Ohio to enact Benefit Corporations and Benefit LLCs
Have you heard about C-Corps, S-Corps, and LLCs? What about a B-Corp? Ohio is considering a proposal to authorize so-called “benefit corporations” or B-Corps in the State. Benefit corporation legislation has been introduced in every state with many of them enacting laws that allow B-Corps. The Ohio State Bar Association’s Corporation Law Committee was tasked by the Ohio Legislature last year with reviewing the current proposal. It was approved by the OSBA last fall. The proposal is now back in the hands of the Ohio Legislature who are expected to approve a bill to enact Benefit Corporations and Benefit LLCs later this year.
So what are ‘benefit corporations’ anyway?
The benefit corporation traces its roots back to the 1970s. Companies began to publically commit to making a profit while also taking actions that benefited people and the environment. While a for-profit business is concerned only with making money for their owners, a benefit corporation is concerned not only with making money but also providing a benefit to the community, the environment, or some other social cause. Effectively a benefit corporation blends a for-profit’s profit motives with a nonprofit’s goal to effect a social purpose.
Thirty states have currently enacted B-Corps with 7 other states with pending legislation. Some notable corporations that are B-Corps include Ben & Jerrys, Etsy, Patagonia, Dansko shoes. For some having a social purpose is the “right thing to do”. Whereas for others, it is a savvy business decision made to attract a certain segment of customer that prefers purchasing from socially conscious businesses or attracting investors that want to invest in companies. It’s not only to turn a profit but also to do some good in their community. Some states require reporting on the B-Corp’s beneficial work. Ohio’s statute is not anticipated to require reporting but will allow a B-Corp to voluntarily report its activities.
Notably, there does not appear to be any special tax treatment for being a B-Corp. How a company is taxed by the IRS is not currently affected by electing benefit corporation status. Unlike a true 501(c) non-profit company, a benefit corporation is not able to obtain tax-deductible donations or certain grants.
So why would someone want to have a B-Corp?
The main benefits appear to be the ability to have a stated beneficial purpose in addition to making money. This provides flexibility to companies to invest in beneficial social causes while not abandoning making profit. This could be looked upon favorably by customers, investors, and the public giving the company a positive public image. There is even a non-profit B Lab that certifies that a B-Corp. is actually engaged in a public benefit. The lab provides a certification that the B-Corp. can use in its marketing. Certification is not required to have a B-Corp.
Ohio’s law would allow for both benefit corporations (Inc’s) and benefit LLC’s. New companies could form as a benefit company. Existing companies would need to alter their structure to become a benefit company, be it a Corp or LLC. This would require amending their articles of incorporation with the State and their governing documents such as their code of regulations or operating agreement.
Dworken & Bernstein’s corporate attorneys can assist you with preparing for and setting up a B-Corp or B-LLC once authorized by the State. We can also assist with any other corporate issue that you may have. Give us a call today!
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