What is a Benefit Corporation?

Benefit corporations offer numerous advantages to stakeholders, and Arizona now allows companies to establish as a benefit corporation. This legal tool creates more flexibility for a foundation while providing the company with more flexibility when it comes to liquidity, leadership changes, and capital raises.

Benefit corporations are not “B Corps,” which is a designation for a company certified by B Lab for specific standards. Instead, the benefit corporation is a for-profit entity that offers a positive impact on employees, the community, and society. In the past, companies that wished to pursue a social or environmental mission had to be non-profit. Now, a company can maximize their financial gain, while still benefiting their mission.

Numerous companies spanning several industries have already become benefit corporations. The first law allowing these types of businesses was issued in Maryland in 2010, and slowly more states have added benefit corporation entities. Some well-known benefit corporations include Patagonia, King Arthur Flour, and Plum Organics.

The Advantages of a Benefit Corporation

  • A benefit corporation expands the obligations of the board and allows a company to focus on environmental and community factors. It also allows companies to concentrate on the financial interests of shareholders.
  • Being a benefit corporation offers effective marketing because a company can promote their products as a way for the community to “go green,” or show that they support the environment.
  • The use of a benefit corporation dictates the direction a company must take, which simplifies the process when many shareholders are involved.
  • Those that support a company’s mission can have tax deductible contributions.
  • Member resources become available to a benefit corporation once they form their entity, which helps a company grow successfully.

The Disadvantages of a Benefit Corporation

  • A benefit corporation must be able to pass the random audits issued, and they must remain transparent about their mission to stay qualified as a B corporation.
  • Frequent accountability can be time-consuming for a company. Also, having an auditor tell a company that they are going in the wrong direction may thwart growth and make it difficult for a company to move forward.
  • There are no tax benefits to being a B corporation over another type of entity.

Deciding the right entity type for any business venture is critical. When creating your business, turn to the attorneys at Udall Shumway, PLC for assistance. By understanding the legal and financial obligations associated with your entity, you can better decide which entity is right for you.

 

This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Benefit Corporation, or any other commercial litigation matters, please feel free to contact Joel E. Sannes at 480.461.5307, or log on to udallshumway.com,  or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.