Friday, September 28, 2012

Reiser: Benefit Corporations - A Sustainable Form of Organization?

Brakman_danaDana Brakman Reiser (Brooklyn) has published Benefit Corporations - A Sustainable Form of Organization, 46 Wake Forest Law Review 591.  Here is the introduction:

Founders of social enterprises believe profits and social good can be produced in tandem and wish to form organizations that will pursue these dual missions.  They will, however, encounter obstacles to articulating and enforcing such dual missions if they adopt either a traditional nonprofit or for-profit form of organization.  Nonprofit forms bar profit distribution and for-profit forms will create practical, if not legal, pressure to favor profit maximization over social good when the two come into conflict.  And these two imperatives will certainly, at times, conflict.  If more profit could always be obtained by pursuing social good, traditional for-profits would produce the optimal level of social goods, charities would be swimming in resources, or both.  Social entrepreneurs believe social good can be produced along with profits and desire hybrid forms of organization to smooth a single enterprise’s path to realizing both goals.

A mounting number of jurisdictions have attempted to meet this demand by enabling new hybrid organizational forms.  These include the low-profit limited liability company (“L3C”) available in nine U.S. states and the community interest company (“CIC”) available in the United Kingdom.  In addition, “B Corp” is a private certification available to U.S. for-profits that demonstrate their commitment to a dual mission of making profits and promoting social good.  Qualifying entities can license the B Corp mark to market themselves to consumers, investors, and others.  This Article examines another recent entrant into the hybrid form category: the benefit corporation.  A handful of states have enacted statutes enabling “benefit corporations” in the past two years, and several more are considering similar legislation.  The benefit corporation form differs from the L3C, CIC, and B Corp in several respects, especially in its use of third-party standard-setting organizations to vet the social good bona fides of potential incorporators.  This Article evaluates whether the innovations in the benefit corporation form can meet the goals social entrepreneurs have for hybrid organizational forms, ultimately concluding it will fall short.

This Article proceeds in two parts.  The first Part explores the new benefit corporation form.  After briefly summarizing the key elements of the L3C, CIC, and B Corp for purposes of comparison, it describes the major components of the benefit corporation form.  The second Part then undertakes an admittedly preliminary assessment of the benefit corporation.  This Part offers four reasons why social entrepreneurs view hybrid organizational forms attractive: articulating and enforcing a dual mission, expanding funding streams, branding their enterprises, and achieving sustainability.  The new benefit corporation form offers potential gains in formally articulating a dual mission, an advantage as compared with traditional nonprofit and for-profit forms.  However, like the other hybrid forms simultaneously under development, the benefit corporation lacks robust mechanisms to enforce dual mission, which will ultimately undermine its ability to expand funding streams and create a strong brand for social enterprise as sustainable organizations.


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