I recently got interested in the various corporate forms that social enterprises can take when pursuing double or triple bottom lines (financial, social, and environmental returns). I write here about Google.org’s interesting dual structure, as well as benefit corporations and L3Cs. In future blog posts I want to address some more fundamental questions about corporate form, including:
– What are the key questions social entrepreneurs should ask when choosing which corporate form to start their organization with? Among those questions are, what sort of money do I want to raise, in what amounts, and what tradeoffs in ownership and other restrictions am I willing to make for that funding?
Google.org
My first interaction with these corporate forms was through a case study on Google.org, which I wrote at the Kennedy school and will soon publish through the HKS case study office. Google.org was not a hybrid corporate structure, but simply united Google Foundation, a 501c3, with Google.org, a division/arm of Google, Inc. Google.org’s structure allowed it to consider grant, PRI, equity, and other investments into nonprofits, for-profits, and other types of corporate organization. It essentially was free to make a broad range of investments into a broad range of companies in a way that most other companies cannot do.
Benefit Corporations
Requirement 1: They must operate for general public benefit – that is, “a material positive impact on society and the environment as measured a 3rd party standard through activities that promote the combination of special benefits.” The 3rd party standard means that they must be independent (not related to party it’s measuring) and transparent in its methodology. Their evaluation mechanism must be public, and all changes to it must be reported publicly.
Requirement 2: They might, but are not required to, operate for specific public benefit by providing individuals or communities with beneficial products or services, promoting economic opportunity beyond job creation, improving environment or health, promoting arts / science / knowledge, etc.
Shareholders in this form have a right to action if general public benefit is not taken into account. This means that anyone who owns shares in the company can file suit if they believe the general public benefit is not being met. This separates the stakeholders of the company from the shareholders. The stakeholders are all the members affected by the general public benefit – society, environment, etc. – while the shareholders are those who receive the private benefit of ownership.
Formation. To form, these organizations, like others, must file articles of incorporation with the secretary of state in the state in which they wish to incorporate; must clearly state benefit corporation status; draft bylaws including mission statement; hold organizational meetings; and issue stock. Two-thirds vote is required for an existing corporation to transform to a benefit corporation.
Management. The organization is managed by directors, who must consider stakeholders in their daily operation.
Taxation. There are no tax exemptions (e.g., such as the ones granted to a 501c3). Only benefit corporations incorporated in Philadelphia receive a tax favored status.
Capitalization. Can receive equity, debt, and PRI.
L3C
Michael Belinsky 