What Is a Benefit Corporation?

What Is a Benefit Corporation?

by Jane Haskins, Esq., August 2016

King Arthur Flour is a familiar item in the baking aisle of most grocery stores.

But the King Arthur Flour Company is different from its major competitors, and not just because of its baking qualities. King Arthur is 100 percent owned by its employees, who share in profits and receive 40 hours of paid volunteer time each year. King Arthur sponsors school education programs and donates substantial sums to programs that combat hunger. It uses recycled paper and renewable energy and gives food scraps to a local farmer.

King Arthur is an example of a benefit corporation, a type of corporation that places social and environmental values on an equal footing with profits. Other well-known benefit corporations include outdoor gear retailer Patagonia and the crowdfunding service Kickstarter.

How a Benefit Corporation Is Different

Just what is a benefit corporation? A for benefit corporation has the same structure as a traditional for-profit corporation. Each has a board of directors, officers, and shareholders who own shares in the company. The officers and directors run the business, yet the shareholders can hold them accountable for the decisions they make. Shareholders have several means to do this, including filing a shareholder lawsuit.

The difference between a traditional corporation and a benefit corporation is in its purpose.

A traditional for-profit corporation's purpose is to make profits for shareholders. This means that corporate managers are judged based on the company's financial performance. They may face shareholder action if they make decisions that sacrifice profits to achieve nonmonetary goals.

A benefit corporation still has a profit-making goal, but it also has a broader public benefit purpose: to make a material positive impact on society and the environment. Managers must work to achieve this purpose and therefore they have flexibility to make decisions that balance profits with social causes and environmental responsibility.

The first benefit corporation law was enacted in Maryland in 2010, and currently about 30 states allow them. A benefit corporation is best suited to a company that has an important social or environmental mission but also wants to generate profits. For example, Yonkers, NY-based Greyston Bakery was founded in the early 1980s to give hard-to-employ people a new chance in life. It is profitable, has stayed true to its mission, and has developed new community programs. It reorganized as New York's first benefit corporation in 2012.

Forming a Benefit Organization: Things to Know

Benefit corporation laws vary somewhat from state to state but, in general, a benefit corporation must have a general benefit purpose stated in its articles of incorporation. A B corporation is formed by filing articles of incorporation with the state—the same as with a traditional corporation.

In most states, a benefit organization must demonstrate that it is upholding its public benefit purpose by publishing an annual benefit report that assesses social and environmental performance using a third-party standard. The report must be sent to shareholders and published on the company's website. State law also may require it to be filed with the state.

Because they may sacrifice profits in order to achieve social goals, for-benefit companies may not be as popular with investors as traditional profit-centered corporations. Owners of benefit corporations may have to develop a strategy to attract investors that value contributions to social or environmental causes as highly as they value profits.

B Corp. Certification: Another Way to Become a Benefit Company

Another way to show that a business is focused on environmental and social goals is to apply for B corp. certification through the nonprofit organization B Lab. Certification is available to all types of businesses, including traditional corporations and LLCs. Some businesses, like King Arthur Flour Company and Greyston Bakery, are organized as benefit corporations and also are B Lab certified B corporations.

Certification involves completing an assessment that evaluates the company's overall impact on its stakeholders. The assessment is then reviewed by B Lab staff members, who may require supporting documentation. Some companies must amend corporate formation documents or bylaws to include a general benefit purpose. B Lab also offers a free tool that can assist companies in meeting their annual benefit corporation reporting requirements.

Forming a benefit corporation can help a company fulfill a social purpose without risking shareholder action for placing social good ahead of profits. Certification and reporting requirements help business managers assess progress and set new goals. And, in an era where so many are trying to be authentic and sustainable, becoming a benefit company helps you stand out from the crowd by demonstrating your commitment to your employees, your community, and the environment.

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