(cross-post from my other blog, Nonprofit Update.)
The Wall Street Journal discusses ‘benefit corporations’ in their article, With New Law, Profits Take a Back Seat.
This is a traditional for-profit corporation modified to so the entity can have social or environment issues as a priority. Profit or the interest of stockholders can take a back seat to those self-defined issues.
Why take the benefit corporation approach?
If you place very high priority on renewable or sustainable production methods or specific social concerns, your profits will likely be lower, because you will be spending money on those issues that would otherwise drop to the bottom line.
Doing so creates the risk of investor lawsuits. Having ‘benefit corporation’ status, with a proclaimed goal of some particular issue as a priority, ought to provide protection from those suits. Obviously, the concept is untested in court.
Angus Loten’s article describes the growing availability of benefit corporations:
… in the past two years, lawmakers in seven states, including Maryland, Virginia and New Jersey, passed legislation to create benefit corporations as an alternative business model.
California opened up the option Jan 1. New York will do so as of Feb. 10.
The article says this form of business is allowed in Maryland,Vermont, New Jersey, Virginia, Hawaii, California, and New York.
I don’t know if this is a concept that will affect the nonprofit community. My initial guess is this won’t be a big factor. Probably will be a while before the CPAs I hang out with will be seeing these.
So why bother talking about it?
Could be quite useful in certain situations. If the particular circumstances are right, a ‘benefit corporation’ could be a fantastic tool. That is why it’s worth paying attention. I can think of one NPO client that several years ago could have made good use of this type of an entity.
Check out the full article.
I’ve previously touched on this idea. The ‘benefit corporation’ sounds somewhat like a ‘low-profit limited liability company.’ See my post Convergence report from La Piana Consulting, blurring boundaries – part 4