New statewide ‘benefit corporation’ status could encourage entrepreneurship locally

A new type of corporation rolled out July 1 in Florida, and impacts of this arrangement may cause reverberations in the Gainesville business community.

The legislation lets new businesses register as a “benefit corporation” or a “social purpose corporation.” Existing businesses can also convert to the model.

“Each of these enterprises will allow entrepreneurs and investors to cause their corporation to engage in significant societal benefit programs that may not involve or satisfy the traditional corporate norm of profit maximization,” according to the White Paper used for the legislation.

In a June 24 article, the Sun Sentinel explained the model as “for-profit ventures that are formed to help employees, the community, the environment or others in addition to their owners.”

Stuart Cohn, a principal draftsman for the bill and also a UF Law professor, said that although this model is not geared toward raking in top-dollar profits, companies that decide to use the model should not lack investors.

“I think that this is going to appeal to investors who understand that their corporation might not maximize profits and therefore dividends to them,” he said. “This is not for the investor who simply wants to make as much money as possible.”

He said the legal infrastructure may provide the necessary incentive for young, hesitant would-be entrepreneurs locally.

“Gainesville is a very active community, not just in the state of Florida but also nationally in terms of creating start-up companies,” he said. “We have a very active group of young entrepreneurs in this area that are terrific — some of them who have perhaps been reluctant to get into a business because they want to have some sort of social impact…This may encourage people to start businesses who may otherwise have not started them.”

So far, Cohn said, at least one company — in Tampa — has filed under the parameters.

The new Florida legislation falls in line with a national bent toward public-private social investing. Top White House administrators met with a panel of private investors in late June to announce the investors’ commitment of about $1.5 billion to boost federal programs aimed at positive social returns, news outlets reported.

Nationally, this “public-private partnership” lets private investors can give money to fund positive outcomes they’d like to see in government programs – such as vocational training for inmates. If the government sees side effects such as a reduction in crime that results in saving taxpayer money, the private investors would get a cut. If the government doesn’t see a payoff, it is not obligated to pay investors back.

Cohn agreed that a mix between social responsibility and business profits are trending nationally. He said Florida is the 25th state to adopt benefit corporation legislation, and he said hundreds of companies have formed across the U.S. under these statutes.

Related posts