Gray Plant Mooty has a long history of working alongside entrepreneurial clients in the nonprofit and commercial sectors. We were one of the first firms in the Midwest to specialize in working with social enterprises; more recently, we were members of the working group that drafted Minnesota’s public benefit corporation statute.
We assist our clients with formation, initial operations, and conversion from traditional corporate forms to public benefit corporations. We are also expert at structuring relationships with other organizations, including joint ventures and combinations, counseling and advising boards of directors about fiduciary duties and mission considerations, selecting and understanding third party standards and certification, and communicating with stockholders, officers, and employees of the public benefit corporation.
But public benefit corporations are just the most recent entity choice available to socially minded entrepreneurs. We regularly advise clients in understanding and choosing corporate models that permit a company’s directors to balance the interests of stockholders with pursuing a social purpose or mission. From public benefit corporations and B-Corps, to flexible purpose corporations, low-profit limited liability companies, and yes, “plain” limited liability companies, we help our clients select the entity best suited to their goals. By combining our robust nonprofit practice with our specialty in serving entrepreneurs, we are uniquely qualified to assist entrepreneurs and organizations who seek to do well by doing good.
What is a Public Benefit Corporation?
A public benefit corporation is, at its heart, a business corporation. The Minnesota Public Benefit Corporations Act (the Act), effective January 1, 2015, is designed to function in tandem with the existing Minnesota Business Corporations Act, and as a result, most of the statutory provisions and case law interpreting the Business Corporations Act will apply to public benefit corporations. However, a public benefit corporation elects to be defined by a number of distinguishing characteristics:
- Public Benefit Purposes. A public benefit corporation, in its articles of incorporation, self-identifies as either a general benefit corporation or a specific benefit corporation. A general benefit corporation elects “to pursue “a net material positive impact . . . on society, the environment, and the well-being of present and future generations.” A specific benefit corporation commits to a narrower type of public benefit, electing to articulate and pursue “one or more positive impacts (or reduction of a negative impact) on specified categories of natural persons, entities, communities or interests (other than shareholders in their capacity as shareholders).”
- Name / Branding. Each public benefit corporation will be branded by its legal name as belonging to one of the above two categories through the designations “General Benefit Corporation” (abbreviated GBC) or “Specific Benefit Corporation” (SBC).
- Duties of Directors. In making decisions on behalf of the corporation, directors of a public benefit corporation must consider the public benefit purposes set forth in the corporation’s articles, the interests of shareholders, and the interests of non-shareholder constituencies. The Act specifically provides that shareholder profits are not to be given presumptive priority over the other considerations.
- Reporting. Each public benefit corporation must file an annual report with the Secretary of State that details how the corporation pursued its general or specific public benefit goals in the previous year. A general benefit corporation’s annual report must refer to an independent third-party standard selected by the board of directors (though no audit or certification is required from the third party that created the standard). The Act requires the Secretary of State to revoke a corporation’s public benefit status if it fails to file an annual report.
What a Public Benefit Corporation Isn’t
Forming a public benefit corporation may provide helpful clarity to business owners, directors, shareholders, and the public concerning a business’s operating mission, but there are some important considerations that the Act does not attempt to address:
- No Special Tax Status. The Act does not create a new corporate tax status, nor does election to be a public benefit corporation confer tax-exempt status or transform a for-profit enterprise into a nonprofit organization. A public benefit corporation is taxed as a regular business corporation – either as a C corporation under the Internal Revenue Code or, if it qualifies and makes an election, as a Subchapter S corporation.
- Not a License or Certification. The Act does not articulate a uniform standard or set of standards by which public benefit corporations must operate, nor does it create a standards board or any other review body to evaluate a public benefit corporation’s compliance with its stated mission.
- No Third-Party Enforcement Authority. The Act does not grant any government body or third party the right to enforce a public benefit corporation’s compliance with its stated public benefit purposes. Shareholders, however, have the right to bring an action if the corporation fails to pursue its public benefit purposes, and the annual report filed with the Secretary of State is subject to penalties of perjury if it is not accurate.