Earth Day 2016: Five Things to Know About Benefit Corporations, Nonprofits and Sustainability
New York, NY (Marketwired - April 21, 2016)
Wolters Kluwer's BizFilings Offers Tips on Making Public Good a Part of Business Strategy
More than ever before, consumers are seeking products from socially responsible companies that follow sustainable practices and offer environmentally friendly products and services, according to Wolters Kluwer's BizFilings. In response, many companies are converting to "benefit corporations," for-profit entities such as King Arthur Flour, Ben & Jerry's and Warby Parker that legally make both profit making and doing social good core business objectives. But the model is not just for large companies; many small businesses are now opting to start as benefit corporations.
In honor of Earth Day, Jennifer Friedman, CMO of BizFilings, answers questions about the benefit corporation model, how it is different from a traditional nonprofit, and how being a benefit corporation can work for small businesses.
1. What are the benefits of being a benefit corporation?
Jennifer Friedman: Making a profit while making a difference and meeting the growing consumer demand for products and services from socially responsible companies is the main reason companies choose the benefit corporation model.
In addition, the model is attracting more investors who wish to invest in socially responsible companies. Last year e-commerce startup and benefit corporation Cotopaxi, for example, attracted a record $9.5 million investment -- the most substantial sum raised by any benefit corporation. Cotopaxi works to alleviate poverty and provides grants to improve the health, education and livelihoods of people around the world.
Finally, the benefit corporation model can make an impact when it comes to attracting talent, especially millennials, the generation born between about 1982 and 2004. In the Deloitte Millennial Survey 2016, 44 percent of millennials say they'd like to leave their job in the next two years. Among the reasons: A conflict of values with their employers. What's more, only 20 percent of millennials, who believe their employer puts profits above all else, plan to stay in their job for more than five years, the study found. And, a whopping 87 percent of millennials expect that a business's success is measured by more than its financial performance.
By 2020, the majority of the millennial generation will be adults -- making big decisions about careers and purchases. Benefit corporation status can be useful in communicating a company's value to this segment of potential clients, customers and employees.
The benefit corporation model can be a particularly good fit for small businesses for a number of reasons. For one, benefit corporations help to attract investment, as there is $3.7 trillion in socially responsible investing assets under management. Benefit corporation status can also differentiate a small business from its competitors, as it demonstrates leadership by voluntarily holding the business to a higher standard of purpose, accountability and transparency.
2. Is benefit corporation status something any business can consider?
JF: Companies that create organic or eco-friendly items -- such as Seventh Generation and Plum Organics, both benefit corporations -- might seem like an obvious candidate for this new business entity. But, across the country, benefit corporations represent companies of all sizes and a wide variety of sectors and industries -- everything from professional services and manufacturing to technology companies and food purveyors.
Any business can become a benefit corporation as long as its leaders are motivated to promote social good; comply with stricter requirements of accountability and transparency; and meet the stated public benefit purpose.
In the last year, we've seen businesses in a variety of industries become benefit corporations. They include Laureate Education, a for-profit provider of online education, which is seeking to become the first public benefit corporation, and the Philadelphia Media Network, which runs the city's newspapers, is now a public benefit corporation. So is Kickstarter, the crowdfunding platform.
3. The number of states allowing benefit corporations has grown in the past year. What states have approved the legislation in the last year? Are more to come?
JF: In 2010, Maryland was the first state to pass a law allowing for benefit corporations. Since then, 30 states and the District of Columbia have followed suit.
In about the last year, six new states -- Idaho, Indiana, Minnesota, Montana, New Hampshire and Tennessee -- passed legislation and now allow the formation of public benefit corporations. According to BenefitCorp.net, five more are working on legislation this year -- North Dakota, New Mexico, Oklahoma, Kentucky and Alaska.
As of April 2015, there were 2,144 active benefit corporations in the United States, up from just 500 in 2012. It's an exciting time for entrepreneurs, who want to stand out in their markets but, more importantly, make a difference in the world.
4. How is a benefit corporation different from a nonprofit?
JF: In some ways, a nonprofit organization is similar to a traditional corporation or benefit corporation. It has many of the same formalities and protections of a corporation. But, there also are some key differences. Nonprofits do not have shareholders and, an important distinction, can't operate to make a profit for their organizers, officers or directors.
Nonprofits offer plenty of advantages. They are not required to pay income tax if the profits earned are related to the organization's charitable activities. Forming a nonprofit also qualifies the organization for many forms of funding, including public and private grants. Donors can deduct gifts from their state and federal income tax forms.
Nonprofits also come with some limitations. A nonprofit, for instance, must specifically state that it is organized exclusively for a charitable, religious, educational or scientific purpose. A founder must be certain that his or her organization fits this mold in order to qualify as a nonprofit. In addition, to receive tax-exempt status, nonprofits also must file paperwork with the IRS, which can be a lengthy and complicated exercise.
The last decade has seen a boom in the number of nonprofits formed in the United States -- 25 percent compared to 0.5 percent for traditional for-profit businesses. This growth is fueled by many of the same factors driving growth in use of the benefit corporation model. Both business models are important and beneficial vehicles -- which you choose for your business depends on your goals, and consulting with a trusted advisor such as your accountant or attorney is invaluable in helping you to make the right decision.
5. How does a business owner file to become a benefit corporation?
JF: For new businesses, entrepreneurs must file articles of incorporation in the appropriate state, specifying that the venture will provide general public benefits as it also earns a profit. Some states require the organizers to state a specific public benefit as well. In most states where benefit corporations are allowed, an existing corporation can become a benefit corporation by passing a resolution to do so and filing articles of amendment with the state.
Once the benefit corporation is formed, entrepreneurs will likely need to file annual public reports to show how they've made a positive impact on society. www.bizfilings.com has tips, resources and other information on this and other requirements related to becoming a benefit corporation.
As we celebrate Earth Day 2016, it's important to keep in mind that public trust in business is at its lowest levels since 2008, according to the recent Edelman Trust Barometer. Consumers demand more from corporate America. In fact, 81 percent of respondents said that they believe that companies can increase profits as they improve the economic and social conditions in their communities. The new formula for business innovation, it found, must now include "integrity."
That is the essence of a benefit corporation -- an organization that has the power to do good and the ability to make a profit. This new corporate entity provides a powerful tool for the latest generation of corporate leaders as they focus on developing sustainable corporate practices for the world today, and the world to come.
BizFilings provides services that helps small business owners form a corporation, an LLC, or other business structure quickly and efficiently online or by telephone. BizFilings also offers business filing and compliance products, such as registered agent services, to help businesses remain in compliance with regulations in various states and nationwide.
About Wolters Kluwer Governance, Risk & Compliance
Wolters Kluwer Governance, Risk & Compliance (GRC) is a division of Wolters Kluwer which provides legal, finance, risk and compliance professionals and small business owners with a broad spectrum of solutions, services and expertise needed to help manage myriad governance, risk and compliance needs in dynamic markets and regulatory environments. The division's prominent brands include: AppOne®, AuthenticWeb™, Bankers Systems®, BizFilings®, Capital Changes, CASH Suite™, CT Corporation, CT Lien Solutions, Corsearch, ELM Solutions, Tymetrix® 360, Passport® and LegaVIEW®, and GainsKeeper®, OneSumX®, TyMetrix®, Uniform Forms™, VMP® Mortgage Solutions and Wiz®.
Wolters Kluwer N.V. (AEX: WKL) is a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. Wolters Kluwer reported 2015 annual revenues of EUR 4.2 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide.