Don’t forget the basics

From a legal perspective, a benefit corporation or limited liability company is just another company formed by state law. A new benefit company must also go through the analysis of any start-up, including addressing the following:

• What is the best type of entity for the type of company?
• Who will own and operate the company?
• How will the entity be taxed?
• Where will the company operate?

Based on the answers to these questions, your attorney can counsel on your about the best type of entity structure to set up for your business.

A Benefit Specific Business Plan

A new company electing to set itself up as a benefit company will want to articulate a business case for the benefit as part of its overall business plan.  

• What purpose(s) will the company pursue?  
• What impact will there be and on which stakeholders?  
• How will the purpose impact the company and its shareholders (or LLC members)?  
• What is the so-called “tripartite balancing” of the benefit, the affected stakeholders, and the company’s shareholders (or LLC members)?  

Just like other parts of a business plan, the business case is a private document which does not have to be filed publicly in order to form the company. However, many companies will find it helpful to share the business case with investors, lenders, or marketing support as it will contain a clear statement of the company’s intent and potential for success. 

Complying with State Law

State law determines how to form a benefit company. A lawyer knowledgeable about benefit companies should be engaged to form the benefit company and ensure that the other aspects of the company are set up correctly. Depending on state law, more or less detail will need be inserted into the documents, and the lawyer will ensure that there are no conflicting provisions in the documents.  

In order to take full advantage of the flexibility in decision-making and fiduciary duties afforded by the benefit company structure, it is especially important that the legal documents specify the legal basis for the company being a benefit company, designate the benefit(s) the company wishes to pursue, and include exculpation provisions for the directors. These provisions allow the directors to take the purpose and interests of stakeholders into account in addition to the interests of shareholders.  

We’re here to help you – schedule a time to discuss starting a benefit company today.