Benefit Corporations and Green Transportation

Posted on January 24th, 2017

Sustainability is a common trait among benefit corporations. Keeping automobile emissions down is one of the highest priorities in the fight against climate change. A two benefit corporations and a certified B Corp are taking this challenge head on.

B-Line offers sustainable delivery services to the urban core of Portland. The company uses "trike trucks" that can carry 600-pounds of cargo. Since they are operated by human pedaling power, the trucks don't need fossil fuels or electricity to run. In December, UPS followed suit, offering a similar service on pedal powered trucks. According to the BBC, this is the same "technology relied on by postal carriers in Victorian England, or by Good Humor ice cream vendors in postwar America." In the age of the automobile, going backwards can mean going forward. This is also popular around the globe for purely practical reasons. Cramped, European city streets and crowded, dense corridors in Asian countries all see cargo bikes pedaling in their streets. It's certainly positive that sustainability is baked into convenience, but B-Line adds a big picture type of thinking that hopes to accelerate positive change. They partner with the community, for labor, clients, manufacturing and for non-commercial reasons. Making these connections can help to spread the benefit of their business, but it also helps to solidify their place in the community.
In Los Angeles, Green Commuter runs an all electric fleet to serve people who want to reduce traffic and emissions. In January, New Resource Bank approved a $1.5 million line of credit "to facilitate Green Commuter’s fleet expansion to 30 all-electric, long range, 7-passenger vehicles. With this financing, Green Commuter will launch its vanpool, car share and fleet replacement program geared to disrupt traditional commuting in Los Angeles." In the perpetually gridlocked Los Angeles, many residents carpool to save money, time and the environment. The concept behind Green Commuter increases both of these benefits through rentals and using electric vehicles, adds an app and mid-luxury cars to the equation and makes it convenient to find a carpool.

The company's business model business model is to rent zero emission vehicles for vanpool and car share. Green Commuter uses its app to coordinate rides and then rents out its cars to companies looking to replace their fleet. According to the company, "currently, there are more than 3,000 organized vanpools in the Southern California area consisting mainly of blue collar workers living in disadvantaged communities who commute on average 94 miles roundtrip." There is a market for this service, and if Green Commuter can make it easy to find a ride that saves money, there is a lot of potential.

If more companies like these pop up, we'll all be breathing cleaner air on less congested streets.

It’s Just Business: Could Benefit Corporations Do Good Better?

Posted on October 26th, 2016

People think that businesses should do more than just make a profit. According to a study by Cone Communications “91% of global consumers expect companies to do more than make a profit, but also operate responsibly to address social and environmental issues." When it comes to actual purchasing decisions, 84% of consumers are willing to seek out responsible products and 90% say they would boycott if they knew a company was irresponsible or deceptive. The rise of benefit corporations could produce companies that were built from the ground up to meet the needs of this large group of people. The question is, can they do it better than traditional companies and corporate social responsibility?
Despite this widespread expectation for socially conscious companies, there are plenty of people on the other side. In the 1970s, Milton Friedman argued the opposite. He said that “few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible."

Each side makes a good point. If companies are ruled only by slow moving legislation and potential failure, we might see some ugly scandals arise after the money has been counted. On the other hand, if companies are forced to operate in a sphere they have no expertise or desire to operate in, it could be a big waste of money, counterproductive efforts and its own breed of scandal.


The current solution to the stakeholder and shareholder tug of war is corporate social responsibility. CSR began with philanthropic endeavors and employee welfare such as Pullman’s company town. Over the decades, companies saw that they could influence things like urban decay, racial discrimination in hiring, and environmental issues. As the concept of CSR evolved, it became more developed. By the 1980s CSR came to be thought of as a process instead of solely action. The 1990s and 2000s brought a global perspective and a recognition that CSR principles, if performed with integrity, could provide real value to a company.
Some companies do it better than others, but the idea is to create meaningful steps to build relationships with stakeholders and consider consequences to business decisions. CEO of BP Lord John Browne , “When that bond between the company and society is broken, reputations are damaged, trust is gone, and what’s more, what’s very important for shareholders, is the value of the company reduces. There’s a significance value at stake, which we estimate to be on average 30 percent of the value of a company, that is damaged when a company does something which is not right for society."
Each year, companies across the globe spend billions on CSR initiatives. A report from the consulting firm EPG estimates, “US and UK companies in the Fortune Global 500 spend $15.2bn a year on corporate social responsibility activities." That is certainly a lot of money. While the money can go to worthy causes there is a problem when companies use CSR as cover. As the Telegraph’s Matthew Lynn says, “[CSR] is, in reality, a way of allowing companies to make a very public display of how virtuous they are, and that allows them to stop giving serious thought to what their actual purpose is." He goes on to call CSR a possible smokescreen. Companies considered “responsible" often have scandals that reveal what’s going on behind sparkling CSR press releases. Volkswagen had a trophy case full of CSR trophies. Then the massive emissions fraud scandal completely shattered that company's reputation for CSR.

Retrofitting or New Construction?

This is the problem with CSR as it’s implemented. It is easy to reward companies that put on a good show. To truly benefit from a good CSR program, a company must not leave CSR an afterthought, treating it like a philanthropy project. According to Lord Browne, if companies fused CSR into their business model, into every branch of their influence, we might see more global benefit than a few lines on a budget. Browne calls for the corporation to radically engage with society for both the company and society’s benefit. If there is significant value, as Browne suggests, then companies will begin to take honest and effective CSR seriously. That requires a big change in mindset leap for many business leaders. Once a company makes that change there are a few obstacles.

Easier said than done. While this may sound deflating, changing how business owners see the role of a corporation is a big task. Altering big corporations to fit this model is a tough sell to investors and logistically challenging. But creating an organization specifically for increasing a public benefit can bypass potential landmines that plague traditional organizations. This is where Benefit corporations and B Corps come in. Entrepreneurs who wish to take this concept of top to bottom consideration on impact and put it into action today can start a benefit corporation or B Corp to take advantage of outward facing features.

