1 General Overview and Background

The discussion on the legal recognition of so-called benefit companies—which may include a wide range of forms such as B-Corps, BICs or the Italian società benefit, among others—is not a particularly longstanding phenomenon. Although the problem of their actual incardination within the legal system is relatively recent, the underlying scientific debate is much older and may be traced back to the end of the 19th century and the beginning of the 20th century. Traditionally, the different doctrinal approaches to this issue have sought to identify ways to include the interests of stakeholders or even the general interest into the company’s framework. In other words, the debate aims at enabling the for-profit purpose to coexist with other non-profitable objectives, so that the former may not be the sole goal of the entrepreneurial activity undertaken by companies. In this regard, ideal purposes shall be able to stand by profit, either as auxiliary objectives or even on equal terms. Non-profit purposes may range from more specific interests such as the protection of vulnerable collectives or entities to more abstract ones, including collective welfare and other interests which need not be specifically held by or attached to any individual.

Within this general framework, different academic proposals arose. Amongst them, the most widespread ones revolve around the idea of creating a legal entity which, besides being an economic actor, may be capable of including ideal or non-profit interests into its corporate structure and functioning. Most of these efforts take the form of theoretical approaches and have not been implemented by the legislature. However, few of them have had a significant influence and continue to be present in the current academic discussion. This is the case of the Unternehmen an sich theory, beckoning towards Walther Rathenau’s thought, even if the formula had been previously drawn up.Footnote 1

Although it may be less visible, the public function of large enterprises is equally relevant to this debate and is usually considered by contributors. Finally, proposals to adopt pluralist visions of the enterprise by including the specific interest of workers shall not be disregarded. The role of coworker participation (Mitbestimmung), due to its well-established regulations under German law, which are predominantly applicable to larger undertakings, is generally acknowledged.

Conversely, at times, the purpose of enhancing other stakeholders’ interest, different from the purely economic activity of the company and the distribution of profits among shareholders, is not particularly attached to any institutional or regulatory proposal. In other words, in most cases, there is no formal piece of legislation adapting or altering the company’s defining elements. Indeed, the ongoing debate has predominantly revolved around merely theoretical foundations aimed at providing the company with a wider purpose to render their economic activity compatible with the enhancement of other interests. The discussion has developed within the re-emergence of corporate social responsibility (CSR) and this trend has developed to the point of shaping its own legal regime.Footnote 2

Yet, the fact that larger undertakings may be more likely to engage in socially responsible practices and are typically subject to more burdensome regulations (for instance, those on non-financial reporting) is not decisive.Footnote 3 The crucial factor is that the ongoing discussion overflows its purely institutional side. The current academic debate is indeed set to enhance specific non-profit company forms but is also leaning towards a more abstract formulation of the problem, which may be applied on a larger scale.

2 Benefit Corporations and Company Forms

2.1 Introductory Remarks

Benefit corporations are rooted in the above-described phenomenon. However, they also present specific features which make them unique. First, benefit corporations combine and integrate profit-seeking purposes with one or several other interests. The latter may be public (general interest) or private in nature and are fostered as to conduct business in a responsible, transparent and sustainable manner.Footnote 4

Regardless of their legal recognition, which may vary from country to country, benefit corporations are legally autonomous subjects, and may even be awarded legal personality in several jurisdictions. In this regard, benefit corporations differ from other attempted approaches to the issue which have failed to assess the institutional side of the problem. The key factor is that benefit corporations seek to balance various interests within one legal subject. These must be advanced simultaneously and are not necessarily subordinated to one another.Footnote 5

To assess benefit corporations from a legal standpoint, one must observe them within an overall process of renewal of company forms. This is a regulatory trend which has developed within the international framework since the end of the 20th century. However, doubts arise as to whether benefit corporations shall be regarded as an actual contribution to this process of renewal. Their specific features and regulations, aimed at simplifying the formation and functioning of an independent legal subject, militate in favour of considering benefit corporations as new company form of their own.Footnote 6

Strictly speaking, benefit corporations are not merely simplified company forms as the ones enacted in recent times throughout many jurisdictions. However, they truly belong to the aforementioned trend in company law. In this framework, they fulfill the function of enhancing different interests within a single legal entity, which in turn poses doubts on their internal mechanisms and functioning.

Against this background, this paper assesses benefit corporations as a regulatory phenomenon which is closely connected but independent from other current trends, such as the renewal and simplification of company forms. In turn, within this book, this chapter assesses benefit corporations from the perspective of jurisdictions which have not enacted specific regulations to recognise them.

