Posted December 16th, 2013 in Top Stories
To Be or Not to B-Corp: Whether ’Tis Nobler
Nilan Johnson Lewis attorney Heidi Neff Christianson, Vice-President of the Minnesota State Bar Association Business Law Section, shares insights
MINNEAPOLIS, Minn., December 16, 2013 — Minnesota may soon be adding another type of organizational entity to the roster of choices, fitting between nonprofits and traditional for-profits: the Public Benefit Corporation. On October 4, 2013, a drafting committee including representatives from the Minnesota Secretary of State Office and members of the Minnesota Bar Association released a public draft of a bill (“The Minnesota Public Benefit Corporation Act”) expected to be introduced in the next legislative session. The bill would sanction businesses to operate as Public Benefit Corporations which blend for-profit corporation mentality with socially beneficial mission.
Public Benefit Corporations are taxable, for-profit entities. The directors and officers of a Public Benefit Corporation, however, have fiduciary duties beyond purely maximizing shareholder gain to also make decisions based on what is in the public benefit. Nineteen states have currently approved some form of Benefit Corporation law with well-known companies like Patagonia, Seventh Generation and Etsy being among the early adopters. And importantly, one of the most recent states to enact a Benefit Corporation provision is Delaware, which incorporates most venture-backed businesses, 50 percent of all publicly traded companies, and 64 percent of the Fortune 500 list.
The proposed Public Benefit Corporation legislation for Minnesota, in step with other states, does not provide tax exemption advantages. Policy makers, investors and the general public will decide over time whether and how these organizations are worthy of preferential treatment based on their ability to set and adhere to higher standards benefiting the public good.
“The Public Benefit Corporation legislation could be the first big change to the laws governing Minnesota business structures since it became possible to form limited liability companies more than 20 years ago,” says Neff Christianson, whose legal services include regularly assisting organizations with their corporate formation. “This is still a very new concept without much precedent for exactly how popular it might be. However, I suspect a number of entrepreneurs will be interested the Public Benefit Corporation structure for a mixture of altruistic and reputational benefits, and I envision some nonprofits setting up subsidiary Public Benefit Corporations to finance and house taxable activity of the nonprofit.”
Some local businesses have already gained B-Corp certification, a seal of approval created by the nonprofit organization B Lab to help companies communicate commitment to a social mission. Certified B-Corp businesses in Minnesota include Sunrise Banks, Compass Rose and The Data Bank. A corporation need not be a Public Benefit or Benefit Corporation to obtain certification as a B-Corp. Many Public Benefit or Benefit Corporations choose to seek such certification, however.
“Early indications seem to be that the Benefit Corporation model particularly appeals to Millennials who are energized by social enterprise and don’t want to run a business or a nonprofit in the same manner as previous generations,” says Neff Christianson.
Provisions in the Proposed Bill
Minnesota’s Public Benefit Corporation proposal is unique in several ways. The drafting committee considered laws in California and Delaware, as well as model legislation drafted by B Lab. Minnesota’s Public Benefit Corporation structure will include two types: General Benefit Corporations, where a company would be aligned to a general positive impact, or Specific Benefit Corporations, where a company would be mission-driven toward self-defined cause. Under the current draft legislation, Minnesota Public Benefit Corporations would need to include GBC or SBC in their name.
In addition, while all Benefit Corporations must produce reports on their overall social and environmental performance and make them available to the public and their shareholders, Minnesota is believed to be the only state where the business is required to file an annual public benefit report directly with the Secretary of State, a provision meant to create more transparency and accountability and ensure that Public Benefit Corporations deliver on their promises of “social good.”
Already-established corporations can typically convert to Public Benefit Corporations if two-thirds of their shareholders are in agreement. The Minnesota proffer accounts for this, and would allow dissenter’s rights, meaning that non-consenting shareholders would have the right to receive cash payment for their shares’ fair value if they wanted out.
About Nilan Johnson Lewis
Founded in 1996, Nilan Johnson Lewis has built its reputation by putting clients first, building a practice centered on excellence and defining the next generation of law firm. The firm’s practice focuses on five areas: business law, product liability/mass tort litigation, commercial litigation, labor and employment and health care.
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