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.