Benefit Corporations Now Official Under Maine Law
Reprinted with permission from The Maine Nonprofit Law E-Bulletin – September 2019, by Robert H. Levin, Attorney-at-Law with the Law Office of Robert H. Levin.
Ever heard of a “Benefit Corporation”? You might start seeing this phrase in the coming years, now that Maine has enacted a statute officially establishing this new kind of for-profit business. A Benefit Corporation is required to have a purpose of not just economic profit, but also a material positive impact on society and the environment. Following in the footsteps of 35 other states, the Maine Legislature passed and Governor Mills signed 2019 P.L. Ch. 328, which authorizes the formation of Benefit Corporations.
Any newly forming business corporation can incorporate as a Benefit Corporation, and any already existing business corporation (i.e., organized under Title 13-C of the Maine Revised Statutes) can amend its articles to become a Benefit Corporation. Electing Benefit Corporation status is not to be undertaken lightly. The statute sets forth a rigorous set of requirements, including:
- The Articles of Incorporation must have a general purpose of creating either general public benefit (a material positive impact on society or the environment) or a specific public benefit such as serving low-income communities, improving human health, or protecting the environment, among others.
- Directors and officers must consider the effects of any corporate action or inaction according to a variety of factors, including the shareholders, employees, customers, the local and global environment, and community and societal implications.
- A Benefit Corporation must produce and make available on its website or upon request by any member of the public an Annual Benefit Report, which must include a compliance statement by an independent benefit director. For small enterprises, these reporting requirements may be more onerous than for a small nonprofit.
- Any director and any group of shareholders owning at least 2% of the total shares can bring a benefit enforcement proceeding, which is a lawsuit claiming that the Benefit Corporation has failed to pursue or create general public benefit or a specific public benefit purpose set forth in its articles.
Although there is some overlap between the two, a Benefit Corporation is not to be confused with a B Corp. The former is any corporation that is established under a particular state’s benefit corporations law, while the latter is any business that has been certified by the national nonprofit B Labs as meeting a detailed set of public benefit criteria. At present there are six Maine companies that have earned B Corp status. A Maine business that’s set up as a business corporation can be either a Benefit Corporation or a B Corp, or can aim for both categories. Unfortunately, if a business is set up as a Limited Liability Company, it cannot elect for Benefit Corporation status under Maine’s new statute, although it could still apply for B Corp or low-profit limited liability company status.
In general, a Benefit Corporation is structured more like a business than a nonprofit corporation. A Benefit Corporation still has a profit motive, and is owned by one or more shareholders, whereas a nonprofit may only have specific nonprofit purposes and is not owned by anyone. Moreover, a Benefit Corporation is governed by all of the general laws that apply to business corporations in Title 13-C, the Maine Business Corporation Act. Thus, the Benefit Corporation requirements function as an overlay on these background business corporation laws. In contrast, nonprofit corporations are governed by Title 13-B, the Maine Nonprofit Corporation Act, which has very different governance rules. Furthermore, charitable or educational nonprofit corporations that achieve 501(c)(3) status can qualify for federal and state income tax exemption, offer charitable deductions to donors, in some cases achieve property tax exemption, and apply for foundation grants. But Benefit Corporations are not eligible for these tax incentives, with the possible limited exception of foundation grants.
So how do the arrival of Benefit Corporations and B Corps in Maine affect the nonprofit sector? Here are a few implications that come to mind right off the bat:
- People who have an idea to improve the world and want to start an entity now have another choice. I often receive inquiries from those who are trying to decide between starting a business or a nonprofit. The Benefit Corporation is somewhat of a hybrid, and could be an attractive option for those organizations that cannot or choose not to qualify as a nonprofit but don’t want to become a traditional profit-focused business.
- Sometimes nonprofits own for-profit subsidiaries as a way of generating additional revenue. In certain cases it might make sense for these subsidiaries to elect Benefit Corporation and/or B Corp status.
- Nonprofits often collaborate with businesses for fundraising projects or program delivery. Working with Benefit Corporations and/or B Corps might add value to the relationship by comforting the nonprofit’s donors and other constituents as to the beneficial nature of the business entity.
For more about Benefit Corporations and B Corps: