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Organizational Structures for Socially Conscious Companies

Business Entity Structure / Business Growth Strategies / Starting Your Business

Social consciousness at the corporate level has become an increasingly more important point of differentiation for many companies, and some companies today exist primarily to fill a social purpose.  So what is the best business structure for these companies?  There are several from which to choose:

Benefit Corporations.  Seven states, including California, allow for Benefit Corporations, which require companies that choose this structure to have social and environmental goals that guide operational decision making.  Benefit corporations are required to issue an annual report detailing their progress in meeting these goals, audited by an outside party.

Flexible Purpose Corporations.  Available only in California, this corporate structure exists to provide firms with the flexibility to operate for one special purpose to pursue charitable or social goals.  The FPC is required to issue an annual report with financial statements that outlines the FPC’s special purpose and reports on activities and expenses to fulfill that purpose.

L3Cs.  Low-profit Limited Liability Companies (L3Cs) is a structure typically used to facilitate investments in for-profit ventures with a charitable or social purpose.  Using a L3C makes it easier for socially conscious companies to attract investments from foundations – which the IRS requires to invest five percent of their assets annually to charitable causes — and is legal in nine states:  Illinois, Louisiana, Maine, Michigan, North Carolina, Rhode Island, Utah, Vermont, and Wyoming.

B Corporations.  This is a bit of a misnomer, since B Corps are not corporations but a certification by the nonprofit organization B Lab to meet established standards for social and environmental performance, accountability and transparency.  B Lab has certified more than 760 businesses in 27 countries.

Maryland Benefit LLC.  A Maryland Benefit LLC operates the same as a Benefit Corporation, but does so as a limited liability company.

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