Published and draft legislation - Puerto Rico

New companies promoting social objectives

Act 233, 22nd December 2015

The regulation introduces a series of changes into the General Companies Act 164/2009. This Puerto Rican law creates two new types of company: the Limited Liability Company with a Social Purpose, an adaptation of the existing Limited Liability Company, and the Social Benefit Corporation; both are for-profit entities whose purpose is to benefit specific groups of people in society. These types of companies already exist in some US states, going by the name of B Corporations, but were unknown up to now in Puerto Rico.

The regulation defines the Social Benefit Corporation as a for-profit company that can issue securities and capital stocks, and whose mission and purpose are to promote the public good in general. This is understood as a positive impact on society or the environment that can be measured and assessed by independent standards.

Characteristics

Social Benefit Corporations and Limited Liability Companies with a Social Purpose have the same characteristics as normal companies, but with higher standards in the areas of social purpose, directors’ and governing officers’ accountability, and transparency.

The social purpose is extended to promote social benefit. Some of the activities that are classified as being of general public benefit are:

  • Providing services to low and medium-income individuals or communities (income under 80% of the average for Puerto Rico)
  • Promoting economic opportunities and work for low-income individuals or communities

When it comes to directors andgoverning officers’ accountability, the fiduciary duties of directors are extended to include non-financial interests such as the interests of employees, clients, the community and other social factors.

In order to avoid potential conflicts of interest with the institution’s commercial purpose, the law explicitly protects and exempts directors of these companies from possible liability for harm that may come to the company, provided that such harm is the outcome of decisions reached in good faith and in compliance with the social benefit.

In addition, each company must appoint a Social Director, in charge of the internal policy of social benefit and of making sure it is followed.  Similarly, a Social Benefit Officer may be appointed to administer the policies.

With regard to transparency, as well as the annual reports that all companies must produce, these social benefit institutions must produce an annual report on their social performance, one that includes the internal policies and plans for promoting public benefits; information and facts on the company’s degree of success in meeting its targets; and a general social responsibility report that conforms to standards developed by an independent third party.

Advantages

The nature of this type of company make it very clear to managers and governing officers that their fiduciary duty is to bear social interests in mind and to give them legal protection when making decisions that affect such interests.

It also enables companies to differentiate themselves “officially” in a cacophonous market in which many firms advertise their social awareness.

It should act as a selling point for investors and make it easier to access public funds earmarked for promoting social benefits

In the fiscal arena, for the moment there is no accompanying reform to Puerto Rico's fiscal legislation granting any tax advantages to these companies.