2.2 Ways to Articulate a Benefit Corporation

Even after providing a clear definition of what benefit corporations are, it is not possible to automatically adjust existing company forms to their specific features. This applies to both jurisdictions which have already enacted regulations on the issue as well as those who have not introduced reforms in this regard. Here, two alternatives arise. Sometimes, benefit companies are considered a new legal form and, if enacted, they are included in the country’s catalogue of available options for undertakers. It is nevertheless more frequent that benefit corporations are not instated as autonomous legal forms but rather result from adapting the existing ones.

The first possibility requires legislative action since, according to the general understanding in company law, freedom of contract does not allow undertakers to create new company forms. Under Spanish law, a literal interpretation of Article 122 of the Commercial Code (hereinafter CC) may suggest otherwise.Footnote 7 In the early years of the 20th century, this provision was relied upon by Notaries to create the private limited liability company (sociedad de responsabilidad limitada).

The second possibility, this is, benefit corporations resulting from the amendment of existing legal forms, may be formed without prior legislative intervention. However, as the experience of some countries shows, legislatures may instate adequate rules to facilitate the formation, organisation and functioning of benefit corporations. On a general basis, this is a valuable input although it may create legal uncertainty.

Accordingly, benefit corporations may result from adapting existing corporate forms (for instance, public or private companies). This phenomenon is protected by freedom of contract provided that applicable company law gives sufficient leeway.

Benefit corporations shall be framed within the discussion on company forms. This not only applies to Spain but also to many jurisdictions which have not enacted them. The so-called typological issue refers to the available choices for undertakers provided by the scope of freedom of contract that each jurisdiction grants.Footnote 8

On these grounds, according to a recent approach to the general understanding of company law, this branch of the law would be shifting from a dialectic based on legal forms, which was extensively discussed throughout the past century, to one built around models. Company models, as opposed to forms, generally refer to possible adaptations of corporate forms beyond the scope foreseen by legislature, but in full accordance with the applicable legal framework. In this sense, the benefit corporation may qualify as a company model, which may be adopted by undertakers, notwithstanding legislative reform.Footnote 9

The academic discussion on company forms varies widely across jurisdictions. For this reason, each country shall address the issue from their own standpoint. Significant differences on core notions of company law, namely, those affecting the contract from which the company arises, its objects and cause shall be considered. It is not the purpose of this paper to clarify few dogmatically controversial issues in this regard, although this task is still pending within the scientific debate. Among them, we now focus on the viability of inserting benefit corporations into legal systems that have not enacted them neither as an independent legal form nor model.

3 Viability of Benefit Corporations: The Spanish Case As an Example

3.1 Premise

For the purposes of the analysis, to avoid speculation, differences between families of legal systems shall be considered. For this reason, we now assess the issue from the perspective of Spanish company law. Since the Spanish Codification, in line with other Roman-Latin legal systems, companies shall only be formed to pursue profit.Footnote 10 Within this family of legal systems, profit belongs to the cause of the contract, as one of its three defining elements, together with consent and a lawful object. In these jurisdictions, the for-profit requirement may be an obstacle against the set-up of benefit corporations.

3.2 The For-Profit Requirement in the Commercial Code and Its Evolution

Article 116 CC requires commercial companies to pursue profit as their essential goal. For this reason, the discussion on benefit corporations must develop around this provision. Throughout the second half of the 20th century, Spanish scholarship extensively discussed the concept of company. As a result of this academic discussion, a wide majority of legal scholars today support the view that the for-profit requirement shall be disregarded as an essential element of the contract by means of which a company is created. Instead, a broader notion of company is generally accepted. Accordingly, a company may be formed upon two core elements:Footnote 11 the will to be bound by contract and a common purpose to all shareholders.Footnote 12

Indeed, the for-profit requirement may be incompatible with other in force provisions that have been enacted by subsequent company law reforms, namely, those regarding the public and private company, as opposed to provisions relating to partnerships. This contradiction can be explained by the fact that the latter, including the original provisions of the Commercial Code, have not been amended. Conversely, rules on public and private companies have evolved significantly due to their importance within the business environment. This process dates to the middle of last century because of the development of public and private companies after the enactment of specific legislation on each of them. In this way, Spanish company law followed the example of other jurisdictions and was able to put in place a comprehensive set of rules.Footnote 13

Both the Public and Private Companies Acts were the result of the works of domestic legislature. The situation shifted after the accession of Spain to the European Union, in the last years of the 20th century. This intensified the evolution of Spanish company law, which has undergone significant reforms up to the enactment of the Companies Act (Ley de Sociedades de Capital), which restated provisions on public and private companies. The Spanish Companies Act (hereinafter LSC) reflects the current legislative approach to this branch of the law, which combines—sometimes unevenly—the transposition of the EU law (namely, directives and regulations) with purely domestic reforms.

