As your company begins to gain ground, you will soon be considering how to incorporate. A question to ask yourself: what is your company identity? You may be a company that is offering a service to its customers. Or, your company may be doing more than just providing that service and making a profit—your company’s ultimate goal may be to offer a public benefit, making a positive impact on society or the environment. Many companies have moved towards some form of a hybrid corporate identity, and California has kept up with the movement by offering two new types of corporations: the Benefit Purpose Corporation, and the Flexible Purpose Corporation. While both corporations aim to accommodate companies who want to identify themselves by the social benefits they create, the two corporations differ not only in identity, but also in purpose.
The Benefit Purpose Corporation (Benefit Corp.) structure is made for the company that has the primary goal of creating a material change in society or the environment. This impact is evaluated by an independent third-party standard, which has no material financial relationship with the corporation or its subsidiaries. Benefit Corporations require a high level of transparency. Note that the Benefit Corp. is different from the popular B Corporation Certification. B Corporation Certification is completely voluntary for companies that incorporate as a Benefit Corp., is issued by a third party (not the government), and must meet a separate list of standards for performance, accountability, and transparency.
The Benefit Corp. is really designed for small private companies that want to pursue creating a public benefit. Examples of public benefits include services to low-income families, the environment, health, arts and sciences, or any other benefit for society or the environment. In addition to the social responsibility impact the Benefit Corp. offers, an attractive feature to this structure is director liability: there is NO liability for failure to create a public benefit, and there is NO fiduciary duty to the beneficiary of the public benefit. It really allows a company passionate in creating a benefit for the public to try to identify itself as such with relatively little liability. An example of a B Corp. in California is Patagonia, the outdoor gear and clothing company.
The Flexible Purpose Corporation (Flex Corp.) structure, on the other hand, is a hybrid structure that allows a company to create a profit and pursue some form of a social benefit purpose. However, instead of having an independent third party standard to meet, the corporation itself (i.e., the directors and management) has to specify the standards for measuring the impact of the corporation’s pursuit of the social benefit.
The Flex Corp. is a relatively new corporate form, and it is really unknown how a company’s special purpose is going to be enforced by anyone except the company and its shareholders. Entrepreneurs be warned: even though there are fewer standards to meet, Flex Corporations will face questions from investors and shareholders about company purpose and corporate assets. Some advice: accountability, accountability, accountability. There is a greater need for “self discipline” and transparency with a Flex Corp. Annual reports, strategies in achieving the purpose, and standards for measuring the progress and success of these efforts, are essential for success as a Flex Corp. Companies big and small can incorporate as a Flex Corp.
There is no better option between the two new corporation-structures offered in California today; neither option offers an obvious tax benefit better than the other either. Each offers a very different opportunity for a company to identify itself, to investors and customers alike. Take a look at what your company’s purpose is, and consider what your mission statement offers to society. You may be passionate about creating a social benefit; identify yourself, and incorporate accordingly.
The Benefit Corp. is really designed for small private companies that want to pursue creating a public benefit. Examples of public benefits include services to low-income families, the environment, health, arts and sciences, or any other benefit for society or the environment. In addition to the social responsibility impact the Benefit Corp. offers, an attractive feature to this structure is director liability: there is NO liability for failure to create a public benefit, and there is NO fiduciary duty to the beneficiary of the public benefit. It really allows a company passionate in creating a benefit for the public to try to identify itself as such with relatively little liability. An example of a B Corp. in California is Patagonia, the outdoor gear and clothing company.
The Flexible Purpose Corporation (Flex Corp.) structure, on the other hand, is a hybrid structure that allows a company to create a profit and pursue some form of a social benefit purpose. However, instead of having an independent third party standard to meet, the corporation itself (i.e., the directors and management) has to specify the standards for measuring the impact of the corporation’s pursuit of the social benefit.
The Flex Corp. is a relatively new corporate form, and it is really unknown how a company’s special purpose is going to be enforced by anyone except the company and its shareholders. Entrepreneurs be warned: even though there are fewer standards to meet, Flex Corporations will face questions from investors and shareholders about company purpose and corporate assets. Some advice: accountability, accountability, accountability. There is a greater need for “self discipline” and transparency with a Flex Corp. Annual reports, strategies in achieving the purpose, and standards for measuring the progress and success of these efforts, are essential for success as a Flex Corp. Companies big and small can incorporate as a Flex Corp.
There is no better option between the two new corporation-structures offered in California today; neither option offers an obvious tax benefit better than the other either. Each offers a very different opportunity for a company to identify itself, to investors and customers alike. Take a look at what your company’s purpose is, and consider what your mission statement offers to society. You may be passionate about creating a social benefit; identify yourself, and incorporate accordingly.
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