Businesses remain under pressure from employees, shareholders and customers to demonstrate corporate social responsibility and accountability to the communities in which they operate.
Traditionally, business enterprises have had several options from which to choose to organize their corporate structure under state law. The purpose of each corporate form is to maximize profits for shareholders. Now, new forms of corporate enterprises are being developed to give entrepreneurs and business leaders exciting ways to generate profits and demonstrate to the consumer and investors marketplace that they’re also making a positive social impact.
One new option is the L3C, a low-profit, limited-liability company with an overriding social purpose. An L3C is a modification of the LLC and is run like a traditional business, but its primary purpose must be to achieve a social benefit. The L3C has been called the “for-profit with the nonprofit soul.”
Laws permitting L3C formation have been enacted in Illinois, Louisiana, Maine, Michigan, North Carolina, Rhode Island, Utah, Vermont and Wyoming. Legislation is anticipated in many other states, including Colorado.
One of the attractions of the L3C is the opportunity to attract “program-related investments” (PRIs) from foundations. Foundations are permitted to invest in businesses that are principally formed around a charitable purpose. Unlike a traditional grant, PRIs may be repaid to the foundation and then recycled to support nonprofits or to make other PRIs. PRIs can be the first layer of investment in an L3C, with more traditional forms of investment to follow.
There are more than 430 L3Cs now in existence across the U.S. and several in Colorado (created under other states’ laws.) Two excellent resources are interSector Partners, L3C in Boulder (intersectorl3c.com) and Americans for Community Development (americansforcommunitydevelopment.org).
Another option is the Benefit Corp., a new corporate classification with a specific corporate purpose of creating a material, positive impact on society and the environment. Becoming a Benefit Corp. creates a fiduciary obligation for the business’ leadership to formally consider the interests of stakeholders like employees, communities, or the environment, along with shareholders, in business decisions — while generating profits.
Hawaii, Maryland, New Jersey, Vermont and Virginia have all enacted laws permitting the creation of Benefit Corps., with others expected to follow suit, including California and New York. Colorado’s General Assembly will likely consider legislation next year.
A new company may be formed as either an L3C or a Benefit Corp., or under some circumstances, an existing company may be re-created as one or the other. In any event, sound legal and tax advice should be obtained.
Yet another option, which does not involve a business’ legal structure, is to become branded as a company that meets socially responsible standards. To date, 442 corporations with more than $2 billion in annual revenues in 54 industries have obtained certification as a B Corp by B Lab, an independent nonprofit that examines companies to determine whether they meet rigorous standards of social and environmental performance, accountability, and transparency (bcorporation.net). Some of the best known are Seventh Generation, Dansko, Better World Books and King Arthur Flour. Twelve Colorado companies have achieved BCorp certification including GoLite (golite.com) and Namaste Solar (namastesolar.com). Find others at bcorporation.net/community.
Each of these options encourages consumers to support businesses that align with their values, investors to drive capital to higher social impact investments, and governments and multinational corporations to implement and satisfy sustainable procurement policies.
Businesses have much to gain by being good community partners. Many companies claim to be “green” or “socially responsible,” and often they are. L3Cs, Benefit Corps. and BCorps, however, create higher standards of accountability and transparency to help distinguish those for-profit enterprises that are also achieving a positive impact in the world.
Nonprofit of the month
Founded in 1971, Brothers Redevelopment provides housing and related services for more than 4,000 low-income, elderly and disabled Colorado clients each year. It offers affordable housing for seniors at 12 metro locations; provides minor and emergency home repair for senior and disabled residents facing physical and financial limitations; stages an annual Paint-A-Thon to paint seniors’ homes; provides counseling on foreclosure prevention, reverse mortgages, and homeownership; and manages the Colorado Foreclosure Hotline. brothersredevelopment.org
Bruce DeBoskey is a Colorado-based philanthropic adviser. Reach him at firstname.lastname@example.org.