Not-For-Profit Leadership Summit May 2, 2016

1. “Benefit Corporations: A Panel Discussion of Social Enterprises and Funding Models for Not-For-Profits.” Not-For-Profit Leadership SummitMay 2, 2016

2. Benefit Corporations: A Panel Discussion of Social Enterprises and Funding Models for Not-For-Profits Our Panel Bernadette H. Schopfer Doug Singer, Esq. Ric Swierat Paula Barbag Derek Kolleeny Not-For-Profit Leadership Summit-2016

3. Some Important Distinctions • Benefit Corporation • Certified B Corporation • Social Enterprise

4. Benefit Corporation Attributes Public Benefit Purpose Fiduciary Duties Assessment Report

5. Mystery Numbers 536 350 1704

6. Benefits of Benefit Corporations (& Other Social Enterprises) • No tax or economic benefits • Trust • Millennials • Employees • Marketing/PR • Partnerships

7. Some Possible Structures Division within the NFP Wholly owned by NFP Partially owned by the NFP Not owned by the NFP Relationship defined by Contract

8. Reasons to become a legislatively recognized benefit corporation v. a nonprofit . . Benefit corporations also offer advantages over non-profit status for some socially minded companies.  Tax-exempt nonprofits have obvious tax advantages and can earn profits, but they cannot distribute their profits, as there are no shareholders. A benefit corporation can have shareholders, raise capital more freely, distribute profits, and pursue its for-profit business goals at the same time that it pursues its identified social missions or public benefits.

9. Does being a benefit corporation affect a company’s tax status? It doesn't. A company still elects to be taxed as a C or an S Corp or an LLC. Benefit corporation status only affects requirements of corporate purpose, accountability, and transparency; everything else regarding corporation laws and tax law remains the same.

10. Why might a Corporation be preferred to an LLC to achieve these objectives? An LLC could currently amend its membership agreement to incorporate any of the benefit corporation provisions. However, because LLC law is based on contract law institutional investors prefer the corporate structure, which is constructed in statute and case law, over LLCs. Any company with plans to raise outside capital or go public is better off with a corporate rather than an LLC structure. The benefit corporation thus provides the most effective corporate structure for scaling social enterprise and innovation.

12. Inurement/Private Benefit - Charitable Organizations A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.

13. Unrelated Business Income Tax Exceptions and Exclusions Investment Income:Dividends, interest, certain other investment income, royalties, certain rental income, certain income from research activities, and gains or losses from the disposition of property are excluded when computing unrelated business income (Debt financed income generally is UBTI as is income from Controlled Organizations). Volunteer Labor : Any trade or business is excluded in which substantially all the work is performed for the organization without compensation. Some fundraising activities, such as volunteer operated bake sales, may meet this exception.Convenience of Members: Any trade or business is excluded that is carried on by an organization described in section 501(c)(3) or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees.  A typical example of this is a school cafeteria.Selling Donated Merchandise: Any trade or business is excluded that consists of selling merchandise, substantially all of which the organization received as gifts or contributions.  Many thrift shop operations of exempt organizations would meet this exception.Bingo: Certain bingo games are not unrelated trade or business.

14. Unrelated Business Income For most organizations, an activity is an unrelated business (and subject to unrelated business income tax) if it meets three requirements: • It is a trade or business, • It is regularly carried on, and • It is not substantially related to furthering the exempt purpose of the organization. There are, however, a number of modifications, exclusions, and exceptions to the general definition of unrelated business income.

15. Corporations and LLCs C Corporation • The company is taxed S Corporation (not flexible) • Income passes through business to shareholders Limited Liability Company (flexible) • Income passes through business to members like a partnership, but provides members with liability protection like a corporation

16. Greyston Bakery • Mary’s Secret Ingredients • Good Reasons • Tom’s Shoes Why Social Enterprise? What is the Value Proposition? Look back, what would these organizations do differently? Helpful Tips–recommendations Social Enterprises-Case Studies (Click the arrow when in Slide Show mode)

17. Value Proposition Greyston Bakery is a B-Corporation,a leading model for social enterprise building a coalition with employees, community and shareholders. Value Proposition: A profitable business, baking high quality products To create jobs and provide integrated programs for individuals and their families to move forward on their path to Self-sufficiency. GreystonFoundationGreyston is a not-for-profit organization grounded in a philosophy called PathMaking, to create jobs and provide integrated programs for individuals and their families to move forward on their path to Self-sufficiency.

18. Value Proposition Good Reasons is a not for profitdog treat company that provides employment opportunities to people with autism and other developmental disabilities. Community Based Servicesis dedicated to providing individuals with autism and other developmental disabilities the best possible quality of life through residential and community-based opportunities.

19. Value Proposition A for-profit business that addresses three (3) needs: For Food Manufacturers: an innovative platform to distribution channels at very low cost. Delivering market intelligence, specialized content and big data for customer profiling and business growth. Mary’s Secret IngredientsUnique and perfect sampling and marketing servicethat addresses the needs of food manufacturers and consumers, and to eradicate worldwide hunger through feed the Children • For Consumers: • healthy new products and ingredients to inspire their cooking • For the World: • Making meaningful contributions toward eradicating worldwide hunger through partnership with Feed The Children

20. Test Case Business Type? Value Proposition? –Recommendation Richmond Community Servicesin partnership with all members of the community, supports children and adults with developmental disabilities and their families

25. “What did these organizations gain and what was the trade off? “ Look back, what would these organizations do differently?

26. The Arc of Westchester RicSwierat

27. Benefit Corporations: A Panel Discussion of Social Enterprises and Funding Models for Not-For-Profits FOR MORE INFORMATION CONTACT ONE OF OUR PRESENTERS dsinger@falconsinger.com www.falconsinger.com Bernadette H. Schopfer Doug Singer, Esq. Ric Swierat Paula Barbag Derek Kolleeny derek@consultingforacause.com paula@consultingforacause.com www.consultingforacause.com bhs@mgroupusa.com www.mgroupusa.com RSwierat@arcwestchester.org www.arcwestchester.org Not-For-Profit Leadership Summit-2016