What Is a Nonprofit Public Benefit Corporation?
A nonprofit public benefit corporation refers to an incorporated organization that seeks to provide benefits to the public.3 min read
A nonprofit public benefit corporation refers to an incorporated organization that seeks to provide benefits to the public. Such an organization may differ from a for-profit corporation in terms of operation, taxation, and reporting requirements. Laws governing the formation and operation of a nonprofit public benefit corporation may vary from one state to another, so you need to find out about the requirements in your state before starting this kind of corporation.
What is a Nonprofit Public Benefit Corporation?
A nonprofit public benefit corporation refers to a charitable organization that is advantageous to the general public, meaning that anybody can benefit from its actions. Such a corporation usually participates in activities related to social services, health, education, the arts, and other fields that can enhance the quality of life of people in its community. It is typically tax-exempt, and the contributions it receives may be tax-deductible to the people or entities that made them.
In most cases, nonprofit organizations in the U.S. are considered public benefit. They receive funding through public donation, fundraising, and government grants. In the event that a nonprofit public benefit corporation is dissolved, all of its assets will be distributed to other public benefits corporations or federal or state agencies that are regarded as tax exempt by the IRS.
A nonprofit organization is usually structured as a corporation. It is established in accordance with state laws through the filing of formation paperwork, generally called the Articles of Incorporation, with the business registration office in its state. The formation process is the same as that of a for-profit corporation. Each state has its own statute for governing the creation and operation of corporations that are not operated for the purpose of making profits or owned by individual shareholders.
Benefits of a Nonprofit Public Benefit Corporation
- Lower director liability – With benefit corporation status, you will get the legal protection you need to strike a balance between financial and non-financial interests when you are making decisions.
- Enhanced shareholders' rights – Shareholders in a nonprofit public benefit corporation have the assurance that they will not be personally liable for the activities of the organization.
- Better leadership reputation – As a director of a benefit corporation, you will have the opportunity to establish relationships with high-profile companies and join them at the forefront of an important movement.
- Advantage in attracting and retaining talent – By serving a meaningful purpose, a benefit corporation will be able to attract many millennial job candidates, to whom a company's purpose is important.
- Easier access to private investment capital – A benefit corporation is more attractive to investors because it offers better legal protection, transparency, and accountability.
Characteristics of a Nonprofit Public Benefit Corporation
Duties of Directors
The responsibilities of a director of a nonprofit public benefit corporation are similar to those of a director of an ordinary corporation. However, they are in relation to certain benefit corporation provisions regarding corporate purpose, transparency, and accountability. Similar to a director of an ordinary corporation, the director of a nonprofit public benefit corporation is subject to duties of care and loyalty. The director of a benefit corporation should take into consideration the impact of his decisions on a wide array of stakeholders instead of just the interests of the corporation's shareholders.
The election of benefit corporation status will not change the responsibilities of directors, but it will expand the constituencies to be considered in decision-making processes. In essence, a nonprofit public benefit corporation attempts to limit the liability of its directors by protecting board decisions that take into consideration the interests of parties other than its stockholders. Therefore, a director of a benefit corporation cannot be held personally liable for taking social and environmental factors into consideration when making a decision. Under traditional corporate law, however, such considerations may result in liability.
Administration and Reporting
A nonprofit public benefit corporation is administered in the same way as any other type of corporation. Since it is simply another form of corporation, it does not impose any cost on the state. Reporting requirements for benefit corporations may differ from one state to another, so you have to consult the appropriate state agency to find out about the specific requirements that apply to your organization.
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