Note: A benefit corporation and a B Corp share similar goals, but their main distinction is that a benefit corporation is a legal designation and a B Corp is a designation given by a non-profit organization B Labs as a third party. A company can be both, if they choose. We will refer to this new business structure as a benefit corporation, from here on out.

There are several issues with the implementation of an honest CSR strategy that are less prevalent in benefit corporations. The issues include: the need to maximize profit, disingenuous programs, and the volatility of commitment. A benefit corporation has the ability to focus on goals that impact the community and the world, without betraying the trust of investors or putting on a false face to the public. Traditional corporations should pursue their primary purpose, which is to make a valuable product that’s trustworthy. This isn’t to say that companies should have a total disregard for their impact on the world, but they shouldn’t use CSR as a cover. Perhaps, for traditional corporations this means a new mindset for corporate leaders and the investors they serve. If engaging with society is as valuable as Lord Browne suggests, this change might come in the future. Entrepreneurs and investors that would like to embed positive engagement with society into their company’s DNA right now, can can look to benefit corporations. How can benefit corporation status be better suited for a business interested in doing good?

Profit Maximization
In a traditional company, investors need to come first. That’s why profit maximization is the focus of any traditional company. Unfortunately for CSR, this means that sustainability and non-profit initiatives will be icing on the cake unless some serious damage control is needed. For example according to a case study published by the Utrecht Law Review, Coca-Cola found itself in hot water after a series of scandals in India regarding high levels of pesticides in its products and for depleting groundwater, causing droughts.
Negative reactions to the company spiraled out of control, prompting bans in India, scattered boycotts in the US, and bad press around the world. Once profit was on the line, effective CSR programs became a valuable part of Coca-Cola’s business plan in India. Before that, “the company had already experienced a few CSR-related conflicts…However, none of them had the grave consequences of a loss of trust in the company and its products by consumers and the public in general." When Coca-Cola bungled the response to the controversy, they created significant programs to address the issues with product purity and water usage. The company developed initiatives to reduce their water usage to net-zero through water reclamation programs and to ensure the purity level of their beverages matched Indian standards.

A benefit corporation can include impact in their business plan and stay honest through reporting requirements. These types of corporations have the pursuit of public benefits protected by law. Benefit corporation status expands the set of stakeholders to be considered in decision making. There’s now a good opportunity for entrepreneurs who wish to fully commit to corporate responsibility.


Occasionally, some companies cheat to appear more sustainable and responsible as seen in the VW emissions scandal. These companies have an obligation to maximize profits for their investors and that must come first in a traditional corporation. It’s disingenuous and irresponsible to pursue goals based on the idea of some moral duty. Investors don’t buy shares to make the world a better place. Benefit corporations have agreed to be more transparent than their standard counterparts, and many volunteer to be audited by a third party certifier.
CSR goals and good business aren’t always mutually exclusive. In 2007, Apple switched the material used for its Macbook cases from plastic to recyclable aluminum. The company spoke about the metal’s benefits in terms of sustainability, but the move also had advantages that provided extra value to the product itself. For example, aluminum disperses heat much better than plastic and is incredibly sturdy. This allows for thinner laptops that cool easily with a lesser reliance on fan power to disperse heat, helping battery life. Aluminum’s sturdiness also allows for a solid frame that’s thin and light. The decision had many pros but few cons. Aluminum is more expensive, but so are Apple computers. “According to Dediu, Apple earns an average 19 percent operating margin on its Mac sales compared to 4 percent for Dell and less than that for HP, Lenovo, and Acer." The engineering benefits and unique design all add value to the product. When all of these pros are added up, sustainability seems like a nice perk. For investors, that’s how it should be. For a company that wants to impact the community in all its activities, the options have been slim.
The good news is that there’s now an answer to this problem. Benefit corporations are free to pursue a goal outside of pure profit maximization.

For the latest research, news and info on benefit corporations, visit the Benefit Corporation Gateway from Institute for Business and Professional Ethics at DePaul University.

The Flexible Option: Benefit LLCs

Posted on July 13th, 2016

Benefit LLCs are a growing alternative to the benefit corporation. Like the benefit corporation, a benefit LLC protects entrepreneurs if they choose to pursue a public benefit like prioritizing the environment, the community or a specific cause. The Baltimore Business Journal said in 2011, “The new law protects benefit LLCs from lawsuits by their members if they make decisions that put the environment, community, or social causes over making a profit."

Many entrepreneurs prefer LLCs over traditional corporate structures because of the flexibility. This flexibility also draws entrepreneurs to benefit LLCs. According to John Stearns, Oregon saw 340 benefit LLCs form in 17 months, while only 63 benefit corporations formed in the same amount of time. Murtha Cullina partner David Menard said “that roughly 80 percent of companies formed today are LLCs," according to Stearns.

This hybrid style has two key advantages: avoiding double taxation, and operational ease requiring less record keeping and fewer restrictions on profit sharing than a traditional corporate structure. A corporation has shareholders, a board of directors, and other legal requirements that make them a bit more cumbersome, and less preferable to entrepreneurs. Add on the extra reporting required to prove public benefits to the state and to third party organizations, and it becomes clear why entrepreneurs would opt for a structure with fewer hurdles.

Sometimes, the size of a business can influence the decision to choose corporate or LLC structures. Small businesses might prefer the LLC form because it’s easier to manage, and because their businesses would not gain much from the corporate structure. Maryland law firm Whiteford Taylor Preston commented on this choice:

“As it turns out, many of the corporations electing Benefit status are small businesses with one or two shareholders, unlikely to wind up embroiled in derivative litigation. For such a corporation, however, there is nevertheless a very real business advantage in being able to say that the company is vetted as a good corporate citizen. That is what many LLCs want to be able to say as well, and the reason they would like to see the Benefit LLC law passed."

Essentially, these small businesses will gain an important advantage with less time wasted on navigating a corporate structure.

Since the benefit corporation movement is growing, many corporations that were formed traditionally are converting. Kickstarter and Etsy are two high-profile examples. In Maryland, an LLC that wishes to become a benefit LLC can do so without having to first convert to a corporate structure.

