Many start-ups begin because the founders want to make a difference. This social benefit often makes a non-profit seem like an appealing path. At the same time, many founders become disheartened when they find it difficult to raise capital when their venture is entirely focused on a social mission. It doesn’t have to be a matter of choosing between revenue generation or strict adherence to a mission.

 

Minnesota is one of 31 states that have adopted an alternative to the traditional difficult decision between organizing as a non-profit or for-profit entity. Each state has that has adopted this structure has passed it in a slightly different manner. There are three distinct commonalities in every state that recognizes a benefit corporation:

 

  1. Requiring that a benefit corporation consider the general public welfare before acting;
  2. Permitting that more specific interests be considered as well; and
  3. Requiring that the firm’s compliance be measured against a standard imposed by an independent third party.

 

Advantages of organizing as a benefit corporation include:

 

  • Righteous goals are a top priority;
  • Alignment with the societal trend of favoring social benefits; and
  • Appeal to investors while still focusing on the selected values.

 

Some cons of incorporating as a benefit corporation include:

 

  • Uncharted waters as Minnesota courts have not decided cases involving benefit corporations;
  • There are still taxes to pay; and
  • Responsibility to consistently uphold fiduciary duties of care, loyalty, and good faith at a higher threshold.

 

While benefit corporations are still young, it seems the most successful ones have reincorporated as benefit corporations after gaining success as a traditional corporate entity. For an example, see Method Products, PBC.

 

Thinking about forming a benefit corporation? Loop Legal offers services to entrepreneurs built on an innovative pricing model to help start-ups through the most important junctures of their operations. Contact us today to learn more about whether you should organize as a benefit corporation.