Purpose-Driven Companies and the Projected Legal System for Benefit and Collective Interest Companies in Chile

Abstract

This chapter describes the situation of purpose-driven companies in Chile and the system for benefit and collective interest companies, which have been discussed in Congress since 2017. This requires contextualizing the reception of certified B Corps in the country since 2012 and the different bills that have been presented to regulate them. Only one of them has prospered, although without positive results thus far.

This publication is one of the results of the R & D & I project UAL2020-SEJ-C2085 under the European Regional Development Fund (ERDF) Andalusia 2014–2020 operational programme, entitled “Corporate social innovation from Law and Economics.”

1 Introduction

In Chile, there is no specific legislation for purpose-driven companies, nor is there recognition of social enterprises as a special category.¹ This absence is paradoxical if we consider that the country has 26% of the certified B Corps in Latin America.² However, legislative initiatives have been the topic of public debates, even though their fate has been diverse. The first of these dates back to 2013 and came from the Ministry of Economy, Development, and Tourism, which was followed by another proposal made public in 2015. In the parliamentary field, there have been two motions, one in 2015 and the other in 2017, presented by then Congresswoman Maya Fernández Allende (Socialist Party of Chile) and then Congressman Felipe Kast Sommerhoff (Political Evolution—Evolución Política), aimed at regulating social enterprises, although each of them with different results.³ Only the latter prospered in the parliamentary discussions, albeit with meager results.

Next, the movement of certified B Corps in Chile is described, and each of the recently mentioned bills is analyzed, emphasizing the one that has aroused discussion. Finally, some conclusions and perspectives are offered.

2 The Certified B Corp Movement in Chile

The beginning of the 2010s showed a growing interest from important groups of Chilean society in facing social problems through forms of hybrid business organizations.⁴ In September 2011, Pedro Tarak, María Emilia Correa, Gonzalo Muñoz, and Juan Pablo Larenas traveled to New York to meet the founders of B Lab with the purpose of replicating their business model in Latin America. Beginning in 2012, the B Corp certification system began operating in the country through an initiative called “B System” (B Sistema in Spanish), a private law corporation that has an international franchise granted by B Lab, following the trend that was beginning to materialize in the United States at that time in legal frameworks for the operation of this class of companies.⁵ For the new business model, the name empresa B (in Spanish, meaning B company) was adopted. That year, TriCiclos was certified, the first certified Chilean B Corp. TriCiclos is a Chilean company that seeks to reduce the problem of waste before it is generated or to ensure that it has the most circular destination possible (through its reuse, return, and recycling).⁶

The growth in the number of companies was gradual and sustained. For example, by September 2014, there were already 53 certified B Corps in the country,⁷ with a turnover in excess of US$100,000,000.⁸ A year later, BancoEstado Microempresas (State Bank Micro-Enterprises), one of the subsidiaries of Banco del Estado de Chile (Chilean State Bank), was certified, and the Spanish translation of Ryan Honeyman’s book on B Corps was published.⁹ At that time, the Ministry’s Associativity Division considered certified B Corps, as well as fair trade-related ventures, to be social enterprises.¹⁰ In January 2021, Viña Concha y Toro obtained its certification, becoming the first listed public limited company to obtain a certified B Corp status in Chile.¹¹ During that year, 48 new companies were added, including the first “unicorn,” Betterfly.¹² As of February 2022, there are 810 certified companies in Latin America, 210 of which are Chilean.¹³ The reasons for this boom experienced by certified B Corps are found in the economic and social reality of the continent itself, which demands solutions that are not (or not timely) provided by the respective states.¹⁴

However, in February 2022, 54% of a sample taken from among people linked to entrepreneurship and innovation still believes that the triple impact model implemented by these companies has not permeated into the country’s business field.¹⁵ For the supporters of the movement, the challenge continues to be the legal recognition of the business model.

3 The Ministerial Draft Bill of 2013

In 2012, the Ministry of Economy, Development, and Tourism convened two panels to discuss initiatives (contained in the program of the first government of President Sebastián Piñera (2010–2014)) that would make the promise of achieving the economic development of the country by 2018 a reality, launching a sustained and sustainable growth plan to achieve this goal.

The first of these was devoted to drafting a document aimed at proposing a national policy on social responsibility for the sustainable development of the country. The second panel sought to generate a space for discussion on new business models for companies in the fourth sector, evaluating the suitability and justification of legislation that recognized them and gave them legal certainty to operate. Based on the existing legal framework, the participants agreed on the need to give visibility to two types of entities: worker cooperatives (Articles 60 to 64 of the General Law on Cooperatives) and functional community organizations (Law 19.418).¹⁶

The work of the second panel concluded with the writing of a draft bill that recognized and regulated companies belonging to the fourth sector, which was presented to the Ministry of Economy, Development, and Tourism on April 30, 2013, with the support of Sistema B (B System) and the Association of Social Enterprises.¹⁷ Unfortunately, this text, coinciding with the electoral situation of the country at that moment, did not receive political support from the government and was not presented to Congress.¹⁸ Its existence was little known, and its text was only circulated informally among groups of people related to social entrepreneurship.¹⁹

The bill recognized civil and commercial companies that voluntarily complied with its requirements as fourth-sector companies (Article 1). It did not contemplate a new corporate business model but rather allowed existing ones to benefit from the law voluntarily through a reform of their statutes and the observance of certain practices in the future (Article 2). In any case, the bill offered a broad definition of a company from the fourth sector since it referred to a dynamic concept that must have room to evolve. Therefore, the companies that had this characteristic were as follows:

those legal entities, whose corporate purpose includes generating a positive material impact on society and the environment, their managers not being able to adopt policies or decisions that contravene that purpose, and reporting social and environmental performance using the standard of an independent third party (Article 3).