There is a clear divide between generations that understand the traditional corporate structure and Millennials who prefer to shop and work for companies that have a larger purpose in the world outside of the traditional scope of a company’s industry. Therefore, accommodating new company formations like benefit LLCs is important. This presents an additional opportunity for marketing as well as attracting talented employees. Millennials may care about environmental impact or community development. Whatever the cause, benefit corporations and benefit LLCs are primed to attract this growing demographic of consumers and employees.

As of this writing benefit LLCs exist in two states: Maryland and Oregon. For the reasons stated above, more people are campaigning for benefit LLC legislation in other states.

For the latest research, news and info on benefit corporations, visit the Benefit Corporation Gateway from Institute for Business and Professional Ethics at DePaul University.

Equity Crowdfunding and Benefit Corporations: Upsides and Downsides

Posted on June 17th, 2016

Equity Crowdfunding and Benefit Corporations: Upsides and Downsides

On May 16th 2016, the Securities and Exchange Commission (SEC) began allowing startups to offer equity through crowdfunding campaigns on platforms like IndieGogo and Crowdfunder. The 2012 Jumpstart Our Business Startups Act (JOBS Act) originally created this allowance and it has taken the SEC four years to complete its rulemaking obligations. The JOBS Act aims at encouraging investment in small businesses by easing restrictions on who can become an investor. The key provision of the bill allows equity crowdfunding. Since this form of investing is new, there are many issues to consider.

The SEC defines crowdfunding as “a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people." In the past, investment has been reserved for wealthy “angel investors" and venture capitalists. Now the general public can invest in these early-stage startups, in a limited way, through equity crowdfunding.

Crowdfunding itself is not a new concept. Donation crowdfunding is how many charities and nonprofits raise funds. Another familiar crowdfunding option is reward-based crowdfunding. This version promises backers a product or service for their money, with the understanding that the funded party will use the money raised to create the product or service. Kickstarter and Indiegogo are well known examples of this type of funding. In contrast, equity crowdfunding allows even non-accredited investors to become venture capitalists. Their reward is not funding a good cause or receiving a new creative product, but owning a share of the company itself. This investment can be risky, which is why the SEC has imposed strict guidelines on how much parties can invest.

The table below shows how much an investor may invest in a 12-month period. Someone with a $30,000 income and net worth of $105,000 can only invest $2000 or 5% of $30,000, whichever amount is greater. An income of $1.2 million allows investment up to $120,000. A company seeking funding is limited to raising $1,000,000 from crowdfunding over a 12-month period.

(SEC Table)

The SEC also has provided a guide to make navigating this new terrain easier. I’ll highlight some important points.

Types of Crowdfunding

There are a variety of investing structures.

Loan/Debt – When investors choose this type of investment, they are giving money to the organization as a loan. Just like any other loan, the investors receive interest on the loan at regular intervals within a time frame that is restricted. For companies, this investment type is attractive because of its similarity to a bank loan. Banks might not want to issue loans to risky prospects, so crowdfunding provides an opportunity to raise funds without issuing stock. Another advantage is that interest rates are more favorable and competitive compared to bank loans.

Convertible Notes – These types of notes are popular with startups. Convertible notes are structured like a loan but instead of paying interest, the startups grant equity to the investor after certain milestones or criteria is met. This modality is intended to delay valuation of early-stage companies and to provide investors with some safety measures and rewards for their risky early investment.

Direct Equity – There are also options to purchase both common and preferred stock (a/k/a partial ownership) in a company via crowdfunding. Preferred shares usually come with additional bonuses like guaranteed dividends or more shareholder voting power. Usually, preferred shares also have a more stable rate of return and are rated in a fashion similar to an investments such as bonds. Preferred shares are favored by investors in crowdfunding and in startups in general.

Prospectus and Disclosure

SEC Rules and Warnings – The SEC states that a company seeking crowdfunding investments “must disclose information about the company, its business plan, the offering, and its anticipated use of proceeds, among other things." This information is limited compared to a publicly traded company because an early stage start-up is a new entity. It does not have the history to prove its business plan. Even if the business plan is viable, the personnel might be unable to execute it. The guide goes on to mention that the “company is also only obligated to file information annually regarding its business, including financial statements," which is different from a publicly traded company that must file quarterly.

Does the legal status of a company at time of fundraising matter? – Many of the crowdfunding platforms surveyed require some proof of revenue or proof of concept. For example, the crowdfunding site CircleUp scrutinizes the financial history of the small businesses looking for funding, specifically requiring $500,000 of revenue in the last 12 months, in addition to an upstanding history. Crowdfunder accepts companies looking for Stage A or B seed funding. Others recommend bringing your company as far as it can go before the fundraising round to boost investor confidence. Many of these platforms stress that it falls to the company itself to close investor deals. The platforms insist on common sense: bring your best to the table. Reward crowdfunding could actually synergize with equity crowdfunding and bridge the gap between early or limited revenue and the first round of funding. Neil Young’s successful $6.2 million dollar Kickstarter campaign helped launch a successful equity crowdfunding campaign that raised an additional $6 million dollars. These requirements suggest that an entity seeking funding through equity crowdfunding should be a legal company when making the request.

Enough Cash?

As mentioned before, new companies often have untested business models and personnel. A major risk is being unable to determine where the company is raising enough money for its business plan. Some crowdfunding platforms have goals. Others allow investors and companies to connect for direct investment. How can investors know that the amount requested is enough?

This subject is tricky because of the variety of crowdfunding approaches available. Some offer investments in the form of a convertible note structured like a loan, while others offer preferred stock. Some vet companies that fit a certain profile. Others require companies to convince a lead investor to start a campaign. Some sites guide the process along, asking for information investors need to vet a company themselves. Some have requirements such as proof of revenue, proof of concept, or other assurances while others require less.

I looked at a small set of the best rated crowdfunding sites to see how they organized payouts. The 10 sites were split on the issue. Four sites would cancel all the investments if the goal stated is not met. Another four would let companies keep the money raised even if the goal was not met. Two sites would allow companies to keep the money if a minimum amount was raised. This divergence can be explained by the type of service the platform offers as well as the type of equity being offered by the company. In the end, a company can be vetted and groomed or simply given a way to connect to investors privately.

