‘B’ corporations: Will Nevada be left behind?

Nevada represents itself as a business-oriented jurisdiction; organizations such as the Nevada Development Authority solicit business owners in California and other states to relocate their enterprises to the Silver State, where the corporation laws are progressive and the tax environment is attractive.

However, the latest trend in corporate law -- the benefit corporation -- threatens to leave Nevada trailing well behind other states in the race to attract and retain businesses and the jobs associated with them.

The benefit corporation -- or B Corp -- is a business entity that creates a public benefit and satisfies certain tests of transparency and accountability. Unlike traditional corporations, in which shareholders alone elect directors who then serve at the pleasure of the equity owners, the directors of a B Corp hold a duty to serve the best interests of all stakeholders, including shareholders, employees, customers, suppliers, the community and the environment.

Maryland was the first state to enact laws recognizing B corporations in early 2010, and 10 other states followed with similar legislation, progressing through the legislative process. Because Nevada's Legislature convenes only once every second year, it is critical for the state's elected officials to introduce and pass B Corp legislation during the 2013 session. What's more, this important development in corporation law should become a talking point during the forthcoming election cycle.

While these concepts may sound like a left-wing response to the financial crisis of the past several years, propagated by those individuals otherwise busy occupying Wall Street, this notion of social responsibility is standard practice in other parts of the world. Indeed, the concept of benefitting stakeholders rather than just shareholders has long existed in the corporate cultures of Germany, France and other leading economic states. This is achieved through corporate governance practices that rely upon more than the "invisible hand" of capitalism. The bylaws and other governing documents of such European companies legally compel directors to consider the impact their decisions will have upon employees, customers and suppliers.

For those of us who still think Ronald Reagan and Michael Milken were great men, it may be tempting to dismiss the concept of "stakeholder interest" as a passing whim, but it is critical to give entrepreneurs, investors and other business decision-makers the option to form a B Corp in Nevada if we are to remain a leading state for incorporations. The empty carcasses of failed casino projects and vacant car dealerships littering our landscape should serve as a clear reminder of Nevada's need to diversify the local economy. As "social responsibility" and "environmental impact" become buzz words in corporate boardrooms and investor conferences, Nevada must present business owners with the option to utilize a B Corp. This new form of business entity may be ideal for businesses ranging from manufacturers of solar panels to internet retailers targeting the youth market.

Model legislation has been circulated throughout the United States. If adopted in Nevada, this B Corp legislation could easily be codified in the Nevada Revised Statutes as Chapter 78B, for example, and the secretary of state's office -- now responsible for collecting the Nevada state business license fees -- could begin forming B corporations upon enactment.

Incorporation fees and state business license fees are a significant source of revenue for the State of Nevada, and the indirect benefits of attracting businesses to this state are even greater. Just ask the ranks of the unemployed.

Paul R. Wassgren is a corporate law partner in the Las Vegas and Los Angeles offices of Fox Rothschild LLP.