New corporate structure fits between for-profit and nonprofit organizations

A proposed new organizational structure for Minnesota corporations aims to put the public benefit mission of the organization ahead of the interests of shareholders.

Heidi Neff Christianson of the Minneapolis law firm Nilan Johnson Lewis is a member of a committee writing legislation for this new type of entity called the public benefit corporation, known generally as B-Corps. The designation would fit between traditional nonprofits and for-profit organizations.

Two forms of public benefit corporation could be formed: general benefit and specific benefit corporations. Each will "require a corporate purpose broader than shareholder value maximization that do not prohibit pecuniary gain for shareholders." In other words the mission of the organization will have priority over investment returns for shareholders.

A public benefit organization will not have the tax advantages of nonprofits nor the oversight. It can pay net income to investors but those investors would have agreed to a pre-established way of doing business that will have public benefits.

Twenty states already have passed legislation allowing B-Corps and 18 more states, including Minnesota, are working on legislation.

Q: Minnesota State Sen. John Marty had proposed B-Corp legislation in the past, but the Minnesota State Bar Association had opposed it. Why?

A: We had been opposing Sen. Marty's legislation for a couple of years because the bar didn't feel that it stood up well to other states' legislation. In the last year, we've come around to agreeing that, because there are a multitude of states that have this legislation, we should have a good version of it. Delaware passed its law in July, which sort of caused everyone else to realize that we will be behind if we don't have it. [Many companies incorporate in Delaware because of its corporate-friendly laws.]

A: Our lawyers will have to use the laws in other states to form them and then qualify them to do business here, which is an extra expense.

Q: Is there any opposition or concerns to the law?

A: There is a concern that nonprofits will be hurt by this competing entity that looks just a lot like them. Marketplace confusion is the chief concern.

Q: What are some distinctions of B-Corps?

A: Public benefit corporations are taxable; they don't have any tax advantages. You can't get a tax-deductible contribution for ­making an investment in a benefit corporation. And ­benefit corporations return net assets to ­shareholders; they have the ability to pay ­investors.

A: There are two ways they will be regulated; securities laws will apply to them in the same way that securities laws apply to other for-­profits. In addition, under our draft law they will have to file an annual report with the secretary of state's office. We did that very intentionally so as not to create a confusion between the attorney general, which regulates charitable assets, and the secretary of state, where businesses file important information.

Q: Who will use this new corporate structure?

A: There are social entrepreneurs, the Minnesota Social Entrepreneur Alliance, and some consultants who practice in social enterprise who wanted Minnesota to move forward in this way. There is this contingent of people who feel that nonprofits are so limited by federal and state rules that they cannot possibly do the good that they want to do. That they need to be more flexible, nimble, less regulated, and they see these as an option.

Q: Will a lot of organizations adopt this structure?

A: I think there is a subset of our existing businesses, like Finnegan's, that will enthusiastically convert. [Finnegan's CEO Jacquie Berg­lund has advocated for B-Corp legislation. The brewer donates its profits to feed the hungry.] I don't know how many of those there are. I think there are groups of younger entrepreneurs who will take hold of the idea.

A: John Marty, and whoever else he pulls together for authors, will forward it, the Minnesota Council of Nonprofits has agreed not to oppose it, which is new this year, and the Bar Association has agreed to support it, which is also new this year.