27 What is a benefit corporation?

Many individuals seeking to earn a living also care about satisfying a social mission. A “benefit corporation” is a legal structure that attempts to enable this. Like a regular corporation, a benefit corporation incorporates under state law and enjoys limited liability and can raise capital through shareholders. Unlike a typical corporation, a benefit corporation has specific legal duties other than increasing shareholder profit.

Consider Idaho’s benefit corporation act, linked here, with excerpts below. The law requires that the board of directors consider the effect of their actions and inactions on shareholders, employees, suppliers, customers, community, local and global environment, and the short and long-term interests of the benefit corporation. This is a remarkably different set of legal requirements than those faced by a typical corporation.

Later, the law specifically states that considering these factors does not constitute a violation of the typical requirement that a board of directors acts in good faith and in the best interests of the company.

An example benefit corporation is King Arthur Baking, an employee-owned company with a mission to “inspire connections and community by spreading the joy of baking.” Benefit corporation status allows them to host community events and programs without concern that shareholder value is not being maximized. At the same time, they are a profit-seeking entity, not a non-profit corporation. You can access one of their Annual Reports here, which notes they “believe in doing the right thing for all stakeholders” by measuring “a triple bottom line–people, planet, and profit.” They note that they “carry on our centuries-old heritage of stewardship through the quality of our brand, and the steps we take to preserve the vitality of our community and the earth on which we live.”

This mission has several concepts we will cover later, such as stakeholders and the triple bottom line. Note for now the mix of language. On one hand, “profit” and “quality of our brand”, concepts common to every for-profit entity. On the other hand, noting “stakeholders”, “people”, “planet”, and “community” are broader concerns which may conflict with traditional notions of profit maximization.

Benefit corporation status thus brings corporations “full circle”, back to their roots in express public purposes before being allowed the privilege of incorporation.