Business Law Breakdown: Public Benefit Corporations in Texas

How Can a For-Profit Business Take on a Social Cause as Part of a Business Goal?

Non-profits are fantastic organizations, but just because a business owner or entrepreneur chooses social good as part of their business plan, it does not mean they are forced to go the non-profit route. At least not anymore in Texas.

As Managing Partner at Richards, Rodriguez & Skeith, as well as being a business lawyer, Paul Skeith helps clients with their corporate needs, raising money, reorganizing themselves and helping them when they are ready to sell their company. Once in a while clients come in who have real interest in creating a company that works for social causes, environmental issues and generally for the public good, but when they’ve looked at non-profit corporations, they think it’s too limiting for what they are trying to do.

What they really want to do is have a for-profit business that works for these social causes, as well as a business that makes money. In the past that has been more difficult to draft into the corporate documents of the company, because we really didn’t have a good vehicle in Texas for accomplishing that. In the spring of 2017, the Texas Legislature passed a bit of legislation that allows corporations to become a public benefit corporation. What public benefit corporations allow a business owner to do is to have a for-profit company, but to build into the corporate documents certain public benefits they would like the company to achieve, such as an environmental goal, poverty alleviation or education.

What this really means is that the board of directors is required by law to take those aims into account along with the financial benefit to the owners. Once the public benefits are in the corporate documents, it also means a future owner of the company would likely be bound by those same requirements to work toward a public benefit. The directors of the corporation are required to create a statement explaining to all of its shareholders what benefits have been created by their work and they have to do that at least every two years. This is important for entrepreneurs because they want to have a certain security that new owners will continue to operate this socially conscious business in the same way that they’ve been operating it.

If you have questions on this subject and would like to learn more, you can contact Richards Rodriguez & Skeith here.