pp 143 et seq.; European Community Commission, ‘Green Paper Promoting a European framework for Corporate Social Responsibility’, COM (2001) 366 final, 18 July 2001. There are many works on CSR; see, for example, Bratton (2017), pp 10 et seq.; Macey (2014), passim; Bevivino (2014), passim; Cherry (2014), pp 281 et seq.; De Schutter (2008), pp 203 et seq.; Bainbridge (1992), pp 979 et seq.

  11. Borgia (2010), p 5.

  12. Borgia (2010), p 7.

  13. Toffoletto (2015), p 1203.

  14. In particular, Art. 3, paras. 3 and 5, emphasizes sustainable development, a balanced economic growth, the social market economy, and environmental protection.

  15. Toffoletto (2015), pp 1207–1208.

  16. See Art. 2247 Civil Code: ‘Con il contratto di società due o più persone conferiscono beni o servizi per l’esercizio in comune di una attività economica allo scopo di dividerne gli utili’. Note that cooperative companies have different aims: they have to pursue mutual purposes, not the profit one (see Art. 2511 Civil Code). We have to take into account this important difference between corporations and mutual companies. And we also have to consider that the law recognizes two kinds of cooperatives: the so-called ‘a mutualità prevalente’, in which gains are not distributable, and ‘a mutualità non prevalente’ in which profits are partially distributable.

  17. See Art. 2380-bis, para. 1 Civil Code.

  18. Directors have to act within the perimeter determined by the ‘oggetto sociale’, trying to attain the success of the business. But the success of the business indirectly implies gains for shareholders.

  19. An example of such an orientation was Art. 3 of Legislative Decree No. 155/06 regarding social enterprises (but the new Art. 3 of Legislative Decree No. 112/17 now admits a limited distribution of profits for social enterprises as well). The sector in which the social enterprise operates can be defined as ‘non-profit’.

  20. In the Italian legal system, for many years, it has been clear that entrepreneurial activity is not the only type of business activity. Associations could also exercise a business, although they support ideal purposes. Further, cooperatives are a particular kind of company in which a mutual (hybrid) purpose replaces the singular quest for profit. The real question is: could the organizational form of a corporation be adopted to pursue aims other than profit? The response is probably ‘yes’: the corporate ‘form’ seems to be neutral and available for different aims or purposes. However, the problem we have to face is whether, for this ‘free’ use of the corporate form, it is necessary to have a legal provision that authorizes the change. For some reflections on these themes see Mosco (2017), pp 218 et seq.

  21. See again McDonnel (2014), pp 4 et seq.; Murray (2016), pp 543 et seq. (for an overview of different types of ‘hybrid entities’); Pollman (2017), p 9 (‘a specialized form is needed in order to bake the dual mission into the very organization’).

  22. See, for example, Ferro-Luzzi (1971); Spada (1974); Santini (1973); Marasà (1984); Galgano (2007a), pp 62 et seq. The introduction of the BC seems to confirm the idea that only an explicit legislative derogation can allow a corporation not to pursue the aim (profit) that is typically inherent in the ‘causa’ of the company contract.

  23. Law No. 205 of 27 December 2017 introduces the possibility for (non-professional) sports clubs and for entities that have a cultural mission to adopt the corporate form.

  24. It is impossible here to follow the development of the discussion. For some references see, for example, MacLeod Heminway (2017), pp 618 et seq.; Johnson (2013); Aguilera et al. (2006), pp 151 et seq.; Elhauge (2005), pp 733 et seq.; Bruno (2004), pp 897 et seq.; Wheeler (2002), passim; Dean (2001), pp 29 et seq.; Roach (2001), pp 12 et seq.; Kelly and Parkinson (1998), pp 174 et seq.

  25. For more insights, refer to the works contained in the previous note.

  26. The OECD Principles of Corporate Governance are an important example of this trend.

  27. Directors may take into consideration the interests of stakeholders but only if this is functional in order to benefit the welfare of shareholders.

  28. See, for example, McDonnell (2004), pp 1228 et seq.; Springer (1999), pp 95 et seq.; Fort (1997), pp 183 et seq.; Orts (1993), pp 38 et seq.; Bainbridge (1992), pp 973 et seq.

  29. On the rise of BC in the US see the different opinions, among the many, of Neubauer (2016), pp 109 et seq.; Collart (2014), pp 1176 et seq.; Hasler (2014), pp 1279 et seq.; Grant (2013), pp 582 et seq.; Hiller (2013), pp 287 et seq.; Blount and Offei-Danso (2013), pp 617 et seq.; Haymore (2011), pp 1311 et seq.; Deskins (2011), pp 1047 et seq.

  30. See, for example, Ajibo (2014), pp 49 et seq.; Keay (2013), passim; Williams (2012), pp 363 et seq.; Keay and Zhang (2011), pp 446 et seq.; Harper Ho (2010), pp 62 et seq.; Mickels (2009), pp 273 et seq.; Cerioni (2008), pp 1 et seq.; Keay (2007b), pp 577 et seq.; Keay (2007a), pp 106 et seq.; Kiarie (2006), pp 329 et seq.; Williams and Conley (2005), pp 495 et seq.

  31. This is the position of Bruno (2017), p 314.

  32. Bruno (2017), p 313, has noted that ‘the so-called “enlightened shareholder value” […] was preferred over the alternatively proposed “pluralist approach” that would have implied the duty for directors to balance different and conflicting interests resulting in wider discretion and specular narrower liabilities’.

  33. Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ L330/1. See, for some remarks and for more references on this regulation, Szabó and Sørensen (2015), pp 307 et seq.; for the impact of the new regulation on the UK’s Sec. 172(1) Companies Act 2006, see Bruno (2017), pp 321 et seq. Consider, anyway, that in October 2013 the Business Review provisions were amended and replaced by Sec. 414A et seq. of the Companies Act 2006. It introduced the Strategic Report (also called the ESG Report, or the ‘Environmental, Social and Governance Report’): for each financial year the directors have to inform the members of the company how they have performed their duties under Sec. 172. Only for quoted companies must the Report provide information about environmental matters (including the impact of the business on the environment) and employees’, social, community and human rights issues.