While these platforms wish to offer some measure of security to investors and companies, their measures are not standardized. Nor should they be. These sites are trying to develop an effective way to provide access to sound investments in an arena filled with risk. The platforms should be allowed to experiment their way to success or failure. So, in the end, each crowdfunding platform is different; and each platform requires the investor and the company to understand what they are getting into.

The Upsides

The JOBS Act aims to create an environment for startups to thrive. A larger investor pool, especially one that can spread out risk by design, may encourage investment beyond the highly attractive tech industry. This pool helps small and medium sized businesses. It also can be a boon to benefit corporations by encouraging smaller investors, passionate about a social purpose, to back their projects, creating a pool of investors similar to funders found in donation crowdfunding. The ease of online platforms to manage and gather this pool of investors is also a key feature of equity crowdfunding. The three factors listed below represent a few important upsides to the crowdfunding concept.

Upside: The Little Guys

Crowdfunding can open up a large number of potential funding sources, because the limitation on investments spreads out ownership and risk. ABC news reported that equity crowdfunding “probably has the potential to move the needle for small and medium businesses more than for high-growth, high-risk technology startups." Instead of a future Google or Apple, perhaps a future Patagonia or company like Beta Bionics (a benefit corporation that makes devices for the diabetes community) could see success raising early capital. A company can reach a larger audience of investors and these investors will not face a potential loss of millions of dollars for believing in a company. The investor pool will not need to consider a portfolio composed of only high-growth, high-risk companies. They can instead take a small risk on a few companies or invest in a large number of them.

Upside: The E-factor

Gathering large groups of people online is easy. When it comes to finding investors, this unique way of organizing lots of people is useful. For a small or medium company that is not in a sexy industry, it can be easier to find a thousand people to invest a small amount or more than to solicit targeted VCs to invest a substantial amount. The online nature of crowdfunding makes the process easier for investors and companies hoping to be funded.

Online crowdfunding sites have platforms already designed for this capitalization. These sites have user payment info, payment processing and built-in trust as a third party. We have already seen the success of this model in donation and reward-based crowdfunding platforms. These sites can move towards equity, but they do not have to. Kickstarter’s CEO and co-founder, Yancey Strickler said the site would not offer equity crowdfunding in order to provide a space where creative pursuits operate outside the profit motive. Indiegogo does not currently allow equity crowdfunding, but it has a section of its site dedicated to information about the practice and offers an update button. Still other sites, focused specifically on equity crowdfunding, have already launched. These platforms are very active and proving useful in the UK.

Another upside is the real time nature of crowdfunding online. Potential investors can hear a pitch and provide instant feedback through actual investments or social media. Kickstarter campaigns have included stretch goals that expanded the product’s capabilities beyond the initial iteration. These new capabilities often can be a feature requested by the community during the campaign. One of the risks that comes with starting a company or launching a product is determining whether a market exists for it. A well-publicized campaign can go viral, blow past funding goals, and prove the concept is viable, with real people putting up real money.

Upside: Social investing

Some investors may wish to invest in companies for a social return, rather than a financial one. So, if a benefit corporation wishes to focus more on its mission than on return, crowdfunding provides a way for these investors to support this approach with a smaller commitment. The platforms allow socially conscious investment in much needed products or in companies that plan to do good with their profits. Since risk is spread out among a field of investors because of SEC limits, these investors can direct their funds to multiple companies, encouraging diversification, thereby allowing more companies to be included in a portfolio.

The possibility of a return on a socially beneficial investment could increase funding or allow reinvestment as well.

The Downsides

No platform is perfect. A relaxation in regulations means that there is potential for abuse and fraud. These platforms represent an entirely new field of uncharted loopholes and overlooked exploits. The older system has its own problems too, after all. The risks of this new form of investment should be seriously considered by both potential investors and the general public.


Title II in the JOBS Act is called the ‘‘Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012." While this name makes for a nice acronym (CROWDFUND), it also signals the prominence of fraud concerns. Crowdfund Insider describes fraud as a huge hurdle for the industry, “Indeed, the issue of fraud protection has transformed the process of legalizing equity crowdfunding into a grueling, complex and contentious three-year process – as regulators, industry stakeholders and special interests wrangled over new rules meant to protect investors from fraud."

Crowdfunding fraud occurs when:

  • A crowdfunding campaign solicits and accepts money from backers or investors using deliberately misleading pretenses about the nature of the project or the expected outcomes;
  • Backers or investors commit to funding a project, business or cause with a deliberate intention to cancel or reverse the transaction – or to extract returns not offered to other backers or investors;
  • An intermediary attempts to aid or engage in the above behaviors or deliberately fails to complete transactions.

Fraud can go both ways. According to a report by Prof. Ethan Mollick of the University of Pennsylvania, project backers on Kickstarter, “should expect a failure rate of around 1-in-10 projects, and to receive a refund 13% of the time. Since failure can happen to anyone, creators need to consider, and plan for, the ways in which they will work with backers in the event a project fails, keeping lines of communication open and explaining how the money was spent. Ultimately, there does not seem to be a systematic problem associated with failure (or fraud) on Kickstarter, and the vast majority of projects do seem to deliver."

While this low rate of fraud is good news, it only applies to Kickstarter. This company is well known or respected and takes project policing seriously. The more platforms that exist, the more opportunities there are for people to commit fraud.

While it is too early to see many examples of fraud in the crowdfunding arena, it is important to keep the risks of making such an investment in mind. The first case of equity crowdfunding fraud was filed against the oil and gas company Ascenergy. The company had been using portions of the JOBS Act that went into effect before May 16th. The commission reported that the company had already spent “at least $1.2 million of the offering proceeds, but only a few thousand dollars appear to have been used for oil and gas-related expenses. Instead, a significant part of the $1.2 million has been spent on payments to Galbadon or companies he controls, or for expenses unrelated to the oil & gas business, including, by way of example, foreign travel, fast food restaurants, Apple stores and iTunes, dietary supplements, and personal care products." This case signals what could go wrong with an investment. This fraud, happening so early in the history of equity crowdfunding, should send a signal to platforms that self-policing should be a high priority.

