- The Washington Times - Sunday, December 7, 2014

The sharp rise in the number of benefit corporations has also led to some sharp questions about whether the socially-conscious but for-profit companies are delivering on their promises.

The hybrid nature of the benefit corporation raises both legal, regulatory and even ethical issues, analysts say.

The laws generally allow benefit corporation status for many companies, including partnerships such as limited liability companies or LLCs, as well as public corporations. But in addition to standard financial disclosure, the companies must lay out their social and environmental commitments and detail each year publicly what they have achieved.

Whether that is good enough is still an open question, however.

Georgetown University Law School and Independent Sector, an advocacy group for nonprofits, foundations and corporations, jointly sponsored a conference in April that looked at some of the growing pains of the movement. In a post-conference summary, the Nonprofit Quarterly looked at some of the issues raised by participants at the April gathering. Among them:

Can social enterprises and benefit corporations regulate themselves, or should there be a separate overseer to ensure their performance matches their promises? States vary widely in the documentation they demand over whether benefit corporations are performing as advertised, and many businesses in the movement have been resistant to oversight.

“If we start to overregulate this form, [we’ll have] no one going into this,” one participant warned.

How do benefit corporations differ from traditional nonprofits, and can the two sectors work together? Will for-profit socially conscious companies be seen by consumers and supporters as traditional charities, and is there a government role in making the distinction clear?

How do states ensure a benefit corporation remains true to its mission over the long term, and what recourse do regulators and shareholders have if a company does stray? Benefit corporation backers say shareholders have a private right of action to sue if they think the company is not delivering its promised social benefits, but to date, not a single such suit has been filed.

And conference participants raised concerns that benefit corporations will be tempted to seek out government subsidies and other regulatory breaks just the way traditional for-profit companies have always done.

“To think that for-profit social enterprises won’t follow the less-than-free-market model of other corporations seeking multiple government subsidies is to fall for the halo effect, that these for-profit entrepreneurs will adjure the tax incentives and funding subsidies that other corporations have typically sought, no matter what kind of endeavor,” wrote author Rick Cohen in the Nonprofit Quarterly survey.

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