Conversion to a Benefit Company and Dissenters' Rights

The conversion of an ordinary corporation or a limited liability company (LLC) to a benefit company and the termination of the benefit status may trigger dissenters’ rights (also known as appraisal rights) under certain state statutes. However, this consequence does not occur under other statutes, and some states follow ordinarily applicable rules. Three distinct interests are connected to this issue, including minority shareholder protection, benefit companies’ diffusion, and legal certainty. Across the United States, state statutes address these interests in varying ways. Granting shareholders dissenters' rights serves to safeguard minority shareholders and clarify the consequences of conversion, but it may hinder the spread of benefit companies. Conversely, excluding such rights tends to facilitate companies' acquisition of benefit status, potentially neglecting minority protection and, in the long term, prompting dissatisfaction among members or shareholders regarding the company's new objectives. In the latter scenario, adherence to standard dissenters' rights regulations may affect legal certainty, particularly when dissenters' rights cases are irrelevant or not utilized in the matter at hand and may not necessarily offer sufficient protection to minorities or promote the proliferation of benefit entities. Statutes pertaining to Benefit LLCs, Low-Profit LLCs, and regular LLCs may address the withdrawal rights of members, with some explicitly outlining these rights while others remain silent. An operating agreement can establish events that lead to a member’s dissociation. The different approaches to withdrawal rights in case of conversion to a benefit entity or amendment of the LLC purpose to provide a benefit goal will consequently depend on the choices made in each LLC operating agreement. Through an analysis of the evolution of dissenters’ rights and the potential impact of the conversion to a benefit company, this Article aims to verify how to balance the heterogeneous interests related to the issue and propose a solution. The adoption of a benefit goal—even if a specific one—does not necessarily profoundly affect the company’s purpose or the risk run by shareholders or members. The proposed approach of this Article distinguishes between consequential and inconsequential outcomes of converting to a benefit company. Consequently, it advocates for minority protection through dissenters' rights only in cases where the impact of the conversion is substantial.