In Minnesota, you now have the option of creating a Public Benefit Corporation for your social enterprise.
Minnesota state law allows a business engaged in social enterprise to avoid becoming an LLC or corporation by electing to form the company under the Minnesota Public Benefit Corporation Act (MPBCA).
The MPBCA allows entrepreneurs to create a for-profit entity that is socially-minded. This means businesses can be profitable—paying profits to the shareholders—while still having a social purpose that trumps profits as the chief goal.
Public Benefit Corporations may also be referred to as a social business, social purpose business, social enterprise, or B-corp.
Frequently Asked Questions for Public Benefit Corporations
Here are frequently asked questions about Public Benefit Corporations in Minnesota.
What is the Benefit of Becoming a Public Benefit Corporation?
The main benefit of operating your business as a Public Benefit Corporation is clear communications to shareholders, employees, and customers, that a social benefit trumps profits as the primarily purpose of the company.
Shareholders & Investors. A Public Benefit Corporation may have a business advantage when seeking investment from investors, including a Kickstarter campaign or Social Venture Capital (a group of social venture capitalists).
Employees. A Public Benefit Corporation may have a business advantage when hiring talent. Some potential employees, who want more meaning in their jobs, may be more attracted to a company supporting a social cause.
Customers. Some market segments may be more inclined to patronize a Public Benefit Corporation because of its social purpose.
It is worth noting these benefits are essentially available to a traditional company that communicates its social purpose, even without incorporating under the Minnesota Public Benefit Corporation Act.
Is There a Tax Benefit to Being a Minnesota Public Benefit Corporation?
No. There is no significant tax benefit (nor other financial benefit) to being a Public Benefit Corporation in Minnesota.
Sales & Use Tax. A Public Benefit Corporation must still collect and pay sales and use tax like a regular company.
Federal & State Income Tax. Shareholders of a Public Benefit Corporation must still pay income tax and capital gains tax like other business owners.
Capital Gains Tax. Shareholders of a Public Benefit Corporation must still pay capital gains tax like other business owners.
No Deduction for Charitable Contributions. Individuals who donate to a Public Benefit Corporation cannot deduct the donation amount as a charitable contribution on their income taxes.
No Donations from 501(c)(3) Nonprofit Organizations. Nonprofit organizations generally cannot donate funds to a for-profit enterprise, including a Public Benefit Corporation. However, a nonprofit organization may pay a Public Benefit Corporation for goods or services (e.g. a 501(c)(3) nonprofit may order brochures from a printing company that is a Public Benefit Corporation).
Is a Public Benefit Corporation a Pass-Thru Entity for Tax Purposes?
No, unless it elects to be taxed as an S corp. The default tax status of a Public Benefit Corporation is a C corporation, which results in double taxation (once at the corporate level and once at the shareholder level).
Can a Public Benefit Corporation Elect to be Taxed as an S Corp?
Yes. A Public Benefit Corporation may elect to be taxed as an S corp to acquire the benefits of a pass-thru entity, avoiding the double taxation experienced by C corporations. After a Public Benefit Corporation elects to be taxed as an S corporation, the shareholders will pay income tax on profits but the Public Benefit Corporation will not be subject to income tax on those same profits.
What is the Difference between a Nonprofit and B-Corp?
A nonprofit cannot have an owner. A nonprofit cannot distribute profits to an owner. Both a B-Corp and traditional corporation can be owned by shareholders and distribute profits to shareholders.
What is the Difference Between a B-Corp and Most Companies?
Most statutes that govern companies are based on the premise that the purpose of the company is to generate profits. In traditional companies, prioritizing a public benefit over profits would fundamentally violate the fiduciary duties each person in the corporation owed to the company’s owner. A public benefit corporation fixes this, allowing those in the company to prioritize a social benefit over profits.
As the law notes, a public benefit corporation will “require a corporate purpose broader than shareholder value maximization that do not prohibit pecuniary gain for shareholders.”
Is There More than One Kind of Public Benefit Corporation?
