At the firm of Smith Moore Leatherwood LLP, Lisa Garrison maintains an active business litigation practice advising and representing clients in anything from claim appeals to multiple jury trials, but she also has an active presence with companies that have socially beneficial missions. Lisa serves as the founder of the firm’s “Benefit Corporation Team” or the “B Team” which focuses on exploring and serving the legal needs of aspiring or existing “benefit” or “B Corp” companies – for-profit businesses that seek to better the world through identified social missions and by focusing on sustainability and TPL/3BL (the “triple bottom line” pillars of profits, people, and planet).
Today, we’re discussing with Lisa how the “B Team” came to be at Smith Moore Leatherwood LLP and the assistance it provides Benefit Corporations in need, the financial advantages that come with forming a B Corp, and why every entrepreneur needs to read up on the pros and cons of Benefit Corporations before starting one up.
1. What led you to become involved in the Benefit Corporation movement? Can you tell us a little about what your law firm’s “B Team” is doing for benefit corporations and certified Benefit Corps?
I learned about the Benefit Corporation movement from the GC at The Redwoods Group, which has achieved the B Lab® “Certified B Corporation®” designation and has identified specific social missions (e.g., preventing childhood sexual abuse and childhood drowning) that it can pursue through its work as a for-profit insurer of many YMCAs, summer camps, and other businesses. After reading up on this topic, I was energized by the opportunity to assist “benefit” companies in their efforts to better the world through the power of for-profit business.
Our law firm, Smith Moore Leatherwood LLP, has formed a “Benefit Corporation Team” (informally dubbed our “B Team”) that includes litigators and corporate and real estate lawyers. We are preparing a variety of free resources for aspiring and existing benefit corporations, whether they are legislatively recognized, privately certified, or just dipping their toes into this movement and want to know what the legal issues are.
2. What are your thoughts on how the movement is evolving?
It’s dynamic and fast-moving. More than 20 states have passed some form of Benefit Corp legislation and at least 8 states have legislation pending. The Delaware and Colorado laws passed in 2013 are different from the model legislation (adopted by most states) in some important ways, such as their definitions of “public benefit” and their reporting and third-party assessment provisions. We don’t know yet whether other states will stick with the model legislation approach, a Delaware-style approach, or some hybrid. Also, it’s not clear yet how widespread Benefit Corps will be. The fact that more than 800 corporations have become privately certified by B Lab® suggests that this new corporate form may become quite popular. In Delaware, 17 companies became Benefit Corps on the first day that the law went into effect. But our review of public records this summer suggests that some of the earliest adopters (Maryland in 2010 and Hawaii, New Jersey, Vermont, and Virginia in 2011) do not have huge numbers of Benefit Corps yet (ranging from 2 reported in New Jersey to 22 reported in Maryland). The states with legislation effective in 2012 (California, Louisiana, Massachusetts, New York, South Carolina, and Washington) also have a wide range of corporate conversion or adoption to date, from 1 in South Carolina to 68 in California.
Some experts think there is an urgent need for this new corporate form and that it will allow for-profit enterprise to be an even greater force for good. Others think Benefit Corps are legally unnecessary or will only be attractive to a limited “niche.” Each company’s founders and directors will have to decide whether the Benefit Corp form is right for them, in light of their company’s focus and purpose. As lawyers, our focus is on helping clients to make the right choice in an informed, thoughtful way.
3. What would you say are some of the benefits in choosing a Benefit Corporation over a traditional for-profit or LLC?
Legally, the primary benefits of choosing a Benefit Corp are (1) protecting the company from shareholder suits complaining that the company’s management is focusing on considerations other than maximizing profits and (2) weaving the company’s social mission into the corporation’s formative documents, so that mission cannot be eviscerated by a hostile takeover without a supermajority vote of shareholders. Financially, there can be other advantages. For example, some jurisdictions offer tax breaks and bidding preferences to Benefit Corps, and B Lab®’s website says that it offers its certified members significant cost savings and access to expertise.
4. Why go with incorporating as a Benefit Corp over nonprofit?
Tax-exempt nonprofits have obvious tax advantages and can earn profits, but they cannot distribute the profits, as there are no shareholders. A Benefit Corp can have shareholders, raise capital more freely, distribute profits, and pursue its for-profit business goals at the same time that it pursues its identified social missions or public benefits.
5. What do you think the future looks like for the benefit corporation movement?
Bright and collaborative. Because many Benefit Corps are start-ups, joining this movement can help them to forge relationships with other mission-minded colleagues, who can become valuable mentors and business partners. Also, some investors committed to SRI (socially responsible investing) are looking for companies with the kind of firm commitment to public mission that the Benefit Corp form communicates. This can be a double-edged sword, because shareholders in Benefit Corps obviously have more limited rights than they do under traditional frameworks. (Delaware will be important to watch, in terms of how widespread investor support for this new form will be.) But the Benefit Corp discussion is certainly giving SRI more exposure and providing opportunities for these new, socially-minded companies to access capital.
6. What’s some advice you would give to entrepreneurs considering the benefit corporation structure?
The choice of which corporate structure to use is highly individual and depends on one’s business goals, social-mission interests, general risk tolerance, and state of incorporation. The first thing I would advise an entrepreneur to do is to read what some respected business leaders have written about the pros and cons of Benefit Corps, from opposite perspectives. B Lab®’s website, is an excellent resource on the advantages of the Benefit Corp structure. A more skeptical view of B Corps is in Appendix B of the 2013 best-selling book, Conscious Capitalism, by John Mackey and Raj Sisodia.
After getting those varied business perspectives, I’d consult with a lawyer who is familiar with the legal pros and cons of Benefit Corps and the legal status of that structure in the business’s planned (or current) corporate home. That lawyer or firm should also be familiar with the additional legal issues – labor and employment, tax, antitrust, and others – facing for-profit companies with an identified social mission.
Have some more questions about the “B Team” for Lisa? Reach out to her at lisa.garrison@smithmoorelaw.com or visit Smith Moore Leatherwood LLP online for more information.
Are you a B-Corporation that would like to be featured on our blog? Or an expert in B-Corps? Email Heather at htaylor@mycorporation.com for more information!