September 20, 2016 - Corporate Form, Resources

Social Enterprise Legislation in the United States: An Overview

Traditionally, corporate decision-making has been driven by the singular goal of maximizing shareholder value.  Increasingly, however, businesses seek to pursue a social or environmental mission alongside profit.   Such so-called “social enterprises” may find that fiduciary duties associated with the traditional corporate form limit the corporation’s ability to achieve mission.  Accordingly, mission-oriented for-profit entities may consider utilizing one of the new corporate forms which have emerged over the past several years.

  1. Legal Structures Specifically Designed for Social Enterprises

In recognition that the traditionally available structures of for-profit and not-for-profit organizations may not be adequately meeting the needs of many social entrepreneurs, some states have created new forms of entities that are specifically designed for social enterprises.  These entities are intended to allow companies to access a wider variety of financing options while pursuing goals that include both profits and other objectives.

While such dual pursuits are permissible in certain traditional legal structures, organizational forms such as the (1) social purpose corporation, (2) public benefit corporation, (3) benefit corporation, and (4) low-profit limited liability company (“L3C”) make such dual focus mandatory in varying degrees for the organization.  Many of these new forms are referred to as “B Corps,” but in fact the “B Corp” is a certification mark that can be licensed from B Labs for a fee by new and existing corporate forms (including LLCs and corporations).

Use of these structures is available in a majority, but not all, states, and, at present, there is a great deal of variance among states regarding the structure and nature of these entities.  Further, in the case of benefit corporations and L3Cs, the statutes creating such organizations may not be well-integrated with existing state law regulating traditional for-profit entities, leading to potential conflicts.  In addition, given the short history of many such forms, there is not an established body of precedent that boards and management can rely upon in making decision, and interpreting governing law.  For example, there is significant ambiguity in many states regarding the fiduciary duties of officers and directors in these new organizational forms. As a result, social entrepreneurs considering using these organizational structures should be sure to consult with legal counsel in their desired states of organization and operations.

  1. Status of Social Enterprise Legislation

New corporate forms are relatively new; while out of infancy, they are still in grade school.  They also have a variety of different names and come in many different shapes and sizes.  In 2008, Vermont was the first state to authorize the L3C form. In 2009, the flexible purpose corporation (renamed social purpose corporation) was introduced in California.  And finally, in 2010, Maryland led the charge as the first state to pass a benefit corporation statute. As of August 2016, 35 states (including Washington D.C.) have passed legislation allowing for the creation of mission-driven companies. While there is model benefit corporation legislation developed by B Labs, there is significant variation among states in the requirements for and features of the benefit corporation. Some states have adopted social enterprise forms other than benefit corporations. For example, California and Florida entities can be a benefit corporation or social purpose corporation (formerly known as a flexible purpose corporation in California), and a Minnesota entity can be a general benefit corporation or specific benefit corporation.

Below is a list of each available form, organized by state:

Key: Entity Types
BC Benefit Corporation, Sustainable Business Corporation (HI)*, Benefit Company (OR)**
SPC Social Purpose Corporation
PBC Public Benefit Corporation
GBC General Benefit Corporation
SBC Specific Benefit Corporation
L3C Low-Profit Limited Liability Company
BLLC Benefit LLC

 

