How Benefit Corporations Differ from Traditional Corporations
Posted: Jan 18, 2016
Benefit corporations are a fairly new type of corporation, as any B Corp Certification lawyer in Los Angeles will tell you. Historically, there have been two types of entities:
- For profit
Benefit corporations are a bit of both. They are for-profit companies that pursue the environmental or social missions that are commonly associated with non-profit organizations. These corporations seek to improve the world, but through activities that bring in profits. While most states consider the purpose of corporations to be exclusively to maximize profits for its stakeholders, a beneficial corporation does not have only profit as an end goal.
This means that the corporation is able to focus on more than just earning high returns for its investors and backers, but it can add social and environmental change to their goals. There will be less pressure to maximize shareholder value (the primary mission of every proper corporation), but the benefit corporation will be able to focus on both goals equally.
Of course, as mentioned above, most states view corporations as being exclusively to maximize profits for stakeholders. Only six states allow for the establishment of benefit corporations: Vermont, New Jersey, California, Maryland, Hawaii, and Virginia. A few more states are adding benefit corporations to their legislature, but they have not yet been included.
The good news is that California is on the list of states that allow for benefit corporations, so you will be able to establish a corporation for the purpose of bringing about social and/or environmental change without being a non-profit entity. You can focus on your mission without being solely concerned with maximizing profits.
Of course, there are a few provisions you will need to adhere to:
Your company must:
- Create general public benefit, with specific benefit purposes that must be named.
- Make decisions that are in the best interests of the corporation, and consider the effect on the shareholders and employees as well as the community and environment.
- Publish an annual Benefit Report to assess the environmental and social performance of your company.
There are more legal provisions that must be met, but these are the primary requirements for being a benefit corporation. If you need help navigating the world of social enterprise, it's a good idea to work with the best B Corp Certification attorney Los Angeles can offer. These social enterprise lawyers specialize in the specific laws you will need to adhere to in order to operate as a beneficial corporation.
Sustainable Law Group is certified B Corp attorney serving profit, non-profit and social enterprises with legal support in West LA, South Bay and El Segundo in Los Angeles.