The bill immediately defined when a company is considered to generate a positive social or environmental impact:

[when it] develops its business complying with sustainability standards in all [sic] dimensions, from its labor, environmental policies, with its suppliers, communities, or other different stakeholders that the company defines (Article 3).

For companies to be recognized as belonging to the fourth sector, they had to incorporate in their statutes the mentions established by law and be registered on the public registry of the Undersecretariat of the Economy and Smaller Companies of Chile, after verifying that the statutes had included such elements required by law (Article 4). If the company was a public limited or joint-stock company, the modification to become a fourth sector company had to be adopted by a two-thirds vote of the shareholders with voting rights (Article 5).²⁰ In the case of a public limited company, any shareholder who would not have consented to the statutory change of the company to a fourth sector company had the right to withdraw under the terms of Article 69 of Law 18.046 on Public Limited Companies (Article 7).

To give credibility to the system and the market, the bill required fourth-sector companies to prepare an annual report, where they notify the fulfillment of their social or environmental purpose. This had to be audited by an independent third party and subsequently published on both the public registry created for them and the company’s website (Article 6). These high transparency standards were intended for the market to judge and draw its conclusions regarding the impacts that this class of companies generated compared with other economic agents.

The bill included a concept that remained in subsequent bills:

directors or administrators cannot adopt decisions and policies that do not have, as their basis, the organizational purposes defined in accordance to this law, including therein, the social or environmental impact, with the company itself, its partners or administrators being able to claim judicially the observance of this duty (Article 8).

The loss of recognition would arise from different causes:

(i) by the will of the partners, shareholders, or of the constituent assembly, which should materialize through the reform of statutes following the quorums required by law; (ii) when the company did not present the audited reports to the registry, or if the audit found, as a result, that the company was not fulfilling its social or environmental purpose; (iii) when there is a court decision that the company was in breach of its obligations (Article 10).

Whatever was the reason for the loss of the fourth sector company status, this circumstance had to be noted in the margin of the corporate registration, without this entailing a dissolution of the legal entity (Article 10).²¹

Company obligations, arising from commitments taken on to generate positive social and environmental impacts, could only be enforced by the company itself or any of its shareholders, partners, or administrators but not by unrelated third parties (Article 9). This is because the stakeholders do not assume reciprocal obligations as a counterpart to those assumed by the company; thus, only the latter, its partners, and administrators have sufficient legitimacy to claim noncompliance with the commitments that have as a cause the statutorily indicated generation of social or environmental impact.²² In this way, the minimum protection for these third parties, and in general for the market, was the fact that the company would lose its status if the audit detected that the said purpose was not being fulfilled in practice (Article 10).

In addition to legal recognition, the first Chilean bill brought with it an important tax benefit for fourth-sector companies:

the expenses and costs, including audits, that the company had to incur to meet the objectives and obligations taken on under the law, were considered necessary to produce income and deductibles from its taxable base for income tax purposes (Article 11).

4 The Ministerial Draft Bill of 2015

In a more general and open way than what happened with the panels held in 2012, the “Agenda for productivity, innovation, and growth,” presented on May 16, 2014, by President Michelle Bachelet for her four years of government (2014–2018), included the promise to send a bill to Congress to create a legal framework for social enterprises, establishing their rights and obligations and giving them the certainty they require to operate, including their formal unified registration (through number 42).²³ Immediately, the Ministry of Economy, Development, and Tourism began to work to make that commitment a reality and, in March 2015, made public the draft bill to regulate social enterprises, which was socialized and submitted to the consultation of B System and the advisory public-private associativity (Consejo consultivo público-privado de asociatividad y economía social) and social economy council.²⁴ However, as had happened with the previous government initiative, this bill was not officially published.²⁵

Moreover, this proposal also lacked the political and budgetary support needed to begin its parliamentary process. The internal changes in the composition of the Ministry of Economy, Development, and Tourism after the resignation of Katia Trusich Ortiz from the post of Undersecretary of the Economy and Smaller Companies on January 4, 2016, as well as observations by the Ministry of Finance on the tax aspects involved, led to the draft bill being eventually forgotten and the government finally supporting the second motion of Congresswoman Fernández and Congressman Kast, which will be explained later.²⁶ It is this initiative that has attracted parliamentary discussions.

