If you’ve ever considered forming a new company, then you’re probably familiar with the many types of entities available: corporations, limited liability companies, and partnerships among them. You have even more choices within the category of corporations, including for-profit, non-profit, closely-held, and publicly-traded. And now, there’s another option: the benefit corporation.
The benefit corporation – alternatively called mutual benefit or public benefit – is a cross between a for-profit and a non-profit corporation. Technically, it’s a for-profit entity and largely functions in the same way as a for-profit. But it also, like a non-profit, has a defined social purpose or public benefit that it wants to achieve. Some of the recognized public benefits that are appropriate for benefit corporations include: serving low-income or underserved individuals or communities; promoting economic opportunity for individuals or communities; protecting the environment; improving health; and promoting art and science. Also similar to non-profits, the benefit corporation is held accountable to its mission and must report (usually on an annual basis) on what it has done to accomplish its social purpose.
The primary reason to select a benefit corporation over a for-profit is the way it allows the corporation to set its priorities. In a typical for-profit corporation, the board of directors is required to act in the best interests of the shareholders above all else. Generally, this translates into maximizing the shareholders’ investment. In a benefit corporation, the directors have more flexibility in steering the company’s course; they can balance their shareholders’ interests with the interests of their social mission and thereby make decisions that serve both – without the risk of being sued by their shareholders for considering something other than profits.
The new model of the benefit corporation arose with the growth of corporate social responsibility programs and the recognition among for-profit companies that having a strong social mission is good for the public and for their bottom lines. More than forty states now recognize benefit corporations in some form. Some states also offer tax breaks and other financial perks for benefit corporations.
Like all other types of business entities, benefit corporations are a creation of state law, so the rules governing benefit corporations vary somewhat across the country. If a benefit corporation sounds like a good fit for your next business venture, consult with a corporate attorney to discuss the requirements and advantages specific to your state.