Founders of social enterprises believe profits and social good can be produced in tandem and wish to form organizations that will pursue these dual missions. They will, however, encounter obstacles to articulating and enforcing such dual missions if they adopt either a traditional nonprofit or for-profit form of organization. Nonprofit forms bar profit distribution and for-profit forms will create practical, if not legal, pressure to favor profit maximization over social good when the two come into conflict. And these two imperatives will certainly, at times, conflict. If more profit could always be obtained by pursuing social good, traditional for-profits would produce the optimal level of social goods, charities would be swimming in resources, or both. Social entrepreneurs believe social good can be produced along with profits and desire hybrid forms of organization to smooth a single enterprise’s path to realizing both goals.
A mounting number of jurisdictions have attempted to meet this demand by enabling new hybrid organizational forms. These include the low-profit limited liability company (“L3C”) available in nine U.S. states and the community interest company (“CIC”) available in the United Kingdom. In addition, “B Corp” is a private certification available to U.S. for-profits that demonstrate their commitment to a dual mission of making profits and promoting social good. Qualifying entities can license the B Corp mark to market themselves to consumers, investors, and others. This Article examines another recent entrant into the hybrid form category: the benefit corporation. A handful of states have enacted statutes enabling “benefit corporations” in the past two years, and several more are considering similar legislation. The benefit corporation form differs from the L3C, CIC, and B Corp in several respects, especially in its use of third-party standard-setting organizations to vet the social good bona fides of potential incorporators. This Article evaluates whether the innovations in the benefit corporation form can meet the goals social entrepreneurs have for hybrid organizational forms, ultimately concluding it will fall short.