This second ministerial bill intended to regulate both the growing social economy sector and the so-called social enterprises.²⁷ The bill thus assumed that both terms, although related to each other, admit a certain differentiation. In this sense, social economy denotes the macroeconomic dimension of the phenomenon because it offers an overall look at the solidarity system using the collective or global magnitudes to describe it and observing the impact their principles and values have. This includes the primacy of persons and social purpose over capital; the application of the results of economic activity, which takes into consideration the work provided, along with the service or activity carried out by the partners; the promotion of internal solidarity and solidarity with society; and the independence of public authorities.²⁸

This reality required a coherent public institution. Therefore, Title IV of the bill foresaw two separate institutions as a materialization of positive subsidiarity that corresponds by nature to the state, also called “duty of interference,” one dedicated to supervision (the Department of Supervision, Registration, and Control of Social Enterprises) and the other to the promotion of this sector of the economy (the Division for the Promotion of Associativity and Social Economy).²⁹

In turn, the definition of social enterprises as a legal status itself required discriminating the genre (of companies) and the specific difference behind the proposed regulatory system (what is known as social, compared with others that are purely focused on seeking profit to be shared among the partners). Thus, the view was microeconomic because it paid attention to specific agents, which under the company’s organization operate in the market within the social economy category.³⁰

Within this context, the ministerial proposal defined social enterprises as “those associative-based legal representations engaged in an economic activity, whose purpose includes, in addition to their line of business, creating [sic] a positive material impact on society or the environment, either based on its own legal type or by the decision of its members and what is laid out in the statutes” (Article 3, point (g)).

Because of their legal type, the status of social enterprises corresponded to cooperatives and trade associations (Article 4).³¹ Meanwhile, purpose-driven companies also had this condition to the extent that they modified their statutes to incorporate a social or environmental benefit and underwent certification by an authorized agency (Article 5). Concerning the latter, the 2015 bill was based on the regulation made by the one from 2013 (Articles 7 to 14), which introduced the appropriate improvements.³²

The status of social enterprise brought with it a series of benefits, which were developed in Title III of the bill. From an operational viewpoint, benefits related to expenses and costs, including expenses from audits that the company had to make to meet the goals and obligations for its classification, were considered necessary to produce the income and, thus, were deductible from the taxable income for income tax purposes. The same applies to benefits that have a social or environmental purpose (Article 26). Although the Internal Revenue Service criterion is restrictive and specifies that only essential or unavoidable expenses for income generation should be considered necessary expenses to reduce taxable income,³³ the situation would change as a result of Law 21.210 of February 24, 2020, which expanded the definition of “necessary expense to produce income.”³⁴ The new wording of Article 31 of the Income Tax Law (contained in Article 1 of Decree in Law 824/1975) indicates that necessary expenses are understood as “those that can generate income, in the same or future years, and that are associated with the interest, development or upkeep of the business.”

Likewise, the social enterprise classification allowed benefiting from state technical support (Article 22), operating in protected wildlife areas (Article 25), and having preference in public procurement or tender processes when facing technical ties (Articles 23 and 24).

In any case, the most important benefit was the opportunity to apply for a development fund foreseen in the bill, which focused on providing the resources needed for business and organizational management training for social enterprises that were either newly created or in the incorporation or classification process, as well as disseminating and promoting this form of entrepreneurship (Article 17). The administration of this fund was entrusted to the Division for the Promotion of Associativity and Social Economy (Article 19).

However, the draft bill had a formulation issue, arising from the breadth of the spectrum it looked to cover, and perhaps it was that ambition (following the political commitment behind it) that harmed its viability. Since it sought to encompass different classes of social enterprises, either by legal type or by registration, the standards imposed to delineate this category were not suitable for all companies, especially those that referred to gender equity, democratic participation in decisions, and the distribution of profits, as occurs in benefit and collective interest companies. Something similar can be said of the administrative reorganization of departments related to the social economy, which gave the false idea of a greater increase in public spending on bureaucracy when in reality it sought to separate different realities (the promotion of social enterprises on the one hand and their control on the other hand) and encourage administrative decentralization using the same existing resources.

5 Parliamentary Bill of 2015

On November 6, 2015, then Congressman Felipe Kast and Congresswoman Maya Fernández introduced a motion aimed at regulating social enterprises, using the name Bulletin No. 10.321-13.³⁵ This bill was the first effort to regulate this type of entrepreneurship, until then (and still today) only accredited by a private agency (B System) and without greater recognition than that given by the press and the market. However, the proposed legal text was brief and not well handled from a dogmatic and stylistic viewpoint.³⁶ Nevertheless, the initiative did not progress beyond its presentation on the floor, before moving to be studied by the Congress’ Committee on Economy; Development; Micro, Small, and Medium Enterprises; Consumer Protection; and Tourism.³⁷

The 2015 motion has at its heart the legal recognition of certified B Corps.³⁸ It contained only three articles. Article 1 said that social enterprise was a particularization of for-profit persons who, as part of their corporate purpose, included the generation of a positive social or environmental impact and registered themselves in a special public registry. Article 2 imposed on directors and managers the duty to ensure the fulfillment of social goals rather than maximizing profits. Also, Article 2 recognized a civil action for members to demand the fulfillment of these goals more than compensating for the damages caused. Lastly, Article 3 harked back to the regulations that the Ministry of Economy, Development, and Tourism should rule upon for the implementation of the law.

6 Parliamentary Bill of 2017

The bill, currently under discussion in Congress, was presented in 2017 by Congresswoman Maya Fernández and Congressman Felipe Kast. With regard to this project, it is possible to distinguish three different moments: the original bill, the amendments presented by President Michelle Bachelet, and the following orientation assigned to the matter by President Sebastián Piñera, who also attached extreme urgency to the bill for its discussion.

