Benefit Corp and Nonprofits

Can nonprofits become benefit corporations or use benefit corporations to help achieve their mission? 

Nonprofits cannot become benefit corporations, but they could create one.  Because of the public benefit purpose provisions, expanded fiduciary duties of directors, and additional shareholder rights created within the model benefit corporation legislation, the benefit corporation structure could be a useful structure in which to conduct and scale the earned-income activities of a nonprofit.

Will benefit corporations reduce philanthropic giving to nonprofits?

No.  Benefit corporations are for-profit entities and do not offer philanthropists the same tax advantages as donating to a nonprofit organization.  Benefit corporations seek equity or debt investments that presume a return on investment for the investors, while nonprofits seek charitable donations that presume no return.  Occasionally, philanthropists make program-related investments (overwhelmingly below market loans) for which they seek a return.  Benefit corporations simply expand the range of opportunities for individuals or institutions to use their investment capital – not just their philanthropic dollars - to create a positive impact on society and the environment.

Chronicle of Philanthropy, 'Businesses with a Social Conscience' by Phillip Henderson, President, Surdna Foundation

How might nonprofits be helped by the existence of benefit corporations?

Based on our analysis of mission-driven businesses, and because they are legally obligated to create a material positive impact on society and the environment and to consider the impact of their decisions on all stakeholders, there are three primary ways benefit corporations help nonprofits: more charity; more volunteerism; and fewer problems.  Again because of the imperative to create general public benefit, benefit corporations will be more likely to donate a higher percentage of their profits than ordinary corporations to support non-profits; and less likely to create more opportunities than ordinary corporations for their employees to volunteer for non-profit organizations.  Also, benefit corporations are less likely than ordinary corporations to create or exacerbate social or environmental problems as a result of their business practices.

Does benefit corporations legislation offer benefit corporations any tax or other advantages?

No.   Intentionally, model benefit corporation legislation provides no tax, investment or procurement incentives for benefit corporations.  Policy makers and the general public will decide over time whether benefit corporations, as a result of voluntarily meeting higher standards of corporate purpose, accountability, and transparency, are worthy of any preferential treatment.

 

This site is run as a public service by B Lab, a nonprofit whose mission is to use the power of business to solve social and environmental problems. 
For information on B Lab's other initiatives, please visit www.bcorporation.net.

Legal Disclaimer: The information on this site does not constitute legal advice and is provided solely as a reference.  Those interested in electing benefit corporation status should discuss with their legal advisors the potential risks and liabilities and specific processes associated with this for the company's circumstances and state of incorporation.