What Is a Benefit Corporation?
All companies strive to be profitable, but “benefit” companies also strive to improve society and the environment.
King Arthur Flour is a familiar item in the baking aisle of most grocery stores. But the King Arthur Flour Company is different from its major competitors, and not just because of its baking qualities.
King Arthur is 100 percent owned by its workers, who share in the profits and receive 40 hours of paid volunteer time each year.
King Arthur sponsors school education programs and donates substantial sums to programs that combat hunger. It uses recycled paper and renewable power and gives food scraps to a local agriculturalist.
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King Arthur is an example of a benefit corporation, a type of corporation that places social and environmental values on an equivalent footing with earnings. Other well-known benefit corporations include outdoor gear retailer Patagonia and the crowdfunding service Kickstarter.
How a Benefit Corporation Is Different
Just what is a benefit corporation? A for benefit corporation has the same format as a traditional for-profit business. Each has a board of directors, officers, and shareholders who own shares in the company.
The officers and directors run the company, yet the shareholders can hold them responsible for the decisions they make.
Shareholders have several standards to do this, including pointing out a shareholder lawsuit.
The difference between a traditional corporation and a benefit corporation is in its purpose.
A traditional for-profit company’s goal is to make profits for shareholders. This means that corporate executives are judged based on the company’s financial performance. They may face shareholder activity if they make decisions that sacrifice profits to gain non-monetary goals.
A benefit company still has a profit-making goal, but it also has a more general public benefit purpose: to make a material positive impact on society and the environment.
Managers must work to achieve this goal and therefore they have the flexibility to make judgments that balance profits with social reasons and environmental commitment.
Forming a Benefit Organization: Things to Know
Benefit corporation l must have a general benefit purpose stated in its articles of incorporation.
Because they may sacrifice profits to achieve social goals, for-benefit companies may not be as popular with investors as traditional profit-centered corporations. Owners of benefit corporations may have to develop a strategy to attract investors that value contributions to social or environmental causes as highly as they value profits.
Another Way to Become a Benefit Company
Another way to show that a business is focused on environmental and social goals is to apply for certification through a nonprofit organization. Certification is available to all types of businesses, including traditional corporations and LLCs.
Some businesses, like King Arthur Flour Company and Greyston Bakery, are organized as benefit corporations.
Certification involves completing an assessment that evaluates the company’s overall impact on its stakeholders.
Some companies must amend corporate formation documents or bylaws to include a general benefit purpose.
Forming a benefit corporation can help a company fulfill a social purpose without risking shareholder action for placing social good ahead of profits. Certification and reporting requirements help business managers assess progress and set new goals.
And, in an era where so many are trying to be authentic and sustainable, becoming a benefit company helps you stand out from the crowd by demonstrating your commitment to your employees, your community, and the environment.
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