6.1 Original Bill of Congresswoman Fernández and Congressman Kast (2017)

On June 13, 2017, Congresswoman Maya Fernández and Congressman Felipe Kast presented a new bill (Bulletin No. 11273-03) aimed to regulate benefit and collective interest companies (empresas de beneficio e interés colectivo), to give them credibility and legal certainty before society and investors.³⁹

This parliamentary motion seems to have a much greater depth than the other more or less contemporary Latin American bills because its objective is the creation and operation of benefit and collective interest companies (Article 1). The bill recognizes that there are economic agents whose genesis and mission are based on providing a social purpose, which requires mechanisms so that the mission and impact are maintained over time.

The bill has some signs that allow thinking that this is a new business model defined in a way similar to public limited companies (Article 3),⁴⁰ which explains why its text concludes with a modification (described as an “imperfect faction”⁴¹) to the duty of directors to propose amendments to the statutes that are contrary to the corporate interest contained in Article 42, No. 1, of Law 18.046 on Public Limited Companies (Article 12).⁴² This is why Article 4 indicated that the status of a benefit and collective interest company is acquired through its incorporation based on the provisions of the proposed law or through a reform of its statutes and compliance with other formalities provided for in the bill.

This status is somewhat blurred, since the bill itself explains that there is a certain degree of supplemental applicability, as benefit and collective interest companies are governed by their special law and, in turn, are subject to those that regulate their respective company type, which can never take precedence over their own law (Article 2).⁴³ This primacy may entail some hermeneutical difficulties, such as that arising from the content of the statute following Article 5, with the consequence of nullity in corporate matters. There it is established that the statutes of benefit and collective interest companies must contain four mentions, three of which relate to their specificity (the other refers to the name and address of the company).⁴⁴ This considers the following references: (i) the listing of the goals, commitments, objectives, obligations, and principles to achieve the positive impact or the reduction of any negative effect on the community and the environment; (ii) the obligation for those in the company, who in the exercise of their roles, shall ensure the fulfillment of these objectives; and (iii) how a report is given to the rest of the members of society about the monitoring and evaluation of the impact of the company. It seems absurd to think that this content displaces all the other clauses that the laws regarding corporate types usually require, but the matter may well be raised by how the supplemental application is laid out, and the way it operates as a technical regulatory integration file.⁴⁵

This leads to a bigger conceptual problem due to the way Article 3 defines benefit and collective interest companies. According to that definition, a benefit and collective interest company is

a legal entity formed by a common fund, provided by its partners, who are responsible solely for their respective contributions […] which includes in its corporate purpose […] the positive impact, or the reduction of any negative effect on the community or the environment.⁴⁶

The concept is broader than the one in other Latin American bills of that time and in the Colombian law passed in 2018, and apparently it comes from Italian law.⁴⁷ The idea of common benefit refers to the pursuit sought by the company, in the exercise of its economic activity, of one or more positive effects, or the reduction of negative effects, related to people, communities, territories, and the environment, cultural goods and activities, organizations, and other stakeholders with whom it has committed (Article 378, letter a) of Law 208/2015).

The original version of the bill left unsolved several questions. For example, whether it is possible for a benefit and collective interest company to be a single person company, as it seems that having a common fund that supports it is enough,⁴⁸ or whether it includes corporate types that do not contemplate limitation of liability as a structural factor or branches that act in the country on behalf of foreign companies that have recognized the status in the country of their registered office.⁴⁹ Ultimately, the fundamental question is whether one can strictly speak of a corporate type of its own or is it just an alteration of a basic corporate form, particularized by the inclusion of a benefit and collective interest as part of the corporate purpose.⁵⁰

In any case, this non-economic benefit becomes an element of the social contract itself as part of the purpose and therefore, is one of the elements that must be considered when configuring the social interest.⁵¹ The difficulty in this matter comes from the jurisprudential line that has been consolidated from the incidental reference that is made in the judgment of the Supreme Court of July 7, 2015, ruling upon the framework of the ENERSIS group takeover (the so-called “Chispas case”),⁵² which was the first corporate governance case in Chile.⁵³ However, the allusion to a contractual concept of social interest is not part of the reasoning of the Supreme Court, but rather includes the statement made by that court regarding arguments of people who handled the controlling companies of the group.⁵⁴

Ten years later, the situation changed, and the Supreme Court adopted a definition of social interest, which has been followed in subsequent cases.⁵⁵ From the judgment of December 3, 2015,⁵⁶ the said court defined social interest “as that which is common to all shareholders and different from the particular interest of each of them, and which is related to the purpose and cause of the company.” The said cause concerns “obtaining a monetary benefit and distributing it among the partners.” Hence, it corresponds to “the common interest of the current shareholders of a company in an objective and abstract sense,” which turns out to be a kind of “lowest common denominator of all shareholders from the incorporation of the company to its liquidation, without considering any external element.” All in all, this is a hypothetical interest because the reasons shareholders participate in a given company are diverse. The only purpose in common among them is the desire to obtain the greatest individual economic benefit possible: the social interest is thus the distributable profit that is taken from the line of business.

