Benefit corporations: A new model for business Benefit Corporations as a New Model for Business What does it mean to be a benefit corporation? Rose will cover the opportunities and challenges of a social entity with incorporating, fundraising, and scaling. She'll look at the success we're seeing in the public market and the future of benefit corporations in the business of social impact.

1. Benefit Corporations
A New Model For Business
Rose Broome
@rosical

2. On a cold night
in San Francisco…

3. Then an invitation.
@rosical | @HandUp

4. Do Good Make Money

5. Incorporation options
• Nonprofit – 501c3
• Delaware C-Corporation
• Other: LLC, L3C, S-Corp
• Hybrids: Nonprofit + for-profit
• B Labs certified “B Corp”
• Legal public benefit corporation

6. 6
Hybrid Corporate Structures
• In general, a hybrid entity refers to a close relationship – via equity ownership, funding or contract –
between a non-profit and for-profit entity.
• General rules that apply to all hybrids:
o Adhere to rule of “no competition” between non-profit and for-profit
o All relationships between non-profit and for-profit must be documented
o Do not spin out for-profit unless/until there is sufficient funding
o Consider employment options and impact on the mission
• We will discuss five types of hybrid entities:
(1) a for-profit maintaining contractual relationships with a non-profit
(2) a non-profit as a minority investor in a for-profit
(3) a for-profit operating as a wholly-owned subsidiary of a non-profit
(4) a non-profit operating as a subsidiary of a for-profit; and (5) a non-profit investment in a for-profit
impact fund
Courtesy:
Morrison
&
Foerster

7. 7
Hybrid Corporate Structures
In each of these models, the non-profit, for-profit and investors must consider the following:
• Both entities must track and document the flow of funds, the flow of services and resources and the
flow of IP between the non-profit and the for-profit.
• Documentation takes the form of intercompany agreements including an IP license agreement,
services agreement and/or resource sharing agreement.
• In terms of flow of funds, there are various options:
o The entities can make loans to the other; however, interest on loans will likely be Unrelated
Business Income Tax (“UBIT”) to the non-profit.
o Better alternatives are dividends on equity held by the non-profit in a for-profit subsidiary and
royalties on license agreements.
Courtesy:
Morrison
&
Foerster

8. 8
Hybrid Corporate Structures
• The documentation must ensure that the for-profit always pays at least market rates to the non-
profit in all three cases (for funding, services/resources and IP).
o Independent verification of “market” for the industry in which the entities are operating is
recommended.
• There also must be good governance, specifically disinterested directors on the boards of both
the non-profit and for-profit.
o Such disinterested directors typically form a special committee of each board, which
committee approves all intercompany agreements and monitors all relations between the
non-profit and for-profit.
• Management is required to report on the flow of funds, services and IP to the special committee
on a quarterly basis; amendments to the intercompany agreements are usually required as the
hybrid evolves over time.
Courtesy:
Morrison
&
Foerster

9. Phew!
Moral
of
the
story:
Never
incorporate
as
a
hybrid.

10. BCorp vs BCorp
@rosical | @HandUp

11. BCorp vs BCorp
B Lab 3rd party
‘Certified Benefit
Corporation’
Legal entity: Public
Benefit Corporation
@rosical | @HandUp

12. BCorp vs BCorp
B Lab 3rd party
‘Certified Benefit
Corporation’
Legal entity: Public
Benefit Corporation
B Certified PBC
@rosical | @HandUp

13. @rosical | @HandUp

14. @rosical | @HandUp

15. Public Benefit Corporation
For-Profit For Good
@rosical | @HandUp

16. @rosical | @HandUp

17. Incubators

18. Fundraising
• Angel investors
• Venture capital
• Impact investors
• Philanthropists
• Foundations
@rosical | @HandUp

19. Fundraising
• Angel investors
• Venture capital
• Impact investors
• Philanthropists
• Foundations
@rosical | @HandUp

20. Hiring is hard.
People want to work on stuff that matters.
@rosical | @HandUp

21. “HandUp is a tool we can use to
advocate for ourselves… you are
proving that humans can
and still do care.”
-Sandra & Robert
HandUp Member Testimonial:
@rosical | @HandUp

22. 2,239
GOALS MET
850
SIGNED UP
16
NONPROFIT PARTNERS
$798,918
DONATIONS RAISED
Growth

25. Thank you!