Social Purpose Corporations and Benefit Corporations in Florida

Corporations that want to make a profit and, at the same time, act in a socially conscious manner can incorporate as Social Purpose Corporations (“SP Corp.”) or Benefit Corporations (“B Corp.”) under Florida law.  This type of structure can help steer and maintain the corporation’s goals, help with branding, and attract investment.

A SP Corp. or a B. Corp. offers the advantages of limiting liability for shareholders, officers, and directors, allows the company to make a profit, and permits the company to take actions that might not be beneficial to the company’s bottom line in a traditional sense.  Consider Toms Shoes (a B Corp.), which began with the concept that for each pair of shoes purchased, one pair would be donated.  This idea may not conform to tradition norms of how a company should utilize its profits, but through its model of capitalism combined with social purpose, the company has captured a sizeable market share.

In this article we will examine some of the reasons why the SP Corp. or the B Corp. may be an attractive structure and in the ways that a SP Corp. or B. Corp. differs from a traditional corporation under Florida law.

Why a Social Purpose Corporation or Benefit Corporation?

Approximately 100 years ago, the Michigan Supreme Court held in Dodge v. Ford Motor Co., that the purpose of a corporation is for the profit of the shareholders.  In that case, the Dodge brothers, founders of Dodge Motors, and stockholders of Ford Motor Co., sued Ford Motor Co. alleging that Henry Ford’s decision to reinvest the company’s profits to cut the price of the Model T Ford and raise the wages of his workers was an incorrect decision. The Dodge brothers argued that instead, the company should distribute the profits in the form of dividends to its stockholders.  The Michigan Supreme Court agreed with the Dodge brothers, and the emphasis on stockholder profit became the lodestar for corporations.  Carried to an extreme, this principal forms the philosophical basis of the infamous quote by fictional corporate raider, Gordon Gecko in the movie Wall Street, that “Greed, for lack of a better word, is good.”

Although a corporation can undertake certain charitable or philanthropic efforts and its officers and directors decisions respecting these efforts can be shielded from dissatisfied stockholders by the business judgment rule, the SP Corp. and the B. Corp. can more easily avoid legal entanglements based on its stated social mission.

In addition to some legal protections for officers’ and directors’ charitable actions, the SP Corp. and the B Corp. offers some other advantages.

First, the structure reinforces the goals of the company.  As set forth in more detail below, in the formation of the organization, there must be a consideration of what beneficial purpose the company will seek to undertake, instead of the usual “any and all lawful purposes” that most corporations state as their intended goal in their incorporation documents. In addition to setting an intention at the formation of the company, the company must track and annually report how it achieved its goal.

The second advantage for the SP Corp. or the B Corp. comes from a branding prospective.  It may be easier to attract capital to an organization that combines profit with a philanthropic purpose, rather than a company whose sole purpose is philanthropic.  Banks may be more likely to loan to a company that intends to turn a profit, as opposed to a company that is a non-profit organization.  Additionally, consumers may be more willing to purchase a product (and pay a higher price) from a company that has a commitment to a social purpose rather than from a competitor of that company.  Finally, a SP Corp. or a B Corp. may be able to attract talented workers who are wanting to take part in meaningful work.

Social Purpose Corporations and Benefit Corporations in Florida

Approximately five years ago, Florida amended its Business Corporations Act (“Act”) to include the SP Corp. and B Corp.  Florida is joined by over thirty other states in recognizing these sorts of alternative corporate structures.

Although similar, the B Corp. and SP Corp. have a few differences.  Overall, their operations are largely similar to traditional Florida corporations.

Social Purpose Corporations

SP Corps. are established by Part II of the Act.  Part II Act adds requirements and duties for a company wanting to register as an SP Corp.  Other than the requirements added by Part II, Part I of the Act controls how the company is established and maintains operations.