If one takes a closer look, this way of proceeding serves different purposes. First, besides fulfilling the state’s obligation to implement the EU law, the enactment of EU secondary law helps overcome incompleteness.Footnote 14 Unlike other EU Member States, Spanish company law has not achieved a sufficiently comprehensive system in accordance with its economic importance. The LSC, although an essential piece of legislation, is only an intermediary station within a transition towards a more general regulation, as the Preamble of the act itself indicates.

3.3 The Erosion of Profit Within the Cause of Commercial Companies

Up to this point, the analysis has focused on the evolution of Spanish company law from an external perspective. We now turn to the analysis of the core notions of the legal act by means of which a company is formed. Here, one must consider the doctrinal efforts in favour of a broader concept of company, which purported to disregard profit as an essential element.

This scholarly approach not only served the purpose of excluding profit, but also highlighted the dissatisfaction caused by the lack of amendment of the Commercial Code. In turn, this interpretation aimed at bringing Spain together with those legal systems in which profit is not considered an essential element of the company. To our understanding, this approach is not the main factor explaining the erosion of the for-profit requirement under Spanish law.

Article 2 LSC provides that public and private companies shall be deemed commercial in nature regardless their object. The object refers to the activity undertaken by the company, as indicated in the articles of association, to achieve its purpose. The so-called formally commercial principle was enacted back in the 50s and has not been altered ever since. On the grounds of this principle, every company (including private, public and partnerships limited by shares) formed in accordance with the LSC qualifies as a businessperson (empresario) and is subject to the provisions applicable to them.Footnote 15

Article 2 LSC is only applicable to companies, as opposed to partnerships. However, the provision is key to the current understanding of Spanish company law. It suggests that the commercial nature of the company is independent from the for-profit requirement since companies may undertake any lawful activity. This feature shall be considered for the purposes of establishing the definition of company law within the Spanish legal system.Footnote 16

Among the reasons that explain why the for-profit requirement may be eroding, one may consider the impact of non-financial reporting. Both non-financial reporting and benefit corporations may be regarded as cornerstones of the ongoing debate on CSR. By imposing non-financial reporting, EU legislation underlines the social dimension of companies and pushes forward their efforts to assess and meet the needs of a wide range of stakeholders, which transcend the economic activity they undertake to obtain profit.

3.4 The Role of Legal Scholarship Vis-À-Vis the Viability of Benefit Corporations Under Spanish Law

The coexistence of the traditional definition of company under the CC and Article 2 LSC may be assessed in different ways. On the one hand, the fact that these provisions apply simultaneously suggests a contradiction between core principles of company law. They are indeed difficult to reconcile from a dogmatic and systematic perspective, which is detrimental to legal certainty. On the other hand, such an exceptional situation may stimulate conceptual and dogmatic approaches aimed at resolving the conflict.

Legal scholars are therefore required to navigate many dissenting academic opinions and case law interpreting these legal provisions. However, most of the Spanish scholarship aligns with the view that the aforementioned provisions may be interpreted in a broader sense. This approach is strongly influenced by interpretative criteria extracted from other jurisdictions, namely Germany.Footnote 17 Accordingly, companies may be created for non-profit purposes and may be used to undertake a wide range of activities, to achieve different kinds of purposes, as long as they are in accordance with the object of the company.

Against this framework, we now turn to the raison d’être of commercial companies, which is typically used as a synonym for the cause of the contract.Footnote 18 According to scholarly proposals, the cause of the company contract is the shared purpose of shareholders.Footnote 19 The term cause refers to an essential element of the contract. This wording is generalised among scholars and court decisions,Footnote 20 although its exact meaning is full of nuances.Footnote 21 To assess the issue, we review scholarly opinions while trying to avoid excessive dogmatic considerations.

