Benefit Corporations: A Promising New Corporate Form for Social Enterprises

With an impending environmental crisis, it is more important than ever for companies to consider the environmental and social implications of their business practices.  Demand from consumers, investors, and entrepreneurs have created the need for social enterprises.  Social enterprises can be defined as companies that, “…pursue both profit and social purpose, applying business principles while also serving some socially beneficial end” (Munch, 2012, 172).  Social enterprises face limitations when formed as a traditional non-profit or for-profit business, making them much less effective than they could be.  Pressure from shareholders to maximize wealth and the fiduciary duties of directors limit for-profit social enterprises, and non-profit social enterprises struggle with fundraising and cannot give money back to investors.  A relatively new legal status, benefit corporations, can help to solve these problem.

Benefit corporations have the ability to “…alter the nature of mission-driven corporations in the United States” (Munch, 2012, 186).  Social enterprises can be much more effective in pursuing their two goals, making a profit and minimizing social and environmental impact, having elected the status of a benefit corporation rather than a traditional corporate form.  Benefit corporations provide these companies with the flexibility they need to pursue their goals, as well as makes them more accountable for achieving them by requiring third party review.  Benefit corporations are required to issue Annual Benefit Reports detailing progress made towards their “general public benefit” (a social goal the company is trying to meet) that is sent to shareholders, as well as posted to the companies website.

Benefit corporation legislation is not yet perfect and still needs work for these companies to be as effective as they can be.  My White Paper demonstrates why benefit corporations are such a strong corporate form for social enterprises and details two schools of thought on how to further improve their structure, increasing or decreasing regulation.  This report hopes to convince state governments of the importance of implementing benefit corporation legislation in their states.  Twenty-three states currently have benefit corporation legislation in place, and fifteen more are working towards implementing it.

For those states that already have the legislation in place, this White Paper provides suggestions for improvements in order to make this corporate form more effective.  In my opinion, increased regulation can help this corporate form to be much more effective than it currently is.




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