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New Corporate Entities for Florida

Brand New Corporate Entities for Florida: Benefit and Social Purpose Corporations

As of July 1, 2014, Florida became a member of the growing minority of states that has designed a special type of for-profit company that can have a purpose other than maximizing profits for the shareholders – the traditional corporate goal. Instead, companies can choose to make less money or defer profit to devote a portion of their business activities and resources to substantial non-profit or socially beneficial activities. There are two new types of company:

  • “Benefit” corporations
  • “Social Purpose” corporations

Florida’s structure resembles that of California and Minnesota, because entrepreneurs have a choice of having a single target for their socially-conscious activity, instead of having the general public good in mind as they do business.

Why is this necessary?

With everyone painting pink ribbons on their goods for the benefit of breast cancer charities, you might have assumed that any company can do charitable work. Why would Florida need to pass a new law creating a new kind of company to permit businesses to focus on charitable activities?

Traditionally, a company’s management owes a duty to maximize the profit to the shareholders. This principle goes back to the days of early automobiles. The Dodge Brothers were early investors in Ford Motor Company. Ford had been wildly successful and accumulated a capital surplus of $60 million from building and selling the Model T. He wanted to use the money to build more factories and hire more people, which he said, “My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.”

The Dodge Brothers didn’t care about helping people, they wanted the capital surplus to be distributed to the shareholders, including them! The Michigan court agreed and issued a benchmark opinion that said, “A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes…”

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As a result of this court ruling, companies used to only be able to do so much charity that they could show it had a direct benefit to their shareholders. They might say that the activity was a marketing expense or a good-will activity. Alternatively, they might open a donor fund at a community foundation or other respected charity, like the United Way.

What do they do?

Benefit and Social Purposes companies are different because of the “definition” sections of the statute. Benefit corporations have the broad purpose of benefiting the public, meaning “a material positive effect on society and the environment, taken as a whole.” Social Purpose companies can specifically target a benefit goal or set of goals, specifically they intend to make “a positive effect, or the minimization of a negative effect, taken as a whole on the environment or on one or more” categories of potential beneficiaries, such as “artistic, charitable, economic, educational, cultural, literary, religious, social, ecological, or scientific” issues. Either type of entity may adopt a specific benefit purpose, but Benefit companies cannot sacrifice the broad societal consequences of their goals for their specific goals.

This is a brand new entity, so if you choose to make your company one of these types, it will be tricky! We wish you great success, both in business and in making the world a better place.

 

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