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What Is a Public Benefit Corporation?

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By Brett Snider, Esq. on September 08, 2014 8:19 AM

"Public benefit corporations" may sound like charitable organizations, but they're actually a great way for small businesses to make a difference while staying in the black.

Take the Curious Iguana bookstore as an example. It opened last September in Frederick, Maryland, under the state's benefit corporation statute, choosing to hold itself to strict standards of charitable giving, environmental impact, and employee welfare, reports Southwest: The Magazine.

Where else is this type of corporate structure available, and what are the benefits of your small business becoming a "public benefit corporation?"

27 States Support Benefit Corporations

According to BenefitCorp.net, a site run by the nonprofit lobbying group B Lab, 27 states currently have benefit corporation legislation. This includes the ever-popular Delaware, where many companies choose to incorporate. Each of these states has drafted its own specific requirements and protections for benefit corporations, but many of them are based on B Lab's model legislation.

BenefitCorp.net reports that 14 other states have similar legislation pending to support benefit corporations, while the remaining states (including Texas and Washington state) have no analogous laws for public benefit corporations.

What Are the Benefits?

For those business owners who choose to incorporate in states which support public benefit corporations, the following benefits may be conferred:

  • Socially responsible purpose. By choosing to become a public benefit corporation, you will enshrine your altruistic purpose in your corporation's articles of incorporation, making them legally binding and not just a promise.
  • More protection from corporate greed. When corporations grow, there is a worry that duty to the shareholders will require abandoning the company's commitment to doing good. In Delaware, for example, a two-thirds vote is required for any action that would terminate a company's status as a public benefit status
  • Evaluations by third-party organizations. Worries about transparency within the corporate structure may be answered by requirements that public benefit corporations be evaluated by third-party organizations to audit their "public benefit" statuses.

For many business owners, a small business is part of an enduring legacy, one that may include a vision for the overall good the company will provide. Incorporating as a public benefit organization may ensure that this dream is not lost in the desire for profits, changes in management, or acquisition by other companies.

Speak with an experienced business attorney in your area if you'd like to learn more about the pros and cons of becoming a public benefit corporation.

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