There are two main argument to justify this contractual reading of the social interest. On the one hand are the concepts of company and contribution provided for in the Civil Code, and on the other hand is the rule of Article 30 of Law 18.046.⁵⁷ Since the company is formed by the partners “to share among themselves the benefits arising from it” (Article 2053 of the Civil Code), this means that the distribution of profits is essential as a justification of the corporate structure. This is endorsed by Article 2055 of the Civil Code, which states that there is no company without profit sharing, and that it cannot be purely moral and nonappreciable in monetary terms. Meanwhile, Article 30 of Law 18.046 on Public Limited Companies states that “shareholders must exercise their social rights, respecting those of the company and those of other shareholders,” based on which it can be concluded that both interests are intertwined. However, none of these arguments is conclusive to rule out an institutional view of the corporate phenomenon.⁵⁸

The 2017 bill also provides that “any stipulation of the corporate statutes and any agreement of the management body aimed at limiting or freeing from the obligation to respect, protect, and consider the interests of the company and seeking the fulfillment of the social or environmental purpose that it pursues” lacks nullity outside the joint and several liabilities that fall upon the members of the management body (Article 8).⁵⁹ Although this mention was present in all the previous bills, it is explained by the configuration of American Company Law, which is seen as an incontrovertible reference standard, where the understanding of fiduciary duties has been made from the maximization of the personal profit of shareholders,⁶⁰ with the resulting derived economic problem.⁶¹ However, this understanding is not fully comparable to Chilean law, especially when problems of agency, to use Anglo-Saxon terminology, end up being resolved at the administrative headquarters and not through actions relating to directors’ liability exercised by the interested shareholders.⁶² This is also not consistent with the elements that define the company from a structural perspective.

The contribution of any member to the company is an element to carry out the activity collectively. This indissoluble functional linkage makes it possible to explain both the purpose and the cause of the agreement. The company exists to develop the line of business that the partners establish as a business project in the statutes. This economic activity is carried out to produce profits for distribution. Hence, profit is an issue that is related to the typicality of this form of business (Article 547 of the Civil Code), although the point also admits discussion. The distribution of profits is a historical remnant of the exceptionality of a partnership agreement in the face of the prohibition of usury since the distributable profit obtained with the joint activity of the partners was considered legitimate.⁶³

However, so that the business to be consolidated, the partners must commit to providing the goods or services that the chosen legal form allows. This is the subject of the partnership agreement (Article 1460 of the Civil Code). For this reason, Manuel Pino and Juan Ignacio Font explain that “profit and social purpose are part of the causal program of the company agreement, both legally and economically.”⁶⁴ The requirement made by General Standard No. 461, of November 12, 2021, of the Financial Market Commission on the duty to make the mission, vision, purpose, and values of listed companies explicit, points in the same direction: it wants to outline, beyond the description of a specific economic activity, the business project that is carried out. The objective is to describe and make public the reason behind the company, answering the fundamental questions about its existence (what, why, how, and where), before the market.⁶⁵

The concept of profit has many consequences in corporate law. For example, it allows asking whether it is possible to control, through an illegal case file, the decision to constitute guarantees in favor of third parties since these may be gratuitous acts that exclusively benefit the debtor (Article 1440 of the Civil Code). Law 18.046 on Public Limited Companies indeed allows taking on exogenous guarantees, thus distinguishing the corporate body, which must give its approval, depending on whether the beneficiary is a subsidiary or a third party (Article 57), with a different quorum in each case (Article 67). However, this does not mean that the act may not be susceptible to a causal control particularly outside of the assumption, which is exclusive, that the constitution of this guarantee may be revoked in the context of bankruptcy (Article 287 of the Act 20.720 on the reorganization and liquidation of businesses and personal assets). Strictly speaking, this type of act does not necessarily constitute a transaction between related parties (Article 146 of Law 18.046 on Public Limited Companies), because the guarantee is constituted between the company and the creditor. However, the requirement that a publicly held company may only be able to carry on operations with related parties when they have to contribute to the social interest and adjust the price, terms, and conditions to those prevailing in the market at the time of their approval (Article 147 of Law 18.046 on Public Limited Companies), seems to be an explanation of the meaning, purpose, and cause that the corporate agreement has during its life, as a projection of the business project developed.

Another relevant issue is the use of the term “enterprise” and not “company” by the bill to define the business model. This is now being analyzed, which further aggravates the terminological issue due to the vagueness of a concept defined only by labor legislation,⁶⁶ which has been discussed at length by commercial doctrine.⁶⁷ The idea of an enterprise refers to the notion of an economic nature adopted by law to designate an organization of personal and material means aimed at the production of goods or the provision of services.⁶⁸ This implies that it is not necessarily limited to a certain legal form (e.g., of the individual trading entrepreneur), or even to the need for the chosen economic activity to be performed for profit.⁶⁹ Hence, from this, a foundation can perform exchange activities (Article 557-2 of the Civil Code), even though its patrimonial base does not depend on those who participate in it, or its purpose is not for profit.⁷⁰ The dichotomy formulated in the second paragraph of Article 11—between company and association as possibly being benefit and collective interest enterprises—is an issue that is not completely resolved by the bill, at least as far as associative-based organizations are concerned.⁷¹

Nevertheless, the most discussed issue of the bill presented by the motion of Congresswoman Fernández and Congressman Kast is related to the loss of the status of “collective benefit and interest enterprise” through a well-founded resolution of the Undersecretariat of Economy, Development, and Tourism, when it has not complied with the obligations and requirements established by the bill (Article 10, letter b)).⁷² The first question that arises regarding this cause behind the loss of the status of a benefit and collective interest enterprise is whether the said state agency can make a prudent judgment in applying such a drastic sanction of depriving an attribute beloved by the partners to characterize the enterprise, especially since not all obligations have the same importance.