What recourse is there for fraud victims? – According to Crowdfund Beat, “The SEC has made it clear that it expects Crowdfunding portals to actively seek to keep scams off their websites." The SEC expects these institutions to use their own expertise to sniff out the bad cases as the SEC requires of traditional issuing institutions. The SEC has stated that the current anti-fraud provisions apply to crowdfunding. The article goes on to say, “The final Crowdfunding rules encourage and almost mandate portals to become members of Financial Industry Regulatory Authority (FINRA). FINRA has established guidelines for due diligence investigations for private placement offerings. The FINRA due diligence standards seem reasonable to adequately keep scam artists away from public investors." There is recourse for fraud, but it is best to do your homework and thoroughly investigate your investment.

Money Laundering

By opening up the potential pool of investors, crowdfunding creates the possibility that cartels, terrorist organizations and other criminal elements could launder money with this new financial tool. Zachary Robock writes:

“A similar system could be used to funnel money out of the country to fund terrorism. If fifty fake investors crowdfund a sham company that purports to do charitable work abroad, the investors could transfer funds to the company by purchasing (worthless) equity, and the company could transfer the money abroad under the guise of its business."

The Bank Secrecy Act requires all financial institutions to help stop money laundering by putting in place an Anti Money Laundering program. The idea is that financial institutions will have a better understanding of what seems like fraud than the regulatory body would because they’re much closer to the problem and have specialized experience.

The funding portal is required to do a few things to ensure all transactions are legal. The first is to collect information about an investor, issuer and key personnel of the company and 20% of the shareholders. The second is to report known or suspected illegal activity. Lastly, there must also be a system for complying with requests from authorities.


For the both the accredited and non-accredited investor, risk is a big downside. While it is a risk for both parties, non-accredited investors may not understand the differences between private equity investment and purchasing public stock. The SEC provides a document covering crowdfunding regulations here.

Failure Rate – Compared to public companies, the unproven nature of startups make them a very risky investment.

Liquidity – Investors are prohibited from selling their shares for 12 months. After that, they have to find interested buyers themselves. There is no public listing for private stocks, so they will have to make connections themselves.

Limited Disclosure – Mentioned above under: Prospectus and Disclosure

Guidance – Venture capital firms and other early-stage investors may invest in a business for its potential and then offer guidance for the Board of Directors or act as mentors to personnel. They lend their experience to improve the likelihood of success. This involvement is not present when one invests through crowdfunding because the type of equity offered and the total amount invested.

Vetting – Zachary Robock’s paper mentions that “The JOBS Act requires that funding portals take measures to reduce the risk of fraud, including obtaining a ‘background and securities enforcement regulatory history check’ on the issuer, its directors, officers, and 20% or more shareholders, as well as any other measures a funding portal deems appropriate." There is regulation that requires vetting, but there are other factors in vetting beyond fraud. Crowdfunding platforms want to ensure that investors make money and companies can interact with interested investors. Each platform has its own policies in place to ensure good investments are made. However, much of the vetting devolves upon investors. The limited disclosure, untested personnel, unproven business model, and other risks all contribute to the difficulty in vetting companies. Some platforms, such as 1000 Angels, take vetting very seriously and use it to market their platform. 1000 Angels claims, “less than 1% of applicants to the platform are selected as featured investment opportunities." There are also platforms that verify a minimum of information and connect investors with companies directly. Still, others help companies understand the right metrics and milestones for crafting an attractive campaign.


For better or worse, crowdfunding is now a part of the financial landscape. There are many good reasons why this regulation can have a positive effect on the economy. Any system has downsides and risks. Regulators spent a long time crafting rules so that there will not be as much unknown territory as there could have been. However, in the end, it will be up to investors, companies and crowdfunding portals to be vigilant against fraud and other risk factors.

For the latest research, news and info on benefit corporations, visit the Benefit Corporation Gateway from Institute for Business and Professional Ethics at DePaul University.

What Is the Useful Apps Club?

Posted on June 6th, 2016

Tech-enhanced Life is a benefit corporation created to improve the quality of life for aging members of society. Tech-enhanced Life created the Useful Apps Club to help the over 50 demographic get the most out of their smartphones and tablets by curating app collections and creating instructional materials.

There is a big gap in app usage between the generations. According to Marketing Charts, Nielsen reports indicate that Millennials spend the most time with apps.

Millennials (18-24) spend 47 hours per month and older Millennials (25-34) spend 46.3 hours per month. Gen X (34-54) spends 44.2. 50-64 spend about 33 hours per month. Those aged 65 and older spend under 25 hours per month.

The Snapchats and Periscopes of the world may get the attention and the press, but there are many useful and innovative apps out there for the aging demographic. It does not really matter if the older generation uses the hottest apps, it matters that they get the most out of their device.

If you don't feel you are really getting the full benefit of your smartphone or tablet right now, then the Useful Apps Club might be for you," explains Dr.Richard G. Caro, co-founder of Tech-enhanced Life. "We're also catering to people who don't have a mobile device but have toyed with the idea of acquiring one. Many would-be buyers worry that the learning curve of a smartphone is too steep to justify the cost.

The company offers a range of services and content to members. Here is how it works:

Members of the Useful Apps Club receive a monthly email containing an introduction to a new app or group of apps. The email will include links to video lectures, audio discussions and online lessons that explore the app's full capabilities and benefits. Interactivity is an important component of Tech-enhanced Life's approach to teaching people about the universe of mobile apps. After absorbing the instructional material, club members will have an opportunity to ask questions or add comments, then receive answers and feedback from Tech-enhanced Life analysts or their peers.

Like any organization, Tech-enhanced Life needs funding. Instead of going the non-profit route, the creators decided to become a benefit corporation because they “believe in the power of market-driven capitalism as a force for change, which is why we are a PBC rather than a conventional non-profit organization."

