Articles

Getting Rich While Doing Good

Hands with cupped palms facing upward

Not too long ago, there were "for-profit" corporations and "not-for-profit" corporations. For-profit corporations operated to make money for the shareholders. Not-for-profit corporations operated to benefit society. The distinction between the two was absolute. In fact, a non-profit will lose its tax-exempt status if there is any benefit to a private individual.

But, that was then, and this is now. An increasing number of business owners want a corporation that provides the best of both worlds: they want to be able to make money while benefiting the world around them. To meet this demand, the benefit corporation was born when Maryland passed a statute authorizing the hybrid entity.

Although roughly 20 states already had benefit corporation statutes, the movement got a real boost when Delaware—the bell-weather for all things corporate—jumped onto the benefit bandwagon by enacting its own benefit corporation law on August 1, 2013. Delaware's embrace of the benefit corporation indicated this hybrid entity is here to stay and that it will loom larger in the United States business landscape. Indeed, as of October 2016, the number of states with benefit corporations has climbed to 31 and seven more states having pending legislation.

If the idea of getting rich while doing good appeals to you, or to a client of yours, what should you know? 

First, a benefit corporation is a corporation. This means that  it is incorporated just like any other corporation. And, it must appoint and continuously maintain a registered agent in its formation state and in every state where it is registered to do business). 

While there are many similarities in the incorporation process, there are three major differences between the two types of corporations:

  • the corporate purpose,
  • the directors' duties and
  • the annual reporting obligations

In its incorporation documents, a benefit corporation must state specifically that its purpose is "to create a general public benefit," which means having a significant impact on society and/or the environment. Some states also allow a corporation to claim a specific public benefit, such as providing services of a low-income community. The purpose requirements vary among the states, so it's wise to make sure exactly what is necessary in your state of incorporation.

In a regular corporation, the directors have a duty to the shareholders, and only the shareholders.  In a benefit corporation, the directors still have a duty to the shareholders, but they also have a duty to the employees, the customers, the groups the corporation intends to benefit, and the general public.

Annual reporting obligations are also more extensive for a benefit corporation. Rather than merely updating corporation information, a benefit corporation must make a report on how it is doing in achieving its stated purpose. The exact content and the publication requirements for this annual report vary from state to state. Therefore, it is wise to consider this when selecting your state of incorporation.

Despite these additional requirements, the benefit corporation provides new and exciting opportunities to improve the world while still benefitting the shareholders. It has particular appeal to socially conscience founders. And, benefit corporation status is often attractive to both customers and potential employees.

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