A Benefit LLC may be an attractive entity choice for entrepreneurs who want their business to earn a profit while making a positive contribution to society, and who also want pass-through taxation and management flexibility.
Benefit LLCs vs. traditional LLCs
Any LLC can state in its operating agreement that its purpose is to provide public benefits. And while state LLC laws differ, some specifically declare that management’s fiduciary duties can be expanded, limited or restricted in the operating agreement. This allows LLC’s managers to be required to consider the interests of all of those materially affected by its operations when making business decisions.
The operating agreement can also require the LLC to report periodically on whether it is achieving its public benefit goals.
What are the advantages of forming a benefit LLC?
There may be advantages to forming a Benefit LLC (where the purpose, accountability and transparency requirements are statutory) rather than using a traditional LLC (where they are contractual). They can include the following:
- Socially conscious individuals may prefer to invest in, buy from, work for, and do business with companies that have taken the extra step of forming a statutory social entity such as a Benefit LLC.
- It may be easier for the public to identify that a company has a social mission when it is a Benefit LLC, as there is no need to read through the operating agreement to see its commitment.
- It may be easier for impact investors (those who hope to achieve beneficial social or environmental changes through their investments) and others to assess the performance of the Benefit LLC because of its statutory reporting obligations.
- Forming a Benefit LLC may also reduce formation costs as complex governance provisions will not have to be written into its operating agreement as it would for a traditional LLC that wants to have the equivalent governance structure.
