Benefit Corporations Come to Connecticut

August 2014
A “benefit corporation” is a new type of business entity available in Connecticut on October 1st, 2014 for businesses that operate with a social or environmental mission (otherwise known as “social enterprises”). It takes the typical corporate structure that has existed for generations, and builds in heightened legal protections and transparency measures that are very expensive and time-consuming to establish under current corporate law.  Benefit corporations are available in 26 other states across the country, including Arizona, New York, Louisiana, Massachusetts, and South Carolina. Patagonia, King Arthur Flour, and Greyston Bakery (the brownie supplier for Ben & Jerry’s) are all benefit corporations.

For people just beginning to wrap their heads around benefit corporations – or even people who understand how they work – a big question often remains: Why do we need them? Why Become a Benefit Corporation?

Legal Protections

The benefit corporation entity provides social entrepreneurs three specific legal advantages that significantly reduce their barriers to doing business in the state:

  • It reduces startup costs by providing attorneys with a uniform and standardized means for structuring a social enterprise that is easy to understand and duplicate from company to company.
  • It changes the fiduciary duty of the corporation’s directors, allowing them to consider the creation of a positive social or environmental impact, in addition to profits when making decisions on behalf of the company.
  • It offers the option of “legacy preservation” to social entrepreneurs who want to ensure that their company, or its assets, will be used to create a positive social impact after they leave the organization or if ownership is diluted. If a company adopts a legacy preservation provision, the business would remain a benefit corporation in perpetuity, regardless of changes in ownership.

Marketing

Reaching Consumers: When using a garden-variety corporation or LLC, social enterprises often find it difficult to communicate the business’s social or environmental mission. The benefit corporation provides social entrepreneurs with an opportunity to cut through the noise of the purely for-profit marketplace, and makes it easy for consumers to identify and patronize social enterprises. Also, because the new entity ensures a high level of standardization from company to company, consumers who understand what it means to be a benefit corporation can comfortably make assumptions about the operations of benefit corporations across different sectors.

A 2013 study found that “fifty percent of global consumers surveyed are willing to pay more for goods and services from companies that have implemented programs to give back to society.” According to another report, “approximately 68 million U.S. consumers have stated a preference for making purchasing decisions based upon their sense of social and environmental responsibility,” and “where price and quality are equal, 86% of consumers would switch from their current brand to a brand that is socially responsible.”

Greenwashing Prevention: Benefit corporations must file annual reports to shareholders and consumers that demonstrate their positive social or environmental impact.  This fosters more transparent business operations, and helps to protect the nascent social enterprise sector from companies that “greenwash,” - businesses that are not social enterprises, but claim to be to increase their profits, or generate some other self-serving benefit.

Advantages for Investors

The market opportunity for investing in social enterprises has been predicted to range between $400 billion to $1 trillion according to a study by J.P. Morgan. Despite its size, mission-driven “impact” investors still have difficulty sourcing potential portfolio companies. Benefit corporations allow mission driven “impact” investors the ability to identify social enterprises with greater ease, and provides them with a familiar framework that they can use when screening companies, and assessing fit with the investor’s motives for investing. The benefit corporation structure also provides investors in a benefit corporation the ability to compel that company to create a specific or general public benefit if its officers or directors fail to do so.

Learn More
To learn more about Connecticut’s benefit corporation statute, visit http://www.ctbenefitcorp.com/, and follow @ctbenefitcorp on Twitter.

By Special Guest, James Woulfe - the Public Policy & Impact Investing Specialist at reSET, Social Enterprise Trust, a 501(c)3 organization dedicated to promoting, preserving, and protecting social enterprise in Connecticut.

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