Monday, April 26, 2010

“Benefit Corporations”

It’s a well-known fact that most non-profits struggle with finding sufficient funding, and that most for-profit businesses are penalized for considering anything but their bottom line in the development of business strategy. Now Maryland, leading the way in what may become a national effort, has created a new legal structure for an entity that is not-quite-business, not-quite-charity. Signed into law by Governor O’Malley, the bill requires that the newly named benefit corporations create a positive impact on society. Decisions made by these entities must take into consideration potential impact on employees, localities, and the environment, rather than profit only. The law also offers legal protections to its Board members for considering social and environmental issues in decision-making processes (a similar bill recently passed in Vermont’s senate).

"For the first time, we have a market-based solution supporting investors and entrepreneurs who want to make money and make a difference," Andrew Kassoy says in an article from the Chronicle of Philanthropy. Kassoy’s non-profit, B Lab, administers a certification program for socially responsible businesses.

“The new law tackles a major concern of entrepreneurs who need to raise money to expand their social-purpose businesses but fear losing control of the companies' social or environmental mission,” the Chronicle of Philanthropy notes.

Russell Sullivan, staff director for the US Senate Finance Committee, thinks that new tax structures could create a “blurring of the lines” between charities and for-profit companies generally. Historically, the tax code endeavors to group all entities into either the for-profit or the non-profit bucket.

"We might see the emergence of some proposals to establish what I'll call, for the lack of a better term, a for-benefit corporation -- something that is in between a private taxable company that's not under our rules of C corporations or S corporations and partnerships but also not under our rules having to do with charities," he said in another Chronicle of Philanthropy article. Mr. Sullivan continued: "But I see even more blurring of the lines over the past decade." Green energy companies in some cases intend "actually to develop or promote a cleaner environment -- they are just doing it through a corporate structure."

This is an interesting approach, indicative of a changing national tax climate and approach to doing business in many industries. Prize4Life has blogged extensively on collaboration between non-profits and pharma/biotech recently (see posts here and here) in the context of drug discovery and development; could the creation of a benefit corporation be the next step for disease research? Would it follow the model of, for example, the ALS Therapy Development Alliance? What promise might such a national change hold?

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