Benefit Corporations

Recently, New Jersey became the third state to enact legislation authorizing the creation of “Benefit Corporations.”  A Benefit Corporation is “for profit,” but at the same time it promotes performance accountability and transparency, and is designed to achieve a “public benefit.”  Vermont and Virginia have also enacted similar legislation, and many other states are considering it.  Several years ago, I reported that Vermont was the first state to enact what was called an L3c, which was a form of LLC that is designated to be “low profit” and with charitable and educational goals.  Most other states followed suit and have similar legislation, although, not yet New Jersey.

The concept behind both the Benefit Corporation and the L3c is to attract “for profit” owners and investors, who may be willing to sacrifice market level returns in exchange for social impacts and promoting public benefit.  This whole area is still in development and so far the primary use of L3cs has been that an investment in an L3c has been determined by the IRS to comply with the program related investment (PRI) regulations that guide where existing 501(c)(3)s can direct their funds and investments. 

Benefit Corporations Go Further

A Benefit Corporation will hopefully go further.  This entity is formed in the exact same way as a for-profit corporation under New Jersey law, except that the Certificate of Incorporation must include language which makes clear the corporation is a “Benefit Corporation.”  An existing corporation can become a Benefit Corporation by amending the Certificate of Incorporation.  There are lots of other bells and whistles, but one of the most significant provisions is that a Benefit Corporation is required to elect an independent Director who will be designated the Benefit Director, and who must prepare an annual statement opining that the Benefit Corporation has acted in all material respects in accordance with its general and specific public purposes.  The Benefit Corporation is also required to deliver an Annual Benefit Report to its shareholders, containing a narrative description of the way the Benefit Corporation has pursued the public benefits.

Certified b Corporation

As the concept of  Benefit Corporations spreads, it has a major champion in the form of an established national non-profit called B Lab, which has a website called  B Lab provides support and assistance to companies that are attempting to operate with a focus towards social impact and promoting public benefit, and an assessment process that can result in becoming a “Certified b Corporation.”  This certification stands apart and separate from becoming a Benefit Corporation under New Jersey law, or that of another state.  As the ranks of those which become Certified B Corporations continue to grow, this should provide an excellent device for this type of entity to assure its stakeholders, and those who deal with it, that the b Corporation is meeting best practice standards.                   

                        In recent months, I have had several inquiries about utilizing both an L3c and  Benefit Corporation devices.  It is really too soon to see how well these two devices will work.  So far, it is difficult to figure out whether organizing in this manner is primarily for marketing purposes, or will result in real and significant public benefits.  No matter what, the fact that our legislators are working to create these new devices that encourage not only private citizens, but business entities, to look beyond profits and to social impacts must be considered moving in the right direction.

 By: THOMAS M. WELLS who is the Senior Partner of Wells, Jaworski & Liebman and who practices in the land use, real estate, commercial and non-profit areas.  He is also the President and CEO of Wells Mountain Foundation.



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