Etsy made news when it went public as a B Corp in April 2015. And now we have the first Benefit Corporation to file for an Initial Public Offering (or IPO) in the U.S.: Laureate Education, an online education platform. On October 1, 2015, Laureate became a Public Benefit Corporation in Delaware. On October 2, 2015, it filed an S-1 Registration Statement with the Securities Exchange Commission, making official its plan to become a publicly-traded company. What does it all mean?
An IPO is the process by which a company transitions from being a privately-held company to being a publicly-traded company and sells its stock to the public for the first time on a stock exchange, such as NASDAQ.
Though often confused, a B Corp is different from a Public Benefit Corporation.
A B Corp is a for-profit company that is certified by B Lab for meeting certain standards with respect to "social and environmental performance, accountability, and transparency." Although B Corp certification is valuable to companies from a marketing standpoint and to consumers, the certification is entirely voluntary and can be withdrawn or lost at any time. And B Corp certification does not guarantee any performance with respect to social and environmental impact in the future. Neither does it provide any mechanism to enforce a company's promise to be good.
A Benefit Corporation, on the other hand, is a legal entity that mandates companies to focus on more than profits. Rather, Benefit Corporations are legally required to consider the environment and the society as a whole in their decisions. As of the writing of this article, 31 states have passed a Benefit Corporation statute. In Delaware, where Laureate is registered, these are called Public Benefit Corporations. Unlike the B Corp status, Benefit Corporation statutes provide an enforcement mechanism by the company's shareholders in the event that the company's directors fail to achieve their social and environmental mandate. Every Benefit Corporation must assess its achievement of social and environmental impact against a third-party standard, and it must produce a periodic report to its shareholders about its social and environmental impact. According to its IPO documents, Laureate has chosen to be
This is a really difficult question to answer. Here are some general thoughts.
1. On the one hand, Laureate's status as a Public Benefit Corporation not only indicates a commitment to being a responsible corporation, but it also resonates with an increasing population of investing public--mostly Millenials-- who want to invest in socially responsible business.
2. On the other hand, some are skeptical that a mission-driven company can generate the kind of revenues that traditional investors expect. This is something that Laureate acknowledged in its IPO filings. As part of the risk factors associated with this offering, Laureate wrote:
As a public benefit corporation, since we do not have a fiduciary duty solely to our stockholders, we may take actions that we believe will benefit our students and the surrounding communities, even if those actions do not maximize our short- or medium-term financial results. While we believe that this designation and obligation will benefit the Company given the importance to our long-term success of our commitment to education, it could cause our board of directors to make decisions and take actions not in keeping with the short-term or more narrow interests of our stockholders.
3. Another factor that may affect Laureate's IPO with the impact investment crowd is uncertainty around whether it is able to achieve the impact it promises. From Laureate's analysis of risk factors:
In addition, there is no assurance that the expected positive impact from being a public benefit corporation will be realized. Accordingly, being a public benefit corporation and complying with our related obligations could negatively impact our ability to provide the highest possible return to our stockholders.
4. Related to that, Benefit Corporations are new legal entities, and issues around enforcement of their public benefit purpose have not been resolved in courts. This creates a level of uncertainty around how the corporation's financial performance may be affected by its requirements to pursue public benefit purpose.
For Laureate's S-1 Registration Statement filed with the SEC, including a full discussion of risk factors and management discussion and analysis, read here.
Laureate provides online higher education--both undergraduate and graduate degree programs--to over 1 million students in 28 countries. Its mission, as stated on its website, is "to make quality higher education accessible and affordable so more students can pursue their dreams."
Its stated public benefit to society, according to its IPO documents, is to "produce a positive effect for society and students by offering diverse education programs both online and at campuses around the globe."
DISCLAIMER: The information in this article is provided for informational purposes only and should not be construed or relied upon as legal advice. This article may constitute attorney advertising under applicable state laws.