Minnesota legislators may soon pass a bill that would allow some forprofit business to operate much the same way nonprofits do.
Called Public Benefit Corporations, PBCs or b-corps, these businesses would operate with a socially beneficial mission but can still make profits.
The blended status, however, won’t mean that these corporations won’t pay taxes; PBCs will still be considered for profit businesses under Minnesota tax laws. However, directors and officers of a PBC will have financial responsibilities beyond ensuring shareholder profits. They will also have to work to make sure there are public benefits associated with their business.
To date, 19 states already operate some form of PBCs. There are also a range of federally created PBCs. Some examples of these include Amtrak, the United States Postal Service and the Corporation for Public Broadcasting. These are owned and operated by the U.S. government and each performs a specific function for the public good.
The first public benefit corporation [or authority as it was then called] was created in 1908 in England when the government formed the Port of London Authority. The English government’s goal was to create a business that would run selfsufficiently and operate like a private company but still be under the control of the government. Since that time many countries have adopted the concept and set up similar entities to help build, run and maintain large public works like railroads, ports, and airports.
In the U.S. a board of directors, which is appointed, [rather than elected] generally governs Public Benefit Corporations.
If the law passes—and there appears to be little or no opposition— Minnesota will create two types of PBCs: General Benefit Corporations, where a company would be matched to something that would generate a general positive impact and a Specific Benefit Corporation, where a company would have a self-defined mission. Both would have to file an annual public benefit report to the Secretary of State to ensure transparency and to make sure they deliver on their promise to help the public.
One of the main authors of the Minnesota law (which works somewhat differently from other PCB laws) is Heidi Neff Christiansen, an attorney working for Nilan Johnson Lewis PA law firm. Neff Christiansen agreed to answer a few questions for the Cook County News-Herald.
Can you tell us what types of business or government entities in a rural area like Cook County can benefit from this new business designation?
“A small micro-brew or an artist’s store or a Lake Superior boat touring company might benefit from forming itself as (or transforming into) a public benefit corporation if the public benefit envisioned by the founders was appealing to investors and to the public. Certain investors and the public often make decisions regarding how to use their money based, in part, on public benefit.
“Essentially a public benefit corporation is a business whose investors have chosen to operate for a reason other than purely maximizing profits for shareholders. The proposed Minnesota legislation allows the formers of a public benefit corporation to choose between forming a corporation that provides a general public benefit and specific public benefit.
Could any business qualify for PBC status?
“Yes. To be a public benefit corporation, under the proposed rules, a business would have to form or reform under a new section of the Minnesota statute (304A). Annually, the business would have to file a public benefit report with the Minnesota Secretary of State describing the benefit created by the corporation during the year. If the report isn’t filed, the public benefit corporation status is lost and the corporation reverts to being a standard business corporation.”
What other benefits might be gained from this designation?
“A general benefit might be benefiting the community by considering the environment, workers and future generations. A specific benefit might be to reduce hunger and homelessness in Cook County or to support a particular public park or historical site. The people who want to form the business can build their vision for public benefit into the ‘DNA’ of the corporation so that everyone who invests in the corporation understands with and supports the mission, vision and values.”
Could a nonprofit qualify for this status?
“Nonprofits (tax exempt nonprofits) and government entities are really a different breed and not interchangeable with public benefit corporations. For the sake of nonprofits and what they represent and bring to our economy, it is important to understand their unique distinction.
“At the end of the day, public benefit corporations pay their net income to investors—who have agreed to a pre-established way of doing business—in furtherance of some public benefit. Public benefit corporations pay taxes at the regular corporate tax rate.”
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