INTERVIEW: Michael Pirron, CEO of Impact Makers (Part 1)

Posted on May 27th, 2016

Welcome to the very first IBPE Session exploring benefit corporations. In these sessions, we’ll be talking with thought leaders and innovators in the benefit corporation movement.

Our guest, Michael Pirron, is the CEO and founder of Impact Makers a competitive social enterprise firm and one of today’s fastest growing companies. We’re going to be discussing the unique characteristics of his firm, specifically the firm’s decision to reincorporate as a benefit corporation, and then some of the cutting edge financial methods he’s adopted to ramp up this social enterprise.

Prof. Daryl Koehn, Ph.D is the Wicklander Chair of Business Ethics and creator of the Benefit Corporation Gateway, an online resource that creates and collects information about benefit corporations so entrepreneurs, academics and the public can gain a complete perspective on this new and growing business type.

Daryl Koehn: Can you tell us a little about your business?

Michael Pirron: Let me start by giving a 10-second explanation. We are the Newman’s Own of IT consulting. We’re a for-profit company, where all profits go to the charity over the life of the company. And in fact all of our common stock is held by two public charities. So if we’re ever sold, all proceeds of that sale go to charitable organizations in the communities where we do business.

DK: How did you get the idea to found a company like this?

I said we’re the Newman’s Own of IT consulting for a reason. I went to the University of Virginia, as an undergraduate to get a business degree, but also a minor in sociology. [Laughs] Which is an interesting combination.

I was fascinated when we were assigned a Harvard business case on Newman’s Own. I found that really interesting, a really interesting combination of sociology and business together. And after I graduated from UVA’s business school and went to work with Andersen Consulting, which is now Accenture, and that case really stuck with me.

And I was very interested in that whole concept and didn’t realize there was a term for it called social enterprise. I continued to think about it and at the same time had this really interesting international career with Andersen Consulting. I was based in southern France and I was sent on projects all over Europe, the Middle East, India, Africa and found myself in South Africa during Mandela’s election, and various other places.

I realized I liked the work, I was good at the work, but the clients I worked with weren’t really values-aligned. And I also looked at the partners that I was working for, wonderful people, but I just didn’t want to be them. The culture of the company at Accenture, as a great of a company as it is, it was really a culture of money and alcohol. [Laughs] And that just wasn’t where I wanted to be long-term.

Newman’s Own is a business to consumer B to C and it’s a product. What I know is services and B to B. But what if you can build a Newman’s Own on an IT consulting framework? Because that’s what I knew. When I went to Northwestern’s Kellogg School of Management to get my MBA I actually wrote a paper on that concept of creating a Newman’s Own-modeled consulting firm. That’s where it continued to resonate with me over the years after I wrote that paper.

DK: Let me just make sure that our listeners and our readers understand: you are a for-profit company. You do not run a not-for-profit company. You’re a competitive company, but you choose to give your profits to select nonprofit partners. Is that right?

PIRRON: Yes, that’s right. We are…So, [Laughs] we, absolutely, we’re a for-profit company governed by a volunteer board of directors. The company gives and our board of directors chooses charitable partners. They have to be secular, apolitical, 501(c)(3), local, and helping people help themselves. Within that framework. The board also sets executive compensation, talks, approves major capital expenditures, et cetera, and represents community interests, right? So that’s kind of what the board does. In every way we’re a for-profit company doing IT and management consulting with about 20% state government and 65% healthcare industry, and then other for-profit entities. We do work not unlike the Accentures, the Deloittes, the PWCs. We’re competing with them.

DK: What are your revenues today?

PIRRON: We ended 2015 at $17.8 million and we just had our first $2 million month in February.

DK: Oh, congratulations! That’s fabulous.

PIRRON: Yes. So, it was me and a laptop in 2006 when I started it, and we’ve grown organically every year and have been in Inc. 500 four years, Inc. 500/5000 four years in a row. We’ll probably make it a fifth year.

DK: What’s your annualized revenue growth? If you look back at that period, roughly what have you been growing per year?

PIRRON: Well, we’ve had wild growth and then kind of a make-up year, and then another wild growth year. But I think it depends on from what, you know…I would say on average, 30 to 40% a year growth. We have a 53% growth from 2014 to 2015. We are expecting to be around, anywhere between 22 and 24 million this year, in 2016.

DK: That’s really great. I think that gives us some sense of your company’s success. It’s been really pretty explosive. For a social enterprise to have that kind of success is amazing.

What you did you specify in your charter as the benefit you were going to maximize, and why did you decide to incorporate in Virginia?

Note: For those new to the concept, a benefit corporation is a brand-new legal form available in about 35 of the 50 states that allows firms to be for-profit, competitive enterprises but not to be legally responsible for maximizing profits. They need to be focused on maximizing some specific or general public benefit they state in their charter.

PIRRON: The law says that benefit corporations have to maximize profit and must also take into consideration community, employees, environment, et cetera, when making operational or liquidity event decisions. So there’s still the requirement to maximize profit, but maximizing profit isn't the only requirement. At least in the Virginia legislation you can choose between pursuing a general or a specific benefit. We chose a general benefit of maximizing community charitable impact in our charter. That’s how we focused on our impact. We chose to be a benefit corporation.

DK: Were you involved in the B Corp movement?
Actually it goes all the way back to our founding. We were founded in 2006. The certified B Corp movement started started in 2007. We were one of the founding B Corps, one of the 82 or 83 founding B Corps the very first year. We’ve been a B Corp since then. We've talked about being in the Inc 500/5000. By pure financial metrics we’ve been successful. By pure capitalist metrics we’ve been successful. I’m also very proud to say that for the last three years in a row we’ve been Best for the World. So we’re not just a certified B Corp but we’re among the highest ranking and most impactful B Corps. And that was over 1600. And we’ve been three years in a row Best for the World.

From the very beginning we’ve been certified as a B Corp and been a part of the B Corp movement. I’m actually, personally, a B Corp Champion, now it’s called an Ambassador, where we assist in regional expansion the B Corp movement. I personally put forward the benefit corporation legislation in Virginia working with my local delegate. It’s the first political thing I’ve ever really done. Virginia was the third state tied with Vermont to pass the benefit corporation legislation.

