Benefit Corporation Update

Since I first wrote about the Benefit Corporation several great things have happened, including New York State passing legislation and Etsy becoming a certified B Corp.  Since most venture backed companies are incorporated in Delaware, it would be terrific to see Benefit Corporation legislation passed there as well.

Sometimes I have people ask me what problem the Benefit Corporation solves that cannot be addressed simply in the context of an existing C Corp.  What it really comes down to is better aligning the incentives between investors and mission oriented founders.  If you take a company such as Kickstarter (where we are investors), then the objectives of the founders are quite different from just creating share holder value and have a strong social component (funding for the arts and creative projects). And that makes founders wary of investors because they are afraid of future conflicts.

The current solution in many instances are structures such as dual class shares where founders control a majority of voting rights.  Google and Facebook are examples of this in the public markets.  That turns out to be a solution that is very unfriendly to investors and extends the powers of founders far beyond pursuing well defined and measured social benefits. The Benefit Corporation solves this problem more elegantly by allowing founders and companies to put social objectives right upfront and giving investors the tools to actually hold management to pursuing these.

This is important not just during the venture funding process but also when these companies eventually go public.  A Benefit Corporation statute effectively creates a market place for investors and companies who have aligned incentives around a broader set of goals 

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Posted: 28th September 2012Comments
Tags:  Benefit Corporation law

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  1. akkarins reblogged this from continuations
  2. alternrg reblogged this from continuations and added:
    Ah, so if the founder contracts toxoplasma gondii and attempts to deviate 180 degrees from the intent funders are basing...
  3. continuations posted this

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