  34. Szabó and Sørensen (2015), p 308.

  35. In Italy the Directive 2014/95/EU was implemented by Legislative Decree No. 254 of 30 December 2016. Consob (the Italian Authority that governs the stock market) issued the regulation implementing Legislative Decree No. 254 (for quoted companies). The European Commission has adopted the ‘Guidelines on non-financial reporting (methodology for reporting non-financial information)’ with communication [2015] OJ C 215/1.

  36. In managing a traditional company, decisions made by directors are normally based on maximizing profits for the members, and they may be responsible for the way in which those decision-making processes are conceived and implemented.

  37. As we have seen in the US and the UK neither the constituency statutes nor Sec. 172 of the Companies Act have brought a change of perspective: directors are liable when they fail to pursue the best interests of the corporation (and of its members), that is the maximization of profits. The North American states that introduced BC regulations specifically intended to allow directors to pursue (general or particular) benefit interests without management responsibilities. This was a way of supporting socially-oriented corporations.

  38. As we have seen, in Italy the neutrality of the corporate scheme has long been discussed with respect to the goals pursued by the founders: see n. 22.

  39. In the same way, it is acknowledged that associations or foundations could exercise a business activity but it must be functional for pursuing ideals or cultural or social aims, which remains the prevalent objective (in this sense this the consistent position of the Italian Supreme Court—Corte di Cassazione).

  40. Think about social enterprises, football clubs, state-owned corporations and so on.

  41. When a legislator states that the first aim of the new BC legislation is to encourage the ‘spreading’ of companies with a sustainable business activity it demonstrates that these types of undertakings are already present in the economic system, although they are not BCs. The BC model is a new tool for facilitating the further diffusion of this form of enterprise.

  42. By reducing or removing negative externalities or by using practices, production processes and goods that have positive externalities, and by allocating some of their resources to the pursuit of the well-being of people and communities, the preservation and the recovery of goods of artistic and archeological heritage, the diffusion and support of cultural and social activities, and so on.

  43. In other European jurisdictions, there are some forms of companies that may resemble the Italian BC, even if they are in part different phenomena. This is the case, for example, with the Belgian Société à Finalité Sociale or the British Community Interest Companies and Community Benefit Societies; for an overview see Doeringer (2010), p 291. In several North American states that have introduced BCs, in recent years there has been a proliferation of more or less hybrid corporate forms, similar to but not overlapping with the BCs. Examples include ‘low profit limited liability Companies’ (also called L3Cs), ‘flexible purpose corporations’, ‘social purpose corporations’; for a quick review see McDonnel (2014), p 7.

  44. It is a specific duty for directors to prepare an annual report on the objectives pursued, which is accessible to the public and drawn up on the basis of external evaluation standards. This duty, in some respects, is similar to the one that applies to directors of larger undertakings based on Directive 2014/95/EU but it is not the same thing. We shall discuss these aspects later.

  45. In early comments on the BC discipline, divergent opinions are emerging, either regarding the usefulness or the lack of usefulness of the introduction of this model in Italian law, as well as on the actual and concrete use thereof. See Siclari (2016); Guida (2016); Bertarini (2016); Lenzi (2016); Calagna (2016); Lupoi (2016); Ventura (2016); Cocciolillo (2017); Salvatore (2017); Frignani and Virano (2017).

  46. Paolucci (2012), pp 9–10.

  47. With regard to people’s banks and cooperative credit banks (which take the form of cooperative companies but have a special discipline allowing the exercise of credit activity), see the provisions of Art. 32, para. 2, and Art. 37, paras. 2 and 3, Banking Law (Legislative Decree No. 385/1993).

  48. In all of these types of companies, the members (or some of them) are personally responsible for the company’s debts and obligations. They are comparable with the general partnership (while società in accomandita semplice is similar to a limited partnership).

  49. All of these types of companies are incorporated and their members have limited liability (with the exception of società in accomandita per azioni in which some members have unlimited liability).

  50. From the combined reading of paras. 376 and 379, Law No. 208/2015, the BC, to be such, must pursue one or more common benefits (para. 376). A company that opts for being (or becoming) a BC must, in its corporate purpose, describe the ‘specific common benefit purposes’ that it intends to pursue (para. 379).

  51. For misleading advertising, unfair commercial practices, and, perhaps, even unfair competition.

  52. The ‘transparent’ way of acting is linked to the information that the company declares (not only to the members but, above all, also to the market and hence to the beneficiaries of the altruistic activities of the company itself).

  53. In the so-called ‘società di persone’ changes in the bylaws can be decided by the members without a formal meeting.

  54. However, workers and customers (at least) belong to the category named ‘people’; in the category of ‘entities’, we find suppliers, lenders, creditors, and customers (where they are not natural persons).

  55. In fact the law seems to assume a responsible and transparent way of action towards both subjects and goods (territories, the environment) and activities (cultural and social). At the same time, the common benefit can refer to subjects, goods, and activities.

  56. It is doubtful whether the purposes of a common benefit must be linked to the company’s own economic activity or whether the two may also not be linked (more or less closely). Pursuing environmental protection or the health of the local community in which the enterprise is rooted, with higher costs (thus making less profit) due to the adoption of eco-friendly production methods, or installing more efficient purification systems (in addition to those required by the law) or even using ecological materials are goals that bind each other. We can have further doubts in cases where the realization of the common benefit is completely disjointed from the company’s productive activity: for example, the case of a company that devotes part of its profits to sustaining environmental protection projects or to supporting cultural goods or activities (financing a private art collection or building a museum).

