Benefit Corporation and L3C Adoption: A Survey in Stanford Social Innovation Review

In Stanford Social Innovation Review, Kate Cooney, Justin Koushyar, Matthew Lee, & Haskell Murray have published a study on new forms of business entities entitled "Benefit Corporation and L3C Adoption: A Survey."

Low-profit limited liability companys (L3C) were created to bridge the gap between non-profit and for-profit investing by providing a structure (based on the traditional limited liability company) that facilitates investments in activities believed to have a public benefit. Only a limited number of states (Illinois, Kansas, Louisiana, Maine, Michigan, North Dakota, Rhode Island, Utah, Vermont and Wyoming) as well as the Crow and Oglala Sioux nations have adopted L3C statutes.  Likewise, benefit corporations are a relatively new corporate form that has been adopted in a handful of states.  They are for-profit enterprises whose directors are permitted (and required) to consider social benefit (for example, social welfare or environmental considerations) in addition to profit in their decisions. Many benefit corporation statutes, including the Model Legislation adopted by some states, have been criticized for (among other things) their vagueness as to the duties of directors and other corporate managers vis a vis shareholders and the general public.  

An interesting aspect of this study is the difference in popularity between public benefit corporations and L3Cs:

It is far too early to declare social enterprise legal forms a success or failure, but interesting patterns are emerging. Passage of L3C legislation seems to have stagnated, whereas benefit corporation legislation is quickly spreading across the country. Regarding which states pass benefit corporation laws, at least one study suggests a link to the presence of a larger green economy. However, at current rates, the benefit corporation form will soon be available in nearly all, if not all, states.

Adoption of these forms by social enterprises across states is more mixed. States like Delaware and Nevada are popular places for traditional businesses, which may explain dramatically higher benefit incorporation activity. Yet adoption is also shaped by more nuanced differences among states. The administrative burden of registering as a benefit corporation differs between states, and this is almost certainly responsible for some of the differences. For example, some of Nevada’s success may be traceable to the fact that it provides a simple check box on its standard corporation form to make adoption of benefit corporation status easier.