WFJ Presents: “Social Business” Hybrid: The New Minnesota Public Benefit Corporation

So, let’s assume you know an entrepreneur who has a great business sense, and also is committed to a particular social cause.  This entrepreneur places equal emphasis on both concerns: She strives to support the social cause, but she cannot ignore profits and the bottom line, especially since her idea is novel and will certainly attract outside investors, who undoubtedly will want to benefit financially from their investment.

In Minnesota, the entrepreneur’s current options include: (a) creating a for-profit business entity and donating some of the proceeds to the social cause; or (b) creating a non-profit entity that is committed to the social cause, but devoid of profits and investment opportunity. Option (a) is attractive, but how will the entrepreneur properly execute her donative intent whilst satisfying the return on investment? Option (b), while perfect for some, does not suit the business plan that her novel idea demands.

For years, for-profit and non-profit entities have been analogous to parallel highways that, while coming close to merging at certain points, have never really intersected. The choice was Option (a) or Option (b).

On January 1, 2015, your entrepreneur will have an option that combines for-profit return on investment, with the binding legal commitment to a social cause. Option (c).

The recently enacted Minnesota Public Benefit Corporation Act (Minn. Stats. § 304A) creates just the intersection or merge point your entrepreneur is looking for. The Public Benefit Corporation (PBC) has a “triple bottom line” – it voluntarily commits and statutorily elects to consider people, place and profit factors in its corporate decision making. In other words, the entity and its board must consider (and this ‘consideration’ must be documented) the impact of decisions not only on shareholders, but also on all potential stakeholders: the community, employees, and the environment. The PBC can be held accountable for its commitment to corporate purpose and must be transparent in its efforts to create a material positive impact on society and the environment.

Minnesota is not the first state to enact such legislation; more than half the states have already done so. Some well-recognized companies like Patagonia™ have elected to convert and become Public Benefit Corporations. Similarly, the new Minnesota law allows for existing business corporations (governed by Minn. Stats. § 302A) to elect PBC status through a statutory conversion process. It also allows for two types of Public Benefit Corporation: the General Benefit Corporation (GBC) and the Specific Benefit Corporation (SBC).

For further details, please contact a WFJ business attorney.

Attorney Nicholas N. Sperling