October 2014

The Minnesota Public Benefit Corporation Act

304A Signed into Law

• April 29, 2014• Effective

January 1, 2015

“Benefit” CorporationA “Benefit” Corporation is:• For-profit business (with owners and an ROI) that has

an additional purpose to create some sort “a material positive impact on society and/or the environment” (B Lab Definition)

• Directors have a duty to consider the effects of their decisions on all constituencies

• Business must report how it creates a general benefit against a 3rd party standard

• 29 other states* have benefit corporation statutes including Delaware; 13 with pending legislation

Point of the Exercise• Primary objective of this legislation is to create a new

corporate form and through that a new class of corporations whose corporate purpose requires it to create benefit for society generally as well as shareholders.• We differ in Minnesota from other states (intentionally)• We wanted to give social entrepreneurs choices.• Will a corporate form change ideas and values drastically

enough to have an impact?

Public Benefit Corporation Act – 304A• Overlay of 302A

Enables the creation of two types of public benefit corporations (PBC):o General Benefit Corporation (GBC) – means a corporation with a purpose to

pursue a net material positive impact from the business and operations of a general benefit corporation on society, the environment, and the well-being of present and future generations

o Specific Benefit Corporation (SBC) – means a corporation with a purpose to pursue one or more positive impacts (or reduction of a negative impact) on specified categories of natural persons, entities, communities or interests (other than shareholders in their capacity as shareholders) as enumerated in the articles of a public benefit corporation

302A Corp with a “Benefit Overlay” accomplished in the Articles of Incorporation

Social – differs from charitable giving• Under the MPBC, there are several options, all of which are

designed to be social in nature but not necessarily charitable giving.

• A General Benefit Corporation is a for-profit enterprise that adheres to a triple bottom line perspective

• A Specific Benefit Corporation is a for-profit enterprise that has an additional social purpose.

• Social examples: Sharing, Selling or Sourcing

Social By Sharing• “Social” because they share some or all of their profit

with other charitable organizations or causes. • Examples of this type of social enterprise include:

1. Finnegan’s Beer, which donates 100% of its profits to combat local hunger

2. Latitude Agency, which donates 50% of its profits to empower those in extreme poverty

3. Tom’s Shoes, which donates one pair of shoes to someone in need for each pair purchased

Social by Selling• Some enterprises claim to be social because of what they sell or to whom they are selling. • In the first case, the product or service itself, when used by customers, results in a unique and

compelling social (not just private) value. • In the second case, a company may sell a conventional private good but to a population that

currently is not served by the market. • Examples include:

1. Revolution Foods, which sells extraordinarily fresh, healthy meals to school cafeterias in order to combat obesity and improve child health.

2. Thedatabank, which sells software and IT services to nonprofit organizations, which traditionally are under-served by the technology industry because they have lower purchasing power.

3. D.Light Solar, which sells solar light and power products to people in the developing world who do not currently have stable electricity.

Social By Sourcing• Some enterprises claim to be social because of how they make their products or services. • Common ways for ventures to source socially include using new environmentally friendly processes,

employing vulnerable populations, using minority owned suppliers, exclusive use of sustainable materials, and through public co-production processes.

• Some examples include:1. Ten Thousand Villages, which sells products that are sourced from individual artisans from the

developing world, using all natural and environmentally sustainable materials. 2. Cookie Cart, which employs and provides job training to at-risk teenagers.3. Rebuild Resources, which employs and provides job training to former felons and recovering

addicts.4. Patagonia, which insists on very high environmental standards in its product supply chain.

Election to become a Public Benefit Corporation

• Incorporation – articles of incorporation with additional 304A required information

• “Conversion” Amend Articles of Incorporation Merger

• 2/3 vote of shareholders; triggers dissenters rights• Nonprofit cannot make election

Reporting• Annual report filed with the Secretary of State that requires the

PBC to report against its stated goals GBC measured against the 3rd party standard it names SBC details how it pursued its specific benefit No report results in loss of PBC status; reports subject to

perjury; fraud & consumer protection claims if lie about what doing

First Benefit Corporations• On January 2, 2015 Social Entrepreneurs will be able to

form the first Public Benefit Corporations here in Minnesota.

• Fredrikson & Byron Social Entrepreneur Practice Group and Webpage Legal and Thought Leadership Benefit Corporation Cultivator Program