Make the Business Case

An existing company which wants to convert to a benefit company will also want to create a business case and undertake additional steps.

Complete Due Diligence

The company should engage a lawyer to review that there are no impediments to becoming a benefit company. For a corporation, the lawyer should review the company’s articles of incorporation, bylaws, shareholder agreements, investor agreements, equity plans, convertible debt, rights of first refusal, and any other agreements that grant rights to purchase securities in the company including preemptive rights. Management should also provide any material contracts which may trigger rights to notice, termination, or modification when the corporate form is changed. These could include leases, indebtedness, licenses, distribution agreements, etc. The due diligence for LLC’s is similar, except the lawyer will review the company’s articles of organization and operating agreement.

Engage the decision-makers

Management should take time to explain the benefits and rationale behind the desire to change the company’s legal structure. Usually, companies which pursue becoming a benefit company are strengthening their existing culture, values, and customer alignment. Use the business case to educate, to answer questions thoughtfully, and to assuage any real or perceived fears.

Complete Required Formalities

The company’s lawyer should prepare and file the required documentation to convert to a benefit company. These may include Articles of Amendment, updates to Operating Agreements or Shareholders’ Agreement, and resolutions authorizing the company to take such steps. These process details will be driven by the company’s existing articles and bylaws (or operating agreement) and state law. Other approvals or changes to documents may have been identified through the due diligence step.

Implement

Aligning action to the company’s purpose and measuring its impact is the fun part! It takes time and a culture of continuous improvement to implement operations, policies, practices, measurement, and reporting into the company. Many benefit companies find implementation to be an energizing phase that creates excitement, employee engagement, and marketing opportunities for the company.