Yes, a general benefit corporation (GBC) and a specific benefit corporation (SBC). The statute explains how a GBC is more broad than an SBC:
A general benefit corporation is a public benefit corporation that elects in its articles to pursue a “general public benefit” and that may state in its articles a “specific public benefit” purpose it elects to pursue. “General public benefit” means 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.
A specific benefit corporation is a public benefit corporation that states in its articles a “specific public benefit” purpose it elects to pursue, but does not include a “general benefit corporation” that states in its articles a specific benefit purpose it elects to pursue. “Specific public benefit” means one or more positive impacts, or reduction of a negative impact, on specified categories of natural persons, entities, communities, or interests, other than shareholders.
What Are the Requirements for the Public Benefit Corporation’s Articles of Incorporation?
In addition to Chapter 302A, its articles must also state the public benefit corporation is a (1) general benefit corporation, a general benefit corporation that also elects to pursue a specific public benefit purpose as stated in its articles, or (2) a specific benefit corporation that elects to pursue a specific public benefit purpose as stated in its articles.
Are There Any Additional Name Requirements?
Yes. A general benefit corporation must contain the words “general benefit corporation” or the abbreviation “GBC.” A specific benefit corporation must contain the words “specific benefit corporation” or the abbreviation “SBC.”
Can a Law Firm, Dental Practice, Chiropractic Office, Engineering Firm, or Accounting Firm Be a Public Benefit Corporation?
Yes. These types of businesses are governed by the Minnesota Professional Firms Act. The statute does not prohibit such businesses from becoming public benefit corporations.
Can a Traditional Corporation Now Become a Public Benefit Corporation?
Yes. An existing, traditional corporation, previously incorporated under Minnesota Statutes Chapter 302A, may elect to become a public benefit corporation by amending its articles.
What is the Standard of Conduct for Directors?
In discharging the duties of the position of director for either a GBC or SBC, a director shall consider the effects of any conduct on the corporation’s ability to pursue its public benefit, but may not give regular, presumptive, or permanent priority to the pecuniary interests of the shareholders.
What if a Corporation Fails to Pursue Its Stated Public Benefit?
Only a shareholder may assert a claim against a public benefit corporation, its directors or its officers on account of the public benefit corporation’s director’s or officer’s failure to pursue or create a general public benefit or a specific public benefit. However, a public benefit corporation is not liable for monetary damages for any failure to pursue or create a public benefit, whether general or specific.
Is Any Type of Reporting Required?
Every year a public benefit corporation must file with the secretary of state an annual benefit report covering the previous 12-month period.
Do Other States Have Public Benefit Corporations?
A study in 2014 indicated 21 other states have enacted similar laws permitting social enterprises to organize under a Public Benefit Corporation statute.
Is a Minnesota Public Benefit Corporation Subject to Traditional Corporate Statutes?
Generally, yes. The MPBCA essentially created further requirements for socially conscious businesses in addition to the already existing Minnesota Business Corporation Act (Chapter 302A).
Could You Give Examples of a Purpose Statement in the Articles of Incorporation?
The following three examples are actual purpose statements taken from public records.
1. This example was taken from a general benefit corporation (GBC):
The Corporation shall be organized and operated for general business purposes. In addition, this Corporation shall be a general benefit corporation organized and operated to pursue general public benefit purposes as well as the specific public benefit purpose of growing the size and voice of the impact economy by creating a network of socially responsible, sustainable companies.
2. This example was taken from a special benefit corporation (SBC):
The purpose of [company name omitted], SBC is to create social and environmental improvement projects using crowdfunding and product sales.
3. This example was taken from a special benefit corporation (SBC):
This corporation elects to operate under, and acknowledges that the corporation is subject to, Sections 304A.001 to 304A.301 of the Minnesota Statutes, the Minnesota Public Benefit Corporation Act. Pursuant to Section 304A.101, the corporation is a specific benefit corporation that elects to pursue the following specific public benefit purpose:
- To help people make informed choices about holistic therapies.