Structuring Mission-Driven Businesses: Benefit Corps

For-profit, non-profit, or hybrid? There may be a better choice for maximizing your social impact.

When building a business centered around a mission or a specific impact-focus, founders often face a fundamental question: how do we structure our company to ensure long-term impact while accessing capital for growth? The best option for many mission-driven businesses is a Public Benefit Corporation (PBC)—a for-profit entity that embeds its social or environmental mission into its legal framework.

This guide explores why Benefit Corporations can be good structure for mission-driven founders looking to balance impact and profitability. Note that in this article, we are largely focusing on Delaware PBCs, but note that in California, a public benefit corporation may refer to a nonprofit entity.

For-Profit Companies Can Create Social Impact

Many entrepreneurs assume that social impact and profit are mutually exclusive. But for-profit companies can—and do—embed impact into their business model. Patagonia, for example, has structured its ownership to reinvest profits into environmental initiatives. But beyond a huge and very well established company like Patagonia, many early (and mid-late) stage startups are also structured as PBCs.

Why Choose a Benefit Corporation?

• Legal Protection for Mission: A Public Benefit Corporation (PBC) allows businesses to legally commit to a mission beyond profit maximization without the same risk of breach of fiduciary duty claims that traditional corporations face.
• Access to Capital: Unlike nonprofits, PBCs can raise venture capital and traditional equity financing.
• Attract Impact-Driven Investors: Many investors seek businesses that prioritize social impact initiatives—Benefit Corporations may provide this assurance. For example, some impact investors are looking for opportunities for “Program Related Investments” and PBCs can be a good target for such investments.

For mission-driven startups looking to attract investment while ensuring long-term impact, structuring as a Delaware Public Benefit Corporation (PBC) can be a great approach.

Choosing the Right Entity for Raising Capital

The ability to raise capital is a key factor when structuring a mission-driven business. A Delaware PBC is often the preferred entity for many social impact businesses that plan to scale through equity investment.

How PBCs Attract Investment:

• Can Raise Venture Capital: PBCs can secure traditional startup funding by using industry-standard documents like NVCA model investment agreements.
• Tax Benefits for Investors: PBCs structured as C-Corps can qualify for Qualified Small Business Stock (QSBS) tax benefits.
• Legal Flexibility: PBCs must consider their mission in decision-making, but they also retain flexibility to scale and grow like any other for-profit business.

Key Takeaway: A Public Benefit Corporation (PBC) allows startups to raise capital like a traditional for-profit company while embedding their mission into their legal DNA.

Why Benefit Corporations Can be Better Than Nonprofits for Scaling Mission-Driven Businesses

Nonprofits can be a great choice for businesses that rely on donations and grants to operate. However, for mission-driven businesses that want to grow using investment capital and generate profits, Benefit Corporations may be the way to go.

Why Benefit Corporations Make Sense for Social Enterprises:

• • No Restrictions on Revenue Streams: Nonprofits have limitations on how they generate revenue, while PBCs have more flexibility.
  • Investor-Friendly: Unlike nonprofits, PBCs can issue equity and attract venture capital.
  • Communicate Impact Across the Company: When a startup is set up as a PBC, it is a clear message that impact is a high priority for the business. This can be a helpful communication tool to staff, vendors, customers, and investors who care about impact.

Bottom Line: If your goal is to maximize impact while raising capital and growing sustainably, a Benefit Corporation may be the ideal choice.

Legal Considerations for Benefit Corporations

Reporting Requirements for PBCs

Delaware PBCs must report on their mission impact every two years. This report is shared with shareholders but does not have to be public. Read more about reporting requirements here.

How PBCs Protect the Mission

In traditional corporations shareholders can sue directors for not maximizing profits. In a PBC shareholders can hold leadership accountable for neglecting the company’s stated mission. Changing a PBC’s mission requires a 75% shareholder vote.

B Corps vs. Benefit Corporations

• Benefit Corporation (PBC): A legal structure that ensures a company prioritizes its mission.
• Certified B Corp: A third-party certification that certifies a range of practices focused on impact and sustainability (akin to an organic certification).

FAQs About Structuring a Benefit Corporation

Will it cost more to incorporate a PBC?

No. Setting up a PBC is no more expensive than forming a traditional corporation.

Will it be harder to raise funding?

No. PBCs can raise traditional VC-style funding (indeed at this point, many many startups structured as PBCs have raised a lot of VC funding and have had successful acquisitions and IPOs), and appeal to impact investors.

Does SPZ Legal have experience helping mission-driven startups?

Yes. We’ve worked with many companies to structure their business for both impact and growth. For example. see how Verto Education made the shift.

Will it be harder to get acquired?

No. Many PBCs have successfully raised capital and exited through acquisitions or IPOs.

Final Thoughts: Benefit Corporations Are a Great Structure for Impact-Driven Startups

Your business structure should align with your mission, funding strategy, and long-term goals. If you’re a mission-driven founder looking to balance profit and impact, a Delaware Public Benefit Corporation (PBC) can be a great choice.

Need help structuring your startup? SPZ Legal specializes in helping mission-driven businesses navigate incorporation, fundraising, and compliance.