4 The Cause of the Benefit Corporation

4.1 Premise

Profit, as an essential element of commercial companies, is closely connected to the object of the benefit corporation. Typically, profit has been regarded as the sole purpose a company may pursue and, consistently, every other ideal or non-profit purpose has traditionally been excluded. As for benefit corporations, their object may include the pursuance of an economic activity together with other purposes and activities which are not economic in nature. Both types of interests may be placed at the same level and are not necessarily subordinated to one another.

As a result, the lawfulness of such amendments of the cause of the contract may affect the viability of benefit corporations. To tackle the issue, one should consider the above-described academic debate as well as the so-called erosion of the for-profit requirement. As a result of this process, profit is no longer regarded as the exclusive purpose of the company in the way it was conceived in the past centuries, namely, since the Codification and up until the last century.

4.2 Profit As the Sole Purpose of the Company in the Academic Discussion

However, several scholars strongly oppose the aforementioned proposals and sustain the view that profit shall be the only lawful purpose of a company. According to this second approach, the interpretative criteria relied upon to overcome profit are conceptually and systematically insufficient. Quite to the contrary, they consider that the for-profit requirement provides unity to company law as a whole and shall not be excluded without prior legislative reform. Furthermore, any other legal provision which may support the opposite view, such as Article 2 LSC, exclusively refers to the object of the contract and does not affect its cause.Footnote 22 Besides, the provision refers exclusively to public and private companies, as well as partnerships limited by shares, but not to other commercial entities such as partnerships. On these grounds, it is not possible to derive a general principle of Spanish company law.

In line with this approach, authors have considered that non-financial reporting, or even corporate social responsibility as a whole, is of a limited scope and would not restrict the for-profit requirement in any significant way.Footnote 23 Accordingly, the duty to report on non-financial aspects shall not be overrated and is not bound to be interpreted in the sense that companies included in the scope of application of such provisions are forced to consider stakeholders’ interests. Their board is not obliged to design a social program or to foster non-profitable activities. In turn, this does not mean that directors are not legitimised to implement activities or make decisions which enhance the interests of stakeholders beyond profit. This view opens the door for corporate social responsibility within company law.

The conclusion that may be drawn from this line of thought is that benefit corporations may not be formed in legal systems where this legal form is not recognised, namely, whenever profit is an essential element of the company. In other words, freedom of contract shall not insert ideal or non-profitable purposes into commercial companies with a view to create hybrid entities. According to this view and in sight of the comparative framework, benefit corporations would require an express legislative recognition.

4.3 Viability of Benefit Corporations Without Prior Legislative Recognition

4.3.1 General Remarks

However, in our opinion, such conclusions cannot be sustained. This does not mean, of course, that the results are entirely biased. It is to be acknowledged that the Spanish Commercial Code does foresee profit as an essential element of the company. We believe that the previous opinion may be nuanced in sight of the comparative framework, including those legal systems where benefit corporations have not been expressly foreseen. What we refer as the erosion of the for-profit requirement highlights a dissatisfaction towards the current legal framework. Regulations have not been adapted to the complexity of contemporary markets as to embrace the larger number of interests at stake.

Such dissatisfaction explains the favourable approach to a broader concept of company, which focuses on the existence of a shared interest by all shareholders, instead of narrowing it down to profit. This conclusion is reinforced by Article 2 LSC, which sustains the view that only the will to be bound by the contract and the pursuance of a common objective are essential elements of a company. Besides, the principle according to which companies qualify as commercial entities regardless their object is generally accepted across many jurisdictions, including Spanish law.

The fact that Article 2 LSC is only applicable to public and private companies, as opposed to partnerships, does not militate against a more extensive understanding of this provision. First, public, and private companies are the most widespread legal form within the business environment in many jurisdictions. Second, in Spain, the modernisation of provisions applicable to companies has only focused on public and private companies. As a result, any possible shift on the part of policymakers has only been reflected in the Companies Act and not in the Commercial Code. These are not merely quantitative or technical nuances, but indeed provide an argument in favour of a non-restrictive approach to the cause of the contract. We believe that the problem must be assessed from a broader perspective by considering the heterogeneity of contemporary company law. This is the only possible way to channel all the interests that are affected by the formation and functioning of a company.

