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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 Christopher is the founder of Rockridge Venture Law®, and co-founder of ResoluteTherapeutics, a CARB-X funded antibiotic innovator, and Calliope Bio, a Yale launched synthetic biology startup and recent participant in the Nucleate Activator and Berkeley Skydeck accelerators. Kevin is a 2050 Fellow at the Center for Business and Environment (CBEY) under Vincent Stanley, a global leader in sustainability and Director of Philosophy at Patagonia. Kevin has led Rockridge® to become a B Corp Best For The World and Real Leaders Top 150 global impact company has been recognized as a SuperLawyer and Conscious Company Magazine’s Top Business Leader.

Kevin ChristopherKevin’s corporate and IP practice focuses on the crossover of innovation + impact in venture ecosystems. He is a registered patent attorney and published poet, uniquely combining creativity and technological acumen in registration of intellectual property, business transactions, and litigation. Kevin’s practice areas including: 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.

As an entrepreneur, Kevin has founded companies in biotech, renewables, and consumer product industries, all active and growing. Kevin is a leader within the B Corp community, having founded Tennessee’s local B Corp network B Tennessee and serving as pro bono counsel to B Academics. Kevin mentors entrepreneurs as program advisor with Bethesda Green Hub, First Flight Venture Center, Nashville Entrepreneur Center, University of California Venture Catalyst, and Yale Tsai CITY. With a background in public-private partnerships, Kevin is also a National Institutes of Health (NIH) RadX faculty member, and National Science Foundation (NSF) Center for Bioplastics and Biocomposites program evaluator.

To discuss Tennessee Benefit Corporations with Kevin Christopher, schedule an appointment through Calendly or email him directly at kevin@rockridgelaw.com.

 

Kevin Christopher

Author Kevin Christopher

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