Pros and Cons of the Benefit Corporation Structure for VC-Bound Companies

Scalable social ventures that want to head down the VC financing path may consider the following general pros and cons of the benefit corporation legal structure. For the purpose of this article “benefit corporation” broadly refers to both to actual Benefit Corporations, Social Purpose Corporations and other similar entities.

VC Investment Prospects

Possibly a Pro or a Con: As discussed in our post on VC Investment in Benefit Corporations, some VC’s like benefit corporations and others do not.

Mission Preservation

Pro: Once a social purpose is set forth in the corporate formation documents, it generally requires a supermajority vote to change or remove the social purpose of the benefit corporation. For companies that wish to preserve their mission, let’s say even for posterity and even after the company is sold, this legal mechanism can help to protect the core mission. Right to bring shareholder enforcement actions also helps create accountability for social purpose commitments.
Con: less flexibility to change direction

Marketing

Pro: Social enterprises can have appeal for both consumers who may be willing to pay premiums for social consciousness and sustainability. Social enterprises can also have an appeal that helps attracting talent.
Con: not really a con, but perhaps a social enterprise entity isn’t necessary, since you can also brand a company and have a mission and a marketing appeal without using the benefit corporation legal structure, for example, think Google early days motto of “don’t be evil” and having a mission to “organize the world’s information and make it universally accessible” within traditional C-Corp structure.

Industry-specific Considerations

Certain industries will be particularly easy to fit into benefit corporation parameters. In general, industries like clean energy, healthcare, education, and certain other technologies are already inherently geared toward a public good.
Pro: On the one hand this makes it perhaps easier to satisfy the benefit corporation requirements and alignment of profits and purpose will tend to go more easily together.
Con: Not really a con, but perhaps it becomes less necessary to have a benefit corporation structure if the company is intrinsically serving the public good can accomplish all of its goals using a traditional corporate form.

Benefit Corporation Reporting Requirements

Pro: Annual reporting is a self assessment, it’s probably not too onerous, may be a useful tool for management to assess impact and improve strategy, may create a press/PR opportunity, increases transparency and accountability.
Con:takes extra time, adds costs, adds administrative burden

Fringe Perks

Pro: There are some potential fringe financial perks to forming a benefit corporation. For example San Francisco give preference to Benefit Corporations in awarding contracts. Certain other cities offer tax credits or other perks.
Con: these perks are pretty fringe, no really significant tax benefit or direct financial incentives