As of late 2012, very few states allowed you to organize beneficial corporations. In addition, although those who have formed them are advocating for the benefits, the IRS currently provides no special benefits to beneficial corporations. Before I go further, let me explain what beneficial corporations are. Beneficial corporations are for-profit enterprises that operate in the interest of the public good. With more corporations pursuing a “social responsibility” or “social good” agenda, the beneficial corporation is seen as one way that companies can receive special tax or other treatment to help underwrite the sometimes reduction in profits that comes with pursuing social responsibility. These entities are a new phenomenon arising from these social trends.
More States Embrace Beneficial Corporations
My how things change in two years. As of August 2014, 19 states and the District of Columbia (D.C.) have enacted laws that recognize beneficial corporations as a legitimate separate legal entity, distinct from other corporations. These include California, New York, and Florida. Most notably, as of July 2013, the 19 includes the state of Delaware, renowned for its depth and breadth of corporate law. In addition, according to the B Corporation website, www.bcorporation.net, 14 other states are at some stage of crafting or considering legislation regarding beneficial corporations.
Why all the hubbub?
According to a Delaware state press release, the enacting of beneficial corporation legislation enables the state to “support a new movement of social entrepreneurs and investors who are stepping forward to meet high standards of corporate purpose, accountability and transparency.” More companies and investors are embracing the combination of business profit objectives with providing a positive impact in their communities or in areas in which they operate. For example, Patagonia supports environmental organizations world-wide by donating 1% of the company’s sales (yes, sales, not profits) to environmental organizations and causes.
Many companies have been operating with a broader focus on social good and all stakeholders, instead of solely focusing on the needs of the shareholders, because it makes good business sense. Companies can use their altruistic intentions and deeds to build brand loyalty, increase visibility, refine operational processes, increase mission identification and employee satisfaction. In other words, a number of companies have found that they can do good and, in doing good, generate more income for stakeholders and for shareholders. Interesting, eh? Although this focus does not work for all, it can work for many.
What to Do
If you have an existing business that focuses on a social good or truly embraces social or corporate responsibility, you may consider either forming a subsidiary as a beneficial corporation. Alternatively, you can pursue a “B corporation” certification from B Labs, a nonprofit, and become a “certified B corporation”. According to the website, “B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.”
- B Plan’s B Corporation site
- The Latest News from the State of Delaware: Delaware Unveils Public Benefit Corporation Legislation
- Patagonia website