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Hastings International and Comparative Law Review

Authors

Alissa Mickels

Abstract

Traditionally, organizations are divided into three sectors: for-profit, non-profit, and the government. Over the past few decades, a new Fourth Sector of organizations has been emerging in the U.S. and abroad. These "Fourth Sector" organizations attempt to integrate social purposes with business methods as seamlessly as possible. A few social entrepreneurs take a more ambitious approach to this "hybrid" approach and are creating For-Benefit corporations that, in addition to integrating social purposes with business methods, adopt a corporate policy to benefit all stakeholders, require inclusive governance and ownership, accountability, and transparency. Will the law allow these For-Benefit corporations to benefit non-shareholder constituents? How much charitable donation will be allowed before the court holds that donation is corporate waste? This note discusses the emergence of a new corporation known as the For-Benefit corporation and how publicly owned For-Benefit corporations in the U.S. and Europe can avoid shareholder derivative suits and violations of a director's fiduciary duty when non-shareholder constituents are served. Although there are relatively few cases addressing the legal constraints on socially responsible companies, precedent in the U.S. offers a likely favorable outcome for directors in possible shareholder derivative suits for alleging corporate waste or violations of fiduciary duty.

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