The SP Corp. may identify in its articles of incorporation one or more specific public benefits.  A public benefit is defined by statute as “a positive effect, or the minimization of negative effects, taken as a whole, on the environment or on one or more categories of persons or entities, other than shareholders in their capacity as shareholders, or an artistic, charitable, economic, educational, cultural, literary, religious, social, ecological, or scientific nature, from business and operations of a social purpose corporation.”  § 607.502(6), Florida Statutes.  The term includes, but is not limited to purposes such as:

• Helping low-income or underserved communities
• Promoting economic opportunities beyond normal job creation
• Restoring the environment
• Improving human health
• Promoting the arts, sciences, or advancement of knowledge

The directors and officers of a SP Corp. are statutorily required to consider the effect of any action or inaction of the company as it relates to the shareholders and the social purpose of the company.  §§ 607.501, 607.509  Florida Statutes. Additionally, the directors may consider the effects of their decision as it relates to its employees, community, local and global environment.   Also, the company may appoint a director or officer to serve as the benefits director /office to ensure the company is making decisions consistent with its stated purpose.  §§ 607.508, 607.510, Florida Statutes.

In order to be accountable to its stated purpose, the SP Corp. is required to prepare an annual report. § 607.512, Florida Statutes.  This report must address the ways in which the SP Corp. pursued a public benefit in the prior year and how any benefit was created, or what obstacles the company faced that prevented it from achieving its goal.  This report should be published to the stockholders and the public.  §607.513, Florida Statutes.

To the extent that the corporation fails to achieve its goals, or consider factors other than profit, a benefit enforcement proceeding can be brought against the corporation, its directors, or its officers by the corporation, by directors, or by stockholders owning at least 5% of the company.  § 607.511, Florida Statutes.  The benefit enforcement proceeding is designed to compel the company to act and is not for monetary damages.  However, there is no case law in Florida dealing with these types of proceedings, and what acts, or inactions, constitute conduct that could make a defendant liable.

Benefits Corporations

B Corps. are established by Part III of the Act.  Much like Part II, Part III adds requirements for companies desiring to register as a B Corp.  A B Corp. will still form and maintain its operations in compliance with Part I of the Act, provided that the company’s articles of incorporation do modify the Act’s default provisions.

The B Corp.’s articles of incorporation can identify a general public benefit the corporation hopes to achieve as well as a specific public benefit.  § 607.606, Florida Statues.  The B Corp. differs for the SP Corp., in that the definition of a “general public benefit,” is defined as a “material, positive effect on society and the environment, taken as a whole, as assessed using a third-party standard by which is attributable to the business and operations of a benefit corporation.”  § 607.602(5), Florida Statutes.  Much like a SP Corp., a B Corp.’s  “specific public benefit” can include:

• Helping low-income or underserved communities
• Promoting economic opportunities beyond normal job creation
• Restoring the environment
• Improving human health
• Promoting the arts, sciences, or advancement of knowledge.

Although the B Corp. and SP Corp. appear similar in their goals, the difference is scope.  While the B Corp. is focused on a broad area of promoting societal welfare, the SP Corp. is focused on more narrow issues.

The officers and directors of the B Corp. are required to consider the effects of any action or inaction of the company and its impact on the shareholders, the company’s employees, the general and/or specific public benefit, community and societal factors, the local and global environment, short and long term interest of the company, the ability of the company to accomplish its public benefits goal.  §§ 607.607, 607.609, Florida Statutes.

Like the SP Corp. the B Corp. is required to compile and publish an annual report, which gives a narrative description of the ways in which a benefit was created or the circumstances the company faced, which prevented it from reaching its goals.  § 607.612, Florida Statutes.   This annual report is more comprehensive than an SP Corp.’s report.  The report must be completed using a third-party standard that imparts credibility, transparency, and comprehensiveness.  This reporting standard should be developed by an entity other than the company to ensure the goals of transparency and credibility are met.

Much like a SP Corp., a B Corp. may be sued to enforce the announced benefits of the company.  § 607.611, Florida Statutes.  Much like the SP Corp.’s benefit enforcement proceeding, this is not an action for monetary damages.  Again, there is a lack of Florida case law on these enforcement proceedings and when certain acts or inactions could be viewed as contrary to the stated purpose of the company.

Is a Social Purpose Corporation or Benefit Corporation Right for You?

If you have decided to establish a new business, and part of this business’s aim is to achieve a social goal, the SP Corp. or B Corp. may be right for you.  The structure of the corporation mandates that companies measure whether they are compliant with their goals, and in so measuring help to manage the company’s actions.  Although there are some added requirements of such a structure, the status of a SP Corp. or a B Corp. can help a company stand out against its competition.

For more on this topic, consider these additional blog articles which have related information:

Checklist Of What To Include In Your Florida Articles Of Incorporation