More By This Author

Current Issue

Current Issue

Posted: July 22, 2014

Where are all the Colorado PBCs?

Some states registered more in just one day

Dan Shah & Kerby Meyers

On April 1, Colorado started offering businesses the option of establishing themselves as public benefit corporations (PBCs). This measure essentially allows a for-profit company to weave the intent to benefit the community at large into its articles of incorporation.

Ideally, this new designation would allow companies to differentiate themselves from S corps and C corps, which are solely established to maximize profit for shareholders, and non-profit entities. It’s a gray area of corporate law that has been addressed in 25 states and Washington, DC, in addition to Colorado.

Yet curiously, this movement, which has generated hundreds of similarly incorporated companies across the U.S., has been somewhat of a dud here in Colorado.

Specifically, three months following the introduction of the new law, just 15 Colorado companies have incorporated as a PBC, according to the Secretary of State’s website. By comparison, Delaware registered more than 50 public benefit corporations in the first three months it offered the option in 2013, including 18 on Day 1. On Oregon’s first day, 24 entities registered as what that state calls benefit companies.

Frankly, the lack of interest here in Colorado is baffling, given its pockets of progressive and environmentally minded business owners. Of course, some of that may stem from stale partisan positioning as the related bill was backed by Democrats and shunned by Republicans in the General Assembly’s vote of approval last year.

Yet while allowing for such posturing, our hunch is that a portion of the lackluster response may stem from the inclusion of an ominous consideration by the Secretary of State’s office on PBC-related web pages. In short, when describing PBCs, the office raises the specter of having to register as charitable organization that solicits contributions. Which translates into an additional registration to become a PBC, an additional annual filing and, of course, additional fees.

Whether you’re just starting a business or are long-established in the community, even the hint of having to generate such additional paperwork is chilling, especially if your motivation for incorporating as a PBC is to strike a balance between profits and purpose, which is what the law is designed to allow.

Of course, every case is different, but we believe a prospective PBC is best served by understanding how the state defines a charity: an entity created “for any benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary purpose.” Note that eleemosynary means “of, relating to, or supported by charity”—a linguistic twist that allows the drafters of the provision the semblance, if not the reality, of avoiding a circular definition.

Alternatively, in a PBC’s articles of incorporation, owners and shareholders agree that the company will consider the social, economic and environmental effects of any action on current and retired employees, suppliers and customers of the PBC or its subsidiaries and the communities and society in which the PBC or its subsidiaries operate.

So as long as a PBC’s articles of incorporation state that the purpose of the company is to benefit shareholders while ensuring that it is a good citizen, it should remain outside the scope of the state’s definition of a charitable organization.

One other area where we could see the state’s approach to PBCs resulting in confusion is for those companies that have either conducted a Kickstarter or similar campaign or are intending to do so. After all, that’s a fundraising effort.

Yet again, the difference is relatively clear. Fundraising for a charity generates contributions for an organization to fulfill its altruistic purpose. Crowdsourcing by a for-profit enterprise, on the other hand, brings in cash to meet a business need.

That said, it wouldn’t hurt for any crowdsourcing pitch by a Colorado PBC to include the caveat that the monies raised will not be used for charitable purposes and that donations are not deductible.

From a legal perspective, we must advise that if you are uncertain about how you fall along the PBC/charity divide, you should check in with counsel. But if you’re a for-profit enterprise looking to benefit the communities you serve, clearly stating that you are not a charitable entity will help sharpen the distinction for your company.

Dan Shah is a principal at Denver-based Social Impact Law, LLC, which specializes in working with socially minded businesses. The above should not be considered legal advice. Reach Dan at danshah@socialimpactlaw.com or 303-931-8680.

Kerby Meyers is a principal at The Communications Refinery, Inc., a Denver-based consultancy that helps companies, organizations, leaders and investors think and act thoughtfully. Reach Kerby at kerby@commrefinery.com or 303-282-5919.

Enjoy this article? Sign up to get ColoradoBiz Exclusives. The opinions expressed in this article are solely that of the author and do not represent ColoradoBiz magazine. Comments on articles will be removed if they include personal attacks.

Readers Respond

PBC's in other states include co’s like Patagonia + Method. Are they charities? NO. Are they companies that are good for American communities + the environment? YES. To suggest that for-profit businesses that care about how they treat key stakeholders might be required to file as a charity is chilling to businesses trying to do the right thing. In addition to fees + filings, it also would require a for-profit private company to disclose proprietary financials. In 25 other states, PBC legislation has been enacted without major implementation issues because these states understand that PBC status is a free market solution to entrepreneurs + businesses who want to use their business as a force for good in the world. Where are all the CO PBCs? They’re waiting for our state to get out of its own way and allow free market solutions to create a more vibrant economy and future for all of us. By Kim Coupounas on 2014 07 22
Thank you for asking this important question. We were among the organizations who worked over several years to get benefit corporation legislation passed in CO in 2013. We were aware of dozens of CO co’s ready to register on April 1, 2014 when the law went into effect. But once the SOS made it clear that it *might* subject PBC's to even greater scrutiny than originally contemplated in the legislation, these companies decided to hold off on electing PBC status – which is why its first day was a dud. The authors are right that such poor turnout is surprising in a state with so many mission-driven companies. NV in its first 4 months had 250 benefit corps! The CO SOS should embrace this corporate form instead of scaring away good companies. These values-based companies are good for Colorado jobs, workers, communities + the environment. By Kim Coupounas on 2014 07 22
PBC registration as CCSA hurts business, as private companies must disclose their revenue. The SOS doesn't understand PBCs, who are for-profits. They have morals or mission; they are not quasi nonprofits. Should the SOS’s require Walmart, who advertises they gives to communities, to register or a PBC that wants to buy parts from CO and not from China, need to register? DE, which has a PBC law, introd a CSA bill, but exempted PBCs. No other state treats benefit corps like the SOS, as a result there are nearly 1000 benefit corps nationally. The SOS should embrace this form that deregulates the purpose of a corp and frees up the market. Instead the SOS is increasing regulation on businesses they don't understand. The SOS applies the rules on a case-by-case basis, this creates confusion and harms the economic development enjoyed by other states. By Erik Trojian on 2014 07 22
Commenting is not available in this channel entry.

ColoradoBiz TV

Loading the player ...

Featured Video