So, when legislation was passed, we decided to become a benefit corporation. We had been incorporated originally. That was when we first started, and we’ve come a long way since then. We were originally founded as a non-stock entity with no owners, with the idea that if we’re ever sold, the proceeds would go to charitable organizations, but we didn’t really solidify what that looked like. And so we went through a whole reorganization, you know, to eat our own dog food, and put forward the benefit corporation law. We decided to become a benefit corporation and then solidify what our community impact looks like in our legacy.

DK: What are your thoughts on the future of the B Corp and benefit corporation movement?

PIRRON: Is it the future? I don’t know. I think it certainly is a good part of the future, and I think we’ll see more and more of this going mainstream. Do we have a Trifecta happening? We have conscientious consumers who are buying sustainable brands and more and more voting with their dollars when they products and services. You have especially millennials coming out of universities and MBA programs, more and more joining the impact or other sustainable business groups and wanting to do well and do good at the same time. So, the labor market’s demanding it. The consumer market’s demanding sustainability. And now you have the rise of impact investing, where investors are saying, “If you want my capital, you have to be a good company." And, not just be not a bad company, like SRI, but impact investing, where you need to show me how you’re a good company. And I think that it’s a really perfect storm that’s brewing. Whether it’s infecting corporate America through CSR requirements or whether there’ll be a rise in companies moving to becoming benefit corporations and B Corporations, I think the verdict’s out. But it is certainly a part of the future.

DK: Yes, that’s what we think too. That’s why we have this investment that my institute has made, having a benefit corporation gateway, we really want to be a fair broker: the good, the bad, and the ugly about the benefit corporation movement. So, you know, we’re supportive. We’re cautiously optimistic, but we think that the movement really has to innovate and it needs to be held accountable in its innovations, and that requires having a lot of information out there.

PIRRON: Can I make one other statement about Impact Makers?

DK: Oh, yes. Sure! Please.

PIRRON: I’m really proud of what we’ve done in cash and pro bono to date. From our inception to date, we’ve done just shy of $1.4 million in cumulative impact. And if you add that to our valuation, that will be a minimum of, let’s say $17 million. We’re already at $18-19 million if you add that up together of both realized and unrealized community impact. With a goal of by 2024 making over $100 million cumulative impact.

EVENT – CEO Apologies: The Good, the Bad, and the Ugly

Posted on May 18th, 2016

What Does the Market Think of CEO Apologies?
Over the last two decades, we have seen an explosion of CEO apologies. In the past few years, leaders at Volkswagen, Apple, Chipotle, GM, and many others have all issued apologies. The press and public routinely evaluate these apologies, dismissing some mea culpas as shams or even as offensive. What, though, qualifies as an ethically sound apology? Does the stock market care whether an apology is ethically sound?

Join Prof. Daryl Koehn, Ph.D at the Union League Club of Chicago for a talk about what makes a truly effective CEO apology.

Event Details

Thursday, May 26, 2016 / 7:30 - 9:30 a.m.
Union League Club of Chicago (5th Floor, Crystal Room)
65 W. Jackson Blvd.
Chicago, IL 60604

7:30 a.m. – Registration and Coffee Service
8:00 a.m. – Breakfast Service
8:30 - 9:30 a.m. – Program

$25 per person (plus processing fee)
“Business Casual" dress code – i.e., no denim.

Non-Club members should register via EventBrite at:

For more information on the May 26 forum, please contact the ULCC Public Affairs office at (312) 435-5946.

Presented by The Union League Club of Chicago Public Affairs Committee and The Institute of Business and Professional Ethics at DePaul University

For the latest research, news and info on benefit corporations, visit the Benefit Corporation Gateway from Institute for Business and Professional Ethics at DePaul University.

A Pharmaceutical Benefit Corporation – MDMA, Marijuana and PTSD

Posted on April 26th, 2016

The DEA recently approved the first-ever study exploring the effects of marijuana on veterans suffering with PTSD. The organization conducting the study, Multidisciplinary Association for Psychedelic Studies (MAPS), is a 501(c)(3) that created a wholly owned subsidiary benefit corporation in December 2014. MAPS press release states:

The DEA’s approval marks the first time a clinical trial intended to develop smoked botanical marijuana into a legal prescription drug has received full approval from U.S. regulatory agencies, including the DEA and the Food and Drug Administration (FDA).

The randomized, blinded, placebo-controlled study will test the safety and efficacy of botanical marijuana in 76 U.S. military veterans with treatment-resistant PTSD. The study is funded by a $2.156 million grant from the Colorado Department of Public Health and Environment (CDPHE) to the California-based non-profit Multidisciplinary Association for Psychedelic Studies (MAPS), which is sponsoring the research.

This is a big step forward for MAPS and PTSD treatment. Currently PTSD is a qualifying condition for medical marijuana treatment in 5 of 23 states that have legalized the practice. Studies like this one provide researchers with an opportunity to determine if this treatment option is effective or not. While this study received a valuable grant, the organization still has a lot of costs. The organization is currently taking MDMA through Federal Drug Administration (FDA) and European Medicines Agency (EMA) testing. Funding research and future projects was one of the reasons MAPS created the MAPS Public Benefit Corporation.

The organization says the “special purpose of MPBC is to serve as a vehicle for conducting MAPS' research, and to balance social benefits with income from the legal prescription sale of MDMA, other psychedelics, and marijuana." Under this arrangement, MPBC will guide prescription psychedelics through FDA clinical trials and handle the prescription business while MAPS will continue to run education programs, outreach and provide a clear mission for MPBC.

