What is a benefit corporation and why

Artisanal Distillery Benefit Corporation

A benefit corporation is a traditional for profit entity that voluntarily meets different standards of accountability, transparency, and corporate purpose. Benefit corporations have a central purpose of creating a material positive impact on society and the environment. Benefit corporations consider the impact of business decisions not only on shareholders but also on employees, community, and the environment. Benefit corporations are required to make available an annual report that assesses the social and environmental impact against a third party standard. Being a benefit corporation does not affect the tax status and a corporation still elects to be either a C or S corporation.

On October 24, 2012 PA passed benefit corporation legislation which became effective on January 22, 2013 becoming the 12th state to adopt benefit corporation status.

Traditionally, corporations strive to maximize financial gain or shareholder value, often at the detriment to the environment or society. When the primary purpose of a corporation is to maximize profit what does this mean? How can short term decisions for quarterly profits be balanced with long term choices that affect the world and society?

Benefit corporations create a new and beneficial corporate structure that addresses the needs of business leaders and investors whose core mission is creating a positive material impact on society and the environment. Being a benefit corporation permits investors and entrepreneurs to make different choices on how to achieve the business objectives. For instance, if a company desires to purchase clean alternative energy even though it may be slightly more expensive than traditional fossil fuel produced energy, it would not be possible if profit is the primary motivation. A decision to purchase alternative energy, in the long term, is better for the environment and society but in the short term is not as profitable.

Wait, this sounds like a nonprofit? No benefit corporations are not nonprofit or a hybrid nonprofit. Benefit corporations are for profit ventures that want to consider all stakeholders and other moral and ethical issues and the purpose of the business in addition to making a profit.

 

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