When an entrepreneur creates a business, she has a vision not only of what the business will do to generate revenue, but also what societal problem her new venture will solve. Before securing funding, she will have to organize her business entity with the help of an experienced attorney. The plethora of options for entity organization can be confusing at first. However, entrepreneurs can make the process less painful by knowing what they want to accomplish with their business, who they want as investors, and what level of risk they are willing to take on. Codified in 2015, benefit corporations is still a relatively new entity choice in Minnesota. While it adds to the options available, it may or may not be the right designation for your company.
What is a public benefit corporation?
Under Minnesota law, a public benefit corporation is a corporation that has elected to pursue a purpose in addition to a general business purpose. Under Minnesota law, a general benefit corporation elects to conduct its activities in a manner that creates a “net material positive impact on society, the environment, and the well-being of present and future generations.” In contrast, a specific benefit corporation under Minnesota law elects to pursue one or more positive impacts, or reduction of a negative impact, on specified categories of natural persons, entities, communities, or interests, other than shareholders in their capacity as shareholders . . .” When an entrepreneur is considering her new venture, she can imagine various ways in which a venture can create a new material positive impact such as a commitment to a paperless office, creating a product that turns recycled plastic bottles into jewelry, or creating a workforce culture that is focused on giving. Any number of activities could count under the statutory definitions.
What are the requirements to be a public benefit corporation?
If an entrepreneur wishes to elect a public benefit corporation as the entity designation, then the articles of incorporation must include a statement that it elects to pursue either a general public benefit or a specific public benefit. The articles for a general public benefit corporation may also include a specific public benefit purpose the company will pursue. However, electing a general public benefit corporation creates a high standard of accountability for companies that start-ups may not be able to achieve during the initial phases. Unless the start-up is created to intentionally to operate a general benefit corporation, it should elect to be a specific benefit corporation in its articles.
After a company has filed with the Secretary of State to elect to be a public benefit corporation, it will have ongoing reporting requirements in addition to the annual reporting required of all entities in a state. Public benefit corporations are required to file an annual benefit report with the Secretary of State. For a general benefit corporation, the report must include certification that the corporation’s board of directors chose an independent third-party standard against which to evaluate the company’s progress and identify the third-party. The report must include a description of how the company pursued a general public benefit in accordance with the third-party standard and the extent to which and ways in which the corporation actually created the general public benefit. If there were circumstances that hindered the company’s efforts to do so, the report must include those details as well. Failure to file the report may result in loss of the public benefit corporation status. For a specific benefit corporation, the annual report must contain a narrative description of how the public benefit corporation pursued its specific public benefit and any circumstances that hindered this pursuit.
Independent Third-Party Standards
One of the most common third-party standards for general benefit corporations is B Lab. B Lab provides companies with a free tool to assess their progress towards creating a public benefit. B Lab also provides B-corp certification. The process to become a certified B-corp is rigorous and costly. Certified companies also undergo strict audits and renewal processes to maintain their certified status. In Minnesota, a company does not have to be a certified B-corp in order to elect be a benefit corporation.
Benefits of benefit corporation status
Benefit corporations may enjoy a market differentiator over their competitors. Benefit corporations may be able to charge more for their goods or services as consumers are typically willing to pay more when what they are getting is coming from an organization that is socially responsible. Additionally, “economic data indicate that businesses that adopt principles of sustainability outperform their conventional peers.” (ABA Journal, July 2018
Additionally, public benefic corporations have a built-in underlying mission or value proposition that can attract talent looking for companies with a mission they commit to. Millennials especially want their work to matter and a public benefit corporation provides a strategic edge to a company when recruiting millennials for their workforce.
Entrepreneurs looking to set up a benefit corporation in Minnesota should work with counsel to evaluate if it is right for them. An experienced attorney will be able to walk the business through the process of setting up the corporation or amending its current articles of incorporation to include the required language to elect to be a benefit corporation.
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.
Rachell Henning is a third-year student at Mitchell-Hamline School of Law's innovative Hybrid program. Rachell is an Avisen Fellow alum who enjoys spending time with her husband and two young daughters when she is not working or studying.