The collective benefit and interest companies must comply with the following obligations: (i) their statutes have to conform with the information expressly required by law (Article 5); (ii) they must have their statutes permanently available to the public and allow open access to their content (Article 6); (iii) statutory changes that affect their benefit and collective interest company status must be informed to the partners and be public access information; (iv) there are certain special duties of respect, protection, and consideration for company administrators regarding the social or environmental benefit that the company seeks to fulfill (Article 8°); and (v) the latter is required to submit a sustainability report each year to give an account of the means and efforts that have been deployed to accomplish its social and environmental objectives (Article 9).

There is no clarity on the way these obligations are fulfilled and even less on their grading. For example, it is not specified how certain information relating to the company should be made public, especially if it is considered that both the Trade Registry and the Enterprises and Companies Registry are public and open for consultation (Articles 39 of the Regulations of the Trade Registry, and 7 and 11 of Law 20.659, which simplifies the system for the incorporation, modification, and dissolution of commercial companies) and that notaries, land registrars, and the Ministry of Economy, Development, and Tourism have among their roles to facilitate review by any stakeholder (Articles 401, No. 9 and 455 No. 3 of the Organic Code of Courts and 11 of Law 20.659, which simplifies the system for the incorporation, modification, and dissolution of commercial companies).

The annual sustainability report needs to be submitted to the Ministry of Economy, Development, and Tourism, which also could not demand this without prior modification of its organic law to understand the control of this class of companies, as is the case with cooperatives (Article 108 of the General Law of Cooperatives) and professional associations (Article 21 of Decree in Law 2757/1979), especially taking into account that the general rule is precisely the opposite. That is, only certain corporate forms are subject to public auditing, and these are those whose activities are crucially important for the country’s economy (Article 126 of Law 18.046 on corporations). In fact, the existence of a specific inspection for benefit and collective interest companies has been criticized because it would constitute an important entry barrier for smaller companies (micro, small, and medium enterprises), being advisable to resort to existing control mechanisms.⁷³ As an example, the obligation to publish the report is satisfied if it is available on the company’s website or in some means of public or free access (Article 9).

The annual report does not support scrutiny beyond public opinion, and there is no way to check how reliable are the assertions made by the company regarding their sustainability policies, many of which are impossible to quantify through unfamiliar judgment. This is demonstrated by the complexity surrounding the inclusion of the sustainability criteria in the annual report, as required by the Standard General N° 461/2021 of the Commission for the Financial Market. The problem is that the parameters where compliance with these practices should be reviewed are only indicated generically in Article 9 of the 2017 bill, without further clarification on how sustainability policies and the statements of commitment to the community that the company makes should be measured.⁷⁴ In part, this omission is solved by the presidential amendment of President Michelle Bachelet, which refers to a regulation that will contain “the characteristics which entities that will perform the external audits must contemplate and the minimum content of the report that said entities must issue […]” (new Article 11, fourth paragraph). To this end, the preparation of the regulations must make differences between the sizes of companies subject to audit (new Article 11, fourth paragraph), following the principle of graduality of Law 20,416, which establishes special rules for smaller companies.

Another issue concerns the powers of the Undersecretariat of Economy, Development, and Tourism related to the loss of the status of a benefit and collective interest company. That loss brings with it the effect described in Article 11: it must inform the Trade Registry or the Enterprises and Companies Registry of Law 20.659, so that this circumstance is marginally noted in the respective registration. This means that a mismatch arises between the content of the statutes and their registration reference because the company still has the social or environmental benefit as part of its purpose but without being able to show that status publicly. The means of challenging administrative procedures set out in Law 19,880 (Article 10, second paragraph) apply against the resolution that makes it lose the status of a benefit and collective interest company.

The bill does not provide for the right of withdrawal for partners who have not consented to a modification of the statutes that change the physiognomy of the company to which they belong, which was recognized in the Ministry’s proposals of 2013 (Article 7) and 2015 (Article 9). This faculty in favor of the dissenting shareholder is included in Article 69 of Law 18.046 on Public Limited Companies for the cases expressly indicated therein, one of which is the transformation of the company. Although it implies the change of status or social type of a company, thanks to a reform of its statutes (Article 96 of the Law on Public Limited Companies), it seems that a modification aiming to alter the social line of business in the sense that it becomes one of benefit and collective interest involves a disturbance of sufficient magnitude to grant the shareholder, who has not agreed with that amendment, the right to withdraw from the company.⁷⁵ At least, from the way the bill under discussion is drafted, it can be concluded that the option of becoming a benefit and collective interest company assumes that the company becomes a different legal type.⁷⁶

