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.
- 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.
- 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|
|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|
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.