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The Rockridge® Guide to Tennessee Benefit Corporations
Wanting to know more about Tennessee Benefit Corporations?
…because you want to become a B Corporation certified by B Lab?
…because you want to lock in your profitable purpose as you grow?
…because you want to brand and capture public goodwill as a benefit company?
…because you want to attract top-notch talent as you scale?
…because you want to grow a relevant, scalable, and sustainable enterprise?
Then this guide’s for you!
Fundamentals of Tennessee Benefit Corporations
B Corps aren’t Benefit Corporations (necessarily) – Certified B Corps are companies audited by the nonprofit B Lab and validated to be good corporate citizens with triple bottom line business models. They get to brand themselves with the B Corp logo, similar to the way buildings can certify as LEED and chocolatiers as Fair Trade. As part of the B Corp certification process, B Lab requires companies that are legally structured as corporations to convert to Public Benefit Corporations. However, LLC’s and even sole proprietors can become Certified B Corps. If you are a sole proprietor or LLC, you don’t necessarily have to convert to a Benefit Corporation to become a B Corp. Also, you can realize the many advantages of a Tennessee Benefit Corporation legal structure even if you never intend to certify with B Lab as a B Corp business. Read more about how B Corps and Benefit Corporations are related here.
Big Orange not Big Apple – Tennessee Benefit Corporations are governed by Tennessee law – not Delaware, not New York, not France – this is as Tennessee as Dolly and Jack. When registering and operating as a Tennessee Benefit Corporation, you need to make sure you are following the Tennessee statute and ongoing legal standards when it comes to transparency, shareholder rights, and other key operational aspects. If you are not following the rules, e.g. how and when to publish your required impact reports, then you can lose the protections of the Benefit Corporation framework, and potentially be subject to shareholder disputes. Fortunately, the Christopher & Panasci ESG team at Rockridge can help you understand best operational practices and what the Tennessee Benefit Corporation means for your investors, executives, and customers.
Peaches and Peaches to the IRS – Your Tennessee Benefit Corporation is treated like a typical corporation for tax purposes. There are no magic tax breaks here, but your accountant can guide you on what impact expenses may be deductible to a Benefit Corporation that otherwise aren’t connected to the purpose of a standard corporation.
You Look Hot in those Boots – Tennessee Benefit Corporations must be transparent in periodically highlighting what they are doing to further the communities and/or public benefits they serve as expressed in their charters, bylaws, and other governing docs. You can’t just talk it, you’ve got to actually walk it. Tennessee Benefit Corporations must clearly state the stakeholders they are benefitting beyond their general corporate purpose to make profit. The public has to know what you’re all about and what you’re working with.
Statutory Sections that Matter
Tennessee Code § 48-28-101 – 48-28-109
A selection of requirements that prospective Benefit Corporations should consider:
Notice. A Tennessee Benefit Corporation must state in its articles of incorporation its status as a benefit corporation. In Tennessee, public benefit means a positive effect, or reduction of negative effects, on one or more categories of persons, entities, communities or interests, other than shareholders in their capacity as shareholders, including effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, social, or technological nature.
Nomenclature. Most states refer to their Benefit Corporations as “Public Benefit Corporations,” whereas Tennessee goes with the more politically tolerable in southern circles “For-Profit Benefit Corporation.” Don’t let the phrasing distract you, it’s the same thing.
Conversion. A Tennessee corporation cannot convert to a Benefit Corporation without two-thirds approval of its shareholders. Dissenting shareholders may demand payment and liquidity of their shares upon conversion. Termination of Benefit Corporation status by vote or merger requires two-thirds shareholder approval.
Operations. Directors of a Tennessee Benefit Corporation must consider not only the pecuniary interests of shareholders in decision making but also the public benefit(s) identified in its charter.
Transparency. A Tennessee Benefit must issue an annual report to shareholders narrating what it has done in furtherance of its stated public benefit. A Tennessee Benefit Corporation need not, but may utilize a third-party independent auditor to review its public benefit pursuit.