6.2 The Amendments Introduced by President Michelle Bachelet (2018)

The Executive Branch on January 8, 2018, having foregone elaborating their own project to meet the commitment taken on in the Productivity Agenda, presented a series of amendments to the aforementioned Parliamentary motion (Official Document No. 353-365), which sought to modify several of the problematic points observed and answer some of the questions behind the original bill. They are inspired by two central themes. The first was the linking of the bill with the Human Rights and Business Policy, presented on August 21, 2017, which had the Guiding Principles on Business and Human Rights approved in 2011 by the United Nations (UN) Human Rights Council and the 2030 Agenda for Sustainable Development. The second, which had been the subject of criticism,⁷⁷ concerned establishing the obligations and the appropriate publicity and control mechanisms to ensure that benefit and collective interest companies fulfill the purposes that have been set under certain evaluation criteria determined by the law and its regulations.

In essence, the amendment introduced by President Michelle Bachelet pursued the following objectives:

• Improve the definition of positive social impact, which “derives from the prevention and mitigation of negative effects on the community, workers, the value chain or the environment” (new Article 1);

• Limit the concept of benefit and collective interest companies to certain specific legal entities, provided that there is a plurality of partners in them, and to the extent that the latter are registered in a national registry of the Ministry of Economy, Development, and Tourism (new Articles 1 and 2);⁷⁸

• Establish the obligation to notify the competent authority of any amendment to the company’s statutes (new Article 5);

• Impose the abstention of members of the management body when they must pronounce on situations that may generate conflicts of interest with those of the company that hinder their independence of judgment (new Article 8);

• Better organize the transparency obligations the company must observe (new Article 10);

• Indicate the characteristics and requirements to be met in the external audit, which the company must be subjected to verify compliance with its collective benefit, by independent entities specialized in transparent governance and impacts on the community, workers, the value chain, and the environment (new Article 11);

• Add the obligation to register the company in the National Registry of Benefit and Collective Interest Companies, which will be the responsibility of the Undersecretariat of Economy, Development, and Tourism (new article 12), and whose validity is two years (new Article 15);⁷⁹

• Add two causes of loss of status for the benefit and collective interest company to the two already in place, whether due to the expiration of the registration two years from being practiced without it being renewed (recovery is not accepted if it has not been renewed promptly) or due to the loss of the company’s associative basis (new Article 16); and

• Set the competence to ensure adequate compliance with the law through the Undersecretariat of the Economy and Smaller Companies (new Article 18).⁸⁰

The original bill and the Executive’s amendments were submitted to Congress’s Committees on Economy; Development; Micro, Small, and Medium Enterprises; Consumer Protection; and Tourism for review and were discussed in the following sessions: October 24, 2017; November 7 and 21, 2017; December 5, 2017; and January 2 and 9, 2018. As stated in the Commission’s Report dated January 26, 2018, the idea of legislating on the matter was generally approved, but all the articles of the parliamentary motion and the government’s amendments were rejected, except for the purpose of the law and the definition of benefit and collective interest companies that have such status (Article 1) along with its entry into force (transitional article), although each of them for different reasons.⁸¹

On March 5, 2018, the report of the Economics Commission was taken to the floor so that it could be presented. This took place at the 30th Session of the 336th Legislature, held on July 5, 2018, and it was agreed that the bill would revert back to the Economics Commission for a new first report, forwarded for this purpose on the same day.

6.3 Processing of the Bill Under the Presidency of Sebastián Piñera (2019)

On March 11, 2018, President Sebastián Piñera begun his government period and the Congress was renewal. Through a message presented on November 6 of that year, the government gave urgency to a discussion on the bill. This led to the bill being discussed again by the Economy Committee of Congress in its session of January 5, 2019. However, the discussion was limited to explaining to the new members of the Committee the content and purposes of the project. Michelle Labbé, head of advisors of the Ministry of Economy, Development, and Tourism, said that the purpose of these talks was to “generate a position with the Economics Commission on this issue” to allow the bill to move forward. From that moment and until August 10, 2021, the government renewed the urgency of the project 14 times, without the Commission continuing its discussion.

The last activity that the bill had in the Economics Commission was the withdrawal of utmost urgency by the government through the message presented on August 21, 2021. Since then, there has been no action recorded on the Congress’s website.⁸² On March 11, 2022, a complete renewal of Congress took place, while in parallel (until July 4, 2022) the Constitutional Convention has continued its work. It has announced the replacement of the current bicameral Congress model with a single Legislative Assembly.⁸³

Guillermo Caballero points out that the fundamental disagreement regarding the text of the bill that the Economics Commission should work out with (the reformulated version following the amendments introduced by President Michelle Bachelet) the leaders of the initiative lies in whether benefit and collective interest companies must be subject to special control by public power or just a private system of control, similar to the certification in place for B-Corps through B System, as was the goal of the initial project.⁸⁴ Specifically, this author proposes that the failure to comply with the obligation to issue an annual report, or an incomplete issuance thereof, constitutes an act of unfair competition, which is sanctioned by Law 20.169 on unfair competition.⁸⁵

