B Lab, the nonprofit responsible for the passage of benefit corporation statutes in over 30 states (as of the writing of this post), has released a report on the status of venture capital raised by benefit corporations. While skepticism remains among the entrepreneurial and investors communities around the ability of benefit corporations to raise traditional venture capital, it appears that benefit corporations are able to break into the venture capital ecosystem, including at some of the nation’s top venture capital firms.
Etsy made news when it went public as a B Corp in April 2015. And now we have the first Benefit Corporation to file for an Initial Public Offering (or IPO) in the U.S.: Laureate Education, an online education platform. On October 1, 2015, Laureate became a Public Benefit Corporation in Delaware. On October 2, 2015, it filed an S-1 Registration Statement with the Securities Exchange Commission, making official its plan to become a publicly-traded company. What does it all mean?
Traditionally, the divide between a for-profit or nonprofit organization was clear: for-profit businesses would engage in revenue generation and nonprofits would engage in charitable work to solve social issues and would largely stay away from revenue generation. The rise of social enterprises in recent years, however, has made that distinction less and less clear. Social entrepreneurs are finding innovative ways to challenge the traditional thinking about nonprofit organizations (by focusing on economically sustainable models) and for-profit businesses (by focusing on solving social issues). As you set out on your mission to change the world, you will have to decide if you want to form your venture as a for-profit or nonprofit–or perhaps some hybrid of the two. The answer will largely depend on your best guess as to source of funding and your activities.
When deciding what business entity type to use for your social enterprise, you should start by considering the factors that all businesses should consider at the formation stage. Once you have decided on an entity type, you should consider where to incorporate your social enterprise. If you plan to establish a flexible purpose corporation, then California is your only choice. But if you set your sights on creating a benefit corporation, then you can choose from a number of states. Read more
We are often asked “what is the best entity type?” There really is no one-size-fits-all answer because each entity may be more or less beneficial for any given enterprise. Rather, it is important for entrepreneurs to consider various factors when choosing a business entity. Read more
Benefit Corporations and Social Purpose Corporations are entity types that were established in California with an eye towards allowing for-profit companies to engage in socially-minded activities traditionally carried out by non-profit organizations. Such activities are typically frowned upon by traditional corporation shareholders and the law.
It should be noted that neither Benefit Corporations nor Social Purpose Corporations get special tax treatment in a way that non-profit organizations do. But both corporate types are structured as for-profit entities that can be used by for-profit entrepreneurs who consider themselves for-impact as well—that is, they want to have a social and environmental impact. But there are significant differences between the two that should be considered by entrepreneurs looking to stay in the for-profit realm while using their business to make a difference in the community and the environment. Read more