4.3.2 The Benefit Corporation: A Legal Entity with a Hybrid Cause

Traditionally, companies have been regarded as having one single cause or purpose (profit). However, this idea has already been overcome in Private Law, where scholarship accepts that a contract may be entered into as to pursue more than one cause or purpose. Doubts arise as to whether this idea shall apply by analogy to companies, but a few elements for the discussion may be drawn from it. Under general Private Law, contracts with pluralistic or hybrid cause are admissible.Footnote 24 This outlook is deeply rooted in the dogmatics of the Law of Contracts and is indeed generally accepted in Roman-Latin jurisdictions, such as Spain.Footnote 25

Contracts having more than one cause may be distinguished from so-called colligated contracts. The hybrid cause refers to a unitary contract with two causal drivers. The coexistence of two causes poses questions on their compatibility and balance within the formation and execution of the contract.

Indeed, a hybrid cause is better aligned with the will of the founders of a benefit corporation or, in jurisdictions that do not foresee them, the one of the founders who try to adapt an existing legal form to the features of a benefit corporation. Here, the company arises from one legal act with a two-fold cause: the pursuance of profit, on the one hand, and the benefit purpose, on the other hand. The result is a hybrid cause, that will then reflect in the organisational framework throughout the company’s life. This will affect the implementation of the company’s activities.Footnote 26

This proposal is consistent with the general understanding of company law in the comparative framework. In turn, it shows how companies may adapt to a more complex model to form a benefit corporation, an entity with a hybrid cause. The implementation of such a hybrid entity must consider the contractual nature of companies, namely, their organisational and institutional side.

Founders shall make a responsible use of freedom of contract. The implementation of a benefit corporation without specific legal recognition may confront technical obstacles, namely, concerning the registration of the company. For this reason, sufficient leeway shall be granted to undertakers. Particularly, each jurisdiction foresees different preventive mechanisms as to ensure that the company fulfills the legal requirements for registration. In the case of Spain, this is the task of notaries and commercial registrars. They may play a significant role vis-à-vis benefit corporations in a manner similar to the way notaries supported the creation of private limited liability companies.Footnote 27

5 Concluding Remarks

The analysis contains a limited number of reflections on the viability of benefit corporations which affect core concepts of company law. Benefit corporations are at the cross-roads of two fundamental issues: the catalogue of available company forms and freedom of contract. As we have seen, the traditional understanding of the problem refers to the contractual side of benefit corporations. However, one may also place them within the debate regarding the renewal of available company forms. This process usually requires legislative action, even if this action is merely symbolic and only intends to clarify doubts as to the admissibility of a new company form. Conversely, at times, the creation of new forms relies entirely on contractual freedom, namely, when it comes to adjusting an existing form or model.

The renewal of available company forms is not a goal in itself, but rather seeks to provide adequate solutions to actual business demands and new market circumstances. As the analysis has shown, within this process, it may also foster a more ambitious goal: allowing for entrepreneurial activity to be undertaken in a way that renders transparency, social concerns, and sustainability compatible with the pursuance of distributable profits. As a result, the uprising of corporate social responsibility shall include the perspective benefit corporations. However, the regulatory trend of enacting them is asymmetric. While few jurisdictions have not addressed the issue yet, others confront serious obstacles to regulate them.

The latter include those countries where profit qualifies as an essential element of the company. By assessing them throughout this chapter, we have argued in favour of their viability within this type of legal systems. The answer is, of course, the result of multiple factors affecting contemporary company law. This branch of the law is a heterogeneous arena where, as the Spanish example has shown, profit, as an essential element of the company, must be reconciled with other in force provisions.

Beyond more traditional arguments, it is arguable that a company, as any other kind of contract, even those lacking an organisational nature, may present a pluralistic or hybrid cause. This shall be the case whenever the founders aim at blending the pursuance of profit with other interests of a more general nature. The articles of association will play a significant role to describe such a hybrid cause. We believe this result is possible under Spanish company law although founders may confront difficulties when drafting the articles of association.

Finally, benefit corporations are only one example reflecting radical changes within the social and political organisation of states, which go all the way back from the Codification to our days. Throughout the 20th century, the state had the power to channel profitable purposes through commercial companies, while displacing other non-profitable goals to the scope of non-profit entities. Today, the situation is different because of multiple factors well beyond benefit corporations.Footnote 28

It is true, indeed, that benefit corporations transcend such a narrow framework. In line with other corporate social responsibility phenomena, they serve the purpose of channeling non-profitable interests through company law mechanisms. It is debatable whether such an option shall be granted to business actors by means of a legislative reform, but the number of jurisdictions that have taken this approach is increasing. The implications of such a policy strategy with regard to legal certainty are outside the scope of this paper. Our results focus on jurisdictions presenting a “regulatory vacuum” vis-à-vis benefit corporations.