  57. In comparing the legislation of the North American states where BCs are present, we notice that enforcing a qualified majority (e.g. 2/3 of the share capital) in order to introduce or remove the purpose of a common benefit could be a suitable solution. The application of ordinary corporation law in Italy implies that in partnerships (Art. 2252 Civil Code) the contract may only be amended with the consent of all of the members (a provision that can be derogated); in joint stock companies (Arts. 2368 and 2369 Civil Code), the constitutive and deliberative quorums of the extraordinary general meeting are lower than 2/3, although the bylaws may provide for an enhanced majority; the same applies to limited liability companies (Arts. 2479, 2479-bis and 2480 Civil Code), while for cooperatives (Art. 2358 Civil Code) the law refers to the majority set out in the bylaws (in the absence of a specific rule, if compatible, the discipline of the limited liability company or the joint stock company is applicable). The lack of a specific rule on qualified majorities can result in ‘confusion’ or, worst, a situation of abuse for shareholders and third parties. In the US, laws on BCs ‘use labeling and voting requirements to protect initial and existing shareholders from confusion’ (see Brakman Reiser 2011, p 596). Further: ‘shareholders are also involved at the initial adoption of benefit corporation status and on any exit from the status’ (Brakman Reiser 2011, p 612).

  58. This is a condition to be able to withdraw from the limited liability company under Art. 2473 Civil Code.

  59. According to Art. 2437, para. 1, Civil Code.

  60. This article applies to all partnerships registered in the Company Register.

  61. This article concerned the joint-stock company and explicitly referred to the limited liability company and the cooperative company.

  62. Unless this expressly refers to the necessary disclosure requirements, it is a way to emphasize the importance of such disclosure.

  63. We find different solutions in the law of North American states: for example, in Minnesota (Sec. 304A.101, subd. 2(1) and 2(2)) such a corporation must insert the words ‘general benefit corporation’ (or the acronym ‘GBC’) or else ‘specific benefit corporation’ (‘SBC’). In Delaware (§ 362(c)) the use of formulas or abbreviations (‘public benefit corporation’ or ‘PBC’) is instead authorized but is not mandatory. However, in the case of the issue of shares or other financial instruments, the lack of a special denomination compels the company to inform interested parties in other ways.

  64. Briefly, in Italy the ‘causa’ of the company contract is the joint exercise of an economic activity to produce profits to be distributed to the members. The object of the contract is the type of economic activity (the business) exercised by the company.

  65. See Angelici (2017), pp 2 et seq.

  66. Unless explicitly provided by law. Think about social enterprises, referred to in Legislative Decree No. 155/2006, now replaced by Legislative Decree No. 112 of 3 July 2017.

  67. In the US, McDonnel (2014), pp 29 et seq., correctly recognizes that benefit corporation statutes do not simply ‘allow’ but ‘require’ the pursuit of a dual mission; so we can clearly make a distinction between a BC and traditional for-profit corporations (even if the latter are ‘socially oriented’).

  68. See again Angelici (2017), pp 4–5.

  69. Balancing two different (and opposite) interests means that directors must diligently find the best equilibrium between them. And if they think that this equilibrium may lead to sacrificing the profit purpose, they are authorized to act as they see fit.

  70. In a non-BC profit remains as the causa; without its hybridization, the company could pursue different aims (of common benefit) but while the profit can somehow be limited, it cannot be sacrificed.

  71. Part of the profits will likely be used to attain the common benefit indicated in the bylaws (e.g., donations).

  72. Using the words of Winston (2018), pp 1783 et seq.

  73. This is, in synthesis, the so-called ‘business judgment rule’ (that grants broad discretion to directors’ decisions as long as these are rationally related to a business purpose), determined far in the past by US states (since the famous case of Dodge v. Ford Motor Co. (170 NW 668, [Mich. 1919]) and the UK courts. See for the US situation, e.g., Miller and Gold (2015), pp 539 et seq. (‘the director’s sole fiduciary duty is to deliver profits to the shareholders’); Kawaguchi (2014), pp 493 et seq.; Johnson (2013), pp 435 et seq.; Lafferty et al. (2012), pp 849 et seq.; Stout (2008), pp 168 et seq. For the evolution in the UK see, e.g., Davies and Worthington (2012), pp 475 et seq.; Keay (2009), pp 146 et seq.; Beale (2007), pp 1033 et seq. Also the Italian courts follow the business judgment rule.

  74. It has been said that ‘a clear-eyed look at the law of corporations in Delaware reveals that, within the limits of their discretion, directors must make stockholder welfare their sole end, and that other interests may be taken into consideration only as a means of promoting stockholder welfare’ (Strine 2015, p 768, fn. 26).

    Bainbridge (2003), pp 601–605, thinks that the business judgment rule, in some situations, could have the effect of allowing directors to consider non-shareholders’ interests in making corporate decision without any fear of liability towards shareholders. But a review of ‘the case law provides non support for the argument that the business judgment rule is intended to allow directors to mediate between competing interest groups’ (p 605). Again, Bainbridge (1992) states at p 980 that: ‘the court may hold forth on the primacy of shareholder interest, or may hold forth on the importance of socially responsible conduct, but ultimately it does not matter. Under either approach, directors who consider non-shareholder interests in making corporate decisions, like directors who do not, will be insulated from liability by the business judgment rule’.

    For others scholars, the real problem is instead that if directors can take into account the interests of non-shareholder constituencies in making corporate decisions, then it is difficult to hold the same directors accountable. So, e.g., Hess (1999), p 60, has argued that if ‘management [becomes] accountable to everyone, they may become accountable to no one’ (Bainbridge 1992, p 990, referring to the interpretation of constituencies’ statutes, notes that courts have to consider that ‘if directors are entitled to ignore shareholder interests, the directors’ fiduciary duties are rendered meaningless. No meaningful legal mechanism would remain to hold managers accountable to shareholders. At the same time, because the statutes create non fiduciary duties running to nonshareholder constituencies and are not enforceable by them, management could not be held accountable by stakeholders’).

