The Benefit of Social Benefit Corporations

Social benefit corporations are becoming popular as a business model because of the social and financial impact that these businesses can make. Make A Stand exemplifies a social benefit corporation. You have the pitch—a cute 9-year-old with a desire to do good in the world—and the rest falls into place.

When now-nine-year-old Vivienne Harr was only eight, she saw a picture of two young boys her age who worked as slaves, holding hands while staring out over a rugged landscape, heavy stones strapped to their backs. This motivated Vivienne help victims of slavery and ultimately led to Vivienne’s opening of her lemonade stand with a goal to donate the profits to Not For Sale, an organization working to end slavery around the world, among other organizations devoted to eradicating slavery. It also prompted her father, Eric Harr, to incorporate Make A Stand as a benefit corporation and have it certified as a B Corp. To date, Vivienne and company have donated over $104,000 to slavery-ending charities as well as turned a small profit.

So how did this lemonade stand transform into a profit-turning corporate business model? Is it legal? Some people have found fault with the previously “nonprofit”-type fundraising of the initial lemonade stand operated by a little girl becoming a certified B Corp. But what, really does this mean?

As of June 2014, seventeen states and the District of Columbia will have passed legislation recognizing the benefit corporation as a legal business entity, with legislation pending in many states. It operates as a traditional corporation, but with more corporate accountability, environmentally and socially, via donation of their own profits, and creates a positive impact on society all while making a profit of their own.

So, what is the advantage of operating as a benefit corporation for Make A Stand? Aside from the inherent good being done, the company possesses the allure of a nonprofit, yet can legally turn a profit for its stakeholders, officers, and owners and collect dividends.

It could be said that corporations with a social aspect to them have the potential to move more products—they have proven a market exists for consumers who want to support a cause. Customers buy a social benefit corporation’s products because they get the product they desire, and they get to donate to a cause. In a way, it kills two birds with one stone.

So how does Make A Stand uphold their dedication to eradicating slavery? By donating 5% of gross sales to charity, the company itself stands to make a greater profit overall, and more will be donated to charity over time than if they were to donate a percentage of every bottle sold.

Aside from the apparent advantages of incorporating a business such as Make A Stand into a benefit corporation, there can be problems. Who is to say if the touted charity is receiving as much money as the customer thinks or believes it should? Who is to say that the social cause is being benefitted to the full extent that the company claims it is? Does it matter?

Rising concern with benefit corporations is that even if there is a clear place where the money is supposedly going, there can exist something called “greenwashing.” This is when, because of a lack of disclosure, accountability and transparency, business practices are not truly environmentally and socially conscious, and the money simply does not go where it is supposed to. Because there is no legal third party monitoring that the stated donation is given to the charitable cause, there is no guarantee that the benefit corporation is truly benefitting its cause and not just benefitting the people who run the company. The key to avoiding issues stemming from those questions is public transparency, which is the route Make A Stand is taking, and is a state requirement for many benefit corporations. As of January 1, 2014, they will publish all of their financial records online.

Those behind corporations such as Make A Stand (like Vivienne’s social media guru father, Eric) have displayed an enormous amount of business savvy and it looks like they will eventually create a productive, self-sustaining company with eco and socially-friendly business practices, and will help to end slavery around the globe to boot. After all, people in need are being helped, and capitalism is being propelled forward. I think it is a win-win situation.  What are your thoughts on this business model? Criticisms? Be heard and leave a comment.

If you’re interested in forming a social benefit corporation, or learning more, check out the guidelines and other benefit corporation information here.