Since MAPS is a 501(c)(3), it can’t sell prescription medication itself because the sale of pharmaceuticals is not an exempt activity for a non-profit. This is so the non-profit can retain its tax-exempt status. According to MAPS, “If an organization primarily operates legitimate exempt activities, it may also operate a substantial unrelated business in furtherance of its exempt purposes without losing its exempt status, as long as its primary purpose and activity continues to be exempt." Normally that would be a traditional for-profit company, but now that a benefit corporation is available, MAPS can create a for-profit company that is mission focused. That’s because a benefit corporation is a for-profit company with a legal obligation to create public good. In fact in creating their benefit corporation, “MAPS has defined MPBC’s social objectives to be identical with those of MAPS. In the event that the MPBC makes a profit sometime in the future, all monies will be legally constrained to be used for purposes consistent with MAPS’ mission." The organization also cites long term protection of the social-benefit and increased transparency as reasons for choosing the benefit corporation model.

Research like this is expensive and for a non-profit, this means a lot of donations and grant writing. MAPS estimates that there is $18 million in research remaining before they can bring their prescriptions through Phase 2 and Phase 3 clinical trials. Being able to fund itself is vital to ensure long term success. In an industry that often finds itself in the difficult position of having to balance the need for profit with the need to provide proper care benefit corporations seem like a good fit. The success of MAPS and its mission are one step closer to being sustainable.

For the latest research, news and info on benefit corporations, visit the Benefit Corporation Gateway from Institute for Business and Professional Ethics at DePaul University.

Are there Advantages for Benefit Corporations?

Posted on April 11th, 2016

After speaking on our benefit corporation panel, we wanted to ask Jill Pollack a little more about her experience with benefit corporations. Jill is the founder and director of StoryStudio Chicago—a writing training center for creative writers and business professionals. In addition to teaching, writing, and forcing people to admit that they can’t live without great stories, Jill oversees writing training for more than 1,200 students each year. She is a frequent speaker on the power of stories in our personal and professional lives and was once again included in the Newcity Lit Top 50 list of literary leaders in Chicago. StoryStudio Chicago is an Illinois Benefit Corporation and B Corp. We asked Jill if there were any advantages to being a B Corp or Benefit Corporation.

The advantages to being a B Corp or a Benefit Corporation vary for each company. Some businesses stake their reputations and their marketing efforts on these certifications as evidence of a clear social mission.

I haven’t heard from many B Corps that they are hired by clients because they are a B Corp. But the millennial employees are very attracted to working for a company with a clear social mission, and the certification to back that up.

At StoryStudio Chicago, we prefer to use our B Corp status to educate clients and colleagues on how our commitment to a triple bottom line--people, planet, and profit—guides us. Legally, our Benefit Corporation status requires us to consider all stakeholders in the company when defining “profit." And as a B Corp, the assessment we have to pass every other year teaches us how to improve many aspects of operations, from sourcing to pay scales to company culture.

The best and most important benefit is definitely being part of a growing, international community that truly believes in using Business as a Force for Good. Here in Chicago we have a close-knit B Corp community. These are the folks I rely on for ideas, support, partnering opportunities, and friendship. Even more, we work as a team by investing our time and expertise into programs to improve our city and to reach business owners throughout Chicagoland.

Follow Jill Pollack on Twitter: @jill_pollack

For the latest research, news and info on benefit corporations, visit the Benefit Corporation Gateway from Institute for Business and Professional Ethics at DePaul University.

Health Care and Benefit Corporations

Posted on March 17th, 2016

Earlier this month Westchester Medical Center Health Network announced a $230 million dollar expansion to their facilities in New York state. To help secure low-cost financing for the project, the Westchester County Local Development Corporation had to revise its by-laws to allow a benefit corporation to be eligible for funding. Previously, funding was only available to non-profits. WMCHealth will expand care, create jobs and improve infrastructure. Benefit corporations are changing how communities seek to improve the lives of its residents, and health care seems like the perfect industry for benefit corporations to make an impact. Illinois’s statute specifically lists “improving human health" as a qualifying public benefit.

Christine C. Franklin, a lawyer based in Chicago, writes “The benefit corporation structure is a ‘natural’ for a hospital providing community health care. In fact, authorizing statutes typically include a public benefit purpose of this nature. Illinois’ statute, for example, speaks in terms of ‘improving public health.’" At the time, a hospital sponsored by a religious organization was up for sale and it was a pre-condition to continue the hospital’s community service. This made a benefit corporation ideal. The hospital was not doing well financially and wanted a like minded entity to take over. A traditional corporation could abandon any mission driven activities on a whim, but a benefit corporation could allocate resources directly to the mission, while keeping an eye on profit. Another reason this alternative structure works is that there is profit to be had. Someone can invest in this hospital and make money. Benefit corporations can improve the health care system without dismantling the public service commitments present in so many local organizations.

Benefit corporations are also moving into the education side of the system. The Idaho College of Osteopathic Medicine will break ground in 2017 and is a benefit corporation. Supporters of the school, including Dr. Robert Hasty, founding dean and chief academic officer, say that they expect 50% of students will stay and practice in Idaho, hoping to help alleviate the physician crisis in the state. While this idea is not yet proven, it presents a worthwhile opportunity to experiment. Private investors are investing millions into the project and the public will hopefully reap the benefits of better access to medical care. “[Hasty] noted that after four years of medical school followed by three to seven years of residency, the first doctors won’t emerge from the new program until 2025. ‘This is not an overnight solution for the physician crisis right now in Idaho,’ he said." It will take some time to become a solution, and hopefully, it will.

There are several advantages that benefit corporations have in the medical arena. They provide a public good organically, so the ability to make profit and focus on a specified mission can open up access to financing and investors. It’s much easier to raise $200 million for a business investment than for a charity. As we saw in the Chicago case, the seller preferred an entity that could continue their community service. While there may be plenty of people who would like to continue the mission, a benefit corporation can protect it in a legal sense. Benefit corporations can also bring investments and opportunity to underserved areas and places that otherwise would not get them. It might be risky for a group to build an expensive school in Idaho, but with the possibility for future profit, private investors thought they could risk footing the bill. This is still all new, so there are many untapped possibilities and unforeseen problems. In any case, health care is primed for benefit corporations.

For the latest research, news and info on benefit corporations, visit the Benefit Corporation Gateway from Institute for Business and Professional Ethics at DePaul University.