    In the context of the Enlightened Shareholder Value theory, there have been no real changes in directors’ duties under Sec. 172, Companies Act 2006: shareholders’ interests remain the central issue in corporate board decision-making and the factors (listed in the law) which directors are prompted to take into account constitute a means to pursue, in the best way, shareholders’ interests. See, e.g., Bruno (2017), p 319 (‘stakeholders’ interests shall be taken into consideration by directors in so far as they enhance the value of the company and its shares. Certainly, however, the value of the company is meant in a wide sense in that it also includes reputation, regulatory consequences and other factors. On the contrary, if a director pursues stakeholders’ interest where this may detrimentally affect the value of the shares the director is actually in breach of section 172 and might be sued for damages suffered by the company’s assets and, indirectly, by its shareholders towards whom they owe the primary duty to promote the success of the company’).

    Another question, which is not of lesser importance, is the difficulty in showing that directors have breached ‘this duty of good faith, except in egregious cases or cases where the directors have, obligingly, left clear record of their thought process leading up to the challenged decision’ (Davies and Worthington 2012, p 543). On the unenforceability (or the difficult enforceability) of Sec. 172, Companies Act 2006, see also Bruno (2017), pp 315 et seq. (she underlines that the intention of the Government in introducing Sec. 172 was ‘originally that the duty would have acquired its force not through the threat of litigation but through increased disclosure obligations’); Grier (2014), pp 100 et seq.; Keay (2007b), p 593.

  75. For example, Strine Jr. (2012), p 151 and (2014), pp 235 et seq., has recognized the fact that BC statutes offer a different structure in which directors can operate (and, we can consequently state, this also means that the rules of conduct in managing the corporation will diverge from the traditional ones).

  76. See, e.g., Clark Jr. and Babson (2012), p 848: it seems that the directors of a BC have a reduced risk of liability. The ‘dual mission’ makes it more difficult for shareholders to claim a reduction of profits when management has prioritized the interests of the stakeholders, and in most BCs’ statutes it is provided that ‘the consideration of all stakeholders shall not constitute a violation of the general standard for directors, which requires good faith, the care of an ordinarily prudent person, and the consideration of the best interests of the corporation’.

    At the same time, there are few opportunities for non-shareholder stakeholders to bring an enforcement action to protect their interests. The lack of specific remedies for ‘third beneficiaries’ is pointed out, for example, by Murray (2016), p 550 (in the US BC form, only shareholders, not the stakeholders, may bring benefit enforcement proceedings). But the same difficulties are present in the UK under the Enlightened Shareholder Value regulation: as we have seen, directors owe their duties only to the company and the stakeholders cannot seek remedies against management.

    Pollman (2017), p 7, highlights the courts’ ‘uncertainty […] regarding whether shareholders might bring lawsuits when their interests were not prioritized and how a court would treat a corporation that pursued a dual mission’. And this depends on ‘the legal uncertainty regarding corporate purpose and fiduciary duties that justifies establishing a separate form of organization’. MacLeod Heminway (2017), pp 627 et seq., underlines the probability that the new BC form will result in different types of claims related to whether a company is acting outside its promised public benefit or social purposes.

  77. The ambiguity and vagueness of the procedure of balancing the different interests of stakeholders (and shareholders) is underlined by, for example, Sukdeo (2015), pp 107 et seq.; lamenting the lack of clear standards to implement the balancing activity of the board is Paterno (2016), p 536 (the ‘relatively loose standard may pose future danger for shareholders of benefit corporations, allowing directors to evade their duty of loyalty through the pretext of their pursuit of other interests affected’); for Brownridge (2015), p 743, the directors will not be able to ‘serve two masters’, both profit and a public benefit.

  78. Minnesota Law (Minn. Stat., Chapter 304A, § 304A.201) lays down a detailed standard of conduct for directors: ‘In discharging the duties of the position of director of a general benefit corporation, a director: (1) shall consider the effects of any proposed, contemplated, or actual conduct on: (i) the general benefit corporation’s ability to pursue general public benefit; (ii) if the articles also state a specific public benefit purpose, the general benefit corporation’s ability to pursue its specific public benefit; and (iii) the interests of the constituencies stated in section 302A.251, subdivision 5, including the pecuniary interests of its shareholders; and (2) may not give regular, presumptive, or permanent priority to: (i) the pecuniary interests of the shareholders; or (ii) any other interest or consideration unless the articles identify the interest or consideration as having priority’ (subd. 1). And: ‘In discharging the duties of the position of director of a specific benefit corporation, a director: (1) shall consider the effects of any proposed, contemplated, or actual conduct on: (i) the pecuniary interest of its shareholders; and (ii) the specific benefit corporation’s liability to pursue its specific public benefit purpose; (2) may consider the interests of the constituencies stated in section 304A.251, subdivision 5; and (3) may not give regular, presumptive, or permanent priority to: (i) the pecuniary interests of the shareholders; or (ii) any other interest or consideration unless the articles identify the interest or consideration as having priority’ (subd. 2). More detailed is Cal. Corp. Code, Sec. 14620 and 14622.

  79. We should also understand in which way someone can act against the company claiming its responsibility.

  80. Indeed this is an important legislative innovation. In fact, as noticed by Bruno (2017), p 325, ‘the Italian jurisdiction, despite having introduced an important reform of company law, in 2004, looks very old as the new provisions of the Civil Code do not even mention stakeholders, nor contemplate the possibility that directors may take into consideration those interests. The reform has adopted a pure traditional shareholder value approach and directors’ duties are meant to be owed to the company for the benefit of its shareholders as a whole whereas, however, no express consideration even of long-term shareholders is contemplated […]. Looking at the Civil Code provisions directors are not required nor expressly permitted to consider impact on non-shareholders of the policies adopted. They actually lack discretion in determining how to balance different factors including impacts; in theory, if an Italian board of directors considers stakeholders’ interest, it may assume additional liabilities’.

