The state of Ohio recently amended Ohio’s General Corporate Law to allow for the creation and governance of benefit corporations. Benefit corporations are a kind of bridge between the traditional for-profit and non-profit models businesses traditionally use to structure their corporation. They try to balance earning a profit and supporting a purpose that betters society or the environment.
What is a Benefit Corporation?
Benefit corporations are for-profit corporations that are socially-minded and set clear goals to benefit society or the environment. The Ohio code accounts for the promotion of artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological interests. For example, a benefit corporation may donate a percentage of sales to an environmental cause or donate an item to a homeless shelter for every item sold.
However a benefit corporation decides to tangibly support its mission, it must explicitly state one or more beneficial purposes in its articles of incorporation. It is a legal status to be considered a benefit corporation. Except in certain states, benefit corporations are also required to publically publish an annual report outlining their performance measured against a third party standard. This report does not need to be certified or audited by a third party, though there is a certification process available to benefit corporations.
A benefit corporation demonstrates to current and potential shareholders that it will take into consideration its impact on all stakeholders, meaning decisions may be made that aren’t wholly focused on increasing revenue because they are beneficial for the benefit corporation’s purpose and mission. Because the concept of benefit corporations is so new, there is little precedent for exactly how much liability protection a benefit corporation has if a shareholder doesn’t agree with prioritizing the mission over revenue.
Why would I want to start or become a benefit corporation?
If you and your leadership team are deeply passionate about a cause or group and would like to make a positive impact by leveraging your company, applying for benefit corporation status may be a great option.
What’s the difference between a benefit corporation and a non-profit corporation?
Non-profit corporations are formed for a purpose other than earning profit. Benefit corporations are formed under the Ohio Revised Code for-profit corporation, meaning they are formed with the intention to generate profit, with the added stated beneficial purposes in their articles of incorporation.
Additionally, the ownership structure of a non-profit is different than that of a benefit corporation. There are no owners or shareholders in the non-profit business structure and non-profits are governed by a board. Non-profits must devote all of their resources to achieving their mission. A benefit corporation, on the other hand, is a for-profit business structure, so it has more freedom to allocate any additional money the company may have earned, including paying returns to shareholders.
Benefit corporations are also not tax exempt as they are for-profit corporations. Non-profits cannot register as a benefit corporation.
What’s the difference between a benefit corporation and a standard corporation?
A standard for-profit corporation is organized so the corporation can generate profits, raise capital and pay shareholders. There can be a great deal of pressure on a for-profit corporation to maximize profits, especially for shareholders. Because a benefit corporation is required to contribute to or support their chosen mission, this alleviates some of the pressure to maximize profits above all else as there is an expectation that leadership will make decisions that balance the benefit to the mission and the profits for the corporation.
Who is eligible to become a benefit corporation?
Any new corporation can choose to be recognized as a benefit corporation by including at least one beneficial purpose in its Articles of Incorporation. If an existing corporations would like to transition to a benefit corporation, they need to amend their Articles of Incorporation to include at least one beneficial purpose. A company still needs to choose to be taxed as a C or S Corp, as registering as a benefit corporation only affects the corporate purpose, accountability and transparency. Everything else surrounding corporate laws and taxes stays the same.
If an existing company is publicly traded on an exchange, they are not eligible to become a benefit corporation.
What’s the difference between a benefit corporation and a Certified B Corporation?
The allowance for benefit corporations in any of the 39 states where they’re recognized isn’t articulated clearly since there tend not to be a set guidelines for how much weight a corporation’s board or leadership must give the beneficial mission of their benefit corporation. It can be a challenge to measure the real-world impact a company’s beneficial purpose or mission has. Investors who are attracted to a company’s mission and want assurance that the mission is being accomplished.
Benefit corporations have the opportunity to earn a B Corp Certification through the non-profit organization B Lab. This certification shows investors that your benefit corporation passed a rigorous assessment of your company’s impact on its workers, customers, community and environment. This B Impact Report is available for anyone interested on bcorporation.net.
Ultimately, a corporation can be a benefit corporation without being a Certified B Corporation.
We’re Here to Help
Are you considering starting or transitioning your company to a benefit corporation? Email firstname.lastname@example.org and one of our professionals will work with you to see what the best course is for your company.
Sources used for this blog:
Menyhart, Russell C. and Okun, Megan. “Ohio Enacts Legislation Allowing Benefit Corporations.” Lexology, https://www.lexology.com/library/detail.aspx?g=37089272-1182-4d69-a288-e2c95bafdd9a
“Senate Bill 21 – Benefit Corporations.” Keating Muething & Klekamp PLL, https://www.kmklaw.com/newsroom-publications-870#:~:text=Benefit%20corporations%20%E2%80%93%20or%20B%20Corporations,which%20the%20corporation%20is%20formed.
“Benefit Corporations: What You Need to Know.” Cultivating Capital, https://www.cultivatingcapital.com/benefit-corporations/#:~:text=Benefit%20corporations%20are%20not%20tax,are%20still%20for%2Dprofit%20entities.&text=Benefit%20corporation%20status%20is%20first%20and%20foremost%20a%20legal%20status.