Did you form your business to benefit the public and is it designed to operate in a responsible and sustainable manner? Does your business focus on pursuing a net material positive impact as well as making a profit? If so, you may want to consider forming a public benefit corporation, which is a business form that accommodates both a public mission and private commercial ambition (e.g., TOMS or FEED Projects).
The Minnesota legislature recently enacted legislation that allows for the formation of public benefit corporations. The Minnesota Public Benefit Corporations Act will become effective on January 1, 2015, and the Minnesota secretary of state’s office will not accept filings of organizational documents for a public benefit corporation until then. An entity organized as a Minnesota corporation can elect public benefit corporation status and a Minnesota limited liability company may merge into a newly created public benefit corporation at the beginning of the next calendar year.
Types of Public Benefit Corporations
There are two types of public benefit corporations: a general benefit corporation and a specific benefit corporation. A general benefit corporation is a public benefit corporation that elects in its articles to pursue a general public benefit, and it may state in its articles a specific public benefit purpose that it elects to pursue. A general public benefit means a net material positive impact from the business and operations of a general benefit corporation on society and the environment. A specific benefit corporation is a public benefit corporation that states in its articles a specific public benefit purpose that it elects to pursue. A specific public benefit means one or more positive impacts–or a reduction of negative impact–on specified categories of natural persons, entities, communities, or interests other than shareholders.
Each public benefit corporation that is organized in Minnesota is required to file an annual report with the secretary of state that details how the corporation pursued its general or specific public benefit goals in the previous year. The annual report must refer to an independent third-party standard selected by the board of directors (although no audit or certification is required from the third party that created the standard). The Act authorizes the secretary of state to revoke a corporation’s public benefit status if it fails to file an annual report.
The Act does not set forth a uniform standard or set of standards by which public benefit corporations must operate, nor does it create a standards board or any other review body to evaluate a public benefit corporation’s compliance with its stated mission.
Board of Directors
In making decisions on behalf of the corporation, the board of directors of a public benefit corporation must consider the public benefit purposes set forth in the corporation’s articles, the interests of shareholders, and the interests of non-shareholder constituencies. The Act provides that shareholder profits are not to be given presumptive priority over the other considerations.
A public benefit corporation will be taxed as a regular business corporation, either as a C corporation or–if it qualifies and makes an election–as a Subchapter S corporation.
Shareholders’ Right to Enforce Compliance
The Act does not grant any government body or third party the right to enforce a public benefit corporation’s compliance with its stated public benefit purposes. However, shareholders have a right to bring an action if the corporation fails to pursue its public benefit purposes, and the annual report filed with the secretary of state is subject to penalties of perjury if it is not accurate.
In traditional corporations, prioritizing a public benefit over profits would violate the fiduciary duties owed to the company’s owners. A public benefit corporation modifies this, allowing the board of directors and officers of the company to prioritize a social benefit over profits. If the purpose of your company is to have a positive impact on society, then forming a public benefit corporation may be the right entity form for your business.