' The Broader Benefit of Benefit Corporations | MTTLR

The Broader Benefit of Benefit Corporations

Ello, an ad-free social network, recently closed another round of venture funding, raising $5.5M. Exciting right? Another social media start-up getting some Series A funding. While $5.5M is surely nothing to sneeze at, perhaps the more interesting feature of this next stage of Ello’s life is that it’s registered itself as a public benefit corporation, enshrining in its corporate charter as a “public benefit” that it will never show ads or sell user data.

To date, 27 states have enacted legislation recognizing “Benefit corporations,” entities that give directors legal protection to pursue social and environmental goals over maximizing investor returns. According to benefitcorp.net, a defining characteristic of benefit corporations is that “they are required to create a material positive impact on society and the environment.”

One of the largest early adopters of the benefit corporation form was outdoor clothing and gear company Patagonia. In doing so, Patagonia sought a structure that would prevent shareholders from suing it in the pursuit of costly environment initiatives, such as donations to environmental organizations and support of renewable energy sources, that allowed it to serve the welfare of the global community. Warby Parker, with its initiatives ranging from staying carbon neutral, to providing lost cost eyewear to those in need, and even sponsoring a local Little League team, similarly sought the insulation of its directors through the benefit corporation structure. In both examples, the benefit corporation produces a direct, measurable and concrete positive impact on their communities and the environment.

Ello’s election to benefit corporation status brings with it a tweak to what we’ve seen so far. Even though Ello has registered as a public benefit corporation, their mission is in many ways fundamentally different from more well-known predecessors. Whereas Patagonia and Warby Parker have employed the benefit corporation as a way to protect their support of immediate and material benefits to the public good outside of the scope of their direct relationship with their consumers, Ello seems to have stretched the breadth of the defining characteristic of benefit corporations to protect what it believes to be the intrinsic value of its product. Is protecting users from ads a public benefit in kind with what we’ve seen from Patagonia and Warby Parker? In allowing Ello to register as a benefit corporation, Delaware state law seems not to see a distinction.

Whatever the limits of the definition of public benefits, one thing Ello has shown about benefit corporations is how useful they can be in insulating directors from investor interference. Whether or not Ello’s mission can truly be said to be in pursuit of the public good, they have succeeded in securing the pursuit of their vision. In effect then, perhaps it makes more sense to refer to Ello as a “mission” corporation, protecting the discretionary judgment of it leadership beyond its fiduciary duties to investors, than a benefit corporation. To all of the entrepreneurs of the world, be aware of this broader benefit.

Submit a Comment

Your email address will not be published. Required fields are marked *