Recently I have had more and more clients asking about benefit corporations and if they are a good choice for them in their business structure.
The main purpose of this type of company is to pledge a certain amount of profit to an admirable charitable purpose and make that promise legally and in writing for the public to see. Presumably, by doing so, the hope is that consumers or patrons will feel provide a sort of ‘public awareness’ that your company is different and better than others.
I am still skeptical that is a strong correlation between this altruism and bottom-line profit. I caution clients to pursue this type of structure simply to increase revenue or profits. Otherwise stated, if you want to be more charitable and benefit others, great, document it and be held accountable to follow thru, but don’t expect it to pay off financially. Do it because you can afford to and want to make the world a better place.
What States allow for this Type of Company?
It’s surprising for many to learn that ‘Benefit Corporations’ have been around for almost 19 years and at the end of 2018 there were 35 states who had passed benefit corporation legislation. The first state in the Union to pass this new legislation was Maryland in April 2010, and now include Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington D.C., West Virginia and Wisconsin.
How does my Company Qualify?
Now, keep in mind that in order to qualify as a Benefit Corporation, you will be legally required to adopt some, if not many, of the following practices, depending on the state where you organize:
- Donate a percentage of your profits for your employees to volunteer for non-profit organizations.
- Meet a higher standard of corporate purpose to make a positive and material impact on society.
- Offer legal protection to your directors and officers to consider the interests of its workforce, its community, and the environment when making decisions, even in the sale of the business.
- Publish an annual benefit report in accordance with recognized third-party standards for defining, reporting, and assessing social and environmental performance.
- Establish certain shareholder voting rights to ensure that the corporate purposes are carried out as promised in the corporate charter.
In order to hold companies accountable for this presumably voluntary filing, your company’s practices and policies will be published by the Secretary of State in or Corporate Articles. This is required in order to ‘show the world’ that you are truly a ‘greener’ and more ‘socially-conscious’ company, as you profess to be in your advertising. Many companies that advertise that they have a ‘higher’ purpose than simply making corporate profits will now be motivated to qualify as a Benefit Corporation to prove they are actually ‘walking the talk’ and following through with their promises.
In the end, your company will most certainly need to exemplify various practices and policies that show you are more concerned about benefiting the public through social or environmental causes than simply making a profit.
Are there any Tax Benefits for using this Structure?
Interestingly, Benefit Corporations have been intentionally organized this way to provide no tax, investment or procurement incentives. As I stated above, the primary benefit of this form of doing business is that more customers may choose to purchase your products or services because they feel you are actually going to be helping society to some degree through your operations or with your profits.
However, the good news is that the small business owner can take advantage of this status, as well as public companies. A taxpayer can make an S-Corporation election or choose to be taxed as a C-Corporation. Benefit Corporation status is only dependent on corporate purpose, accountability, and transparency.
Maybe I shouldn’t be so jaded or skeptical about the perks of Benefit Corporations. I presume the best benefit of all is that you should feel a little better about yourself for efforts to be more respectful to your fellow human beings while doing business. That’s a pretty nice benefit, too.
If it is your desire to set up a Benefit Corporation, please know we can be of service here at KKOS Lawyers for the same price as establishing a traditional corporation. You might even be able to talk us into donating some of the cost to a non-profit, as well.
