What is a Benefit Corporation?
A benefit corporation is a new legal tool that creates a solid foundation for long term mission alignment and value creation. It protects mission through capital raises and leadership changes, creates more flexibility when evaluating potential sale and liquidity options, and prepares businesses to lead a mission-driven life post-IPO.
A benefit corporation is a traditional corporation with modified obligations committing it to higher standards of purpose, accountability and transparency:
- Purpose: Benefit corporations commit to creating public benefit and sustainable value in addition to generating profit. This sustainability is an integral part of their value proposition.
- Accountability: Benefit corporations are committed to considering the company’s impact on society and the environment in order to create long-term sustainable value for all stakeholders.
- Transparency: Benefit corporations are required to report, in most states annually and using a third party standard, showing their progress towards achieving social and environmental impact to their shareholders and in most cases the wider public.
Traditional corporations are expected to use profit maximization as the primary lens in decision making. Many now see this as a hurdle in creating long-term value for all stakeholders, including the shareholders themselves. Benefit corporations reject this myopic model. They are required to consider all stakeholders in their decisions. This gives them the flexibility to create long term value for all stakeholders over the long term, and even through exit transactions such as IPOs and acquisitions.