  81. The law lays down that the directors have to balance ‘members’ interests’, ‘the pursuing of common benefit aims and other categories of interests’ with those indicated by the law. However, shareholders (also) have the duty of pursuing the common benefit objectives (that they introduced in the bylaws). We could say that this is in the interest of the majority shareholders and not of all members but, in any case, it is in the interest of ‘the members’. The realization of the chosen common benefit goals, once disclosed, is also in the interest of persons who are third parties in relation to the company contract that benefits from them and provides relevance for the directors in their task of balancing.

  82. The phrase ‘in accordance with the provisions of the bylaws’ has an ambiguous meaning: it may refer to the purposes of common benefit and to the categories of beneficiaries identified in the bylaws, or it may mean that the bylaws could indicate how to balance the various interests. The first option seems to be more logical: both because management is not a task for the members and because it seems difficult to predetermine guidelines for the directors in the bylaws (unless they are very general principles and purposes). If the bylaws indicate more common benefits, it will be up to the directors independently to assess which is (or are) to be pursued. In the annual report, they will have to explain the reasons why they have chosen to pursue one aim rather than another.

  83. Although in a partially different context, Sec. 172, UK Companies Act 2006, for example, provides that directors’ choices, even if they are directed toward the protection of the environment or the local community in which the company operates and the like, are always made in the ‘best interest of the company’. This is also true in the benefit corporation legislation of many North American states; for example, Minn. Stat., Chapter 304A, para. 304A.104, subd. 3, states that ‘the pursuit of general public benefit or a specific public benefit purpose […] is in the best interests of a public benefit corporation’; likewise Cal. Corp. Code, Sec. 14610(c); the Delaware Statute, however, contains rules that are similar to those introduced by the Italian legislator, although they are more accurate (Del. Gen. Corp. Law, Title 8, Subchapter XV, § 362(a)).

  84. What is a sustainable and responsible way of doing business? When answering this question one can be guided by both Art. 41 of the Italian Constitution and the aforementioned Art. 3 of the Treaty on European Union. Directors must draw up the annual report based on assessment standards determined by a third independent subject, following standards that permit the identification of the impact of company activity. Law No. 208/15 contains Annex 5 that indicates the ‘assessment areas’. Based on that Annex directors have to manage the company realizing a congruent ‘stakeholder engagement’; making the ‘policies’ and ‘practices adopted by the company’ transparent; creating a workplace in which quality, security, training and personal growth opportunities are attainable; adopting operational solutions that reduce waste in the use of resources, energy, and raw materials and improve production, logistics and distribution processes.

  85. Precisely because the law requires a balancing between potentially conflicting interests, we can say that the best solution is when the sacrifice of the interests of a category is offset by an advantage for the interest of another category.

  86. As we have seen, this is the business judgment rule.

  87. The Delaware law on benefit corporations specifies that ‘a director will be deemed to satisfy such director’s fiduciary duties to stockholders and the corporation if such director’s decision is both informed and disinterested and not such that no person of ordinary sound judgment would approve’ (Del. Cod., Title 8, § 365(b)).

  88. Monitoring functions, together with disclosure obligations (which we will discuss in the next section), are important tools for attempting to grant respect for common benefit purposes. In the US, under the Model Act, Benefit Enforcement Proceedings can be brought by either the corporation itself, a director, or a shareholder with a significant financial interest. As we will see, not all BC statutes have introduced these enforcement proceedings. So, for example, Brownridge (2015), p 718, highlights that under Delaware law only the traditional derivative lawsuit is a remedy for acting against a BC failure. An indirect method of monitoring is the provision that we find in the BC law requiring an annual benefit report to be published, which describes how the BC has pursued the public or specific benefit, the creation of any benefit and whether any factors have limited the pursuit of the benefit aims. The report must be prepared using a third-party standard. Increasing the enforcement of transparency requirements would assist in monitoring directors’ and management’s decision-making. After all, transparency through reporting is a traditional legal approach to achieving monitoring and compliance.

  89. If more than one subject is in charge a committee could be established.

  90. In partnerships there are many bylaw variables, and so it becomes very difficult to make concrete assumptions.

  91. This seems to be the meaning of the phrase ‘the benefits corporation, regardless of the provisions of the regulations of each type of company provided for in the Civil Code, identifies the person or persons responsible’ (para. 380, last part).

    Hence the possibility that the ‘responsible’ party is identified in the bylaws as the members of the supervisory board (or as the board itself) cannot be excluded. Indeed, Law No. 208/2015 says nothing specific regarding supervisory bodies or the supervisory powers of non-directors.

  92. If the main obligation of BC directors is to balance the diverging interests of members and non-members, it may be more correct that such an activity is carried out by the board of directors in its plenum and not by an individual executive director. In its essence this balancing activity is nearest to high-level administration and direction and should be set out by the board as a whole and then executed by the delegates. Management choices related to benefit activities should be included in the ‘strategic, industrial and financial plans’ (in accordance with the terms used in Art. 2381, para. 3, Civil Code) as elaborated by the delegated directors but evaluated by the plenum of the board.

    Identifying a ‘responsible manager’ does not seem to be a discretionary option for members or directors; the manager is a segment of the internal organizational structure, whose configuration competes exclusively with the directors themselves (who may be called upon to respond in the case of inadequacy). In the bylaws, it is likely that the members determine specific requirements (of professionalism or integrity and independence) for appointing responsibility.

  93. In the benefit corporation law of North American states, it is excluded that third parties, not members, may pursue responsibility claims against directors of a benefit corporation.

