Purpose-driven enterprises and public benefit corporations (PBCs) have emerged in the last decade as part of a growing alternative to business as usual. With new options, savvy entrepreneurs are now forming and operating successful businesses as a force for good. Social entrepreneurship, environmental sustainability and stakeholder (or conscious) capitalism are paving a way forward, not just in the short term but for the long term.
Although the first PBC statute was not enacted until 2010, corporations historically were formed for a specific purpose and were expected to create a public benefit.FN1 As a result, PBCs are in some ways returning corporations to their traditional function. Thirty five (35) states including Colorado now have statutes that permit the formation of PBCs – with more states jumping onboard each year.FN2
Thousands of businesses around the globe now designate themselves as PBCs. Well-known examples include: Ben & Jerry’s, Cabot, Kickstarter, King Arthur Flour, Method, Patagonia, and Seventh Generation.FN3 But a business does not need to be as large as these PBCs in order to be mission or purpose driven and to operate for the public benefit.
In large part due to the success of these businesses, modern entrepreneurs have been increasingly forming PBCs that pursue social, environmental or other public purposes and which provide value to more than just that business’s owners. These businesses are legally bound to produce one or more public benefits and to be managed in a responsible and sustainable way that balances the “triple bottom line” - or the interests of the 3 Ps: people, planet and profits.FN4FN5
Emergence of Public Benefit LLCs
Less well known than PBCs are public benefit limited liability companies (PBLLCs). Like PBCs, PBLLCs are organized so as to “lock in” a mission or purpose as well as a management structure that pursues the triple bottom line.
Fortunately, LLCs in Colorado as elsewhere are already flexible enough so as to be effectively organized as a PBLLC...
PBLLCs are newer than PBCs and only five (5) states at this time have statutes that allow for their formation.FN6 Currently, Colorado does not have a PBLLC statute, but that does not mean that one cannot create an LLC in Colorado that purposefully pursues and achieves a public benefit.
Fortunately, LLCs in Colorado as elsewhere are already flexible enough so as to be effectively organized as a PBLLC. While you cannot form the business in Colorado so as to attain the PBLLC designation, it is possible to lock in a company mission and modify the duties of management so that the company is run in a way that it must balance the interests not only of company profits, but also the environment and important stakeholders like customers and employees. For more information on the flexibility of operating agreements, see the previous entry: "Giving 'Maximum Effect' to Operating Agreement Terms"
Benefits of Operating a Public Benefit Business:
Why would someone want to form – or convert an existing business into – a public benefit business? There are several attainable benefits:
First, modern consumers expect the businesses that they frequent to consider their health, safety and other interests as well as the interests of the environment and other stakeholders (like the business’s employees and local community). Businesses that fail to adapt to these consumer preferences may find themselves falling behind and missing out on important opportunities.
Second, would-be employees are increasingly looking for their employment to provide more than just a paycheck. These workers look for businesses that can provide purpose and meaning to their professional lives and that are good stewards of our planet. Public benefit businesses not only have an easier time attracting and keeping these workers, but studies also suggest that the employees of benefit businesses are more fulfilled and profitable and experience lower rates of absenteeism.
Third, socially conscious investors – generally referred to as “social impact investors” – are looking to invest in businesses that have locked themselves into a mission that dedicates the business to pursuing social and other benefits. These investors are looking not exclusively for the highest rate of return, but intend their investments to make an impact on social and environmental causes. Businesses that are not pursuing public benefits have closed the door on a significant source of capital.
Fourth, some businesses may be able to register as a charitable organization under the Colorado Charitable Solicitations Act and, thereby, seek donations that are related to their charitable functions. For these qualifying businesses, this can be a significant source of revenue that helps them achieve their desired public benefits.
Finally, the benefit community, especially in Colorado, is a generous and supportive community. This can be an invaluable resource for new and growing businesses alike. Moreover, benefit businesses generally prefer to do business with other benefit businesses and have sometimes incorporated a pledge to prefer those vendors who are part of the benefit community.
For these reasons, forming or converting to a benefit business structure is not only good for our communities and environment, but is just good business.
Options for purpose-driven LLCs in Colorado:
Until Colorado enacts a PBLLC statute, LLCs formed in Colorado as public benefit businesses will not be able adopt the PBLLC designation (or some variation thereof permitted by the Secretary of State). This limits the ability of these LLCs to clearly and transparently communicate to the community that they operate for the public benefit and as a public benefit business.
One option Colorado LLCs have to help bridge the gap is B Corp certification, which is open to any for-profit business that has committed itself to attaining significant social and environmental benefits and verifying the achievement of those results. This verified certification is performed by B Lab, a nonprofit organized for the purpose of promoting business as a force for good, and businesses must take and pass the B Impact Assessment in order to become a certified B Corp.
Another option is to form a PBLLC in a state like Delaware or Utah which does currently allow for their formation. This entity can then be registered to lawfully conduct business in Colorado by filing a Statement of Foreign Entity Authority with the Colorado Secretary of State.FN7
In either case, there will be additional expenses (and paperwork) related either to attaining B Corp certification or to forming the entity under another state’s laws and then registering it to transact business in Colorado. Whether the transparency and message to consumers in your market justifies these additional expenses is a decision unique to each particular business.
Regardless, an operating agreement is a chance to make your business unique. You can define the scope of your mission and the individuals or communities that you will benefit.
One option to help bridge the gap is B Corp certification, which is open to any for-profit business that has committed itself to attaining significant social and environmental benefits and verifying the achievement of those results...
You can also expand or modify manager’s duties or focus, allowing for the pursuit of very particular goals or (alternatively) simply the pursuit of general public benefits. This not only provides direction for management, but also allows non-managing members to help return a wayward business to its proper mission.
Indeed, it is possible not only to form an LLC that produces one or more public benefits, but it is even possible to structure the entity as a workers cooperative by having all members participate in management and having all long-term employees become members.
For these reasons and others, LLCs are incredibly flexible entities that can be organized in various ways according to the terms of their operating agreements. If you would like to find out whether a purpose-driven or mission-oriented business makes sense for you, or would like assistance drafting or revising an operating agreement in order to lock in a particular mission and the pursuit of one or more public benefits, please Reach out, Today!