Benefit Company: Everything You Need to Know
A benefit company, also referred to as a benefit corporation, benefit organization, or B corporation, is not the same as any ordinary business, as it is set up to help increase the value and mission of other companies and people. 4 min read
A benefit company, also referred to as a benefit corporation, benefit organization, or B corporation, is not the same as any ordinary business, as it is set up to help increase the value and mission of other companies and people. If the company has a purpose beyond making a profit, i.e., a purpose that can benefit the public, it is a benefit company.
For example, let’s assume you own a company that makes sugar. You employ approximately 100 people, all of whom work for the company. In addition, your company sponsors educational programs and donates a lot of money to other nonprofit organizations. Your company is a benefit company, as it isn’t purely in existence to make a profit. Rather, your company is in existence to make a profit while also helping others in need. Therefore, any company that holds social and environmental values to be of equal importance with profits will be considered a benefit company.
Benefit Company: An Overview
The first benefit company was created in 2010 in the State of Maryland. Currently, a total of 30 states allow benefit companies.
Some traits of a benefit company include the following:
- Expanded purpose beyond making a profit.
- In existence to benefit the public, i.e., donations to nonprofit organizations.
- Required to provide an annual benefit report that identifies the performance of the company, and what it has sponsored or donated to throughout the year.
- Makes decisions not only based on shareholder interests but also on stakeholders.
How a Benefit Corporation is Different
Many people will ask what makes a benefit company different from a typical for-profit corporation. Specifically, a benefit corporation will have the same legal structure as a traditional corporation. The company will hire a board of directors who will make the major business decisions. In turn, the board of directors will hire officers who will have daily oversight of the company to ensure that it runs smoothly. The corporation will also offer shares; those shareholders will have an ownership stake in the corporation.
But the difference between the traditional corporation and a benefit company is the purpose of its existence. For example, a traditional corporation has a purpose of making profits for the shareholders. This means that any decisions being made will have to benefit the company and shareholders. Maximizing profits is the number one priority. In fact, if the board of directors breaches their duty of care and loyalty to the shareholders, the shareholders can bring a class action lawsuit against the board for such breach.
While a benefit company still wants to make a profit, it has a greater public benefit purpose to positively impact society and the environment. Therefore, when the board of directors makes decisions, they will have greater flexibility in making decisions that will result in a profit for the company while also benefiting the public.
Forming a Benefit Organization
The laws regarding forming a benefit corporation might vary depending on the state in which you plan to incorporate; however, all states allowing this type of entity will require that you identify a benefit purpose in the articles of incorporation. This could simply be an indication that your company will publish an annual benefit report assessing the impact and performance on social and economic factors. It doesn’t have to be a specific purpose as to what type of sponsorships or donations will be made. The report itself must be sent to the shareholders on an annual basis and be published on the company’s website. Depending on the state, this report might also need to be filed with the Secretary of State’s office.
The articles of incorporation, as with any typical corporation, will also need to include information regarding the company’s address, board of directors, officers, shareholders, and number/classes of shares being offered.
Keep in mind that benefit companies might not be popular to some investors, as they might feel as though it will not achieve their financial goals because the company doesn’t have a primary goal of maximizing profit for the shareholders. For that reason, the corporation’s owners might have to develop another strategy to attract investors.
There are some legalities regarding benefit companies that you might want to consider before forming one. For example, your benefit company doesn’t need to refer to the benefit in the company’s name. Therefore, you need not amend your name or alter it in any way. Additionally, the share certificates must identify the nature of the benefit being offered by the corporation.
If you need help learning more about a benefit company, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.