  94. The part of this Act that provides rules for repressing unfair commercial practices.

  95. According to the prevailing opinion of Italian doctrine and jurisprudence; for example, Sanfilippo (2016), p 468; Campobasso (2015), p 390; Galgano (2007b), p 337.

  96. According to the consistent practice of the courts, the harm suffered by the third party (or the single partner) must be direct and immediate, and it must result from an unlawful act by the administrator and not from company mala gestio acts (the latter damages the single partner or the third party but only indirectly).

  97. Considering the fact that the action described in Art. 2395 Civil Code represents a specific hypothesis of non-contractual misconduct (regulated in Arts. 2043 to 2059 Civil Code: this is the position, for example, of Galgano 2007b, p 338). So, the evolution in doctrinal and jurisprudential theories (the injustice of damage was initially referred to as only a violation of absolute rights and was then also extended to a violation of credit rights, in order to admit non-contractual action even in the presence of a breach of interests ‘deserving of protection under the legal order’; see, for example, Franzoni 1993, pp 183 et seq.) and the peculiarities of goods that the BC’s activities might involve (the environment, health, work, culture) allow us to assert the enforceability of the non-contractual responsibility of directors even when it has involved a collective interest and linked expectations.

  98. Behaviour such as investing in company shares or financial instruments, entering into contracts, or establishing legal relationships with the company on the assumption of the stated public benefits.

  99. Beyond this specific case, however, the use of the action provided for in Art. 2395 Civil Code is allowed when no truthful information has been provided by the directors (in the financial statements or in other public reports) and, as a result, members or third parties have taken decisions which have resulted in direct damage (Sanfilippo 2016, p 468; Campobasso 2015, p 391).

    In such cases (with reference to the annual reports provided for by law), the directors may also be subject to criminal liability under Arts. 2621, 2621-bis, 2621-ter and 2622 Civil Code (if the information relating to the common benefit purposes can affect the ‘economic, patrimonial and financial situation of the company’); Art. 2630 Civil Code; Art. 173-bis, Legislative Decree No. 58/1998 called the Law on the Financial Markets (assuming that the benefit activities of the company affect the overall situation of the company in certain situations—such as admission to listing, the public offering of financial products, takeover bids or share exchange offers); Art. 185, Law on Financial Market (market manipulation).

  100. Expressly recalled, for example, in Art. 8, para. 15 of Legislative Decree No. 145/2007.

  101. Pollman (2017), p 9, for example, notes that in the US the BCs’ statutes consider information to the market to be important. A ‘specialized form [of corporation] is needed in order to bake the dual mission into the very organization and to create a ‘brand’ that signals this to investors, employees and customers’. But (p 15) just because ‘investors, employees, customers’ often ‘have incomplete information and limited option’, disclosure is important but probably not enough (‘certification and disclosures help provide information but do not provide means for people to perfectly sort themselves, supporting only businesses fully aligned with their individual beliefs regarding a range of values’).

  102. It can be assumed that the elements set out in the law are the minimum mandatory content.

  103. The rule is unclear. First, it is not clear which purposes of beneficiaries’ protection should justify the omission of ‘certain’ (but which?) financial data. Maybe the omission of financial data could be aimed at preserving the privacy and secrecy rights of the company’s members. Conversely, the more elements that are disclosed in the annual report, the more the protection of the ‘beneficiaries’ will be achieved.

  104. It can be presumed that the annual report, exposing the actual corporate activity, may form the basis of the sanctioning procedures referred to in para. 384 of Law No. 208/2015. Therefore, it cannot be said that the report on the benefit objectives favours the sole partners; third parties (in particular potential investors) will need to be able to know the benefit activities in detail, the operating methods and the perspectives for achieving the goals.

  105. The use of the ordinary regulation of the company ‘type’ chosen for the BC means that this provision is also applicable to the annual report on the common benefit aspects.

  106. In the Law on the Financial Markets, there are many examples. For instance, rules regarding the convening of shareholders’ meetings and how to make the required documentation to exercise voting rights available (Arts. 125-bis et seq.) as well as rules on how the report on management and corporate governance (Art. 123-bis), the remuneration report (Art. 123-ter), and the financial reports (Art. 154-ter) must be published.

  107. As we will see, for listed companies, benefit and non-financial information reports will tend to overlap.

  108. The law does not explicitly require a description of how a ‘balance’ has been struck between the various interests involved. This is the main ‘new’ duty, whose diligent exercise frees directors from liability, so this new regulation could have been imposed to motivate the reasoning for certain choices.

  109. Among those already mentioned in the bylaws. Otherwise, directors would be able to autonomously choose new purposes of common benefit, and this is clearly unacceptable, considering that it requires a change in the bylaws to introduce new goals (or to delete those previously indicated). We can imagine that more specific purposes could be indicated in the corporate purpose, thereby allowing the directors to choose one or more among them.

  110. The bylaws could contemplate a tool for verifying the progress of the company’s activities towards the set benefit goals.

  111. If several purposes (all or some of those set out in the bylaws) are jointly pursued, a description of the operational modality, the outcome, and the progress of each of them will be given. If, among the various purposes set out in the articles of association, it is left to the directors to decide which one to pursue first, they will have to justify the reasons for their choice in the annual report.

  112. In pursuing the common benefit purposes, as it is seems to emerge from no. 1 of Annex 4.

  113. Also, according to Annex 4, the following should be mentioned: (a) the criteria used to measure the social and environmental impact of the activities of a company as a whole; (b) the weight given to the various measurement criteria; (c) the identity of the directors and the governing body of the institution that has developed and manages the evaluation standard; (d) the process by which changes and updates to the standard are made; and (e) a report of the entity’s revenue and financial support to exclude possible conflicts of interest.

  114. ‘To assess the degree of transparency and accountability of the company in pursuing the aims of common benefit, with particular attention to the company purpose, the level of stakeholder engagement and the degree of transparency of the policies and practices adopted by the corporation’.

