Will a Wisconsin Benefit Corporation Benefit Your Start-Up?

Certified B Corp LogoThis semester in Professor Lisa Mazzie’s Advanced Legal Writing: Writing for Law Practice seminar, students are required to write one blog post on a law- or law school-related topic of their choice. Writing blog posts as a lawyer is a great way to practice writing skills, and to do so in a way that allows the writer a little more freedom to showcase his or her own voice, and—eventually for these students—a great way to maintain visibility as a legal professional. Here is one of those blog posts, this one written by 3L Nikki Paterson.

As a student associate in Marquette’s Law and Entrepreneurship Clinic, I see many start-up companies struggle with entity selection. It can be a difficult decision because founders have to consider liability, management structure, employee compensation, formation formalities, future investments, and tax implications, among other things.

As of February 26, 2018, the decision-making process got even harder. That is when 2017 Wisconsin Act 77 took effect, which recognized a new type of entity: benefit corporations. Far from being a trailblazer, Wisconsin was the 34th state to adopt such legislation.

So what is a benefit corporation? A benefit corporation is a type of corporation that places social and environmental values on equal footing with profits; in other words, a corporation with a “triple bottom line.” Chapter 204 of the Wisconsin Statutes specifies the process and requirements of incorporating a benefit corporation.

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Foxconn Deal Tips the Scales of Justice

Photo of the front of the building that houses the U.S. Supreme Court, with an inscription above th doorway that reads "equal justice under the law."

The following opinion piece appears in the Milwaukee Journal Sentinel

 

Our system of justice rests upon two pillars: equal treatment and independent judgment.  Every person who appears before our state courts expects to be treated equally to every other litigant.  In addition, every party to a lawsuit expects to have his case heard by a judge who is free to exercise their own independent judgment.  Recently, the state legislature in Madison and Governor Walker approved legislation – a $3 billion package luring Foxconn Technology Group to build a flat-screen TV factory in Racine County — that seriously undermines these two fundamental principles.

The principle of equal treatment commands that the same rules should apply to all parties appearing before the court.  No one should receive special status.  It is true that the two sides in a case might not be evenly matched, and that one might have more financial resources or a more skilled legal team.  But, even then, both parties in the case should be subject to the same set of laws and procedures, and have the same opportunity to argue that the law supports their claim.

The Foxconn legislation creates special treatment for Foxconn whenever that corporation is sued in Wisconsin courts.  The law forces the Wisconsin Supreme Court to directly take appeals involving “Electronics and Information Technology Manufacturing Zones” (EITM) from the circuit courts. By law there is only one such zone, and that zone is home to Foxconn. Typically, the high court would hear appeals at their discretion, and then only after the case was heard by an intermediate court.  The reason for placing cases involving Foxconn on a “fast-track” to the Wisconsin Supreme Court should be obvious.  That Court currently boasts a majority of Justices who were elected with the financial support of Wisconsin’s largest trade and manufacturing lobbyists.  The drafters of the legislation expect these Justices to be sympathetic to the concerns of manufacturers like Foxconn.

We expect our state court judges to be free to exercise their independent judgment when deciding the merits of a case.  It is the trial judge that hears the facts and the evidence, and who determines the appropriate remedy should the plaintiff prevail.  It is not the state legislature’s job to decide which party in a case should win, or what remedy should be imposed in an individual case.

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The Rise of Benefit Corporations: Show me the Money…and the Good

A large cardboard box with a hole in the top is labeled to accept donations for a book drive sponsored by the organization Better World Books.The “Benefit Corporation” is a new corporation class and it may be coming to a state near you (if it hasn’t already).  A benefit corporation (colloquially referred to as B-corp) is an entity type that seeks to blend profit and purpose.

In 2010, Maryland was the first state to adopt a benefit corporation law.  Since then, about 30 other states have followed suit. As of October 2017, the Wisconsin legislature had a bill under consideration to create a benefit corporation statute.

What Exactly Is a Benefit Corporation?

Benefit corporations seek to create a material positive impact on society and the environment. These companies focus beyond the entrenched corporate purpose of profit maximization.  Most states with benefit corporation statutes base these laws on the Model Benefits Corporation Legislation.  Benefit corporations are required to (a) espouse a general/specific public benefit, (b) be accountable, and (c) be transparent.

This pursuit of public benefit could take various forms, such as: providing low-income communities with beneficial services; preserving the environment; improving human health; promoting the arts; or any other nonpecuniary purpose that could be of benefit to society or the environment.

For example, Better World Books, a benefit corporation, is an online book retailer that sells used and new books.  For every book sold, it gives a percentage of its funds and unsold books to literacy foundations across the globe.  Some other famous companies who have decided to go the benefit corporation route include Kickstarter, Etsy, and Ben and Jerry’s.

Benefit corporations are usually required to have some measure of accountability. This often entails measuring the provision of the corporation’s stated public benefit goal against an independent third-party standard.

Most benefit corporation statutes also require specific disclosures. Corporations are required to provide an annual benefit report to their shareholders regarding the corporation’s success or failures in delivering the espoused public benefit. 

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