The CPA's role in forming benefit corporations: These increasingly common enterprises aim to create value for all stakeholders in socially and environmentally conscious ways.

Author:Benson, Sandra S.
Position:Certified public accountant

Social benefit enterprises--those that expand the corporate purpose from creating value solely for shareholders to explicitly creating value for all stakeholders, including employees, customers, the community, and the local and global environment--have become increasingly common in recent years.

The concept is aimed at providing a structure for socially and environmentally conscious businesses and investors. It broadens the for-profit motive to hold the business accountable to people, planet, and profits.

These for-profit entities have all the accounting, auditing, and tax service needs of a typical for-profit entity. But they require special services specific to the business format. As a result, CPAs are positioned to help clients choose the best format available to meet their social impact aspirations, build measurable goals and objectives, and compile financial and nonfinancial data specific for those metrics.


The Model Benefit Corporation Legislation (MBCL) was drafted on behalf of B Lab, a not-for-profit entity that promotes this legal structure and provides a private certification. According to Frederick Alexander, head of legal policy at B Lab, at least 5,000 businesses have selected the benefit company form. Benefit legislation is available in 33 states plus the District of Columbia and Puerto Rico, and proposals are under consideration in at least five more states. Beyond the United States, Italy h as adopted benefit corporation legislation. Each jurisdictions approach varies, but the new form generally contains three requirements:

Expanded purpose

Benefit corporations must have a purpose to create r a material positive impact on society and the environment under the MBCL.

Directors in traditional corporations have I some flexibility to take actions to benefit other stakeholders but, in general, must ultimately link such actions to generating long-term value for t shareholders. And, depending on the state, directors may have a duty to sell to the highest bidder when the corporation is sold, regardless of the interests of other stakeholders or the desire to preserve corporate culture.

Socially conscious investors and directors, however, may want the legal protection to consider all stakeholders in day-to-day decision-making. Some may want to legally protect the company's mission in the event of a sale. Or they may not necessarily want to sell to the highest bidder. The benefit corporation structure addresses these concerns.


Benefit corporation directors must consider the effects of any action (or inaction) upon stakeholders and the environment, not just the shareholders. Under the MBCL, each publicly traded benefit corporation must name a benefit director who annually provides an opinion as to whether the benefit corporation acted in accordance with its general public benefit purpose.


The MBCL requires benefit corporations to report annually the social and environmental performance of the company against a comprehensive, credible, independent, and transparent third-party standard to ensure that the business is creating a public benefit. If the company has adopted specific benefit purposes, it must report the extent to which the specific public benefits were created.

In some states, the company must declare specific public benefits. These specific benefits are defined by the company. Examples from Delaware benefit corporations include helping to improve public health and prevent disease, financing clean-energy technologies in underserved communities, and developing affordable drinking-water treatment technologies.


Once the client has decided to move ahead with setting up a benefit corporation, several steps must be considered:

Step 1: Seek counsel for the client

The client should have counsel who is proficient in business law and has knowledge of the entity forms in the state where the organization will incorporate. And some challenges may arise, as scant case law provides little guidance on how laws surrounding this relatively new form will be interpreted. The CPA will want legal counsel to assist the client in weighing the advantages and disadvantages of the benefit form as compared to other entities to ensure that this is the client's preferred choice.

For a new benefit corporation, the CPA should find out where the company plans to conduct its principal business activities. That may be the most efficient place to incorporate. For an existing company planning to convert, the CPA should find out in which state the company is currently incorporated, as this may be the preferred choice. Depending on the client's wishes, the CPA may assist in interviewing and negotiating the terms of the legal counsel's engagement. Both professionals should clarify who will perform which responsibilities, such as filing tax elections.

Step 2: Consider tax consequences

A benefit corporation is subject...

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