  115. ‘To assess relationships with employees and collaborators in terms of remuneration and benefits, personal growth opportunities, the quality of the working environment, internal communication, flexibility and job security’.

  116. ‘To assess the company’s relations with its suppliers, with the territory and local communities in which it operates, voluntary actions, donations, cultural and social activities, and any action to support local development and its supply chain’.

  117. ‘To assess the company’s impacts, with a lifecycle of products and services perspective, in terms of resources, energy, raw materials, production processes, logistics and distributive processes, use and end-of-life consumption’.

  118. In the US, the first ‘third-party standard-setter’ is B-Lab.

  119. The annex requires highlighting the correlation between the social purpose (both profit and common benefit) and the level of involvement of the beneficiaries and other stakeholders (not directly affected by the social activity but for whom it is still important to understand the ways of pursuing the common benefit aims, e.g., investors or consumers who, only by virtue of the particular benefit goals declared, are linked to the company).

  120. Also think about the fact that there could be more persons who are qualified to establish valuation standards, and these could diverge among the various third-party standard setters. Choosing some standards rather than others might already mean different outcomes in understanding the impact generated. With different standards to choose from, it will be necessary for directors to explain in the report the reasons as to why they opted for some standards and not others.

  121. However, the pursuit of common benefit purposes has implications for the financial structure, the composition of assets, and the means of operating, so the external auditor may also make his or her own assessments of the benefit ‘sector’ of the revised company.

  122. See Bruno (2017), pp 317 et seq.: ‘the original intent […] was to provide a voluntary disclosure meant as an incentive for companies to disclose […] information [on the company policies towards employees, environment, community, social issues and any other material for the company’s reputation] and through it to foster directors to take into consideration also stakeholders’ interests in designing the company’s activity’. This type of report ‘never came to light’ and something similar was only provided for listed companies. A review ‘is an integral part of the duty of loyalty to the company’; and with ‘directors of a listed company having the duty to report on all the factors listed in sec. 172(1) CA 2006, their minds will, at at minimum, focus on stakeholders’ interests and […] the disclosure regime underpins the core of the duty of loyalty’. In 2013 the introduction of the ‘Strategic Report’ reinforced these obligations and ‘directors may breach the duties stated under sec. 172(1) whenever they do not give adequate attention to any of the factors therein addressed and the consequent decisions are clearly unsuccessful in business terms’ (but ‘damage to the company’s assets, however, shall always occur to enforce a breach of section 172(1)’). In other words, the Strategic Report informs members of the company and helps them to assess how the directors have performed their duties under Sec. 172, Companies Act 2006.

  123. See Szabó and Sørensen (2015), p 316. The authors underline that an ‘alternative’ could have been to ‘change the duty of directors or the purpose of companies (and other undertakings), but’ these would have been ‘more complicate solutions’ (fn. 45).

  124. Szabó and Sørensen (2015), p 317.

  125. Bruno (2017), p 321.

  126. Szabó and Sørensen (2015), p 321. The authors then provide more specifications on this theme: see pp 331 et seq.

  127. In the UK, for example, Part 15 of the Companies Act 2006 has been amended by inserting two new sections, 414CA and 414CB (following Sec. 414C). In this way, in implementing the Directive, the UK legislator has given ‘new life’ to Sec. 172(1). For more information on the implementation of the Directive in the UK see, for example, Bruno (2017), pp 323 et seq.

  128. [2017] OJ C 215/01. See point 1 (‘Introduction’) of the Communication. Point 2 (‘Purpose’) specifies that the aim of the guidelines is ‘to help companies disclose high quality, relevant, useful and more comparable non-financial (environmental, social and governance related) information in a way that fosters resilient and sustainable growth and employment, and provides transparency to stakeholders’. The guidelines ‘are intended to help companies draw up relevant, useful, concise non-financial statements according to the requirements of the Directive’.

  129. These are listed companies, banks and insurance companies.

  130. A BC that is not a public interest entity could in this way voluntarily submit to non-financial information rules and procedures.

  131. This provision is similar to the one contained in Legislative Decree No. 254/2016.

  132. This provision is included in the Directive.

  133. And this provision is only present in Italian law (Art. 3) and is not included in the Directive.

  134. The board of directors and the internal control body of a BC are responsible to the corporation if they do not compile an annual benefit report, as we have said. But also ‘members of the administrative, management, and supervisory bodies have collective responsibility for the management report. […] Member States should ensure that adequate and effective means exist to guarantee disclosure in compliance with the directive. To that end, the Member State should ensure that effective national procedures are in place to enforce compliance and that those procedures are available to all persons and legal entities having a legitimate interest in ensuring that the provisions of the […] directive are respected […]. It is less clear whether stakeholders should also be able to complain if the information disclosed in the statement (or separate report) is wrong or misleading’ (Szabó and Sørensen 2015, pp 338 et seq.).

  135. Called upon solely to formulate the evaluation standards that the companies will use to describe their own business.

  136. This is the reason why the rules of Directive 2014/95/EU are only mandatory for ‘certain large undertakings and groups’.

  137. Legislative Decree No. 145/2007 defines publicity as ‘any form of message that is diffused, in any way, in the pursuit of a commercial, industrial, craft or professional activity in order to promote the transfer of movable or immovable property, the provision of services or work, or the constitution or transfer of rights and obligations on them’ (Art. 2, para. 1, point (a)). Misleading advertising is ‘any advertising that in any way, including its presentation, is liable to mislead the natural or legal persons to whom it is addressed or that it reaches and which, because of its deceptive nature, may adversely affect its economic behaviour or, for this reason, that it is capable of harming a competitor’ (Art. 2, para. 1(b)).

