If you’re hoping to create a business that benefits society and generates a profit, you might be curious about a benefit corporation. A benefit corp, sometimes called a public benefit corporation or social purpose corporation, is a newer type of corporate entity that allows socially conscious entrepreneurs to create a business that blends profit and social goals.

But what is a benefit corporation exactly? And how can you convert your company into one? In this guide, we’ll cover the essential facts to benefit corporations.

What is a benefit corporation?

A benefit corp is a type of business corporation that has two goals: making money and having a positive impact on society. That’s the key differentiator between a benefit and a nonprofit; a nonprofit furthers social good but it doesn’t generate profit for its owners. In contrast, a benefit corporation is a little bit different from a traditional C corporation because its directors can make decisions that benefit the public good, not just profits.

Benefit corporations are created by state statutes, but not all states offer them. Roughly 30 states have benefit corporation laws. You’ll need to check if your state has the benefit corporation structure before proceeding.

What’s the difference between a benefit corporation and a B corporation?

A benefit corporation is a legal corporate structure. In contrast, a B corporation is a certification that’s offered by an organization called B Lab. It’s not uncommon for a benefit corporation to also be a B corp. But technically speaking, any business structure can be a B corp. In this guide, we’ll cover the specifics of benefit corporations.

Advantages of a Benefit Corporation

Let’s talk about the biggest perks of a benefit corporation.

Protection for the Board of Directors

In a benefit corporation, the board of directors is responsible for chasing two goals: profit and their public benefit purpose. Benefit directors can’t lose their job or be scolded by shareholders if they make a decision that doesn’t benefit the bottom line but helps the social cause. In a profit company, the directors have what’s called a fiduciary duty to shareholders, meaning they’re entrusted with the financial benefit of their stockholders. So profit directors could technically be replaced if they don’t pursue profits as primary.

Public Relations

Benefit corporations enjoy a pretty positive image in the public eye. Today’s socially conscious buyers appreciate working with businesses that help good causes. The title “benefit corporation” is an easy way for your customers to know that you’re socially conscious, too.

Attracting Socially Conscious Investors

Benefit corporations share a lot of similarities with profit corporations, particularly the ability to raise capital by selling shares of stock. If you’re hoping to attract shareholders who are aligned with your mission, a benefit corporation can help you do that. Socially conscious investors might even prefer to invest in a benefit corporation over a profit one.

Drawbacks of a Benefit Corporation

As with any business structure, there are some drawbacks to becoming a benefit corporation. Let’s talk through those.

Reporting Requirements

Benefit corporations are required to submit regular reports. For starters, there’s the state’s annual report (or biennial report, or whatever the state requires) that you have to submit to be compliant. You’ll also be required to prepare an annual benefit report for your shareholders, describing your finances for the year, how you accomplished aspects of your social goals, and so on.

If you’re worried about being able to uphold detailed reporting requirements, a benefit corporation might not be the easiest choice for you.

Liability if the Company Doesn’t Live Up to Its Social Obligations

While a benefit corporation does offer limited liability protections to its owners, they can still face some consequences if they don’t live up to their social obligations. For example, let’s say that a meal delivery service structured as a benefit corporation says they’ll donate a box to a needy family for every box sold. But it comes out that they don’t make those donations as frequently as they said they would.

That company could face consequences. Some states allow citizens to bring suits against benefit corporations if they don’t pursue their stated public good. That said, the exact legal ramifications vary from one state to another. If you’re curious about what would happen in your area, consult with a business attorney.

Trouble Getting Certain Investors

One of the toughest but most important aspects of starting a company is raising start-up capital. To do that, you’ll need investors. As we mentioned earlier, benefit corporations are allowed to offer stock to raise capital. But they might not have the same appeal to high-profile investors since they also pursue a public benefit that’s not as “lucrative.”

As a benefit corp, one of your best bets is to try to attract investors that share your vision. Not only will they be more likely to support you financially, but they’ll also be passionate about keeping the business on track with its mission. And odds are, they’ll still enjoy a good amount of profit since many benefit corporations end up being quite profitable.

How to Convert Your Corporation into a Public Benefit Corporation

Every state has a slightly different procedure for how to convert a traditional corporation into a public benefit corporation. Ultimately, you’ll need to check your state’s statutes for the full guidelines. But we’ll walk you through the basics of how the process flows in most states.

Step 1: Get approval from the board of directors

First things first: your board of directors has to approve a conversion into a public benefit corporation. After all, the board of directors calls the majority of the shots for the business’s day-to-day operations. So, they’ll need to give their thumbs-up.

Your directors will need to move for a vote to convert, get a second for that vote, and then get that vote passed. Your company bylaws should dictate how many votes the resolution needs. And be sure to meet your state’s requirements for a voting quorum.

Step 2: Get approval from the shareholders

Once the board of directors approves the vote to convert, the shareholders need to vote. Again, this process will be partly governed by your bylaws and partly by state statute. But until you have the approval of your shareholders, you won’t be able to convert into a benefit corp.

Step 3: Get approval from any other parties

If you have other groups invested in the future of your business, you may need to get their approval. For example, if you have a business loan, your bank might need to approve the conversion since the change could affect your repayment process. There are other groups you might need approval from, too.

If you’re unsure about who you’re required to notify, we recommend getting legal advice from a local business attorney. 

Step 4: Amend Articles of Incorporation

After your business’s stakeholders approve your conversion, you’ll need to file the paperwork. Often, this entails filing an amendment to your Articles of Incorporation. Of course, the exact process varies a little bit, depending on your state. Double-check with your state’s legal document offerings and conversion procedures to make sure you’ve met state requirements.

Step 5: Add a beneficial purpose statement

Remember writing a mission statement for your corporation? It’s time to change that up a bit. Replace your mission statement with a beneficial purpose statement. In practice, these statements aren’t a lot different. But a good beneficial purpose statement will clearly describe the public good you hope to achieve and a brief description of how you’ll make it happen.

Step 6: Change your business name (if required)

In some states, a benefit corp is required to have a certain type of business name. That might include a phrase like “Benefit Corporation” or “Public Benefit” or another state-mandated phrase. If your state has a requirement like this, you’ll need to amend your name to meet it.

Of course, even if your state doesn’t require you to change your name, you might want to. After all, an amended business name might better reflect the new social mission your business has.

Step 7: Issue new stock certificates

Stock shares for a business corporation and for a benefit corp look slightly different. So you’ll need to issue new versions of your stock to your stockholders. These new certificates will reflect your business’s new status.

We can help!

Here at ZenBusiness, we have a lot of respect for benefit corporations — goodness, we’re a benefit corporation, too. We’ve made it our mission to help businesses succeed at any stage. Whether you need help starting a business, getting a registered agent, filing an annual report, or anything in between, we’ve got your back.

FAQs on Converting Your Business into a Public Benefit Corporation

  • First, check if the benefit corporation structure is even available in your state. If it is, you can proceed. If not, you’ll need to start a profit entity like a business corporation instead, or you can pursue becoming a non-profit organization instead.

    If you haven’t started your benefit corp yet, you can simply file the Articles of Incorporation for your state. If you already have a corporation, you’ll need to convert your corporation into a benefit company instead.

  • Since benefit corps still generate profit, they can’t receive tax-exempt status. That privilege is largely reserved for non-profit corporations and other non-profit groups. 

  • There aren’t any tax benefits to the benefit corporation status; they’re still subject to income tax, franchise tax, and more. So you might wonder why a business would switch. Most importantly, the benefit structure allows a business to keep two focus points without consequence: profit and social good. And the label “benefit corporation” is viewed positively by many consumers. Public image can be a powerful tool.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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