B-CORPS (Benefit Corporations) are a new kind of business structure which is sweeping across the US. Its official name is now Public Benefit Corporation, which defines a legal structure in which a company can balance profit-making with other important business goals.
We’re particularly lucky in Colorado to be on the leading edge of this opportunity, which might be of great interest to readers of this blog.
I’d like to introduce to you Ariana Friedlander, who has been following these developments. I asked her to give us some insight into this news, so here goes!
On May 16, 2013 Colorado Governor Hickenlooper signed Public Benefit Corporation Legislation into law making Colorado one of 20 states to pass such a bill. Starting April 1, 2014, companies in Colorado may begin registering as a Public Benefit Corporation (PBC). But what does this mean for business?
The idea behind Benefit Corporation Legislation is that business should have some legal recourse for making decisions around the betterment of a triple bottom line (People, Profit and Planet). Traditionally, business success has been measured with a single bottom line, profit. I recently interviewed Erik Trojian, Director of Policy with B Lab, to find out more about the implications of this legislation for businesses in Colorado.
Why Become a Benefit Corporation?
Contrary to what some may think, this is not just a ploy for liberal companies. One interesting fact that Erik shared is that Benefit Corporation legislation has gained bi-partisan support across the country. Any company that is mission oriented and committed to benefiting society as well as making money may want to consider this new corporate structure. That said, it is important to note that registering as a PBC is not for everyone (for example tax wise it might not make sense to become a corporation versus an LLC).
When to Become a Benefit Corporation?
Erik identified three scenarios when a company may consider becoming a Benefit Corporation:
- Startups – A startup is faced with many, many, many challenges. Establishing credibility, gaining brand recognition and raising capital being a few. Choosing to register as a PBC is one way to signify to the marketplace that yours is a different kind of company.
- Mid-Cycle – Mission driven companies that are themselves investors may consider becoming a PBC. This provides legal protection from being sued for making environmental and social investments. Additionally, it provides opportunities for seeking funding from Social Impact Investors.
- Succession Planning – Registering as a PBC may fit when a CEO is retiring but maintaining ownership and wants to ensure leadership succession aligns with their values. Or when a company is changing ownership models but wants to maintain mission alignment, becoming a Public Benefit Corporation allows the company to consider other variables in the purchase offer besides the highest price.
How Does it Work?
The process for registering as a Public Benefit Corporation is the same as becoming a regular corporation. There’s just one additional box you must check on the form, a declaration that you’re for the Public Benefit. The Colorado legislation requires a company to specificity the focus of their PBC status in their corporate documents. Additionally, the company must start identifying themselves as a PBC on letterhead, their website, etc.
Once a company registers as a PBC, their performance is evaluated the same way as a regular corporation. In other words, PBC legislation has created a systemic shift to empower the free market to evaluate and monitor a company’s performance based on other variables besides profit. The company is required to file an Annual report which is made available to shareholders and possibly to the public as well. Third party certifications are available, which would be like getting an audit from a CPA, but they are not required.
While the PBC legislation does not go into effect in Colorado for seven more months, now is as good a time as any to begin researching the opportunity. There will be a workshop about Benefit Corporations at the Local Capital Summit in Denver this Fall. Additionally I would advise speaking with your business attorney and CPA to seek their expertise and advice.
As Erik said, “This is investor and consumer driven.” The marketplace seems to want companies that are for the public benefit, do you?
Ariana Friedlander, MPA is the Founder and Principal of Rosabella Consulting, LLC, a firm which specializes in creating a culture of learning for individuals, organizations and communities. In 2012, Ariana developed and launched EntrepreNerds, a fun and engaging “business book club” that connects entrepreneurs with the resources, knowledge and tools that help them succeed. Ariana specializes in translating complex ideas to simple, comprehensible points and finding connections when duality appears to be the norm. She is a TEDx speaker and master facilitator.