Three Questions: Benefit Corporations

bizcharityLet’s say you wanted to follow in the footsteps of Blake Mycoskie, the icon of philanthropic capitalism who, for each pair of TOMS shoes his company sells, gives another pair to a child in need somewhere in the world. Would you start a nonprofit? A for-profit? What’s the business model for that? Corporate law attorney Mark Gardberg of Lionel Sawyer & Collins has the answer: a benefit corporation, made possible in Nevada by Assembly Bill 89, passed in the 2013 Legislature.

What’s a benefit corporation?

A new type of entity: It’s for-profit, but also has nonprofit characteristics. Its mission is to make money and distribute it to shareholders, but it also has a mission to serve a public benefit.

Why do we need this?

For two types of people: 1) the entrepreneur who doesn’t believe benefiting the public requires a vow of poverty, but wants to make sure that his officers and directors put the benefits mission on equal footing with making money; and 2) the philanthropist who wants to turn the traditional model of giving—make a one-time donation, collect the tax, use it as PR and move on—on its head. This allows him to remain a shareholder, vote on actions and, if it’s successful, reap huge dividends for years to come. The idea is to create a win for the investors, the directors and the common good.

How is this not a tax shelter?

Because there is no tax benefit. If you had a regular for-profit corporation and converted it to a benefit corporation, you would continue to be taxed in exactly the same way as before. If a benefit corporation made a donation to a nonprofit, the corporation would simply get a tax deduction similar to what you or I might get.


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