Jessica Schatz
EIC BC Law Student
October 20, 2023
When businesses think about incorporating, they often think about C-Corporations or S-Corporations. But what about benefit corporations? The benefit corporate form is new. The first benefit corporation statute was passed in 2010. To date, 36 states and the District of Columbia have adopted laws allowing companies to incorporate as benefit corporations.[1] Benefit corporations have increased in popularity since their inception. Some benefit corporations are even household names like Patagonia and Warby Parker. But is becoming a benefit corporation right for your business?
What is a benefit corporation? How does it differ from a traditional corporation?
Benefit corporations are mission-driven businesses that pursue social or environmental goals while operating for-profit.[2] Benefit corporations are like traditional corporations in a lot of ways. For instance, benefit corporations are taxed like C-Corps or S-Corps. [3] There are, however, several important differences between benefit corporations and traditional corporations.
One difference is corporate purpose. A benefit corporation's corporate purpose is to pursue profits while also working towards a general public benefit, which is defined as a material positive impact or a reduction of a negative impact on society or the environment.[4] This general public benefit must be included in the certificate of incorporation.[5] Traditional corporations usually only have to state in their certificate of incorporation that their purpose is to engage in lawful activity.[6] They do not have to state their corporation's desired impact on society.
Another defining feature of a benefit corporation is transparency. A benefit corporation must provide regular reports of its actions taken to achieve the general public benefit identified in its certificate of incorporation.[7] For example, Delaware's benefit corporation law requires that the report include objectives the corporation's board has established to promote the general public benefit, standards used by the board to measure the corporation's progress towards that public benefit, and the board's assessment of the corporation's success.[8] Traditional corporations are not required to issue similar reports about actions taken to achieve their corporate purpose.
Finally, benefit corporations utilize the stakeholder governance model.[9] Stakeholder governance requires that the corporate directors consider a triple-bottom line.[10] When making decisions, the directors must consider the shareholder's economic interests, the identified public benefit, and the interests of stakeholders who are materially affected by the business's conduct, such as the employees, customers, communities, and the environment.[11] The stakeholder governance model provides leeway to work towards a public benefit while operating for-profit. Traditional corporations, on the other hand, follow the shareholder governance model. Directors must prioritize shareholders' economic interests when making decisions.[12]
Why become a benefit corporation?
The benefit corporate form combines the mission-driven nature of nonprofits and the for-profit model of traditional corporations. Benefit corporations can pursue profits while also generating positive impact on society.[13] Incorporating as a benefit corporation signals the corporation's values to consumers and investors alike. Consumers are increasingly demanding corporations take accountability for their social and environmental impact.[14] Becoming a benefit corporation shows consumers the corporation is willing to walk the walk in its commitment to a public benefit.
Benefit corporations can also attract outside investors. One study found that benefit corporations raised similar levels of funding in early stage-financing as traditional corporations.[15] Benefit corporations have also reached milestones that startups and early-stage corporations strive for. At least eighteen benefit corporations have gone public since 2017.[16]
Is a benefit corporation the same as being a certified B-Corp?
They are different. Benefit corporations are legal entities governed by the state they are incorporated in. B-Corp certification, on the other hand, comes from B Lab, a non-profit organization. Benefit corporations may apply for B-Corp certification. To become B-Corp certified, B Lab requires that the company achieve benefit corporation status where available or adopt a governance structure that prioritizes a public benefit in places that incorporating as a benefit corporation is not an option.[17]
So, is becoming a benefit corporation right for your business?
Becoming a benefit corporation might be a good option for you if you are in a benefit corporation jurisdiction and you are motivated to solve a social or environmental problem while also operating for-profit. You must ask yourself, however, whether you want to be legally accountable to your shareholders for progress made to address that public benefit.[18]
[1] Ellen Kennedy, What Are Public Benefit Corporations (BENEFIT CORPORPATIONs)?, Kiplinger (Oct. 15, 2021) https://www.kiplinger.com/investing/esg/603598/what-are-public-benefit-corporations-pbcs
[2] Andrew Delmonte, Benefit Corporation Guide, Small Business Development Center at SUNY Buffalo State, https://clinical.aals.org/wp-content/uploads/sites/3/2021/05/43401456-5.pdf
[3] Charlie Kannel & May Samali, Startups: Should you incorporate as a Public Benefit Corporation?, VentureBeat (Apr. 30, 2017) https://venturebeat.com/entrepreneur/startups-should-you-incorporate-as-a-public-benefit-corporation/
[4] See 8 Del. C. §362(b), available at https://delcode.delaware.gov/title8/c001/sc15/
[5] Benjamin D. Stone, Can I Raise Venture Capital as a Public Benefit Corporation? MintzEDGE (Apr. 10, 2019) https://www.natlawreview.com/article/can-i-raise-venture-capital-public-benefit-corporation
[6] See, e.g., 8 Del. C. §102(a)(3), available at https://delcode.delaware.gov/title8/c001/sc01/
[7] For examples of benefit corporations' reports, see https://www.sos.state.mn.us/business-liens/business-liens-data/public-benefit-corporation-annual-reports-2021/
[8] 8 Del. C. §366, available at https://delcode.delaware.gov/title8/c001/sc15/
[9] 2022 Annual Report, B Lab Global, https://infogram.com/1te9x6k1pgzx0lbwo7490melglizo4md81
[10] Ellen Kennedy, What Are Public Benefit Corporations (BENEFIT CORPORPATIONs)?, Kiplinger (Oct. 15, 2021), https://www.kiplinger.com/investing/esg/603598/what-are-public-benefit-corporations-pbcs
[11] See 8 Del. C. §365(a), available at https://delcode.delaware.gov/title8/c001/sc15/
[12] Benjamin D. Stone, Can I Raise Venture Capital as a Public Benefit Corporation? MintzEDGE (Apr. 10, 2019), https://www.natlawreview.com/article/can-i-raise-venture-capital-public-benefit-corporation
[13] Benjamin D. Stone, Can I Raise Venture Capital as a Public Benefit Corporation? MintzEDGE (Apr. 10, 2019), https://www.natlawreview.com/article/can-i-raise-venture-capital-public-benefit-corporation
[14] Andrew Delmonte, Benefit Corporation Guide, Small Business Development Center at SUNY Buffalo State, https://clinical.aals.org/wp-content/uploads/sites/3/2021/05/43401456-5.pdf
[15] Michael B. Dorff, James Hicks, & Steven Davidoff Solomon, The Future or Fancy? An Empirical Study of Public Benefit Corporations, 11 Harv. Bus. L. Rev. 113 (2019).
[16] Suni Sreepada & Marko S. Zatylny, Insights from Experience – Acquiring Public Benefit Corporations, Ropes & Gray (Feb. 6, 2023), https://www.ropesgray.com/en/insights/alerts/2023/02/insights-from-experience-acquiring-public-benefit-corporations.
[17] About B Corp Certification, B Labs, https://www.bcorporation.net/en-us/certification/
[18] Charlie Kannel & May Samali, Startups: Should you incorporate as a Public Benefit Corporation?, VentureBeat (Apr. 30, 2017), https://venturebeat.com/entrepreneur/startups-should-you-incorporate-as-a-public-benefit-corporation/