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June 13, 2016

Advocates aim to broaden benefit corporation law

HBJ PHOTO | John Stearns Megan Eza (sitting top) and Melinda Testori (sitting bottom) started BNE Publishing Inc. in Coventry, one of the state's 67 benefit corporations. The company promotes local artists.
PHOTO | Contributed FRESH Farm Aquaponics is a benefit corp. that raises fish and plants (shown above) in a sustainable ecosystem.
James Woulfe, director of advocacy and external affairs, reSET
David Menard, lawyer and partner, Murtha Cullina

A little more than 18 months after Connecticut's benefit corporation law took effect, the state has 67 companies dedicated to both making a profit and providing a public benefit, or social good, according to state data.

That's a positive start, the law's advocates say, but there's also room for growth and efforts are underway to broaden the types of companies that could apply for a benefit status.

“We're right on track with where I think we should be,” said James Woulfe, director of advocacy and external affairs at Hartford-based reSET, the Social Enterprise Trust, which works to advance the social-enterprise sector and helped get the benefit corporation legislation passed. “To see us competing with Oregon (which is considered the hub of benefit corps), I think, is a great sign that Connecticut is on its way to becoming a hub of social entrepreneurship.”

Oregon, with a population 12 percent greater than Connecticut's, implemented its benefit corporation law Jan. 1, 2014, and it had 63 benefit corporations after 17 months versus 61 for Connecticut, according to a report done for reSET by Matthew C. McGrath and Chadia Parnell of Central Connecticut State University's business school.

Oregon, though, also allowed benefit LLCs at the same time, and the state had 340 of them at 17 months, the research showed. Woulfe said Portland, Ore., has established itself as a progressive hub of social consciousness and environmentalism.

Change already sought

Connecticut does not allow benefit LLCs, but Woulfe wants to change that next legislative session, which he thinks could provide a major boost to the state's efforts to grow such companies. Draft legislation is already written and Secretary of the State Denise Merrill has expressed support for the concept.

Benefit LCCs provide the tax and ease-of-use benefit of the LLC and the marketing, accountability and transparency benefits of the benefit corporation, Woulfe said.

Maryland is the only other state allowing benefit LLCs, according to the research by McGrath and Parnell.

To sweeten Connecticut's attraction as a hub for such companies, reSET would also like to see benefit corporations and benefit LLCs qualify for the angel investor tax credit to incentivize the flow of capital to them, Woulfe said.

“Hopefully that would drive more capital to these types of businesses, but also make the young people that are graduating from our colleges and universities think twice about going to Massachusetts or New York to start their mission-driven business and stay here in Connecticut,” he said.

More colleges and universities are starting to talk about social entrepreneurship, so entrepreneurs are learning about this concept and using it more, he said.

If Connecticut were to have benefit corporations and LLCs that enable people to include social entrepreneurship as part of their mission and provide an incentive to invest in such businesses, it would have all the ingredients for a thriving sector, he said.

LLCs gain in popularity

Benefit corporations are for-profit businesses and subject to the same tax treatment and organizational structure as other for-profit companies, but their business purpose includes making a profit and pursuing some benefit to society.

Corporations, however, are not formed nearly as much anymore as LLCs, which are a much more flexible form of business corporation.

Murtha Cullina lawyer and partner David Menard, who practices business law and regularly assists benefit corporations, said that roughly 80 percent of companies formed today are LLCs.

Allowing benefit LLCs is key to growing the sector, he said. Providing a tax credit also would be a “huge” difference-maker for Connecticut, he added, noting the benefit corporation law has proved its worth.

Referring to some who might have questioned the need for benefit corporations, whether they do something that regular corporations can't already do, “I think the answer is yes,” Menard said.

“Part of it's almost a generational and philosophical divide, like, 'What's the purpose of a company? How does it interact with our society? Is it there just to make money, or is it there to do something more?' ” Menard said. “And I think especially … the Millennial generation, there is a desire to have a company not just be about making money, but about making a statement, saying something about who they are.”

Promoting art

Megan Eza said the benefits corporation law opened the door to launching a company she first envisioned a decade ago.

She incorporated as Brandon Nicholas Eza Publishing Inc., named after her late brother, in January, but the company operates under the trade name BNE Publishing Inc. in Coventry.

The company, still in its formative stages, plans to publish monthly digital and print newsletters that promote the work of 20 artists and their different art forms. Sales of the art, which BNE plans to replicate on various mediums, would benefit the artist, with a profit, too, for BNE that it plans to split with groups that could include area arts clubs or arts societies. Artists also would receive a commission on program sales and the programs would include advertising complementary to the artwork.

Eza said BNE would give away half its profits.

“We'd like to give to more than just one place” to achieve broad impact, Eza said.

Expanded exposure

The idea is to give artists exposure and get their work in public hands, which benefits artists, helps local groups and still makes the company a profit, Eza said. To make the art more available to the public, BNE, with artists' permission, would replicate a painting, for example, not just on paper, but on items like mugs or T-shirts.

Eza hopes to have the first art program published in about three months, pending the completion of a Kickstarter campaign to help cover initial costs.

The company bought the former Pond Hill Schoolhouse, built in 1748, on Main Street in Coventry, which it plans to renovate and use to display and sell artists' work, and stage events. The parcel also includes two buildings for artist's studios.

Marketing advantage

FRESH Farm Aquaponics Inc. of South Glastonbury incorporated as an LLC in 2012, then converted to a benefit corporation when the new law took effect in Oct. 2014, as did several other companies. The state's legacy preservation provision in the law was a key factor in the conversion, said Kieran Foran, co-founder and president.

The provision basically says if a company is sold, “the new management structure still has to maintain those core values that we set from the beginning of having a positive social, environmental and economic impact,” Foran said.

Being a benefit corporation has marketing benefits, too, he said. When people ask what it means to be a benefit corporation, “we go into how we're making sure our business isn't just solely profit-driven, but that it's also taking into account how it affects communities and how it affects the environment as well,” he said.

The company raises fish and plants together in a sustainable ecosystem. Its website says the company is part of a “rising tide of entrepreneurs using aquaponics and other food 4.0 smart agriculture technologies to create a world that feeds itself sustainably.”

FRESH Farm Aquaponics provides workshops and lessons for schools, a couple of which use the aquaponics systems, as a way to teach STEM subjects in the classroom, Foran said.

“Aquaponics lends itself very well to doing that because it's growing fish and plants together, so it has science aspects, a little bit of the engineering aspects, some math involved as well,” he said.

The company also works with the ARC of Meriden-Wallingford, which provides community-based opportunities for people with disabilities. ARC has a FRESH Farm Aquaponics system it uses to help teach its clients job training and life skills, Foran said.

The benefit corporation status can go a long way for companies showcasing the benefit they have on the community, he said.

“But if you just sign up as a benefit corp. and then be quiet, then there's really no benefit to being that,” he said. “It's all about what you make of it. I think it's a fantastic opportunity for business owners in Connecticut. I'm personally excited to see how this grows and how benefit corporations become a more entrenched part and a more normal way of doing business.”

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