The Minnesota Public Benefit Corporation Act

1. The Minnesota Public Benefit Corporation Act July 2014 * The law changes regularly. The information in this document is current as of the date listed.

2. 304A Signed into Law • April 29, 2014

3. What is a “Benefit” Corporation • A “Benefit” Corporation is: • For-profit business (with owners and an ROI) that has an additional purpose to create some sort “a material positive impact on society and/or the environment” (B Lab Definition) • Directors have a duty to consider the effects of their decisions on all constituencies • Business must report how it creates a social benefit

4. Historic Entities Available • For-Profit entities (entrepreneur; owners; ROI): • Business Corporations – 302A • Limited Liability Companies – 322B • Cooperatives – 308A and 308B • Nonprofit entities (mission; no owners; prohibition pecuniary gain): • Nonprofit Corporations – 317A • Nonprofit Limited Liability Companies – 322B (317A overlay)

5. Historic Purpose Spectrum

6. Socially Conscious Business – With Historic Entity Options • [Non Profit] Social Enterprise (per Social Enterprise Alliance): • Addresses an intractable social need and serves the common good • Commercial activity strong revenue driver • Common good is its primary purpose • Sustainable Business = meets need of present & future generations • Triple Bottom Line = people, planet and profits or a B Labs Certification

7. 2 Dimensions – Financial and Social Impact

8. Examples in 2D

9. Benefit Corporation Meant to Remove the Confusion

10. “Benefit” Corporation • A “Benefit” Corporation is: • For-profit business (with owners and an ROI) that has an additional purpose to create some sort “a material positive impact on society and/or the environment” (B Lab Definition) • Directors have a duty to consider the effects of their decisions on all constituencies • Business must report how it creates a social benefit

11. Differs from Nonprofits and Social Enterprises • Nonprofit = mission driven; no owners; can have “profit” but no person has a right to receive that profit. • Social enterprise’s social mission has primacy and its economic activity is a method of funding the social mission without an opportunity for the fruits of that activity to be distributed to individual investors

12. Differs from For-profits and Socially Responsible Corporations • For-Profits = business purpose; owners who invest money expecting at least a return of their capital and hopefully an ROI. • Can have a social mission or operate in a socially responsible manner, but not obligatory and no enabling statute to inform the operation of this sort of enterprise. • SR is about operations and not distributions to owners. It is marketplace driver; not a legally required component.

13. Minnesota Public Benefit Corporation Act • Working Group from 302A and 317A subcommittees of the MSBA begin investigating concept Spring 2012 • Drafting Committee was formed Winter 2013, met every other week for 6 months • Drafting Committee completed its draft in August 2013 • Approved by the Business Law Section in October 2013; MSBA December 2013 • 304A was passed in House on April 10 and Senate on April 24; signed by Governor April 29, 2014 • Will become effective January 1, 2015

14. Putting These Types of Businesses in Context • Models of social businesses: • Sharing • Selling • Sourcing

15. Social by Sharing • “Social” because they share some or all of their profit with other charitable organizations or causes. • Examples of this type of social enterprise include: • Finnegan’s Beer, which donates 100% of its profits to combat local hunger • Latitude Agency, which donates 50% of its profits to empower those in extreme poverty • Tom’s Shoes, which donates one pair of shoes to someone in need for each pair purchased

16. Social by Selling • Some enterprises claim to be social because of what they sell or to whom they are selling. • In the first case, the product or service itself, when used by customers, results in a unique and compelling social (not just private) value. • In the second case, a company may sell a conventional private good but to a population that currently is not served by the market. • Examples include: • Revolution Foods, which sells extraordinarily fresh, healthy meals to school cafeterias in order to combat obesity and improve child health. • Thedatabank, which sells software and IT services to nonprofit organizations, which traditionally are under-served by the technology industry because they have lower purchasing power. • D.Light Solar, which sells solar light and power products to people in the developing world who do not currently have stable electricity.

17. Social by Sourcing • Some enterprises claim to be social because of how they make their products or services. • Common ways for ventures to source socially include using new environmentally friendly processes, employing vulnerable populations, using minority owned suppliers, exclusive use of sustainable materials, and through public co-production processes. • Some examples include: • Ten Thousand Villages, which sells products that are sourced from individual artisans from the developing world, using all natural and environmentally sustainable materials. • Cookie Cart, which employs and provides job training to at-risk teenagers. • Rebuild Resources, which employs and provides job training to former felons and recovering addicts. • Patagonia, which insists on very high environmental standards in its product supply chain.

18. The Client’s Perspective • Listen to the client’s story and it will guide your advice

19. Medical Clinic in Kenya

20. School in Kenya

21. No Electricity = Social Problems • Cannot refrigerate vaccines or medicines. • Cannot regulate room temperatures • No use of educational technology • No regular internet connectivity • Limits on school hours and productivity = Public Health and Education Problems

22. Product Stand-Alone Solar Power Plant

23. Current Structure • Minnesota LLC • 100% member interest owned by me • $100,000 personally invested • 1.5 years of prototyping • Released v 1.0 in January • First customer (100 units) in Haiti in March • Three prospective customers in discussions

24. Client’s Goals • Provide affordable electricity to rural clinics and schools in the developing world to improve health and educational outcomes • Make a financial return on my invention and time that reflects their value.

25. The Purpose Spectrum The Struggle Maximize Profit Maximize Social Impact Businesses Nonprofits Government

26. Revised Framework Financial Return + Solar Co. _ + _

27. Why not a nonprofit corporation? • Have intellectual property that I personally invented and own • Want to retain personal ownership and control rather than give it up to a board • Need this to be an ongoing source of income for me and my family if it succeeds • Functions like a business by selling product • Eventually want to raise capital like a business

28. Why not a business corporation? • Social impact is the goal, not a byproduct of pursuing profit • Social mission dilution with more owners • Requires expensive, uncertain legal customization • No differentiation in the marketplace • No transparency or accountability to the social purpose

29. What about a benefit corporation?