Purpose in Business Association Statutes: Much Ado About Something (But Not Much)

Research Handbook on Corporate Purpose and Personhood (Elizabeth Pollman & Robert B. Thompson, eds., Edward Elgar Publishing, forthcoming 2021)

17 Pages Posted: 13 Apr 2021

See all articles by Brett McDonnell

Brett McDonnell

University of Minnesota Law School

Date Written: April 8, 2021

Abstract

In recent years much attention has focused on identifying or creating legal forms for business associations that enable and promote social enterprises and socially responsible behavior. One strategy in enterprise governance that has received renewed attention is formal legal definitions of the purpose of a business association. This chapter examines two questions. First, what do current legal rules and norms applicable to most business organizations say about the proper purpose of a company, and how much do those rules constrain businesses from pursuing social missions that do not prioritize, and may sometimes reduce, profit? The chapter considers statutory and case law for corporations and LLCs, and argues that Delaware corporate law does create a presumption that corporate purpose is to maximize shareholder wealth, but this does little to constrain corporate social responsibility or social enterprise. Second, how effectively can companies use statements of purpose to help them behave responsibly and pursue social missions? The chapter looks at four forms of business association that attempt to encourage social enterprise: L3Cs, benefit corporations, nonprofit corporations, and cooperatives. All four use purpose as a governance tool in some fashion, suggesting that purpose has some use in promoting social responsibility. However, the forms of association which use varied strategies beyond purpose achieve much stronger commitment to desired social goals.

Keywords: corporate purpose, social enterprise, corporate social responsibility

JEL Classification: G30, K22, L21, M14

Suggested Citation

McDonnell, Brett H., Purpose in Business Association Statutes: Much Ado About Something (But Not Much) (April 8, 2021). Research Handbook on Corporate Purpose and Personhood (Elizabeth Pollman & Robert B. Thompson, eds., Edward Elgar Publishing, forthcoming 2021), Available at SSRN: https://ssrn.com/abstract=3825245

Brett H. McDonnell (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-1373 (Phone)

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