corporation

So you want to form a Public Benefit Corporation...

The selection and formation of an entity for your business is a huge topic, but historically at least we could organize that discussion into two sections: for-profit and non-profit business entities. You might be somewhat familiar with the distinction — a for-profit company aims to make the most money for its owners or shareholders whereas a non-profit company aims to do the most good for the most people without ever turning a profit. For a long time, people wondered whether there might be something in between — a for-profit model that incorporates doing good into its bottom line. Enter the public benefit corporation.

Minnesota’s public benefit corporation law went into effect in 2015. Since then, a Minnesota company can elect to be treated as a public benefit corporation in its articles of incorporation and bylaws. The law establishes two basic types of public benefit corporations, a “general benefit corporation” (GBC) that does not have to specifically name a beneficial purpose and a “specific benefit corporation”(SBC) that declares a special beneficial purpose in its articles and bylaws. How do you know if a company is a GBC or SBC? It’s in the name. Public benefit corporations are required to include either “general benefit corporation” or “specific benefit corporation” or the abbreviations GBC or SBC in their names.

So, what difference does GBC or SBC status make to the corporation? As with any corporation, shareholders can sue the corporation for failing to deliver on its promises, and in the case of a GBC or SBC, shareholders can also sue the corporation for failing to pursue or create a general or specific public benefit. Persons other than shareholders, like members of the general public or constituencies intended to be helped by the corporation, cannot sue the corporation for failing to provide promised benefits, however. And unlike non-profit corporations, GBCs and SBCs still must pay taxes.

Why become a public benefit corporation? For businesses that want to create benefits besides profits through their business activities, becoming a public benefit corporation may shield the company’s management from shareholder claims that the company is focused more on its social mission than maximizing profits. The inclusion of a public benefit mandate in the corporation’s founding documents can also help guide its management toward putting people and not just profits first. And it could be a good public relations move to help draw business to the company from customers who share the company’s values.

If you’re interested in forming a Minnesota public benefit corporation or have more questions, contact me.

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