Earlier this week, a new Wisconsin law took effect that creates the benefit corporation. 2017 Wisconsin Act 77, which went into effect February 26th, creates and defines this new category of corporation.
In a nutshell, a benefit corporation is a for profit entity that seeks to achieve a public benefit. The benefit corporation thus marries profit and purpose.
We all know what profits are. But what is a “public benefit?”
The new Wisconsin law provides us with some illustrative examples, including:
The concept of benefit corporations has been evolving for the past two decades. State laws began codifying the corporate structure in 2010, when Maryland passed the first state law establishing this type of business entity. In less than 8 years, 34 states have followed suit, underscoring the importance of this trend.
Some examples of benefit corporations include Ben & Jerry’s, Etsy and Patagonia.
So, why would a company want to become a benefit corporation?
One of the most important aspects of the Wisconsin statute is that it creates transparency and auditing mechanisms for companies who wish to hold themselves out to the public as a benefit corporation. Benefit corporations must file an annual benefit statement, which sets out the objectives the board of directors has established to promote public benefit, standards for measuring the corporation’s progress in meeting those objectives, and an assessment of the corporation’s success in meeting its objectives.
Another key feature of Wisconsin’s benefit corporation law is that it provides liability protections for the corporation’s board of directors. Oftentimes, the board of directors will find some tension between meeting typical corporate objectives (profits for shareholders) and a public benefit. Wisconsin’s law recognizes that directors will consider both profits and public benefit when acting on behalf of the corporation.
Already a corporation under Chapter 180 or 181 of Wisconsin Statutes? Not a problem. You can convert your company to a benefit corporation by following some simple steps.
Starting up a new company? You may want to investigate whether the benefit corporation is the right structure for your company.
There are many potential benefits of the benefit corporation structure. If you are seeking investment capital, potential investors may find your public objectives an attractive feature. Being able to market yourself as a benefit corporation can also solidify your brand identity as socially conscious and connected to your community and environment. Consumers increasingly look for ways their spending can benefit their communities.
If your company has sincere interest in pursuing one or more public benefits, yet you also wish to make a profit, you may want to consider whether a benefit corporation is the right structure for you.
Karrie Weaver practices intellectual property, trademark, and patent law. Additionally, she assists nonprofits with their charitable organization and 501(c)(3) status.