Let’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.