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Friday, March 30, 2018

An Introduction to Benefit Corporations

Most business owners in the United States have heard of C-Corporations and S- Corporations but over the past few years, a new corporate form has emerged that is not yet well known – the benefit corporation (B-Corp). Unlike C and S Corporations which can be used across almost all industries for a wide range of small and large businesses, the benefit corporation was designed specifically for for-profit entities that want to benefit society by solving social or environmental problems while also benefitting the shareholders. To date, there are nearly 1000 benefit corporations around the world. A good example of a benefit corporation is Yellow Leaf Hammocks, a California-based company that sells high-quality hammocks that are hand woven by hill-tribe artisans in rural northern Thailand. While generating profit, the company also creates jobs, helping with economic development in an impoverished community.

The History of the B-Corporation

Corporate laws are largely based on one main principle: maximize shareholder value and profits. Under this model, corporate directors may actually be subject to lawsuits from shareholders should they decide to pursue social or environment goals, at the expense of increasing profits. With a shift in social consciousness towards environmental sustainability and community development initiatives, many states have passed benefit corporation legislation that seeks to establish a legal framework for companies who would like to pursue a social or environmental goal while still having a healthy bottom line.

Should You Consider a B-Corporation?

In determining the best corporate structure for your company, it’s important to note that benefit corporation legislation has not yet been passed in all fifty states. In understanding your options it’s best to consult with a business law attorney who can advise as to whether a B-Corp may be a good option for your company. While the regulations will vary state to state, all are based on a standard model and generally differ from any other for-profit corporation in three ways:

  1. Benefit corporations must declare and continuously show their commitment to an independent, third-party cause.
  2. The Board of Directors of a benefit corporation are expected (and protected) to make decisions based on their companies’ mission, not just for profit.
  3. Benefit corporations may be held accountable if they abandon their commitment to the social or environmental cause on which they were founded.

While emerging companies may apply for benefit corporation status, an existing for-profit corporation can amend its certificate of incorporation with a super majority vote of the shareholders. Once a company has secured benefit corporation status, they must regularly have their activities assessed using an independent third party standard.

The Benefits of a Benefit Corporation

There are quite a few myths and misconceptions when it comes to the benefit corporation; one of these is the belief that these companies receive major tax breaks or don’t have to pay taxes at all. This is not the case; in fact, benefit corporations have no tax exemptions. Many argue that one of the key benefits in securing the status is the ability for a company to differentiate itself from competitors, highlighting its commitment to a social cause that might resonate with consumers.

Whenever handling issues of incorporation, the counsel of a qualified attorney is highly recommended. In the case of the benefit corporation which is a new type of entity, working with a lawyer well-versed in state law and experienced in corporation formation is even more critical. An attorney can help you identify the best course of action, apply for B-Corp status and help to ensure compliance long after your company has taken off.

 


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