Should Your Business Organize as a Benefit Corporation?

Should Your Business Organize as a Benefit Corporation?

Making decisions at a Benefit CorporationThe Washington state legislature passed HB 2239 establishing Social Purpose Corporations on March 6, 2012. It became effective on June 7, 2012.

If you care about being a steward of profits, people, partners and places, then this Washington version of the Benefit Corporate structure is the best business structure to assist you with your goals. While the Federal Government hasn’t yet recognized this structure, adoption has gone from just two states (Vermont, and then Maryland) in 2010 to 31 in 2016. Seven additional states are currently working through the details.

As you can see, Benefit Corporations are a fairly new type of corporate structure. What makes them different from previous for-profit corporations is the emphasis upon pursuing a planned social and environment mission within society. Instead of primarily focusing on maximizing financial gain, a benefit corporation is mission driven, with a legal framework that protects the mission even in a takeover or change of control.

Key Advantages of Being a Benefit Corporation

1. It allows you to choose and protect your mission.

Wherever your business is on the size scale—startup all the way up to large public company—this tax structure works. The metrics scale up so effectively, there is every reason to embrace this corporate model if you have a concern that shareholder demands for profits will force you to make decisions that hurt the other stakeholders who depend upon your business—employees, suppliers and your community. You can still measure ROI, however it is not the emphasis.

Your corporate charter outlines the mission, meaning stockholders and potential buyers are legally obligated to support it. Once a public benefit is defined in your articles of incorporation, it becomes a part of your business’ operating model. That’s a structure of accountability.

2. It ensures you reduce your liability.

Benefit Corporations do more than provide the usual protection to directors. They also protect your right “to balance your financial and non-financial interests when making decisions.”1

3. It attracts a different type of shareholder or investor.

This tax structure for public businesses puts shareholders on notice that achieving the highest ROI is not the goal of your business. You attract only shareholders who support an investment in all stakeholders – such as employees and the community the business is based in.

You also are less attractive to hostile takeovers. Washington state requires a two-thirds vote of all the entitled voters before the corporation can amend the articles of incorporation. Also, during a merger, it takes a two-thirds vote before your business fails to be the surviving corporation.

Benefitcorp.net reports that private investment capital may be easier to find because the requirement to release an annual report measuring actual activities against the corporate commitment makes it easier for investors to perform their due diligence. It also suggests that the same consciousness which has “fueled organics, fair trade, and ‘buy local’ movements” draws retail investors.1

4. It attracts talent.

A Deloitte Millennial Survey found that 77% of millennials are looking for employment with companies with a purpose aligned with their values. Considering that 75% of the workforce will be millennials in 2025, your choice to become a socially responsible company could be a major step toward attracting highly motivated and productive individuals.

5. It requires accountability and transparency.

You must publish an annual Benefit Report based upon recognized third-party standards. There are companies that help with reporting and metrics, though you aren’t required to use them. Reports may be prepared in-house as long as you use the third-party guidelines to measure your activities.

Summary

I agree with Benefitcorp.net when they predict that the Benefit Corporation shows “investors and entrepreneurs from every industry what the future Fortune 500 looks and acts like.”1 Would you like to discuss the process for moving your business to this corporate structure? It can be done. We can also explore how metrics answer the question, “Am I performing well?”


1 http://benefitcorp.net/businesses/why-become-benefit-corp