There’s a growing number social entrepreneurs starting for-profit businesses aimed at generating a social benefit. In response to this movement, in 2012 New York became the seventh state to allow the formation of Benefit Corporations (aka B Corp). Since then, many other U.S. States have followed suit and the trend of eco-friendly startups and small businesses has continually grown.

Benefit corporations are similar to the more widely known C Corp and S Corp, however benefit corporations have a few distinct characteristics: (1) They have a corporate purpose to create a general or specific public benefit; (2) the directors and officers of a benefit corporation have expanded fiduciary duties that require them to consider social and environmental factors along with financial matters; (3) a benefit corporation is required to publish an annual report measuring its social and environmental performance against an independent standard.

These additional requirements could expose a director or officer to risks beyond those associated with a regular business corporation, nevertheless these niche entities have become very popular among those who want to make a strong statement regarding their commitment. Patagonia is a good example of a benefit corporation, whose environmental benefit is premised upon the use of sustainable and recycled materials for their clothing products. They also have pledged to donate 1% of the annual net revenue to nonprofit charitable organizations that promote environmental conservation.

While the benefit corporation business model is clearly attractive to many consumers, it has also proved attractive to investors for reasons including the ability to raise capital, the ability to pursue a targeted mission statement, the ability to differentiate the B Corp from other businesses, and the ability to attract and retain like-minded talent.

Setting up a benefit corporation involves drafting and filing a Certificate of Incorporation with the Department of State. Once the entity is established the shareholders should adopt a set of corporate bylaws and execute the appropriate shareholder documents. You can find more information on our website about setting up a New York Benefit Corporation and check out the Benefit Corporation Guide on our Resources Page.

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