Upon attending a recent conference, I am extremely motivated to blog about the new Minnesota Public Benefit Corporation – an act signed into law by Minnesota’s Governor on April 29, 2014. While this law will not be in effect until January 1, 2015, I would like to take some time to introduce you to the new statute, describe some of its purposes and benefits, and provide a few reasons why your (aspiring) business should become a Public Benefit Corporation.
Why do we need a new corporate entity statute?
Nobody is required to form an entity to operate a business in Minnesota, but most business attorneys would advise an unincorporated business association or sole proprietor to do so. Through 2013, the 3 main corporate entities available to Minnesotans were 1) for-profit Business Corporations formed under Minn. Stat. § 302A – often denoted by “Inc.” in their name; 2) for-profit Limited Liability Companies under Minn. Stat. § 322B; and 3) nonprofit organizations formed under Minn. Stat. § 317A.
Moreover, it was common to think of business as a dichotomous choice on a profit continuum. On one extreme there are nonprofits, with for-profit businesses on the other end.
There is a growing trend, however, with a number of for-profit companies who want to provide benefits to the environment and communities they serve. These for-profit companies, nonetheless, still want to generate revenue, make a profit and put money into their shareholder’s pockets. Unfortunately, the antiquated one-dimensional “Purpose” Spectrum does not adequately describe the altruistic, for-profit business. Rather, a two-dimensional model more appropriately depicts the modern company.
Should my company become a Public Benefit Corporation?
If your company has ever benefited from branding or recognizes the importance of corporate status, then electing to become a Public Benefit Corporation may be perfect for your company. There are no major financial benefits or tax loopholes to be exploited by becoming a Public Benefit Corporation, so it is the legal status and recognition that are most appealing to shareholders.
Modern consumers have a thirst for information; and acknowledging companies that benefit the community or environment is one way to quench such thirst. 21st consumers are considering where, and from whom, they purchase products and services. Take food – a daily decision– for example. Many of us scan food labels for ingredients, nutritional information, and manufacturer information. We may have food allergies, on a special diet, or are simply curious about where, and from whom, our food comes. Nonetheless, we want, and expect, information about our food.
The Minnesota Public Benefit Corporation Act is a way for consumers to learn a bit more about the company standing behind the service or good. Attaching the ‘public benefit corporation’ status to the end of a corporate name provides consumers with much desired, and helpful, information. Teachers can now choose to buy products from “NewCo, a general benefit corporation” or “OldCo, Inc.” Your IT services can be performed by “NewITCo, a specific benefit corporation” or “OldCode, Inc.”
It is incumbent upon 21st century businesses to align themselves with 21st century consumers. If your business does more than make money, then you need to be recognized as such. If you are profit-generating corporation that positively impacts society, then why tell consumers that you are just another corporation? Why not tell them that you are a Public Benefit Corporation?
If your company recognizes the benefits of branding and status, then electing to become a Public Benefit Corporation may be right for you because consumers want to embrace profit-seeking companies with a positive social impact.
Who can become a Public Benefit Corporation?
Whether your company is publicly trade or privately held, if you have shareholders, you can become a public benefit corporation. Any Minnesota business corporation formed under Minn. Stat. § 302A that elects to provide either a general or specific public benefit, and maintains such status, may become a Public Benefit Corporation. This begs the questions: What is a general benefit corporation? And, what is a specific benefit corporation?
A “’general public benefit’ means a net material positive impact from the business and operations of a corporation on society, the environment, and the well-being of present and future generations.” This definition, is – well – quite general. Only time will tell which activities and pursuits are deemed to positively impact society, the environment and the well-being of present and future generations.”
On the other hand, a “’specific public benefit’ means one or more positive impacts, or reduction of a negative impact, on specified categories of natural persons, entities, communities, or interests, other than shareholder in their capacity as shareholders.” As the name suggests, there can be specific groups that benefit from your pursuits. I will leave defining a “reduction of a negative impact” for a future blog post.
In order to qualify as a public benefit corporation, a company must amend its articles of incorporation to reflect the general or specific public benefit it will pursue. This requires shareholder approval and must be conducted according to your bylaws. The pursuit of the general or specific public benefit, however, must be in the best interests of the public benefit corporation. As companies expand and contract, a public benefit corporation may amend its articles to add, amend or delete a specific public benefit purpose unless doing so would terminate the public benefit status.
Davis Law Office can provide you with the necessary guidance and expertise to accomplish this change. Whether it is preparing forms, presenting to shareholders or advising directors, Davis Law Office is poised to handle your transition to a public benefit corporation in a smooth and seamless manner.
The Minnesota Public benefit Corporation Act was signed into law by Governor Mark Dayton on April 29,2014 as Minnesota Statutes Section 304A. The law is scheduled to take effect on January 1, 2015. See House Bill, Chapter 172, H.F. No. 2582 (2013 session laws).
Please keep an eye out for future blogs on the Public Benefit Corporation. Topics will include shareholder and dissenters rights, rights of action, director liability and standard of conduct, accountability and transparency.
Feel free to contact Joe Levitt at Davis Law Office with any questions, comments or concerns: Joe@davismeansbusiness.com or (612) 293 – 9308.
Written by Joseph Levitt, Esq © Davis Law Office, 2014.