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What Is a Benefit Corporation?

November 14, 2021
By James Gussie

A benefit corporation is a for-profit entity that operates in the public interest and whose profits are distributed to its owners. Benefit corporations were created with the idea of increasing transparency and accountability, but they can also be used by companies looking to make their operations more sustainable or community-driven.What has been lacking from traditional corporate structures? What does one look like without giant shareholders and quarterly reports?

The “what is a benefit corporation quizlet” is a company that is incorporated under the law of Delaware. A benefit corporation must have at least one class of stock, and they are legally required to consider the impact their decisions will have on society.

This post is part of our “Business Startup Guide,” which is a collection of our articles that will have you up and running in no time!

I recently published an article on social entrepreneurship, outlining what it involves and some of the legal structure choices available to a company with a social purpose. One such legal form is the benefit corporation. It’s a relatively new construction, with the first of its type appearing in 2010, but it’s taken off quickly since then. Benefit corporations are now legal in Arkansas, California, Colorado, Delaware, Florida, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington, D.C., with many more states in the works. This article will teach you how to:

What is the definition of a benefit corporation?

What is the difference between being a benefit corporation and being a B corp accredited company?

Pros and Cons of Benefit Corporations

Table of Contents

So, what is a benefit company, exactly?

A benefit corporation, like an L3C or LLC, is a legal framework for a company. A benefit company is a for-profit, non-tax-exempt organization that is legally allowed to prioritize its declared social or environmental objectives above increasing profits for shareholders. It then goes on to defend this idea by stating that in a benefit corporation scenario, fiduciary responsibility includes the creation of “general public benefit,” denying those who would choose a narrow or shallow cause as a means of obtaining the status associated with being a social enterprise that option. Furthermore, benefit companies must provide a publicly accessible record of their success when compared to a third-party standard, ensuring that their purpose is carried out via quantifiable results. Benefit company proponents argue that it provides legal protection for their objectives while also promoting cultural change in favor of socially and ecologically responsible enterprise. This is what Benefitcorp.net has to say about it:

“Despite the presence of the business judgment rule, most directors and officers, as well as many lawyers, think that their choices are limited to acting only in the financial interests of shareholders. The idea that “a business’s social duty is to enhance profits” has permeated American corporate culture and influences how choices are made. What seems to be a legal barrier is often just a cultural one. This barrier may be overcome by establishing a new organizational structure that expressly requires decision-makers to consider various interests when making decisions.”

Patagonia, an outdoor clothing business, was the first to file as a benefit corporation in California. Founder Yvon Chouinard has expressed his support for the concept, claiming that the benefit corporation legal structure preserves a company’s original principles in the future by allowing it to remain mission-focused through succession and ownership changes. This is significant because, within a benefit company, extending the notion of fiduciary responsibility to encompass public benefit, social, and environmental interests also applies to liquidity and sales situations.

What is the difference between benefit companies and B corporations?

Bamboo Sushi in Portland, OR is a B company and a benefit corporation.

A normal for-profit company, such as an LLC, that is B corp certified has gone through the certification process conducted by B lab, a worldwide organization headquartered in the United States that was founded to show that a business has a social and/or environmental emphasis. In addition to its duties to shareholders, a benefit corporation is a legal framework that requires a company to provide a quantifiable benefit to society. It is possible to be both a benefit corporation and a B company.

What is B Corp accreditation and how does it work?

Traditional for-profit companies that have chosen to go through a certification process conducted by the independent third-party nonprofit B Lab in order to publicly show that their company is focused on a social purpose are referred to as B corps. The steps of the certification process are detailed here, but in general, you must submit an impact assessment and receive a rating from B lab, ensure that you meet all legal requirements (which vary by state, country, and—if you’re not a startup—existing structure), and sign a declaration and term sheet. B corporation certification is accessible worldwide, and there are presently certified B corporations in 34 countries.

Benefit company form and procedural advantages:

[pullquote] [pullquote] [pullquote] [pullquote] [ “Being a benefit company sends a powerful message of business responsibility,” says the author. [/pullquote] Benefit to society:

This much is clear: a benefit company has a responsibility to be socially and ecologically beneficial, thus benefiting the general public. This is what it’s all about for many people who are thinking about starting or running a benefit company.

Making a public statement about yourself:

In a market where customers are searching for fair trade and green goods, being able to claim that your company is so responsible and socially conscious that you’ve actually built it with that emphasis has a huge draw from a marketing and public relations standpoint. Other businesses may claim to be environmentally friendly or socially conscious, but establishing a benefit company demonstrates to the public that you are willing to put your money where your mouth is. It may also help you recruit employees: according to a recent survey by the Intelligence Group, 64% of millenials (those aged 20 to mid-30s) desire to contribute to making the world a better place as part of their employment.

Keeping your mission alive in the long run:

The concept of sustainability is essential to many of the founders and owners of benefit companies. With a corporate structure that ensures that all stakeholders (workers, the environment, and the general public) are considered even when the business changes ownership or is sold, you may be certain that your company will maintain its original purpose and integrity when you retire or die.

Changes in culture:

Some corporate executives establish or join benefit companies because they wish to see cultural change. Proponents think that business can be a force for good change in our society and environment that is not limited to profits; that earning money and making a difference are not mutually incompatible. A benefit corporation is a novel business structure that incorporates that concept into the company’s culture as well as our broader national culture.

The disadvantages of the benefit company form and procedure include:

Requirements for reporting:

The benefit corporation structure has strong transparency and reporting requirements since it is primarily focused on verifiable objectives. According to Forbes, benefit companies are required to submit an annual report to shareholders explaining their choice of a third-party criteria for accomplishment, the process by which the standard was chosen, and the progress achieved. This must also be made available on the company’s website.

Risk:

There is an inherent danger in not having a history of proven success with a technique, as there is with everything new. Benefit companies are becoming more popular, but unlike many legal structures, they haven’t been put to the test through decades of trial and error, and there isn’t a corpus of legal precedent to turn to. Understandably, this may make you nervous.

Frequently Asked Questions

What is the meaning of benefit corporation?

A: A benefit corporation is a new type of legal entity that falls somewhere between a traditional for-profit and nonprofit company. It can engage in business activities such as making profits, but it must also put the interests of its stakeholders above all else.

Why would a company want to be a benefit corporation?

A: A benefit corporation is a type of business organized as a not-for profit entity, which has an explicit mandate to have positive social and environmental impact.

What is a benefit corporation examples?

A: A benefit corporation is a hybrid form of company that combines the best features of both an LLC and a C-corporation. It allows for limited liability protection, while providing significant tax advantages to its owner in most jurisdictions.