State  Type Enacted Legislation Year Effective
Arizona BC Ariz. Rev. Stat. §§ 10-2401 to-2422 2015
Arkansas BC Ark. Code Ann. §§ 4-36-101 to- 4-36-401 2013
California BC Cal. Corp. Code §§ 14600 – 14631 (2013) 2013
California SPC Cal. Corp. Code §§ 2500-3503 2014
Colorado PBC Col. Rev. Stat. §§ 7-101-501 to -511, 6-113-102 2014
Connecticut BC S.B. 23, 2014 Sess. 2014
Delaware PBC Del. Code Ann. tit. 8, §§ 361-368 2013
District of Columbia BC D.C. Code §§ 29-1301.01 to- 1304.01 2013
Florida BC Fla. Stat. Ann. §§ 607.601 to- .613 2014
Florida SPC Fla. Stat. Ann. §§ 607.501 to- .513 2014
Hawaii SBC* Haw. Rev. Stat. §§ 420D-1 to -13 2013
Idaho BC Idaho Code Ann. §§ 30-20-01 to- 30-20-13 2015
Illinois BC 805 Ill. Comp. Stat. Ann. 40/1 to- 40/5.01 2013
Illinois L3C 805 Ill. Comp. Stat. 180/1-5, 1-10(a)(1), 1-26, 15-5 2013
Indiana BC H.B. 1015, 119th Gen. Assemb., 2015 Sess. 2015
Louisiana BC La. Rev. Stat. Ann. §§ 12:1801 to- 1832 2012
Louisiana L3C La. Rev. Stat. Ann. §§ 12:1301(A)(11.1), 1302(c), 1305(B)(3), 1306(A)(1), 1309(A) 2013
Maine L3C Me. Rev. Stat. tit. 31, §§ 1502, 1508, 1559, 1611 2013
Maryland BC Md. Code Ann., Corps. & Ass’ns §§ 5-6C-01 to- 5-6C-08 2010
Maryland BLLC Md. Code Ann., Corps. & Ass’ns §§ 11-4A-1201 to- 11-4A-1208, 11-1-502, 5-6C-03 2013
Massachusetts BC Mass. Gen. Laws Ch. 156E, §§ 1-16 2013
Michigan L3C Mich. Comp. Laws §§ 450.4102, 4204(2), 4803(1) 2013
Minnesota GBC, SBC Minn. Stat. Ann. §§ 304A.001 to- 304A.301 2015
Montana BC H.B. 258, 64th Leg. Sess. 2015
Nebraska BC Neb. Rev. Stat. §§ 21-401 to- 414 2014
Nevada BC Nev. Rev. Stat. §§ 78B.010 to- .190 2014
New Hampshire BC N.H. Rev. Stat. Ann. §§ 293-C:1 to- 13 2015
New Jersey BC N.J. Stat. Ann. §§ 14A:18-1 to- 11 2011
New York BC N.Y. Bus. Corp. Law §§ 1701-1709 2012
Oregon BLLC, BC** Ore. Rev. Stat. §§ 60.750 to- .770 2014
Pennsylvania BC 15 Penn. Cons. Stat. §§ 3301-3305 2013
Rhode Island BC R.I. Gen. Laws Ann. §§ 7-5.3-1 to- 7-5.3-13 2012
Rhode Island L3C R.I. Gen. Laws §§ 7-16-2, -9, -49, -76 2012
South Carolina BC S.C. Code Ann. §§ 33-38-110 to -600 2012
Tennessee BC Tenn. Code Ann. §§ 48-28-101 to- 48-28-402 2016
Utah BC Utah Code §§ 16-10b-101 to 16-10b-402 2014
Utah L3C Utah Code Ann. §§ 48-2c-102, -403, -405, -412, -1411 2013
Vermont BC Vt. Stat. Ann. tit. 11A §§ 21.01 to -.14 2011
Vermont L3C Vt. Stat. Ann. tit. 11, §§ 3001(27), 3005(a), 3023(a) 2008
Virginia BC Va. Code Ann. §§ 13.1-782 to -791 2011
Washington SPC Rev. Code Wash. 23B.25.005 to- .150 2012
West Virginia BC W. Va. Code Ann. §§ 31F-1-101 to -501 2014
Wyoming L3C Wy. Stat. Ann. §§ 17-29-102(a)(ix), -108, -705 2013
Total: 35 states*
45 bills
*including D.C.

With 45 bills passed since 2008, social enterprise legislation has been introduced in 35 states and the District of Columbia. Social enterprise legislation failed to pass in Alabama, Kansas, Missouri, New Mexico, North Dakota, Texas, and Wisconsin.  It is worth noting that Texas has enacted a statute that permits for-profit corporations to adopt a “social purpose,” but unlike other social purpose corporation statutes, it does not authorize the creation of a new corporate form.

Alaska, Georgia, Iowa, Kentucky, Michigan, North Carolina, Ohio, and Oklahoma all currently have social enterprise bills pending legislative review.

Mississippi and South Dakota are the only states that have not moved towards adopting mission-driven corporate forms.

For more information, see the Social Enterprise Law Tracker at http://socentlawtracker.org.