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October 18th, 2010
Inspired by the growing trend in Social entrepreneurship across industries, states are passing legislation allowing for new and alternative corporate structures. The L3C has been growing in popularity and now we are starting to see “benefit corporation” legislation. This legislation is inspired by the B-corp certification.
Maryland was the first to pass the law. They aren’t enforcing all of the considerations and requirements that a B-corp certification does (social, environmental, economic), but rather, the legislation allows for-profit companies to specify that they exist for a specific public good. The company is then required to report on contributions to that goal and conduct audits regarding the company’s actual impact. The legislation allows a company to consider stake-holders in the business other than the shareholders, including their employees or local environments.
Social Entrepreneurship is On the Rise
Vermont is also considering passing a similar Bill.
This legislation is ground breaking, since many states have legislation and years of case law interpretation that prevent businesses from fully complying/benefitting from B-corp certification. The creation of L3Cs and Benefit Corporations show a cognizance by our local governments that social entrepreneurship is on the rise, that a well rounded company will take a well rounded approach to their decision making, and that you can do good and make money. Take that Gordon Gekko!
Will Companies Exist for More Then Profit?
California is currently considering a bill that would create “flexible-purpose corporations” which would allow companies to state a particular social or environmental good. This would formalize their mission and emphasize purpose over profits. The legislation would allow board members to feel secure in having met their fiduciary duties if, by acting in the “best interests of the corporation” they fulfill the mission but make less money.
Other benefits of the this legislation allow founders to sell the company and maintain the business purpose in the transfer. Non-profits can convert and gain access to all new funding and revenue streams. For those non-profits that are making too much revenue, conversion to a “flexible-purpose corporation” would eliminate potential tax and legal issues.
How Will These New Legal Entities Fit Together?
So the question is, can the L3C, benefit corporation, and flexible purpose corporation coincide? Do each of these entities serve a separate function or are we creating a big tangled mess of conflicting and non-reciprocal legislation? Most importantly, if there is a stand-off, which one has the secret ingredient that will reign supreme?
Photo Courtsey: Axel Bührmann
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