Traditionally, entrepreneurs with a strong desire for social change and charitable endeavors formed nonprofit corporations to advance their causes. But more and more entrepreneurs have chosen to utilize the for-profit corporation as a means of achieving their goals for social good.
A new corporate structure requires companies to look beyond the interests of shareholders and to consider the effect of decisions on employees, the surrounding community, and the environment.
Additionally, many social entrepreneurs are more comfortable raising capital and selling products and services than holding fundraisers and courting charitable donors (methods that more traditional nonprofits use raise funds). Some social entrepreneurs also find that the traditional revenue stream of selling a product or service provides a more stable and sustainable platform for achieving social good.
As a result, the notion of the traditional corporation has undergone significant changes to accommodate the social entrepreneur and her mission to make a profit and make a difference.
Rise of the Benefit Corporation
A new type of for-profit corporation accommodates entrepreneurs that want to pursue social good, environmental stewardship and fair employment treatment in addition to profits.
The benefit corporation differs from a traditional corporation in regards to its purpose, accountability and transparency.
The purpose of a benefit corporation is to create general public benefit, which is defined as a material positive impact on society and the environment. A benefit corporation’s directors operate the business with the same authority as in a traditional corporation, but instead of using profits as the sole measure of corporate performance, shareholders in a benefit corporation also assess whether the enterprise has achieved a material positive impact.
In April of 2010, Maryland became the first state to enact legislation allowing for the creation of the benefit corporation. Many others have followed, and several have pending legislation relating to benefit corporation status as an alternative to the traditional nonprofit and for-profit corporation. States with this corporate format include:
- Arizona (effective December 31, 2014)
- Arkansas (effective August 2013)
- Colorado (effective April 1, 2014)
- Nevada (effective January 1, 2014)
- New Jersey
- New York
- Oregon (effective January 1, 2014)
- South Carolina
- Washington D.C.
Other states have pending legislation include Florida, North Carolina, Nevada, Delaware and Texas.
Choices, choices, choices: Nonprofit or for-profit benefit corporation?
Entrepreneurs pursuing a cause should evaluate the differences between nonprofit corporations and for-profit corporations. Ownership and management considerations may suggest social entrepreneurs look closely at the benefits of forming a benefit corporation instead of a traditional nonprofit. Also, enterprises with products and services to sell in addition to their commitment to a social benefit sometimes find a benefit corporation that invests profits in the community and its own business is a more sustainable way to bring about improvement to the community they seek to serve.
A benefit corporation is different from the “B Corporation” or “B Corp.” The “B Corp” is a certification issued by the organization B Lab Company to businesses that apply and meet certain standards of social and environmental performance, accountability, and transparency. The B Lab Company conducts an examination of the company’s policies and practices to determine social and environmental responsibility.
Benefit corporations do not have to become certified – not by the B Lab company or anyone else. Benefit corporations and Certified B Corps are different.
Read about B Corps here.
Learn more about alternatives for the social entrepreneur
The Cullinane Law Group exclusively serves nonprofits and social entrepreneurs with desire to help the social good. Our lawyers specialize in the formation and start up of nonprofit and for-profit corporations. Contact us today to learn how we can help your organization.