It’s still March and it’s still B Corp month! We’re always pleased to celebrate B Corps and businesses operating as a force for good! In previous entries, I’ve discussed Public Benefit Corporations and Public Benefit LLCs. This time, I’d like to highlight another type of PBC, the Public Benefit Cooperative.
Many people, it seems, are unaware that Colorado’s Public Benefit Corporations Act (PBCA) is not just for conventional for-profit corporations. Certainly any for-profit Colorado corporation can be organized as a public benefit corporation under the PBCA, but so can all three types of Colorado cooperatives. (Specifically, cooperatives organized under Articles 55 56 as well as limited cooperative associations (LCAs) organized under Article 58 can all elect public benefit corporation status under the PBCA.FN1)
By electing public benefit corporation status under the PBCA, a cooperative or LCA commits itself to responsible and sustainable operations and to being managed in a way that balances (a) the financial interests of its owners (members), (b) the interests of materially affected stakeholders, and (c) the specific public benefit purposes identified in the cooperative’s or LCA’s organizing document.FN2
The "public benefits" permitted under the PBCA could be either producing positive effects or reducing negative ones. And there are a wide variety of types of benefits that a cooperative or LCA may pursue, including those "of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature."FN3
"The Board of Directors and officers of the coop or LCA are obligated to balance the interests of members and materially affected stakeholders and the public benefit purposes identified in the organizing document when managing the coop's or LCA's business and affairs."
Once organized for the public benefit, the Board of Directors and officers of the coop or LCA are, accordingly, obligated to balance the interests of members and materially affected stakeholders as well as the public benefit purposes identified in the organizing document when managing the coop's or LCA's business and affairs. For this reason, the organizing document should ideally provide some guidance to help prioritize these various considerations in management decisions.
Like public benefit corporations, cooperatives and LCAs organized under the PBCA are required to prepare an annual report that describes the progress the business has made towards its proscribed public benefit purposes, the setbacks or obstacles faced, and the impact it has had on materially affected stakeholders. Ideally this progress should be measured and evaluated against a third-party standard.
The report should be posted on the website of the coop or LCA and distributed to all of its members. In this way, a coop or LCA organized under the PBCA provides transparency to its members and even the public, more generally, by informing them of the impact its having with respect to the pursued public benefit and any materially-affected stakeholders.
A supermajority vote of coop or LCA members is also required before it can reorganize in any way – including conversions or mergers – that would abandon its commitment to operating for the public benefit. This approval requires at least the affirmative vote of two thirds of the members present and voting (at a meeting where a quorum is present), but the bylaws may require a greater percentage.
Electing public benefit corporation status helps ensure that any entity that makes that election operates as a force for good and cannot easily give up this commitment. Since organizing under the PBCA helps lock in the purposes and mission of a cooperative or LCA, any such entity that is interested in becoming a certified B Corp will be required to be organized (or reorganize) under the PBCA.FN4
As previously noted, a certified B Corp is not a type of business entity, but a trademarked certification maintained by the nonprofit organization B Lab that is open to various kinds of entities depending on their verified assessment along various factors related to sustainable, responsible, and ethical business operations and practices.
Cooperatives and LCAs organized under the PBCA are great candidates to become certified B Corporations due to the ability of either a cooperative or LCA to create various classes of membership related to categories of materially affected stakeholders.
These "multi-stakeholder cooperatives" (MSCs) don't just consider the interests of their stakeholders, but provide them a "seat at the table" with true ownership, control, and even financial benefit based on the coops or LCAs operations. This is a true stakeholder-ownership model for a business organization and it gives the members of these businesses an equal vote on member decisions as well as the ability to nominate, elect, and remove the managing directors.
More information on organizing a corporation, cooperative, or LCA under the PBCA can be found in the section on Public Benefit Corporations on the corporations page. And the potential advantages and disadvantages of electing public benefit corporation status are discussed more fully in the article titled: Colorado Corporations: To PBC or Not To PBC?
This article only touches the surface when it comes to options related to cooperatives and PBCs and the sort of entity that may be right for your business. If you have questions or would like to discuss anything discussed here, please Reach out, Today!
This article provides only general information and is not intended to be a substitute for legal advice.