  138. The definition of a professional is contained in Art. 2, para. 2(c), Legislative Decree No. 145/2007.

  139. The assumptions in nos. 1 and 2 seem to be ineffective.

  140. Art. 8, para. 2, Legislative Decree No. 145/2007 and Art. 2601 Civil Code.

  141. It will therefore be very complex for a court or for the Antitrust Authority to determine whether or not a company actually pursues the declared benefit objectives.

  142. The definition contained in Art. 3(a) (and (b) with regard to consumer associations), then replicated in Art. 18(a), of Legislative Decree No. 206/2005, does not appear to entirely match the list contained in paras. 376 and 378(b), Law No. 208/2015.

  143. Other specific rules regulating the company type adopted for the BC will probably apply to BCs. For example, the criminal liability of the legal person referred to in Legislative Decree No. 231/2001; or responsibility for the non-correct disclosure of information if, on the basis of the false representation of the pursuit of a common benefit, the company appeals to the venture capital market, thereby deceiving the investor. See, for example, Sartori (2011).

  144. According to the assumptions, social creditors can also take action against a BC’s directors for violating the duty to maintain the integrity of the company’s social capital (this duty also applies if the company also pursues social goals).

  145. Art. 2351, paras. 3 and 4, Civil Code. Particular solutions can also be envisaged in limited liability companies such as, for example, assigning special administrative rights to certain shareholders, or special property rights (Art. 2468, para. 3, Civil Code.).

  146. For example, Cal. Corp. Code, Sec. 14603 and 14604; Del. Gen. Corp. Law, § 363(a); Minn. Stat., Chapter 304A [Minn. Publ. Benefit Corp. Act], § 304A.102, subd. 1.

  147. See, for example, Verm. Stat. Ann., Title 11A, § 21.05(1).

  148. Cal. Corp. Code, Sec. 14603 and 14604; Minn. Stat., Chapter 304A, § 304A.102, subd. 3; the same in Del. Gen. Corp. Law, § 363(b), that however contain a detailed discipline and some exceptions to the general rule.

  149. See Brakman Reiser (2011), p 598: the author emphasizes, among other things, how ‘the statutes all declare that the general or specific public benefits that benefit corporations pursue are in the best interests of the corporation’.

  150. Not to mention that the corporate balance sheet will list the investments made to achieve the common benefit purposes, their impact on the company’s profit activity (for example, in terms of falling gains) and the foreseeable positive effects in the short or medium to long term. In essence, the benefit activity will also have to emerge in the annual financial statements, but no specific rule provides for ad hoc reporting obligations.

  151. See, as an example, Cal. Corp. Code, Sec. 14621 and 14630; Del. Gen. Corp. Law, § 366 (however, statutory rules may be derogated from in the bylaws, making the obligations for the company and its directors less compelling); Minn. Stat., Chapter 304A, § 304A.301 (in which a special penalty is provided if the obligation to draw up the benefit report is not fulfilled annually: subd. 5 allows a revocation of the benefit corporation status by the Secretary of State).

  152. See, e.g., Del. Gen. Corp. Law, § 366(c)(4), which allows, but does not oblige, the report to be made public; Minn. Stat., Chapter 304A, § 304A.301, subd. 1, which obliges the report to be transmitted to the Secretary of State for its deposit, without requiring verification or evaluation by a third party; Cal. Corp. Code, Sec. 14630(b), (c) and (d), which provides for the transmission of the annual report to each member, its publication on the company’s website or, failing a site, making a free copy available at the company’s registered office for any interested party). The contents of the rules vary from state to state; see a review in Brakman Reiser (2011), p 604.

  153. Environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters (see Szabó and Sørensen 2015, pp 321 et seq.).

  154. The undertaking’s business model, the policies adopted, the outcomes of these policies, the principal related risks, and ‘key performance indicators’ relevant to the particular business (see Szabó and Sørensen 2015, pp 324 et seq.).

  155. Consider also that the provisions of the ‘Guidelines on non-financial reporting (methodology for reporting non-financial information)’ contained in the Commission Communication 2017/C 215/01 could constitute a useful framework for benefit reporting.

  156. For example, assigning a complaint or alert authority to the supervisory body or to the director in charge of the benefit sector.

  157. We refer to joint stock companies because limited liability companies already have such an individual initiative.

  158. Further hypotheses regarding the revocation are regulated by Art. 2393, para. 5, Civil Code.

    In some states the law provides that the company cannot be held responsible for damages in the event of a failure to pursue the intended benefit (e.g., Minn. Stat., Chapter 304A, § 304A.202(b)).

  159. See, e.g., Cal. Corp. Code, Sec. 14623.

  160. Brakman Reiser (2011), p 605.

  161. Minn. Stat., Chapter 304A, § 304A.202, subd. 2 and 3.

  162. See Minn. Stat., Chapter 304A, § 304A.103, subd. 4.

  163. Toffoletto (2015), p 1209.

  164. Art. 50, para. 2(g), of the Treaty on the Functioning of the European Union requires Member States to ensure, in relation to freedom of establishment, coordination to make guarantees equivalent for safeguarding the interests of members as well as third parties (‘protection of the interests of members and others’).

  165. Art. 41, para. 2, provides that private business activity may not be in conflict with social utility or occur in such a way as to cause harm to human security, liberty, and dignity.

  166. According to the definition by Mosco (2017), p 216.

  167. Summarizing the words of Toffoletto (2015), p 1209.

  168. See Stella Richter Jr. (2017), p 7 and fn. 5.

  169. Directors’ diligence and care must be evaluated with particular attention in these special corporation models.


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Correspondence to Gianluca Riolfo.

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Riolfo, G. The New Italian Benefit Corporation. Eur Bus Org Law Rev 21, 279–317 (2020).

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  • Benefit Corporation
  • Directors’ fiduciary duties
  • Disclosure obligations
  • Common benefit purposes
  • Corporation governance
  • Misleading information