A public benefit corporation is a new legal corporate form that will be available in Minnesota starting on January 1, 2015. It is designed to help entrepreneurs start and grow socially responsible, for-profit businesses. Public benefit corporations are like traditional for-profit business corporations in most ways except that they choose to make social commitments a part of their business plan. Jeff Ochs, a successful Minnesota social entrepreneur, public benefit corporation drafting committee member, Executive Director of Gopher Angels and Principal of Huli Consulting, provides a great explanation of what a public benefit corporation is:
Click here to view the videos.
PUBLIC BENEFIT CORPORATION BASICS
Primarily, a public benefit corporation declares a legally binding social purpose, in addition to its general business purpose, which its directors and officers must consider when making strategic decisions for the business. A public benefit corporation also publicly reports its progress toward its social purpose each year to the Minnesota Secretary of State.
GENERAL BENEFIT CORPORATION VS. SPECIFIC BENEFIT CORPORATION
Minnesota’s statute creates two different types of public benefit corporations, a general benefit corporation (GBC) and specific benefit corporation (SBC). A social entrepreneur must elect one of these two types in Minnesota and use the name of the type of entity or the associated acronym in its legal name. While both the GBC and SBC require the public benefit corporation to declare and commit to pursuing a social purpose, the extent of that commitment is different. The GBC commitment is broad and involves making a “net material positive impact from the business and [its] operations…on society, the environment, and the well-being of present and future generations.” The SBC commitment is limited to whatever social purpose is stated in its Articles of Incorporation. A GBC can either elect only to pursue a general public benefit, or it can elect to pursue a general and a specific public benefit.
In Minnesota, a public benefit corporation must annually deliver to the Minnesota Secretary of State a benefit report covering the prior calendar year. For a SBC, this report must discuss the ways and extent to which the corporation pursued and created the specific benefit purpose in its articles. For a standard GBC, this report must identify and apply a third-party standard to its operations. If a GBC also elects a specific benefit purpose, it must include required reporting information for both GBC’s and SBC’s.
PUBLIC BENEFIT CORPORATIONS, TAXES AND NONPROFITS
Like a traditional for-profit business corporation, a public benefit corporation can be taxed as either a C-Corporation or an S-Corporation. A public benefit corporation is not an IRS tax-exempt organization. Therefore, public benefit corporations cannot receive tax-deductible donations from individuals and special rules govern how foundations engage with them. A nonprofit corporation cannot become a public benefit corporation, but it can create a subsidiary public benefit corporation. Any other type of for-profit business enterprise, such as a limited liability company, can transition into a public benefit corporation.