Rockridge® Practical Observations
Shot of Jack, 14 ice cubes please. Tennessee’s statute is a watered-down version of the Model Benefit Corporation Legislation (MBCL) that’s been adopted in other states. Tennessee’s statute is even less stringent than Georgia’s recently adopted law. From the “for-profit” designation, to the broad categories of beneficiaries, to the voluntary auditing, to the forgivability of directors for not complying with the statute, it is clear that Tennessee’s law is designed to not to address shareholder primacy or encourage triple-bottom line business, but to encourage socially engaged corporate behaviors. While this is laudable, it is not necessarily the same thing as endorsing stakeholder inclusion.
Top 1% is good, sort of. The MBCL includes a comprehensive definition of the third-party standard that a Benefit Corporation should use in evaluation its annual efforts in furtherance of its general and specific public benefits. This definition accounts for credibility, robustness, and transparency. Tennessee has no statutory requirement for auditors, and the transparency requirement is not monitored. When Rockridge® analyzed the list of Tennessee Benefit Corporations back in 2020 for satisfaction of the publication requirement, we found around 1% compliance. Consequently, we’re concerned that many Tennessee Benefit Corporations are not operating in ways that would overcome the Tennessee corporate common law and buy them protection if actually challenged in derivative proceedings.
Tennessee Benefit Corporation Resources
An Entrepreneur’s Guide to Going “B” by Center for Business and Environment at Yale
An Investor’s Guide to B Corps by Center for Business and Environment at Yale
Better Business by Chris Marquis
Benefit Corporation Law and Governance by Fredrick Alexander
How are B Corps and Public Benefit Corporations Related? by Rockridge Venture Law
Rockridge® Guide to Southeastern Benefit Corporation Statutes by Rockridge Venture Law
The Delaware Public Benefit LLC: Use it to Become a “Benefit Company” in Your State by Rockridge Venture Law
The Legal Requirement for Certified B Corporations by B Lab
Urban Green Lab runs the B Tennessee network of B Corps and Benefit Corporations in Tennessee
About Kevin Christopher
Kevin is the founder and principal of Rockridge®, a 4x B Corp Best For The World and Real Leaders Top 150 global impact company. He is annually recognized as a SuperLawyer, and has received numerous professional awards ranging from Conscious Company Magazine’s Top Business Leader to the Federal Lab Consortium’s technology license Deal of the Year. He has been profiled in B the Change, Forbes, the Los Angeles Times, Sustainable Brands, and many other media outlets highlighting sustainability and technology leaders. He is widely recognized for his thought leadership and initiatives at the nexus of impact and innovation.
Impact + Innovation Credentials
An entrepreneur-attorney, Kevin’s recently founded Quantiscope, a BARDA DRIVe accelerator launched AI company advancing ML enterprise models for drug discovery, as well as climate tech Calliope Bio, a computational synthetic biology company launched from the Nucleate Activator and advanced through the Berkeley Skydeck accelerator. Kevin’s entrepreneurship career began with Resolute Therapeutics, a CARB-X awardee developing a novel class of broad spectrum antibiotics.
As an ESG leader, Kevin is a 2050 Fellow at the Yale Center for Business and Environment (CBEY), and select member of the World Economic Forum’s Crypto Sustainability Coalition. Kevin founded Tennessee’s local B Corp network B Tennessee and served as sponsoring counsel to B Academics.
With a background in public-private partnerships, Kevin is a National Institutes of Health (NIH) RadX faculty member, and National Science Foundation (NSF) program evaluator for the Center for Bioplastics and Biocomposites (CB2) as well as the Carnegie Mellon Center for Quantum Computing and Information Technologies (Q-CIT).
. Kevin’s practice areas include:
- patent and trademark prosecution, licensing and litigation;
- corporate law, with an emphasis on benefit corporations, socially responsible businesses and high-growth emergent companies;
- government contracts, with an emphasis on innovation funding;
- corporate and investor financing; and,
- technology commercialization.
To meet with Kevin Christopher, schedule an appointment through Calendly or email him directly at firstname.lastname@example.org.