Despite the legislative setback, Sistema B Chile has continued to work on improving the bill. During 2020, a group of lawyers held a series of meetings aimed at fine-tuning the regulation for the benefit and collective interest companies, in the hope that this material would serve as input when the legislative discussion resumed. The result is a set of ten fundamental lines that the law should contain on the matter. The following issues appear: the notion of a purpose-driven company, denomination, subjective scope of application of the business model, supplemental application system, right to withdrawal, duty of administrators to comply with the purpose established in the statutes, obligation to issue an audited report regularly, need to use external auditing entities, publicity of the report, and sanction.⁸⁶

7 Conclusions and Perspectives

This chapter offers an overview of the different legislative initiatives developed in Chile since 2013 to regulate benefit and collective interest companies, following the standardized terminology adopted in 2015 to designate in Latin America this kind of companies. The motion of Congresswoman Fernández and Congressman Kast presented in 2017 has the merit of being the first to address the issue organically, as the previous bill that both had filed in 2015 was limited solely to defining social enterprises, to regulating the concern that the management body should have toward the collective benefit, and to following the regulations that the Ministry of Economy, Development, and Tourism would rule as applicable to implement the law. Therefore, this bill has not yet been discussed by the Economy Committee of Congress.

The fate of the 2017 bill has been different. It received amendments from the Executive before its passage to the Economics Commission, where it was discussed between late 2017 and early 2018, though not with good results: only approving, in general, the idea of legislating on the matter, and the articles dedicated to the denomination of the benefit and collective interest company and the law’s entry into force, rejecting all the rest. The reasons behind this rejection are reflected in the Commission’s report, which explains their reservation to approve the drafting of a law whose ultimate purpose is unclear. This is because both the initial bill and the amendments of President Michelle Bachelet deal with which companies can be given the status of benefit and collective interest, imposing certain obligations of transparency toward the market and regulating how the management body must be loyal to that purpose, but without attributing ulterior consequences to that condition.

The structure of the bill in question has indeed many similarities to the other initiatives promoted in Latin America, which currently has four countries (Colombia, Ecuador, Peru, and Uruguay) that regulate this form of entrepreneurship. This explains some of the missing parts that may attract the attention of those who are unfamiliar with certified B-Corps and the movement around them. However, the first two initiatives in the country regarding this class of companies (one under the name of fourth sector companies and the other under the name of social enterprises) did entail certain consequences to the fact that the company pursued a nonprofit purpose that became part of its organizational structure.

The first proposal submitted to the Ministry of Economy, Development, and Tourism in 2013 allowed deducting as a necessary expense to produce income, both the costs that the company had to meet the objectives and obligations taken on due to its classification and those derived from the benefits with a social or environmental destination that it made.

The 2015 Ministerial Proposal was more fruitful. This included a complete title intended to regulate the consequences of being a social enterprise, a status that was acquired both by legal type (as what happened with cooperatives and trade associations) or by certification and registration (as what happened with the now so-called benefit and collective interest companies, which the said proposal designated as “purpose-driven companies”). It also imposed on the state, as is the case with Colombian law, the duty to promote business forms that produce social or environmental benefits through a differentiated body to the one responsible for its supervision, thus making operational the pretermitted positive aspect (or duty of interference) of the principle of subsidiarity.

As has been said, and outside the measures aimed at materializing institutional transparency, the main consequence of the bill with regard to regulating benefit and collective interest companies is that it specifies that the management body must respect, protect, and consider the positive social or environmental impact in the decisions it adopts. Moreover, this is the main and explicit reason for the bill: to give benefit and collective interest companies legal certainty before society and investors.⁸⁷ However, this need comes from a contractual reading of the concept of social interest, which leaves out the consideration of other agents that the company affects, those which are not alien to the current regulations of Chilean Corporate Law⁸⁸ and the trends emerging in comparative law under the so-called “enlightened shareholder value.”⁸⁹ It should not be forgotten that between 1975 and 1987, Decree in Law 1006/1975, which contained the company’s social statutes, was in force in Chile. Therein, it was established that it was a duty of the company, whatever the legal structure it had adopted, to be economically efficient for the society it served and socially just for those it comprised (Article 2, second paragraph).

In other words, the problem to be solved with the parliamentary bill that has continued its discussion is only apparent, and the same conclusion can be reached through an institutional approach to that concept, without needing an express rule.⁹⁰ Furthermore, the business model of benefit and collective interest companies has to serve as a pretext to rethink the company as a whole under a view rooted in the moral principles that govern the economy.⁹¹ This has been the flank of criticism that the movement has aroused. It is accused of worrying about social or environmental impact as a way to keep the general understanding of the economy unchanged.⁹² From an empirical perspective, some studies show that in Chile, consumers assign zero value to certification as a B Corp,⁹³ which seems to show an internal desire of its promoters over a real market need.

Hence, to make a serious analysis of a rising phenomenon such as that of benefit and collective interest companies, it is advisable to avoid two unsuitable approaches that emerge on this matter: one that consists of speaking in general, without offering positive and tangible results, and one that presents a range of specific topics, just by reducing the scope of the study to results of limited value due to their lack of systemic correspondence.⁹⁴

The status of the 2017 bill looks uncertain; as such, it cannot be clearly foreseen what will happen in Chile regarding the regulation of benefit and collective interest companies.