As we built TerraCurrent, we considered forming an LLC and getting certified as a benefit corp. Mostly, we wanted an organizational structure that would reflect our values and hold us accountable to the triple bottom line: people, planet, and profit.
We knew our earliest decisions would have long-lasting influence on company culture. We also understood that nearly all companies measure financial performance, but not enough monitor social and environmental impacts.
Our vision was clear. The organization would promote collaborative decision making among leaders. Through the organization, we would pursue fulfilling work that makes the world a better place and create an environment to nurture growth, health, and happiness. The question was, what type of business entity would best orient us toward these goals?
Changing the culture takes a lot of work. The Black Lives Matter movement has brought racial justice to our collective conscience, and now we’re all looking at the culture and asking an important question: Are we doing enough to open the door for black women and men who have been denied opportunities for too long? We don’t have the answers yet. For us, now is a time to listen and learn. But we firmly believe that changing company culture means looking back at the company DNA.
See how we found an innovative structure for TerraCurrent that matches our principles. If you’re thinking about restructuring a business, or launching a new one, the experience might help unify the interests of your company and the public.
Why we chose an LLC
Businesses can choose from many different types of ownership. Many small businesses operate as a sole proprietorship where the company is wholly owned by one person, but the individual can be personally liable for claims against the business.
An LLC can have multiple owners. It also reduces risk by limiting the liability of its owners, as indicated by the name.
A corporation can have multiple owners, too. But setting up and running a corporation can be complex because of corporate governance and taxation. People who form a corporation generally seek to raise capital from shareholders, whether they do so as a C corporation, an S corporation, or a newer entity called a benefit corporation.
For TerraCurrent, an LLC is the most appropriate form of ownership because we have multiple owners and raising capital is not part of our initial business plan. But the benefit corp is more aligned with our values, because it specifies that the purpose of the company is not only to make money but to create a general public benefit.
As social entrepreneurs, we set out to pair the flexibility of the LLC with the ideals of the benefit corp.
Blending LLC and benefit corp
Fortunately, we found two attorneys at Wendel Rosen, William Acevedo and Donald Simon, who not only lead the firm’s green business practice group, serving companies committed to sustainability, like ours. They also helped draft the California legislation that established benefit corporations and led to its adoption in 2012.
In writing TerraCurrent’s operating agreement, Wendel Rosen assigned our company managers with a fiduciary duty, as any company manager would have. But they also said company managers should consider the effect of our actions on our workforce; our customers, vendors and suppliers; the community in which our offices are located; and the local and global environment, among other things. Within the context of a potential change of ownership, we also have a duty to consider the resources, intent, and conduct of anyone seeking to acquire control of the company.
In addition, we’ve been charged with preparing an annual benefit report to report on TerraCurrent’s social and environmental performance. We will post the report within four months of the close of each fiscal year.
There are several standards we can use to quantify our enviro-social performance. One we will carefully consider is the B Impact Assessment that’s available for free from B Lab, the nonprofit that administers the B Corp certification program. Any company can download B Lab’s rating system and use it to see what your score would be if you went for certification.
Restructuring a business?
If you’re planning to restructure business, or start a new one, find out how to align your values with the type of organization you create. Look for legal counsel who can help you realize your vision for the company. And contact us to learn more about how we blended the public interest into TerraCurrent’s DNA.