We are celebrating the third full year of public benefit corporations (PBCs) in Minnesota. For those who do not know, a public benefit corporation is a for-profit corporation that has elected to add one or more social “benefit” purposes in addition to a general business purpose. This additional social purpose allows a public benefit corporation to elevate pursuing a social good through business to a status at least equal to return on investment for its shareholders.
Annual Benefit Report
Minnesota’s Public Benefit Corporation Act was enacted in the Spring of 2014 with the first public benefit corporations being formed in Minnesota on January 2, 2015. Since 2015, over 100 PBCs have been formed in Minnesota. Under Minnesota law, a PBC can be formed as a specific benefit corporation (a SBC), an general benefit corporation (a GBC), or a general benefit corporation with a specific benefit corporation purpose (still a GBC).
One of the unique features of the benefit corporation is the requirement to file an Annual Benefit Report. In Minnesota, these Annual Benefit Reports must be filed prior to April 1. Since April 1 falls on a Sunday this year, all Annual Public Benefit Reports must be at the Minnesota Secretary of State’s office not later than Friday. March 30. Annual Public Benefit Reports cover the 12-month period from January 1, 2017 to December 31, 2017. If PBC was formed any time in 2017, it is required to file the Annual Benefit Report (for the shortened year starting from the date of formation instead of January 1).
If a public benefit corporation does not file its report by the April 1 deadline, the Secretary of State will revoke the public benefit corporation’s status as a public benefit corporation. To be reinstated as a public benefit corporation, the organization must pay $500 and file a renewal with the secretary of state within thirty days of the revocation. If an organization fails to file the renewal and report during the corrective period, it must amend its articles to change its name (to a corporation) or it will be dissolved by the Secretary of State.
What is required to be in the Annual Benefit Report?
For a Specific Benefit Corporation, the Annual Benefit Report must contain:
a narrative description of: (1) the ways in which the corporation pursued and created the specific public benefit stated in its articles; (2) the extent to which that specific public benefit purpose was pursued and created; and (3) any circumstances that hindered efforts to pursue or create the specific public benefit; and
a certification that its board of directors has reviewed and approved the report.
For a General Benefit Corporation, the Annual Benefit Report must contain:
a certification from the GBC’s board of directors that the GBC has: (1) chosen a third-party standard; (2) determined that the organization that promulgated the third-party standard is independent of the GBC; and (3) approved the Annual Benefit Report;
for the period covered by the Annual Benefit Report: (1) the identity of the third-party standard determined by the board; and (2) with reference to that third-party standard, a description about (a) how the GBC has pursued general public benefit; (b) the extent to which and the ways in which the GBC has created general public benefit; and (c) any circumstances that hindered efforts to pursue or create general public benefit;
if the Annual Benefit Report is the first delivered for filing by the GBC, an explanation about how and why the board chose the third-party standard it is using;
if the third-party standard identified used is the same third-party standard used in the immediately prior report: (1) a statement whether the third-party standard is being applied in a manner consistent with the third-party standard's application in the prior reports; and (2) if the third-party standard is not being so applied in a consistent manner, explain why;
if the third-party standard used is not the same as the third-party standard used in the immediately prior report, an explanation about how and why the board chose a different third-party standard; and
if the GBC has also stated a specific public benefit purpose in its articles, the information for a specific benefit corporation.
One point that is important to remember, a public benefit corporation is not required to have its annual benefit report audited, certified, or otherwise evaluated by a third party.
While drafting and filing Annual Benefit Reports can seem like a burdensome chore, these reports actually serve an important role. These reports provide transparency to the public and serve as an opportunity to celebrate what is possible and what is now in the social business world. The reports provide a social business the vehicle and mechanism to demonstrate to the state and the world how businesses can do well and do good at the same time.
For almost 20 years Kim Lowe has lawyered from the trenches. Kim lawyers from experience, using her knowledge of the law and understanding of how both for-profit and nonprofit business enterprises operate.