If you have been following the blog, you have likely seen our business entities series or perhaps even my and Paul’s publication on business organizations. Today’s post looks at another possibility for a business structure, the benefit corporation. I know the term may sound made up but believe it or not, benefit corporations are real and thriving.
What Is a Benefit Corporation?
Before deciding to incorporate as a benefit corporation or switch to this type of business structure, it’s extremely important to understand what the structure requires. To date, 31 states, including Maryland, have adopted legislation to allow for the benefit corporation business structure. The main draw to a benefit corporation is that it allows for the creation of a new and voluntary corporate entity allowing businesses to consider profit as well as society and the environment.
What does that mean exactly? The benefit corporation consists of three parts which the business owner must comply with in order to incorporate as a benefit corporation. These are:
1. Purpose: Benefit corporations have a new purpose which differs from traditional corporations. While traditional corporations have the single duty to maximize profit, benefit corporations have the increased purpose of considering society and the environment in addition to seeking a profit. (benefitcorp.net)
2. Accountability: To ensure business accountability when creating a net gain, the benefit corporation form requires directors to consider society and the environment. This business form grants shareholders a private right of action to ensure their social impact investments work according to the new purpose. These are much like the accountability elements of traditional corporations, but include the consideration of society and the environment in addition to profit. (benefitcorp.net)
3. Transparency: Benefit corporations are required to produce an annual benefit report, which is assessed against a third party standard. The statute describes the parameters of what to look for when picking a standard for the basis of the report. The benefit corporation statute also requires annual benefit reports be made public and shared with shareholders. Finally, some states require that the benefit report be filed with or submitted to the state. (benefitcorp.net)
In short, as you probably already see, the benefit corporation considers more than just financial benefits as its measure for success: societal and environmental benefits also matter.
Why Would Someone Use a Benefit Corporation Business Structure?
Maryland was actually the first state, back in 2010, to allow companies to incorporate under this business form. In 2013, a social enterprise-consulting firm evaluated the status of Maryland benefit corporations (Forbes). One of the questions asked was why the company filed as a benefit corporation in the first place. The report stated:
‘The main reason for filing was for the recognition that the company is a social enterprise with other bottom lines. “It’s a values thing,” says Amy Kincaid, founder of Change Matters. But also she says, “They anticipate they can use it as a positioning differentiation as part of a marketing or branding strategy.”’
As a farmer, this could mean that if you do a lot of work with the community like donating excess produce, for example, incorporating as a benefit corporation may give you unique benefits. It is important, as always, to speak with an experienced attorney before filing or changing business entities. This post is only to be considered educational in nature.