making sense of Benefit Corporations, L3Cs, B Corporations


Benefit Corporations, L3Cs and All the Rest: Making Sense of Those Confusing Choices
Anne Field, Contributor   5/25/2012

With Illinois and Louisiana poised to become the next states to adopt Benefit Corporation legislation, it’s time to take a step back and look at the confusing array of legal forms out there available to socially-minded companies.

And the landscape certainly is confusing.

Start with Benefit Corporations.  It’s a new class of corporation, pioneered by the Berwyn, Pa-based nonprofit B Lab (more about them soon), officially the law in seven states. It mandates that companies and their boards take into account public benefits that impact society and the environment when making decisions.

These companies also have to issue an annual report about just how they’re doing in addressing their social and environmental goals, audited by a third party.

The goal is to give companies legal protection to take certain steps that benefit their non-financial objectives, even if it’s not so good for the bottom line. And for shareholders, it ensures that companies won’t drift from their non money-making mission.

Flexible Purpose Corporations.  This one is only the law in California, which also allows for Benefit Corporations. They were passed in October.
Flexible Purpose Corporations, unlike the Benefit variety, don’t have to meet general public benefits. Instead, they can specify at least one “special purpose”–addressing environmental sustainability, for example, or building a park. So the social focus is a lot more narrowly defined than it is with Benefit Corporations.

Ultimately, the Flexible Purpose is designed for larger, more traditional companies that want to consider matters other than the financial bottom line, but aren’t “mission driven at their core,” according to Heather Van Dusen, a senior associate at B Lab.

Maryland Benefit LLC. In addition to allowing for Benefit Corporations, Maryland also permits companies to do the same thing but as a Limited Liability Company. That way, businesses already registered as LLCs don’t have to convert over to a corporate structure.

L3Cs. They’re low-profit limited liability companies with a charitable or educational purpose. (I recently wrote about them).  There are about 600 such companies in nine states.

Proponents created L3Cs to be entities that can be treated as Program Related Investments (PRIs) by foundations. By law, foundations have to direct 5% of their assets to charitable purposes every year.  They can do that through PRIs, as long as the organization they’re investing in has a charitable or educational purpose and doesn’t include making a profit as a significant goal. Plus, for-profit investors can put money into an L3C and, as a result, companies potentially can attract considerably more funding.
Foundations have been slow to adopt PRIs. But, with new rulings from the IRS, that could change soon.

B Corporations.  This isn’t a corporate structure, even though that word is in the name.  It’s a certification from B Lab, which rates triple-bottom-line companies. (Think of Fair Trade USA, which certifies Fair Trade companies). Started in 2007, there are now 530 such businesses.  Ratings cover five areas–society, environment, employees and so on–with 130 to 180 factors depending on company size and industry. Businesses have to score over 80 out of a total of 200 points. There also are unannounced audits of about 10% of all certified companies every year.

There you go.

Of course, there’s a long ways to go before, say, the Benefit Corporation is adopted by many, if not most, states.  But it’s kind of amazing that in a relatively short time, so many choices have become available