On November 27, 2017, Wisconsin enacted Chapter 204 of the Wisconsin Statutes, which allows for the creation of a benefit corporation, not to be confused with a “B-Corp”. A benefit corporation is a type of corporation that places a high value on both the community and the environment, and puts these values on equal footing with profits. The process of creating a benefit corporation is very similar to creating a general corporation, with a few additional hurdles.
To form a benefit corporation, one has to file all the materials they would normally file with the Wisconsin Department of Financial Institutions to become a corporation under Chapter 180 of the Wisconsin Statutes. However, to qualify as a benefit corporation, (i) the corporation’s articles of incorporation must explicitly state that the corporation is a benefit corporation; (ii) the articles of incorporation must contain a general public benefit purpose, and (iii) the corporation must appoint a benefits director.
An existing general corporation can elect to become a benefit corporation by amending its articles of incorporation to include a general public benefit statement and a mechanism to elect a benefit director. If a benefit corporation wishes to revert to a general corporation after electing to become a benefit corporation, its shareholders can remove the general public benefit statement from the corporation’s articles of incorporation. After reverting to a general corporation, the entity cannot become a benefit corporation again until one year after the termination date of its benefit corporation status.
Chapter 204 of the Wisconsin Statutes defines a general public benefit as a benefit that has a “material positive impact on society and the environment.” In addition to the general public benefit purpose, the benefit corporation may also provide additional specific public benefits. However, when creating a public benefit purpose, founders must be realistic with their goals, as shareholders hold the power to bring lawsuits to enforce the company’s public benefit purpose. If a benefit corporation wishes to amend its articles of incorporation, and therefore its public benefit purpose, it has the power to do so.
A benefits director generally has the same duties and responsibilities as a member of the board of directors, and typically has additional responsibilities laid out in the corporation’s articles of incorporation. One responsibility of a benefits director is preparing the corporation’s annual benefit statement. An annual benefit statement is a statement that the corporation provides to its shareholders that assesses the corporation’s efforts at achieving its public benefit purpose, or describes the circumstances that hindered the achievement of the purpose.
With new legislation on benefit corporations passing in more states, there is growing confusion about whether a benefit corporation and a “B-Corp” are the same thing. They are not. A benefit corporation is a legal entity that is formed under a specific state’s legislation. A “B-Corp” is a certification that any type of entity can earn through an Impact Assessment performed by a third party called B-Lab. Having B-Lab certify an entity as a “B-Corp” shows that the entity demonstrates an overall positive impact on its employees, community, and the environment. Examples of companies that are “B-Corp” certified are Patagonia and New Belgium Brewing.
Electing to become a benefit corporation can be beneficial, as it may earn the corporation press, trust, and allow for a competitive advantage. In addition, individuals looking to form a new entity may choose a benefits corporation to earn publicity for their benefits purpose, to create a positive impact on the community and the environment in which it is located, or to earn the trust of consumers.
Choosing a benefit corporation may also be helpful when it comes to raising capital as the benefit corporation’s purpose may attract investors or allow an entity to qualify for certain grants. Certain groups of investors are sensitive to the corporate impact on their community and environment and seek out investments in corporations that are socially and environmentally conscious. On the other hand, investors may also see a benefit corporation as an unwanted or unnecessary risk. With benefit corporations being new, the laws surrounding them are not well established, and courts will interpret and enforce new laws regarding benefit corporations in the coming years.
Ultimately, individuals looking to form a new entity should consult their attorney to discuss what type of entity is best and whether a benefit corporation or “B-Corp” certification makes sense.
*With credit to Law Clerk, Maxwell R. Krenke